ANNUAL REPORT & ACCOUNTS 2020/21 Telephone 0870 143 3332 Email investors@brickabilitygroupplc.com Website www.brickabilitygroupplc.com 2 Annual Report & Accounts for the year ended 31 March 2021 Contents Strategic Report Brickability at a Glance Chairman’s Statement Chief Executive’s Review Business Model The Complete Solution Group Strategy and Delivery Key Performance Indicators Risk Management Principal Risks and Uncertainties Section 172(1) Statement Chief Financial Officer’s Review Going Concern and Outlook Corporate and Social Responsibility Corporate Governance Board of Directors Group Management Board Corporate Governance Statement Report of the Nomination Committee Report of the Audit Committee Report of the Remuneration Committee Report of the Directors Statement of Directors’ Responsibilities Independent Auditor’s Report Annual Report & Accounts for the year ended 31 March 2021 Financial Statements Consolidated Statement of Profit of Loss and Other Comprehensive Income Consolidated Balance Sheet Company Balance Sheet Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Company Information and Financial Calendar Page 44 66 88 1010 1212 1414 1616 1818 2020 2222 2424 2626 2828 3030 3232 3434 3636 3737 3939 4646 5050 5151 6060 6161 6262 6363 6464 6565 6666 114114 I N T R O D U C T I O N 3 INTRODUCTION Brickability at a Glance… Brickability at a Glance… £181.1m (2020: £187.1m) £181.1m (2020: £187.1m) Revenue Revenue £17.5m (2020: £19.5m) £17.5m (2020: £19.5m) Adjusted EBITDA* Adjusted EBITDA* £38.0m (2020: £37.7m) £38.0m (2020: £37.7m) Gross Profit Gross Profit Gross Profit % 21.0% (2020: 20.1%) Gross Profit % 21.0% (2020: 20.1%) £7.3m £7.3m (2020: £2.3m net cash) (2020: £2.3m net cash) Net Debt** Net Debt** £11.2m (2020: £12.2m) Profit Before Tax 4.19p (2020: 4.79p) EPS 5.56p (2020: 7.27p) Adjusted EPS*** * Adjusted EBITDA is defined as earnings before interest, tax, * Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, share option expenses, acquisition costs and exceptional items. depreciation, amortisation, share option expenses, acquisition costs and exceptional items. ** Net debt is defined as cash less bank debt. ** Net debt is defined as cash less bank debt. *** Adjusted EPS is calculated by dividing the adjusted profit *** Adjusted EPS is calculated by dividing the adjusted profit for the year by the weighted average number of ordinary for the year by the weighted average number of ordinary shares in issue. shares in issue. 4 4 • Robust recovery following COVID-19 restrictions. • Two strategic acquisitions in the year and a further acquisition post year end. • Expansion of existing operations, including investment in new warehouse facility. • Continued focus on delivering stakeholder value in a safe and sustainable manner. G P R O D U CTS • Acquisition pipeline remains strong. O FI N Y R O BRICKABILITY KEY FACTS…. Three Core Divisions R E N Revenue I Bricks and Building Materials; O J D 15 businesses operating from 27 sites. N by Division A G N Roofing Services; B I M 3 businesses operating from 2 sites. L U P , G Heating, Plumbing and Joinery; TI A N E 6 businesses operating from 4 sites. H S L UILDING MATERIA B R I C K S A N D B The Group currently employs in excess of 325 skilled and experienced personnel. m £12.4 m 5 . 4 2 £ HEATING, PLUMBING AND JOINERY ROOFING SERVICES £ 1 4 4 . 2 m BRICKS AND BUILDING MATERIALS Revenue by Division S T R A T E G I C R E P O R T 5 The Group distributes, and in many cases installs, superior quality and strategically important building materials from major UK and European manufacturing partners, providing product solutions to both private and commercial specifiers, contractors, developers and builders. • Robust recovery following • Robust recovery following COVID-19 restrictions. COVID-19 restrictions. • Two strategic acquisitions in the year • Two strategic acquisitions in the year and a further acquisition post year end. and a further acquisition post year end. • Expansion of existing operations, • Expansion of existing operations, including investment in new including investment in new warehouse facility. warehouse facility. • Continued focus on delivering • Continued focus on delivering stakeholder value in a safe and stakeholder value in a safe and sustainable manner. sustainable manner. G P R O D U CTS G P R O D U CTS O FI N O FI N • Acquisition pipeline remains strong. • Acquisition pipeline remains strong. Y R O Y R O J J I I D N A R R E E N N O O D N A BRICKABILITY KEY FACTS…. BRICKABILITY KEY FACTS…. Three Core Divisions Three Core Divisions Revenue Revenue Bricks and Building Materials; Bricks and Building Materials; by Division by Division 15 businesses operating from 27 sites. 15 businesses operating from 27 sites. Roofing Services; Roofing Services; 3 businesses operating from 2 sites. 3 businesses operating from 2 sites. Heating, Plumbing and Joinery; Heating, Plumbing and Joinery; 6 businesses operating from 4 sites. 6 businesses operating from 4 sites. H H UILDING MATERIA UILDING MATERIA L S S TI A A E TI , , E G G N N M M N N P P G G L L B B I I U U L I I B B R R C C K K S S A A N N D B D B The Group currently employs in excess The Group currently employs in excess of 325 skilled and experienced personnel. of 325 skilled and experienced personnel. m £12.4 £12.4 m m 5 5 . . 4 4 2 2 £ £ £ £ 1 1 4 4 4 4 . . 2 2 m m m ROOFING ROOFING SERVICES SERVICES HEATING, PLUMBING AND JOINERY HEATING, PLUMBING AND JOINERY BRICKS AND BUILDING MATERIALS BRICKS AND BUILDING MATERIALS Revenue by Division Revenue by Division S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T 5 5 £11.2m (2020: £12.2m) £11.2m (2020: £12.2m) Profit Before Tax Profit Before Tax 4.19p (2020: 4.79p) 4.19p (2020: 4.79p) EPS EPS 5.56p (2020: 7.27p) 5.56p (2020: 7.27p) Adjusted EPS*** Adjusted EPS*** The Group distributes, and in many The Group distributes, and in many cases installs, superior quality and cases installs, superior quality and strategically important building strategically important building materials from major UK and European materials from major UK and European manufacturing partners, providing manufacturing partners, providing product solutions to both private and product solutions to both private and commercial specifiers, contractors, commercial specifiers, contractors, developers and builders. developers and builders. Chairman’s Statement The response of the Group and everybody working within it since the arrival of the COVID-19 pandemic in March 2020 has been outstanding. I am extremely pleased of what has been achieved and, considering the very significant challenges faced, the financial performance of the Group is one of which we can be very proud. As government guidelines changed and our markets opened up, we adapted our COVID-19 protocols accordingly. As we stand today, we still have employees working from home on rota along with robust social distancing and hand sanitising procedures in place amongst other health and safety policies. The Group has a flexible cost base which enabled us to cut overheads quickly as restrictions took hold and, as activity has become stronger, we have continued to focus robustly on our costs. I am, therefore, pleased to confirm for the year to 31 March 2021 revenue of £181.1 million and an adjusted EBITDA of £17.5 million. Considering the nature of market conditions during the early months of this financial year, we are very satisfied with the Group’s performance. COVID-19 At the start of the COVID-19 pandemic, we immediately took actions to comply with government legislation and guidelines to protect the health and safety of our employees and customers. Strict new protocols were introduced and the vast majority of our employees worked from home. This in itself presented several technical challenges and I am pleased to note that those challenges were quickly overcome. April 2020 saw significant reductions in homebuilding and construction activity before rebounding in May 2020. In June, sales returned to 83% of June 2019 volumes and in the subsequent months of the year, performance was broadly at the levels of the previous year. John Richards Chairman FY2021 has been another strong year for Brickability Group. In a challenging and uncertain year for the economy at-large Brickability showed its ability to adapt quickly and successfully as well as maintain focus – a real testament to the strength and diversity of the business, and the management team we have. This is underscored by the two strategic acquisitions we made during the year. Post year end the acquisition of Taylor Maxwell further underpinned our strategic diversification, adding to the Group’s product offering and its ability to provide timely customer service. Against this backdrop we believe that the Group is well-positioned to take full advantage of a robust and improving construction market and the order book is strong. The pipeline going forward looks encouraging. 6 Stuart Overend November proved to be a challenging month in a very unexpected way. The Group’s Chief Financial Officer, Stuart Overend, passed away very suddenly at the age of 50. Stuart had made an extremely important contribution to the Group and working with him during our IPO and subsequent roadshows proved to be an absolute pleasure for Alan Simpson, our Chief Executive, and I. Stuart was a tremendous colleague and friend and we are all grateful to have had the opportunity to have known him and worked with him. Our thoughts continue to be with his wife, Jennifer, and his three children. Following an extensive executive search, Mike Gant was appointed Chief Financial Officer in January 2021, initially on an interim basis, with his permanent appointment following in April 2021. Mike has made a very positive contribution to the Group since joining and we look forward to working with him in the years ahead. Acquisitions The Group’s strategy of bolt-on acquisitions funded by cash generation has continued during the year. Details of these acquisitions and indeed our ceramic tile start-up business can be found in the Chief Executive’s report, however, I would like to dwell briefly on the acquisition of our haulage business, McCann Logistics. This business specialises in the haulage of construction materials from Continental Europe to the UK. While such an acquisition is outside of our normal focus, we viewed Brexit as a potential problem for haulage and customs delays. The management believed the best way around this was to bring such a business in-house. This has proved to be a strong decision with the haulage delays experienced by some hardly affecting our Group. The business is performing at such a strong pace that additional trailers have had to be ordered. I must also mention the acquisition of Taylor Maxwell which has taken place since the year end. This transformative deal significantly diversifies the Group’s product offering and customer base. We now have a strong position in both timber and cladding distribution and have access to many new customers, particularly in the contractor arena. The brand, reputation and employees of Taylor Maxwell are very welcome and will no doubt add significantly to the performance of the Group. Taylor Maxwell’s senior managers will be represented on the Group’s Management Board. The pipeline for further acquisitions continues to be strong. Market The construction market in general and the homebuilding market, in particular, were areas that recovered quickly in 2020. This recovery is forecast to continue into 2021 and beyond. The market is strongly supported by government initiatives including Help to Buy Version 2, the Affordable Homes Programme and the Housing Accelerator Fund. Forecasts are also positive for other parts of the construction market with the CPA Winter 2020/21 forecast showing: • Construction output will rise 14.0% in 2021 and 4.9% in 2022; • Private housing output will rise by 15.5% in 2021 and 6.0% in 2022; • Public housing output will rise by 14.8% in 2021 and 10.0% in 2022; • Private housing (RMI) will rise by 10.1% in 2021 and 3.0% in 2022; • Public housing (RMI) will rise by 20.6% in 2021 and 2.0% in 2022; and • Infrastructure output will rise by 32.1% in 2021 and 6.0% in 2022. Shareholder Returns and Dividends The Group paid an interim dividend of 0.8678p per share on 25 February 2021. This was possible due to the recovery from a difficult start to the year, the Group’s rigorous cost control and our strong cash conversion. Board and Corporate Governance The Board remains committed to the highest standards of Corporate Governance, not only at Board level but throughout out Group. The Group continues to comply in full with the Quoted Companies Alliance’s Ten Principles of Corporate Governance. Further details of the activities of our Board and its Committees during the year can be found in later sections of the report. 2020 was unusual in all sorts of ways and the Group’s Board and Committees had to quickly adapt to meeting online. This proved successful and, during the most demanding periods of lockdown and market changes, meetings were held on a fortnightly basis. Sustainability We take our obligations to protect the environment seriously and are pleased to include our Sustainability Report within this Annual Report. We are in the process of finalising our ESG roadmap. This activity will increasingly be core to all that we do, not least in identifying those manufacturers with strong ESG credentials and indeed those potential acquisitions who would benefit from having them. A group has been convened to drive our efforts in this area which will be chaired by me. Our People I have already referenced the remarkable performance, dedication and flexibility displayed by the Group’s employees. They have embraced the robust and regularly changing health and safety protocols, while helping to drive the business to a speedy performance recovery. They and their Group are well placed to take advantage of the robust house building and construction market and its encouraging outlook. Our staff have driven the setting up of the Brickability Group Foundation which will raise funds to support charities close to the Group’s areas of operation. It will have 3 Trustees; Paul Hamilton and Andrew Wilson, 2 of our Divisional Managing Directors, and myself. Following the continued V-shaped recovery in our markets, the successful integration of acquisitions and the success of our Brexit preparations, our performance enables the Board to recommend the payment of a final dividend for the year ended 31 March 2021 of 1.0850p per share. Subject to shareholder approval at the Annual General Meeting, the final dividend will be payable on 23 September 2021, with a record date of 27 August 2021 and an ex-dividend date of 26 August 2021. John Richards Chairman 4 August 2021 S T R A T E G I C R E P O R T 7 Divisional Performance Bricks and Building Materials With a turnover of £144.2 million, the Brick division managed to exceed the full-year turnover of the year ended 31 March 2020 (£144.0 million). Considering the lost turnover in April, and the much-reduced turnover in May, this was a remarkable achievement. Our flexible cost base was demonstrated by a c.£2 million reduction in cost of sales, giving an EBITDA of £11.7 million versus £11.5 million in the previous year. Heating, Plumbing and Joinery Turnover was reduced in the year and stood at £24.5 million against the previous £26.1 million. EBITDA fell to £5.8 million from the previous £6.2 million, despite reductions in cost of sales. It was a relatively slow start to the year for Towelrads which then gathered more sales strength as the year progressed and indeed continues to do so. Towelrads operated from several warehouse facilities and, during the year, the Group purchased a 63,000 square foot warehouse in Southam, Warwickshire, which is ideally located for the business and provides the scale for future growth. We also added Bathroom Barn to the business in December to virtually double our scale of valves. Health and Safety The health and safety of our staff, suppliers, contractors, customers and visitors is core to the values of our Group. Having worked with our external partner, Safety Forward, in the year to 31 March 2020 to re-evaluate all of our health and safety processes and procedures, along with the training required to embed them into the business, the arrival of COVID-19 meant a rapid re-evaluation and implementation of our health and safety operations and standards. New office/yard/warehouse/showroom procedures were agreed as were risk assessments in line with government guidance at every location. As restrictions began to be lifted, we reacted accordingly, however, we maintain a high standard of health and safety discipline. Our new warehouse in Southam, Warwickshire, is now fully operational. As it moves towards optimum operational capacity, a facility of that scale has demanded a thorough health and safety review and risk assessments. It is fully up to speed in its health and safety protocols and we intend it to be a standard-setter inside and outside of the Group. A number of window suppliers experienced production/financial issues during the year restricting our performance in that market. New suppliers have been Outlook identified and the right agreements to supply have been put in place. The outlook for construction including house building is very positive. Construction output is forecast to rise 14.0% in 2021 and 4.9% in 2022, while the RIBA Future Trends workload index for May put confidence at Our Spanish door supplier gradually improved their delivery performance during the year, while our agreement to sell Deanta Doors fills our need the highest level since 2009. to have a mid-range, high volume door supplier. This is already proving The fundamentals for house building remain strong in both the private successful with the supplier holding excellent levels of inventory. and public arenas with both benefitting from government support. Roofing Services With the roofing industry appearing to have been particularly hard hit by COVID-19 driven workplace regulations, roofing turnover fell from £17.1 million to £12.4 million. Despite lower cost of sales which reduced by c.£3.3 Current demand is such that many building materials are on extended availabilities and while this presents the Group with challenges, the strength of our supplier relationships and supply chains enables us to continue to provide reliable product supply. million, EBITDA was still reduced to £2.6 million, down from £3.7 million in The Group’s trading in the first quarter of the 2022 financial year was the previous year. Notwithstanding subsequent improvements in the market, encouraging and we continue to review and progress a number of when the market finally began to improve, it was further impacted by supply problems from manufacturers who had lengthy shutdowns. This shortage of supply continues into the current year, however, the Group does have the advantage of its plentiful supply of European-made roof tiles. acquisition opportunities. Alan Simpson Chief Executive Officer 4 August 2021 Alan Simpson Alan Simpson Chief Executive Officer Chief Executive Officer Chief Executive’s Review Chief Executive’s Review The COVID-19 pandemic and the consequent lockdowns The COVID-19 pandemic and the consequent lockdowns and restrictions provided the Group with great challenges and restrictions provided the Group with great challenges during the year ended 31 March 2021. Despite those during the year ended 31 March 2021. Despite those challenges, we were still able to deliver revenues of £181.1 challenges, we were still able to deliver revenues of £181.1 million and EBITDA of £17.5 million. Bearing in mind the million and EBITDA of £17.5 million. Bearing in mind the virtual loss of 1.5 months of trading, we are delighted virtual loss of 1.5 months of trading, we are delighted with this result. We were also able to deliver against with this result. We were also able to deliver against our strategy of bolt-on acquisitions with two businesses our strategy of bolt-on acquisitions with two businesses joining the Group, on which I will elaborate later in my joining the Group, on which I will elaborate later in my review. Our strategy of supporting start-up businesses review. Our strategy of supporting start-up businesses also continued with Forum Tiles joining Alfiam and also continued with Forum Tiles joining Alfiam and Architectural Facades. These acquisitions and start-ups Architectural Facades. These acquisitions and start-ups became possible due to our strong balance sheet and became possible due to our strong balance sheet and cash conversion, and we expect more to come. cash conversion, and we expect more to come. Acquisition Strategy Acquisition Strategy Two further strategic acquisitions were made during the year. Bathroom Barn, a West Midlands Two further strategic acquisitions were made during the year. Bathroom Barn, a West Midlands based supplier of radiator valves, elements and traditional valves was acquired on 30 November based supplier of radiator valves, elements and traditional valves was acquired on 30 November 2020 and immediately began its integration into the Towelrads business. McCann Limited 2020 and immediately began its integration into the Towelrads business. McCann Limited (now McCann Logistics) was acquired in early December 2020 as the Group sought to protect (now McCann Logistics) was acquired in early December 2020 as the Group sought to protect the significant levels of imported bricks and roof tiles from any potential delays following Brexit. the significant levels of imported bricks and roof tiles from any potential delays following Brexit. Established in 1972, McCann specialises in transporting building materials from factories in Established in 1972, McCann specialises in transporting building materials from factories in Europe to the UK, with its acquisition giving the Group control in this critical area. McCann’s Europe to the UK, with its acquisition giving the Group control in this critical area. McCann’s ability to provide timely continuity of deliveries has been impressive to date. ability to provide timely continuity of deliveries has been impressive to date. As outlined in the Chairman’s Statement, the Group has completed the significant acquisition of As outlined in the Chairman’s Statement, the Group has completed the significant acquisition of Taylor Maxwell since the year end. The Group has also subsequently acquired Leadcraft Limited, Taylor Maxwell since the year end. The Group has also subsequently acquired Leadcraft Limited, which will expand the Group’s Roofing Services division. Leadcraft was founded in 1997 and which will expand the Group’s Roofing Services division. Leadcraft was founded in 1997 and provides a full range of roofing services including tiling, slate, zinc, copper, felt and lead works. provides a full range of roofing services including tiling, slate, zinc, copper, felt and lead works. Our acquisition pipeline continues to be strong and we are currently processing or evaluating Our acquisition pipeline continues to be strong and we are currently processing or evaluating several opportunities. Our demanding criteria, as outlined in last year’s Annual Report and several opportunities. Our demanding criteria, as outlined in last year’s Annual Report and Accounts, remains our guide and we have the financial headroom and cash conversion levels to Accounts, remains our guide and we have the financial headroom and cash conversion levels to press ahead with those that pass our stringent assessments. press ahead with those that pass our stringent assessments. Organic Development Organic Development Our cladding business, Architectural Facades, continues to make progress with the addition of Our cladding business, Architectural Facades, continues to make progress with the addition of a new showroom in the North West, additional sales staff and some very exciting and profitable a new showroom in the North West, additional sales staff and some very exciting and profitable contracts confirmed. Similarly, we are equally excited by the launch of our ceramic tile business, contracts confirmed. Similarly, we are equally excited by the launch of our ceramic tile business, Forum Tiles. We have recruited an expert sales team, with significant experience in their industry, Forum Tiles. We have recruited an expert sales team, with significant experience in their industry, and have established working relationships with many high-quality suppliers from Italy, Spain, and have established working relationships with many high-quality suppliers from Italy, Spain, India and other geographics which look to be extremely beneficial. India and other geographics which look to be extremely beneficial. 8 8 S T R A T E G I C R E P O R T 9 Divisional Performance Divisional Performance Bricks and Building Materials Bricks and Building Materials With a turnover of £144.2 million, the Brick division managed to exceed With a turnover of £144.2 million, the Brick division managed to exceed the full-year turnover of the year ended 31 March 2020 (£144.0 million). the full-year turnover of the year ended 31 March 2020 (£144.0 million). Considering the lost turnover in April, and the much-reduced turnover Considering the lost turnover in April, and the much-reduced turnover in May, this was a remarkable achievement. Our flexible cost base was in May, this was a remarkable achievement. Our flexible cost base was demonstrated by a c.£2 million reduction in cost of sales, giving an EBITDA demonstrated by a c.£2 million reduction in cost of sales, giving an EBITDA of £11.7 million versus £11.5 million in the previous year. of £11.7 million versus £11.5 million in the previous year. Heating, Plumbing and Joinery Heating, Plumbing and Joinery Turnover was reduced in the year and stood at £24.5 million against the Turnover was reduced in the year and stood at £24.5 million against the previous £26.1 million. EBITDA fell to £5.8 million from the previous £6.2 million, previous £26.1 million. EBITDA fell to £5.8 million from the previous £6.2 million, despite reductions in cost of sales. It was a relatively slow start to the year for despite reductions in cost of sales. It was a relatively slow start to the year for Towelrads which then gathered more sales strength as the year progressed Towelrads which then gathered more sales strength as the year progressed and indeed continues to do so. Towelrads operated from several warehouse and indeed continues to do so. Towelrads operated from several warehouse facilities and, during the year, the Group purchased a 63,000 square foot facilities and, during the year, the Group purchased a 63,000 square foot warehouse in Southam, Warwickshire, which is ideally located for the business warehouse in Southam, Warwickshire, which is ideally located for the business and provides the scale for future growth. We also added Bathroom Barn to the and provides the scale for future growth. We also added Bathroom Barn to the business in December to virtually double our scale of valves. business in December to virtually double our scale of valves. A number of window suppliers experienced production/financial issues during A number of window suppliers experienced production/financial issues during the year restricting our performance in that market. New suppliers have been the year restricting our performance in that market. New suppliers have been identified and the right agreements to supply have been put in place. identified and the right agreements to supply have been put in place. Our Spanish door supplier gradually improved their delivery performance Our Spanish door supplier gradually improved their delivery performance during the year, while our agreement to sell Deanta Doors fills our need during the year, while our agreement to sell Deanta Doors fills our need to have a mid-range, high volume door supplier. This is already proving to have a mid-range, high volume door supplier. This is already proving successful with the supplier holding excellent levels of inventory. successful with the supplier holding excellent levels of inventory. Roofing Services Roofing Services With the roofing industry appearing to have been particularly hard hit by With the roofing industry appearing to have been particularly hard hit by COVID-19 driven workplace regulations, roofing turnover fell from £17.1 COVID-19 driven workplace regulations, roofing turnover fell from £17.1 million to £12.4 million. Despite lower cost of sales which reduced by c.£3.3 million to £12.4 million. Despite lower cost of sales which reduced by c.£3.3 million, EBITDA was still reduced to £2.6 million, down from £3.7 million in million, EBITDA was still reduced to £2.6 million, down from £3.7 million in the previous year. Notwithstanding subsequent improvements in the market, the previous year. Notwithstanding subsequent improvements in the market, when the market finally began to improve, it was further impacted by supply when the market finally began to improve, it was further impacted by supply problems from manufacturers who had lengthy shutdowns. This shortage problems from manufacturers who had lengthy shutdowns. This shortage of supply continues into the current year, however, the Group does have the of supply continues into the current year, however, the Group does have the advantage of its plentiful supply of European-made roof tiles. advantage of its plentiful supply of European-made roof tiles. Health and Safety Health and Safety The health and safety of our staff, suppliers, contractors, customers and The health and safety of our staff, suppliers, contractors, customers and visitors is core to the values of our Group. Having worked with our external visitors is core to the values of our Group. Having worked with our external partner, Safety Forward, in the year to 31 March 2020 to re-evaluate all of partner, Safety Forward, in the year to 31 March 2020 to re-evaluate all of our health and safety processes and procedures, along with the training our health and safety processes and procedures, along with the training required to embed them into the business, the arrival of COVID-19 meant required to embed them into the business, the arrival of COVID-19 meant a rapid re-evaluation and implementation of our health and safety a rapid re-evaluation and implementation of our health and safety operations and standards. operations and standards. New office/yard/warehouse/showroom procedures were agreed as were New office/yard/warehouse/showroom procedures were agreed as were risk assessments in line with government guidance at every location. risk assessments in line with government guidance at every location. As restrictions began to be lifted, we reacted accordingly, however, we As restrictions began to be lifted, we reacted accordingly, however, we maintain a high standard of health and safety discipline. maintain a high standard of health and safety discipline. Our new warehouse in Southam, Warwickshire, is now fully operational. Our new warehouse in Southam, Warwickshire, is now fully operational. As it moves towards optimum operational capacity, a facility of that scale As it moves towards optimum operational capacity, a facility of that scale has demanded a thorough health and safety review and risk assessments. has demanded a thorough health and safety review and risk assessments. It is fully up to speed in its health and safety protocols and we intend it to It is fully up to speed in its health and safety protocols and we intend it to be a standard-setter inside and outside of the Group. be a standard-setter inside and outside of the Group. Outlook Outlook The outlook for construction including house building is very positive. The outlook for construction including house building is very positive. Construction output is forecast to rise 14.0% in 2021 and 4.9% in 2022, Construction output is forecast to rise 14.0% in 2021 and 4.9% in 2022, while the RIBA Future Trends workload index for May put confidence at while the RIBA Future Trends workload index for May put confidence at the highest level since 2009. the highest level since 2009. The fundamentals for house building remain strong in both the private The fundamentals for house building remain strong in both the private and public arenas with both benefitting from government support. and public arenas with both benefitting from government support. Current demand is such that many building materials are on extended Current demand is such that many building materials are on extended availabilities and while this presents the Group with challenges, the availabilities and while this presents the Group with challenges, the strength of our supplier relationships and supply chains enables us to strength of our supplier relationships and supply chains enables us to continue to provide reliable product supply. continue to provide reliable product supply. The Group’s trading in the first quarter of the 2022 financial year was The Group’s trading in the first quarter of the 2022 financial year was encouraging and we continue to review and progress a number of encouraging and we continue to review and progress a number of acquisition opportunities. acquisition opportunities. Alan Simpson Chief Executive Officer Alan Simpson Chief Executive Officer 4 August 2021 4 August 2021 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T 9 9 Our vision is to be the leading specialist supplier of products to house builders and contractors. Business Model ROUTES TO MARKET • Strong regional sales network The Group has over 30 GB locations serving local, regional and national customers. • Established Brands The Group has developed or acquired businesses that have built local, regional or national brand strength while being part of a business with strong buying power. • National agreements with local delivery The Group has central agreements with larger customers which are delivered by the regional businesses. OUR STRENGTHS • Regional sales network • National coverage • Specialist knowledge • Technical Expertise • Access to high quality products and supplies in UK and abroad • Scale / buying power • Strong track record • Integrating acquisitions • Highly experienced management team • Unrivalled customer relationships • Exceptional customer service • Cross selling 10 HOW WE CREATE VALUE FOROUR STAKEHOLDERS? • For shareholders Share price growth with a focus on acquisitions. A progressive dividend policy. • For customers Sourcing and supplying products that meet customer needs, are priced competitively and are delivered on time. • For suppliers Suppliers are paid on time and we meet our commitments to the distribution of products, prices and volumes. • For employees and local communities The Group has over 325 employees in GB. We provide growing employment opportunities in our communities along with long-term career development. The Brickability Group Foundation supports charities local to our business locations. Our Brands BRICKS AND BUILDING MATERIALS ROOFING SERVICES HEATING, PLUMBING AND JOINERY S T R A T E G I C R E P O R T 11 The Complete Solution The Complete Solution The Group has been formed to pool The Group has been formed to pool the combined success of individual the combined success of individual businesses into one cohesive structure businesses into one cohesive structure that will maximise revenue and growth. that will maximise revenue and growth. Together we are stronger and will take advantage of Together we are stronger and will take advantage of our individual specialisms to provide a supply hub of our individual specialisms to provide a supply hub of extraordinary efficiency and service. extraordinary efficiency and service. TRANSPORT TRANSPORT McCann Logistics McCann Logistics WINDOWS WINDOWS Frazer Simpson Frazer Simpson ROOFING ROOFING Crest Roofing Crest Roofing Crown Roofing Crown Roofing Excel Roofing Excel Roofing McCann Roofing Products McCann Roofing Products CLADDING CLADDING U Plastics U Plastics BRICK SUPPLY & SERVICES FASCIAS, SOFFITS & GUTTERING U Plastics Brickability Apex Brick Cutters Matching Brick Brick Services CPG Building Supplies Crest Brick Slate & Tile The Bespoke Brick Co. LBT Brick & Facades Bricklink Plansure Brick Mongers Wessex Alfiam Building Supplies TOWEL RAILS & RADIATORS FLOORING SERVICES Towelrads Radiators Online Radiator Valves UK DSH Flooring Forum Tiles EXTERNAL DOORS EXTERNAL DOORS Frazer Simpson Frazer Simpson INTERNAL DOORS FSN Doors UNDERFLOOR HEATING Towelrads S T R A T E G I C R E P O R T 13 12 12 BRICK SUPPLY & SERVICES BRICK SUPPLY & SERVICES FASCIAS, SOFFITS & GUTTERING FASCIAS, SOFFITS & GUTTERING Brickability Brickability Apex Brick Cutters Apex Brick Cutters Matching Brick Matching Brick The Bespoke Brick Co. The Bespoke Brick Co. Bricklink Bricklink Brick Mongers Wessex Brick Mongers Wessex Brick Services Brick Services CPG Building Supplies CPG Building Supplies Crest Brick Slate & Tile Crest Brick Slate & Tile LBT Brick & Facades LBT Brick & Facades Plansure Plansure Alfiam Building Supplies Alfiam Building Supplies U Plastics U Plastics TOWEL RAILS & RADIATORS TOWEL RAILS & RADIATORS FLOORING SERVICES FLOORING SERVICES Towelrads Towelrads Radiators Online Radiators Online Radiator Valves UK Radiator Valves UK DSH Flooring DSH Flooring Forum Tiles Forum Tiles INTERNAL DOORS INTERNAL DOORS FSN Doors FSN Doors UNDERFLOOR HEATING UNDERFLOOR HEATING Towelrads Towelrads S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T 13 13 Group Strategy Group Strategy and Delivery and Delivery The Group continues to follow its strategy for The Group continues to follow its strategy for growth, which is based around four key areas: growth, which is based around four key areas: Organic Growth, Geographic Expansion, Organic Growth, Geographic Expansion, Acquisitions and Product Expansion. Acquisitions and Product Expansion. Achievements Outlook Achievements Outlook KPI’s KPI’s Risks Risks Governance Governance Organic Organic Growth Growth Geographical Geographical Expansion Expansion Acquisitions Acquisitions Fast recovery Fast recovery from from COVID-19 COVID-19 market market restrictions. restrictions. Recruitment Recruitment of additional of additional sales team sales team members in members in all divisions. all divisions. New locations New locations have joined have joined the Group via the Group via acquisitions. acquisitions. U Plastics U Plastics have opened have opened a new a new depot in depot in Maidenhead. Maidenhead. 2 acquisitions 2 acquisitions during the during the year. year. Product Product Expansion Expansion Acquisitions Acquisitions have have expanded expanded the product the product portfolio as portfolio as has the Forum has the Forum Ceramics tile Ceramics tile start-up. start-up. - Continued - Continued cross selling cross selling - Growth with - Growth with additional additional customers customers - Revenue - Revenue - Cost of sales - Cost of sales - Gross profit - Gross profit - EBITDA - EBITDA - Economic - Economic environment environment - Extreme - Extreme Weather Weather - Major event - Major event The Divisional The Divisional Managing Managing Directors Directors monitor monitor performance performance and take any and take any necessary necessary action. action. Divisional Divisional performance performance is reported to is reported to the Board. the Board. - Revenue - Revenue - Gross Profit - Gross Profit - EBITDA - EBITDA at new at new locations locations - Economic - Economic environment environment - Limited - Limited acquisitions acquisitions The Board The Board reviews reviews acquisition / acquisition / expansion expansion plans. plans. - Access - Access to new to new customers customers Further Further geographic geographic expansion is expansion is planned planned with existing with existing product product range. range. Further Further acquisitions acquisitions in pipeline in pipeline to expand to expand product product offering and offering and customer customer base. base. - Revenue - Revenue - Gross Profit - Gross Profit - EBITDA - EBITDA - Past - Past acquisition acquisition audit audit - Failure to - Failure to integrate integrate acquisition. acquisition. - Retention of - Retention of talent talent The Board The Board reviews reviews acquisition acquisition strategy and strategy and plans. plans. Further Further acquisitions acquisitions and start ups and start ups are planned. are planned. - Revenue - Revenue - Gross Profit - Gross Profit - EBITDA - EBITDA - 5 year start - 5 year start up plans up plans - Loss of a - Loss of a major major supplier supplier - Loss of key - Loss of key management management The Board The Board reviews reviews and approves and approves start-ups. start-ups. Case Study Belle Vue / Bartrams The Bespoke Brick Co., one of the Group’s specialist brick importers and distributors, were asked to work with Morris & Co Architects on a beautiful scheme for Pegasus Life which consisted of 60 luxury apartments with landscaped courts and gardens for over 60s in Hampstead, London. The concept featured a very complex façade design, including steel framing systems which backed onto hand-laid brick work in feature bonds. An intricate mechanically fixed brick slip rain screen was created with pre cast panelling, pre cast sills and banding, loggia balconies, composite punch windows and stick curtain walling. The brief was to suggest a brick which could be produced in two different tones to create subtle colour differences which highlighted some of the interesting features within the façade. We opted to work with Floren, one of our which displayed 90% slurry was used on the production partners in Belgium, who adopt a interesting, angled window recesses as well as customised approach to brick making. the shark fin detail which explored textures in The architect favoured a more rustic some areas of the scheme. appearance in the brick to contrast some of the very modular and sharp design within the façades. We took a tumbled red brick with some black engobe to create a historic weathered effect. We then added 60% calcium slurry to one type and 90% slurry to another. This gave us two products with very subtle differences. The lighter brick Galostar were the appointed contractor and IG lintels were the chosen pre cast manufacturer. This was a challenging but rewarding scheme which has received much acclaim. It was shortlisted for the RIBA regional award 2020 for North London. 14 14 S T R A T E G I C R E P O R T 15 Case Study Case Study Belle Vue / Bartrams Belle Vue / Bartrams The Bespoke Brick Co., one of the Group’s The Bespoke Brick Co., one of the Group’s specialist brick importers and distributors, were specialist brick importers and distributors, were asked to work with Morris & Co Architects on a asked to work with Morris & Co Architects on a beautiful scheme for Pegasus Life which consisted of beautiful scheme for Pegasus Life which consisted of 60 luxury apartments with landscaped courts and gardens 60 luxury apartments with landscaped courts and gardens for over 60s in Hampstead, London. The concept featured a very for over 60s in Hampstead, London. The concept featured a very complex façade design, including steel framing systems which backed onto complex façade design, including steel framing systems which backed onto hand-laid brick work in feature bonds. An intricate mechanically fixed brick hand-laid brick work in feature bonds. An intricate mechanically fixed brick slip rain screen was created with pre cast panelling, pre cast sills and banding, slip rain screen was created with pre cast panelling, pre cast sills and banding, loggia balconies, composite punch windows and stick curtain walling. loggia balconies, composite punch windows and stick curtain walling. The brief was to suggest a brick which could be produced in two different tones to create subtle The brief was to suggest a brick which could be produced in two different tones to create subtle colour differences which highlighted some of the interesting features within the façade. colour differences which highlighted some of the interesting features within the façade. We opted to work with Floren, one of our We opted to work with Floren, one of our production partners in Belgium, who adopt a production partners in Belgium, who adopt a customised approach to brick making. customised approach to brick making. The architect favoured a more rustic The architect favoured a more rustic appearance in the brick to contrast some of appearance in the brick to contrast some of the very modular and sharp design within the very modular and sharp design within the façades. We took a tumbled red brick the façades. We took a tumbled red brick with some black engobe to create a historic with some black engobe to create a historic weathered effect. We then added 60% weathered effect. We then added 60% calcium slurry to one type and 90% slurry calcium slurry to one type and 90% slurry to another. This gave us two products with to another. This gave us two products with very subtle differences. The lighter brick very subtle differences. The lighter brick which displayed 90% slurry was used on the which displayed 90% slurry was used on the interesting, angled window recesses as well as interesting, angled window recesses as well as the shark fin detail which explored textures in the shark fin detail which explored textures in some areas of the scheme. some areas of the scheme. Galostar were the appointed contractor and Galostar were the appointed contractor and IG lintels were the chosen pre cast manufacturer. IG lintels were the chosen pre cast manufacturer. This was a challenging but rewarding scheme This was a challenging but rewarding scheme which has received much acclaim. It was which has received much acclaim. It was shortlisted for the RIBA regional award 2020 shortlisted for the RIBA regional award 2020 for North London. for North London. S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T 15 15 Key Performance Key Performance Indicators Indicators REVENUE REVENUE £181.1m £181.1m Revenue growth is a key driver of profit growth. Revenue growth is a key driver of profit growth. GROSS PROFIT GROSS PROFIT £38.0m £38.0m Gross Profit percentage acts as a cross check Gross Profit percentage acts as a cross check against Revenue growth to ensure new sales against Revenue growth to ensure new sales maintain margin. maintain margin. ADJUSTED EBITDA ADJUSTED EBITDA £17.5m £17.5m Earnings before Interest, Tax, Depreciation Earnings before Interest, Tax, Depreciation and Amortisation, share option expenses, and Amortisation, share option expenses, acquisition costs and exceptional items. acquisition costs and exceptional items. CASH GENERATED CASH GENERATED FROM OPERATIONS FROM OPERATIONS NET DEBT NET DEBT £13.1m £13.1m £7.3mThe net cash position after deducting the £7.3mThe net cash position after deducting the cash held from the amount of bank debt. cash held from the amount of bank debt. DIVIDEND DIVIDEND 1.95p 1.95p Annual dividend per share Annual dividend per share The presented figures illustrate a number of the key performance indicators that the Group reviews on a regular basis and by which overall business performance is measured. 19/20 19/20 20/21 20/21 19/20 19/20 2018 2018 20/21 20/21 2019 2019 19/20 19/20 20/21 20/21 19/20 19/20 20/21 20/21 £187.1m £187.1m £181.1m £181.1m £37.7m (20.1%) £37.7m (20.1%) £38.0m (21.0%) £38.0m (21.0%) £19.5m £19.5m £17.5m £17.5m £20.9m £20.9m £13.1m £13.1m 20/21 20/21 £7.3m Net debt £7.3m Net debt 19/20 19/20 £2.3m Net cash £2.3m Net cash 19/20 19/20 20/21 20/21 1.95p 1.95p 1.95p 1.95p 16 16 S T R A T E G I C R E P O R T 17 The presented figures illustrate a The presented figures illustrate a number of the key performance number of the key performance indicators that the Group reviews on indicators that the Group reviews on a regular basis and by which overall a regular basis and by which overall business performance is measured. business performance is measured. S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T 17 17 Risk management MANAGING RISK IN ORDER TO DELIVER OUR STRATEGY The Group is exposed to a number of risks in the markets it serves. The Board considers the risks to the business and the adequacy of internal controls with regard to the risks identified at every scheduled Board meeting. It formally reviews and updates the risk register of the business at least annually. RISK MANAGEMENT STRUCTURE 01 02 IDENTIFY RISK ASSESS RISK The Board has overall responsibility for monitoring the Group’s systems of internal control, for identification of risks and for taking appropriate action to prevent, mitigate or manage those risks. The Board will continually assess and review the business and operating environment to identify any new risks to be managed. A detailed schedule of risks is considered at each scheduled Board meeting under the following categories: Competitors, Economic environment, Financial Risk, People and Suppliers. These risks are graded against the criteria of likelihood and potential impact in order to identify the key risks impacting the Group (see page 19). 05 Review and evaluate risks 01 Identify risk Board of Directors 02 Assess risk 04 Update risk register 03 Mitigate risk Remuneration Committee Audit Committee Nomination Committee Group Management Board and Subsidiary company boards Divisional and functional teams 18 03 04 05 UPDATE RISK REGISTER MITIGATE RISK REVIEW & EVALUATE RISKS The Board seeks to ensure that the Group’s activities do not expose it to significant risk. The Group’s aim is to diversify sufficiently to ensure it is not exposed to risk of concentration in product, market or channel. The risk register is updated as appropriate at scheduled Board meetings and in-between as necessary. The Board and Group Management Board are all responsible for reviewing and evaluating risk. The Group Management Board meet at least monthly to review ongoing trading performance, discuss budgets and forecasts and consider new risks associated with ongoing trading. Feedback from these meetings regarding changes to existing risks or the emergence of new risks is then provided to the Board. SEVERE T C A P M I MINOR RISK HEAT MAP The risk heat map summarises the potential impact of a range of risks and uncertainties identified by the management team. They are logged on the ‘Risk Matrix’ and reported on and reviewed regularly. E S P C F C E Competitors This includes: • Margin management • Environmental and social responsibility Economic environment This includes: • Ongoing COVID-19 impact • Extreme weather events • Product supply shortages LOW LIKELIHOOD HIGH F P S Financial risk This includes: • Margin management • Change in employment status of Group subcontractors • Failure to integrate key acquisitions • Cyber security People This includes: • Retention of talent • Failure to integrate key acquisitions Suppliers This includes: • Loss of key trading partner • Modern methods of construction S T R A T E G I C R E P O R T 19 Principal Risks and Principal Risks and Uncertainties Uncertainties The Board has overall responsibility for monitoring The Board has overall responsibility for monitoring internal and external risks to which the Group internal and external risks to which the Group and its businesses may be subject. The Group has and its businesses may be subject. The Group has established internal controls and systems to identify established internal controls and systems to identify and assess such risks. The Board reviews these risks and assess such risks. The Board reviews these risks and our ability to effectively monitor them at each and our ability to effectively monitor them at each scheduled Board meeting. Where appropriate specific scheduled Board meeting. Where appropriate specific updates and reports are circulated to Board members updates and reports are circulated to Board members in between such meetings. in between such meetings. A report, the ‘risk matrix’ is maintained on a rolling A report, the ‘risk matrix’ is maintained on a rolling basis by our Chief Financial Officer and is the subject basis by our Chief Financial Officer and is the subject of regular review by the Group’s Management Board of regular review by the Group’s Management Board team, with each senior manager responsible for team, with each senior manager responsible for underlying operating group companies reporting underlying operating group companies reporting into the operating board’s review. The Group’s into the operating board’s review. The Group’s Management Board meets monthly, is attended Management Board meets monthly, is attended by each executive director and is chaired by John by each executive director and is chaired by John Richards, chairman of the Board. As part of these Richards, chairman of the Board. As part of these meetings the Management Board meet to review on- meetings the Management Board meet to review on- going trading, budgets and forecasts and consider going trading, budgets and forecasts and consider new and on-going risks and uncertainties to the new and on-going risks and uncertainties to the Group’s operating businesses. Where appropriate Group’s operating businesses. Where appropriate additional, separate analyses or follow-up is additional, separate analyses or follow-up is undertaken of particular risks and issues identified. undertaken of particular risks and issues identified. Throughout the year, the COVID-19 pandemic Throughout the year, the COVID-19 pandemic has given rise to significant additional risks and has given rise to significant additional risks and uncertainties. These have been the subject of uncertainties. These have been the subject of specific contingency planning and risk mitigation. specific contingency planning and risk mitigation. As our customers’ and suppliers’ businesses have As our customers’ and suppliers’ businesses have resumed trading so have we and we have recovered resumed trading so have we and we have recovered well from the initial lockdown in March and April well from the initial lockdown in March and April 2020. Our priority throughout the year has been 2020. Our priority throughout the year has been the health and wellbeing of all of our stakeholders, the health and wellbeing of all of our stakeholders, including colleagues, clients, our contractors and including colleagues, clients, our contractors and the communities within which we work, as well as the the communities within which we work, as well as the commercial and financial health of our businesses commercial and financial health of our businesses and the preservation of shareholder value. Board and the preservation of shareholder value. Board meetings have increased in frequency as we continue meetings have increased in frequency as we continue to monitor the ongoing situation. to monitor the ongoing situation. 20 20 Principal risks and uncertainties facing the Group are set out below. Risk Key controls Ongoing action Economic environment The UK is recovering from the COVID-19 pandemic, which has impacted operations and results during the year. While the Group has returned to a strong trading position following significant downturns at the start of the year, ongoing uncertainty around new variants continues to pose a risk. The pandemic’s impact on the national economy has also put pressure on the Group’s supply chain, resulting in challenges from reduced product availability. The Brexit process was monitored during the year and appropriate measures put in place to accommodate changes following the end of the transition period. There has not been an adverse impact on the Group’s ability to trade since leaving the EU and thus Brexit is no longer considered a principal risk. We monitor our core markets closely and maintain close relationships with our principle customers, suppliers and manufacturers. Our key customers within the housebuilding market are financially robust but we monitor credit risk and debtors continuously. Where opportunity presents itself, we will continue to prudently expand our geographical presence and the diversity of our business in order to better serve our clients and The Group’s supply lines have remained resilient but are monitored closely and our risk mitigation plans are regularly reviewed. Working capital is monitored on a daily basis, with robust and active debtor control. Budgets and financial performance against KPIs are regularly reviewed. Health and safety remains a priority, both at our sites and in interacting with clients and contacts. Compliance is tightly managed. Retention of talent The success of the Group depends to a significant degree upon our senior management team. Failure to attract and retain individuals with the right skills, drive and capability may impact our ability to meet performance expectations. The recruitment and training of talent from within is actively promoted, when appropriate, with a focus on internal succession management. We also endeavour to ensure that talent acquired through acquisitions is retained. We continue to review our remuneration policies to facilitate the recruitment and retention of talent at the highest calibre, in addition to maintaining entrepreneurial drive through the use of responsible incentives. Margin management Prices may not remain at levels which are both competitive and achieve adequate margins. There is a risk that not all inflationary price increases can be passed on, resulting in lower margins. Rebate income may also not be adequately monitored and accounted for. Both or either may adversely impact financial performance. We continuously review and monitor margins and pricing within the market by customer, supplier and product. Where possible we seek to secure fixed pricing over a longer period with key trading partners so as to maintain pricing continuity. We regularly review and audit our rebate debtors and income. Monthly performance is reviewed against rebate reports from suppliers and internal rebate assumptions are closely monitored. Volume arrangements with UK manufacturers are carefully maintained. Arrangements with key trading partners, including rebates and relationships with other key trading partners are an important consideration when reviewing potential acquisitions. Loss of a key trading partner The loss of a key customer or supplier could adversely impact business performance. Relationships with key trading partners are valued and kept under continuous review. We monitor our markets and ensure that all key trading partners remain up to date with our unique selling propositions. The impact of potential acquisitions on our key trading relationships are carefully assessed as part of our due diligence process. managers. Change in employment status of Group subcontractors HMRC may reconsider their view on labour only ‘subcontractors’ employment status. This may have a significantadverse impact on overheads, for those members of our Group using such contractors in their business. Such a change, if made, would in our view be industry-wide. As adversely affected contractual obligations are completed, we would expect new pricing in the market to reflect increased overheads. The Group reviews the employment status of its subcontractors to ensure compliance with the latest legislation. Modern Methods of Construction (MMC) MMC, or the factory construction of modular units for subsequent on-site assembly, have increased and attracted significant investment from several We continue to monitor the scale and use of MMC and the approach of Local Authority planners to their use and how members of the Group might be affected were their products, for example roof coverings, to fall into the factory build stage of such units. We seek to ensure that the Group has close relationships with builders using MMC. The Group’s geographical diversity across the UK reduces the impact of extreme regional weather events. We continue to seek to increase our geographical reach through strategic acquisitions and organic growth. diversify risk. Our ongoing strategy of developing through acquisitions and organic growth maintains a high level of buying power within both the UK and EU markets, ensuring the Group can source sufficient products to meet demand. Health and safety procedures are the subject of regular review and external review by health and safety consultants, Safety First. COVID-19 safe procedures continue to be applied. The Group has employee incentive schemes in place and continues to review the key aspects of its incentive arrangements and rewarding of staff. We continue to monitor and improve the accuracy of ordering, scheduling and forecasting. Core relationships are maintained with key trading partners and, where possible, we seek to agree prices on an annual basis. We also seek to diversify the products and services offered by the Group, to mitigate the impact of margin pressures in specific areas. The active development of new trading partners and the maintenance of sustainable long-term relations with our existing partners are key performance metrics for senior Group businesses potentially affected will endeavour to maintain robust margins so as to mitigate any impact on overheads. market participants. Extreme weather Extreme weather events, whether in the form of excessive rain and flooding or snow, can have a material impact on clients’ construction sites and adversely affect turnover. Failure to integrate key acquisitions Given the Group’s acquisitive nature, there is a risk that the Group fails to integrate an acquisition. Cyber security The COVID-19 pandemic led to an increase in remote working. There is also a growing risk of fraudulent attacks on businesses. Such an attack could have the potential to significantly disrupt the Group’s operations and result in loss to the business. Environmental and social responsibility Increasing requirements in respect of environmental and social reporting and practices, increase the risk of an adverse impact on the Group’s reputation, should expectations not be met or regulations adhered to. The Group completes both financial and legal due diligence, prior to acquisition, to mitigate this risk. The Group Management Board executives also meet with the senior management of the company being acquired to ensure they will fit in with the Group. Following acquisition, the Group ensures compliance with its systems and reporting, while also undertaking regular business and performance reviews. The Group has recovery plans in place, and ensures systems are up to date with the latest cyber protection. Ongoing updates to legislation and social expectations are discussed at regular senior management meetings to ensure the Group is aware of any key changes. We continue to monitor existing acquisitions and maintain the due diligence discipline. Group policies and practices also undergo continuous review, to work towards a Group wide approach as quickly as possible. We continuously monitor IT systems in place to ensure they are up to date and regularly updated with the latest security protection. Ongoing training is also provided so staff maintain awareness of the risks and appropriate action to take should an issue arise. We monitor the impact that the Group’s operations have on the environment and its stakeholders to ensure compliance with all appropriate regulations. We also carry out checks on suppliers to ensure that they are also maintaining the high standards expected. S T R A T E G I C R E P O R T 21 Principal risks and uncertainties facing the Group are set out below. Principal risks and uncertainties facing the Group are set out below. Risk Risk Key controls Key controls Ongoing action Ongoing action Economic environment Economic environment The UK is recovering from the COVID-19 pandemic, The UK is recovering from the COVID-19 pandemic, which has impacted operations and results during the which has impacted operations and results during the year. While the Group has returned to a strong trading year. While the Group has returned to a strong trading position following significant downturns at the start of position following significant downturns at the start of the year, ongoing uncertainty around new variants the year, ongoing uncertainty around new variants continues to pose a risk. continues to pose a risk. The pandemic’s impact on the national economy has The pandemic’s impact on the national economy has also put pressure on the Group’s supply chain, resulting also put pressure on the Group’s supply chain, resulting in challenges from reduced product availability. in challenges from reduced product availability. The Brexit process was monitored during the year and The Brexit process was monitored during the year and appropriate measures put in place to accommodate appropriate measures put in place to accommodate changes following the end of the transition period. changes following the end of the transition period. There has not been an adverse impact on the Group’s There has not been an adverse impact on the Group’s ability to trade since leaving the EU and thus Brexit is ability to trade since leaving the EU and thus Brexit is no longer considered a principal risk. no longer considered a principal risk. We monitor our core markets closely and maintain close relationships We monitor our core markets closely and maintain close relationships with our principle customers, suppliers and manufacturers. Our key with our principle customers, suppliers and manufacturers. Our key customers within the housebuilding market are financially robust but we customers within the housebuilding market are financially robust but we monitor credit risk and debtors continuously. monitor credit risk and debtors continuously. The Group’s supply lines have remained resilient but are monitored The Group’s supply lines have remained resilient but are monitored closely and our risk mitigation plans are regularly reviewed. closely and our risk mitigation plans are regularly reviewed. Working capital is monitored on a daily basis, with robust and active Working capital is monitored on a daily basis, with robust and active debtor control. Budgets and financial performance against KPIs are debtor control. Budgets and financial performance against KPIs are regularly reviewed. regularly reviewed. Health and safety remains a priority, both at our sites and in interacting Health and safety remains a priority, both at our sites and in interacting with clients and contacts. Compliance is tightly managed. with clients and contacts. Compliance is tightly managed. Where opportunity presents itself, we Where opportunity presents itself, we will continue to prudently expand our will continue to prudently expand our geographical presence and the diversity of our geographical presence and the diversity of our business in order to better serve our clients and business in order to better serve our clients and diversify risk. diversify risk. Our ongoing strategy of developing through Our ongoing strategy of developing through acquisitions and organic growth maintains acquisitions and organic growth maintains a high level of buying power within both the a high level of buying power within both the UK and EU markets, ensuring the Group can UK and EU markets, ensuring the Group can source sufficient products to meet demand. source sufficient products to meet demand. Health and safety procedures are the subject Health and safety procedures are the subject of regular review and external review by health of regular review and external review by health and safety consultants, Safety First. COVID-19 and safety consultants, Safety First. COVID-19 safe procedures continue to be applied. safe procedures continue to be applied. Retention of talent Retention of talent The success of the Group depends to a significant The success of the Group depends to a significant degree upon our senior management team. Failure to degree upon our senior management team. Failure to attract and retain individuals with the right skills, drive attract and retain individuals with the right skills, drive and capability may impact our ability to meet and capability may impact our ability to meet performance expectations. performance expectations. The recruitment and training of talent from within is actively promoted, The recruitment and training of talent from within is actively promoted, when appropriate, with a focus on internal succession management. when appropriate, with a focus on internal succession management. We also endeavour to ensure that talent acquired through acquisitions We also endeavour to ensure that talent acquired through acquisitions is retained. We continue to review our remuneration policies to facilitate is retained. We continue to review our remuneration policies to facilitate the recruitment and retention of talent at the highest calibre, in addition to the recruitment and retention of talent at the highest calibre, in addition to maintaining entrepreneurial drive through the use of responsible incentives. maintaining entrepreneurial drive through the use of responsible incentives. The Group has employee incentive schemes in The Group has employee incentive schemes in place and continues to review the key aspects place and continues to review the key aspects of its incentive arrangements and rewarding of its incentive arrangements and rewarding of staff. of staff. Margin management Margin management Prices may not remain at levels which are both Prices may not remain at levels which are both competitive and achieve adequate margins. There competitive and achieve adequate margins. There is a risk that not all inflationary price increases can is a risk that not all inflationary price increases can be passed on, resulting in lower margins. Rebate be passed on, resulting in lower margins. Rebate income may also not be adequately monitored and income may also not be adequately monitored and accounted for. Both or either may adversely impact accounted for. Both or either may adversely impact financial performance. financial performance. We continuously review and monitor margins and pricing within the We continuously review and monitor margins and pricing within the market by customer, supplier and product. market by customer, supplier and product. Where possible we seek to secure fixed pricing over a longer period with Where possible we seek to secure fixed pricing over a longer period with key trading partners so as to maintain pricing continuity. key trading partners so as to maintain pricing continuity. We regularly review and audit our rebate debtors and income. Monthly We regularly review and audit our rebate debtors and income. Monthly performance is reviewed against rebate reports from suppliers and performance is reviewed against rebate reports from suppliers and internal rebate assumptions are closely monitored. internal rebate assumptions are closely monitored. Volume arrangements with UK manufacturers are carefully maintained. Volume arrangements with UK manufacturers are carefully maintained. Arrangements with key trading partners, including rebates and Arrangements with key trading partners, including rebates and relationships with other key trading partners are an important relationships with other key trading partners are an important consideration when reviewing potential acquisitions. consideration when reviewing potential acquisitions. We continue to monitor and improve the We continue to monitor and improve the accuracy of ordering, scheduling and accuracy of ordering, scheduling and forecasting. Core relationships are maintained forecasting. Core relationships are maintained with key trading partners and, where possible, with key trading partners and, where possible, we seek to agree prices on an annual basis. we seek to agree prices on an annual basis. We also seek to diversify the products We also seek to diversify the products and services offered by the Group, to mitigate and services offered by the Group, to mitigate the impact of margin pressures the impact of margin pressures in specific areas. in specific areas. Loss of a key trading partner The loss of a key customer or supplier could adversely impact business performance. Loss of a key trading partner The loss of a key customer or supplier could adversely impact business performance. Relationships with key trading partners are valued and kept under Relationships with key trading partners are valued and kept under continuous review. We monitor our markets and ensure that all key continuous review. We monitor our markets and ensure that all key trading partners remain up to date with our unique selling propositions. trading partners remain up to date with our unique selling propositions. The impact of potential acquisitions on our key trading relationships are The impact of potential acquisitions on our key trading relationships are carefully assessed as part of our due diligence process. carefully assessed as part of our due diligence process. The active development of new trading The active development of new trading partners and the maintenance of sustainable partners and the maintenance of sustainable long-term relations with our existing partners long-term relations with our existing partners are key performance metrics for senior are key performance metrics for senior managers. managers. Change in employment status of Change in employment status of Group subcontractors Group subcontractors HMRC may reconsider their view on labour only HMRC may reconsider their view on labour only ‘subcontractors’ employment status. This may have a ‘subcontractors’ employment status. This may have a significantadverse impact on overheads, for those significantadverse impact on overheads, for those members of our Group using such contractors in members of our Group using such contractors in their business. their business. Modern Methods of Construction (MMC) Modern Methods of Construction (MMC) MMC, or the factory construction of modular units MMC, or the factory construction of modular units for subsequent on-site assembly, have increased for subsequent on-site assembly, have increased and attracted significant investment from several and attracted significant investment from several market participants. market participants. Extreme weather Extreme weather Extreme weather events, whether in the form of Extreme weather events, whether in the form of excessive rain and flooding or snow, can have a excessive rain and flooding or snow, can have a material impact on clients’ construction sites and material impact on clients’ construction sites and adversely affect turnover. adversely affect turnover. Failure to integrate key acquisitions Failure to integrate key acquisitions Given the Group’s acquisitive nature, there is a risk Given the Group’s acquisitive nature, there is a risk that the Group fails to integrate an acquisition. that the Group fails to integrate an acquisition. Cyber security Cyber security The COVID-19 pandemic led to an increase in The COVID-19 pandemic led to an increase in remote working. There is also a growing risk of remote working. There is also a growing risk of fraudulent attacks on businesses. Such an attack fraudulent attacks on businesses. Such an attack could have the potential to significantly disrupt the could have the potential to significantly disrupt the Group’s operations and result in loss to the business. Group’s operations and result in loss to the business. Environmental and social responsibility Environmental and social responsibility Increasing requirements in respect of environmental Increasing requirements in respect of environmental and social reporting and practices, increase the risk and social reporting and practices, increase the risk of an adverse impact on the Group’s reputation, of an adverse impact on the Group’s reputation, should expectations not be met or regulations should expectations not be met or regulations adhered to. adhered to. Such a change, if made, would in our view be industry-wide. As Such a change, if made, would in our view be industry-wide. As adversely affected contractual obligations are completed, we would adversely affected contractual obligations are completed, we would expect new pricing in the market to reflect increased overheads. expect new pricing in the market to reflect increased overheads. The Group reviews the employment status of its subcontractors to The Group reviews the employment status of its subcontractors to ensure compliance with the latest legislation. ensure compliance with the latest legislation. Group businesses potentially affected will Group businesses potentially affected will endeavour to maintain robust margins so as to endeavour to maintain robust margins so as to mitigate any impact on overheads. mitigate any impact on overheads. We continue to monitor the scale and use of MMC and the approach We continue to monitor the scale and use of MMC and the approach of Local Authority planners to their use and how members of the Group of Local Authority planners to their use and how members of the Group might be affected were their products, for example roof coverings, to fall might be affected were their products, for example roof coverings, to fall into the factory build stage of such units. into the factory build stage of such units. We seek to ensure that the Group has close We seek to ensure that the Group has close relationships with builders using MMC. relationships with builders using MMC. The Group’s geographical diversity across the UK reduces the impact of extreme regional weather events. The Group’s geographical diversity across the UK reduces the impact of extreme regional weather events. We continue to seek to increase our We continue to seek to increase our geographical reach through strategic geographical reach through strategic acquisitions and organic growth. acquisitions and organic growth. The Group completes both financial and legal due diligence, prior to The Group completes both financial and legal due diligence, prior to acquisition, to mitigate this risk. acquisition, to mitigate this risk. The Group Management Board executives also meet with the senior The Group Management Board executives also meet with the senior management of the company being acquired to ensure they will fit in management of the company being acquired to ensure they will fit in with the Group. with the Group. Following acquisition, the Group ensures compliance with its Following acquisition, the Group ensures compliance with its systems and reporting, while also undertaking regular business and systems and reporting, while also undertaking regular business and performance reviews. performance reviews. The Group has recovery plans in place, and ensures systems are up to date with the latest cyber protection. The Group has recovery plans in place, and ensures systems are up to date with the latest cyber protection. Ongoing updates to legislation and social expectations are discussed at regular senior management meetings to ensure the Group is aware of any key changes. Ongoing updates to legislation and social expectations are discussed at regular senior management meetings to ensure the Group is aware of any key changes. We continue to monitor existing acquisitions We continue to monitor existing acquisitions and maintain the due diligence discipline. and maintain the due diligence discipline. Group policies and practices also undergo Group policies and practices also undergo continuous review, to work towards a Group continuous review, to work towards a Group wide approach as quickly as possible. wide approach as quickly as possible. We continuously monitor IT systems in place We continuously monitor IT systems in place to ensure they are up to date and regularly to ensure they are up to date and regularly updated with the latest security protection. updated with the latest security protection. Ongoing training is also provided so staff Ongoing training is also provided so staff maintain awareness of the risks and appropriate maintain awareness of the risks and appropriate action to take should an issue arise. action to take should an issue arise. We monitor the impact that the Group’s We monitor the impact that the Group’s operations have on the environment and its operations have on the environment and its stakeholders to ensure compliance with all stakeholders to ensure compliance with all appropriate regulations. appropriate regulations. We also carry out checks on suppliers to We also carry out checks on suppliers to ensure that they are also maintaining the ensure that they are also maintaining the high standards expected. high standards expected. S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T 21 21 Section 172(1) statement Section 172(1) statement In compliance with the Companies Act 2006, the Board of Directors are In compliance with the Companies Act 2006, the Board of Directors are required to act in accordance with a set of general duties. During the year to required to act in accordance with a set of general duties. During the year to 31 March 2021, the Board of Directors consider that they have, individually 31 March 2021, the Board of Directors consider that they have, individually and collectively, acted in a way they consider, in good faith, would be most and collectively, acted in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its shareholders likely to promote the success of the Company for the benefit of its shareholders as a whole, having regard to a number of broader matters including the as a whole, having regard to a number of broader matters including the likely consequence of decisions for the long-term and the Company’s wider likely consequence of decisions for the long-term and the Company’s wider relationships. In doing so, the Board has had regard to the matters contained relationships. In doing so, the Board has had regard to the matters contained in section 172(1) (a)-(f) of the Companies Act 2006. in section 172(1) (a)-(f) of the Companies Act 2006. The Directors have regard, amongst other matters, to the: The Directors have regard, amongst other matters, to the: • likely consequences of any decisions in the long-term; • likely consequences of any decisions in the long-term; • interests of the Company’s employees; • interests of the Company’s employees; • need to foster the Company’s business relationships with • need to foster the Company’s business relationships with suppliers, customers and others; suppliers, customers and others; • impact of the Company’s operations on the community • impact of the Company’s operations on the community and environment; and environment; • desirability of the Company maintaining a reputation for • desirability of the Company maintaining a reputation for high standards of business conduct; and high standards of business conduct; and • need to act fairly between members of the Company. • need to act fairly between members of the Company. This statement focuses on matters material to shareholders. This statement focuses on matters material to shareholders. The Group’s key resources and relationships are detailed in The Group’s key resources and relationships are detailed in the Business Model on page 10. The Board recognises the the Business Model on page 10. The Board recognises the importance of building and maintaining relationships with its importance of building and maintaining relationships with its key stakeholders, and considering the external impact of the key stakeholders, and considering the external impact of the Group’s operations, in order to achieve long-term success. Group’s operations, in order to achieve long-term success. The Board’s understanding of the interests of the Group’s The Board’s understanding of the interests of the Group’s stakeholders is informed by the Board’s programme stakeholders is informed by the Board’s programme of stakeholder engagement. of stakeholder engagement. Matters that have impacted key decisions and strategies Matters that have impacted key decisions and strategies during the year ended 31 March 2021 are set out in the during the year ended 31 March 2021 are set out in the following paragraphs. following paragraphs. Strategy The Directors also take into account the views and interests of a wider set of stakeholders when making decisions. During the year, the Board received information to enable them to consider the impact of the Company’s decisions on its key stakeholders. This information was distributed in a range of different formats, including through reports and presentations on our financial and operational performance, non financial KPIs and risk. We acknowledge that every decision we make will not necessarily result in a positive outcome for all of our stakeholders and the Board frequently has to make difficult decisions based on competing priorities. By considering the Company’s purpose and values, together with its strategic priorities and having a process in place for decision making, we do, however, aim to balance those different perspectives. 22 22 Acquisitions During the year, the Group acquired two companies. The acquisitions provided the Group with additional scale, geographical diversity and additional product ranges. The acquisitions provided enhanced sales opportunities and revenue generation, providing returns to shareholders in the longer term and enhanced employment opportunities as part of a wider Group. Prior to the acquisitions, the Board considered the effects they would have on the Group’s gearing and creditors but reached the conclusion that creditors’ interests would not be impacted significantly and any impact would be offset by the positive effects of the acquisition on the Group. Link to strategy: Acquisitions, Geographical Expansion and Product Expansion Retention of Staff Promoting the success of our business for the benefit of our shareholders, whether large institutions or small retail investors, is fundamental and has to be aligned with employees. The Board believes that the issue of CSOP shares to all staff that had been with the Group over 2 years at the time of the Company’s IPO, and the issue of LTIP awards during the year, ensures alignment of interest between the shareholders and employees. Remuneration packages for all employees are also reviewed regularly. Link to strategy: Organic Growth Impact on the Environment and the Community The Group is committed to reducing the environmental impact of its operations and to making a positive impact in the community. Further information on the steps taken to reduce the environmental impact of the Group’s operations, and its charitable activities, are set out on in the Corporate and Social Responsibility statement on pages 28 and 29. S T R A T E G I C R E P O R T 23 Acquisitions Acquisitions During the year, the Group acquired two During the year, the Group acquired two companies. The acquisitions provided the companies. The acquisitions provided the Group with additional scale, geographical Group with additional scale, geographical diversity and additional product ranges. diversity and additional product ranges. The acquisitions provided enhanced sales The acquisitions provided enhanced sales opportunities and revenue generation, opportunities and revenue generation, providing returns to shareholders in the providing returns to shareholders in the longer term and enhanced employment longer term and enhanced employment opportunities as part of a wider Group. opportunities as part of a wider Group. Prior to the acquisitions, the Board Prior to the acquisitions, the Board considered the effects they would have considered the effects they would have on the Group’s gearing and creditors but on the Group’s gearing and creditors but reached the conclusion that creditors’ reached the conclusion that creditors’ interests would not be impacted interests would not be impacted significantly and any impact would significantly and any impact would be offset by the positive effects of the be offset by the positive effects of the acquisition on the Group. acquisition on the Group. Link to strategy: Acquisitions, Geographical Link to strategy: Acquisitions, Geographical Expansion and Product Expansion Expansion and Product Expansion Retention of Staff Retention of Staff Promoting the success of our business for Promoting the success of our business for the benefit of our shareholders, whether the benefit of our shareholders, whether large institutions or small retail investors, large institutions or small retail investors, is fundamental and has to be aligned is fundamental and has to be aligned with employees. The Board believes with employees. The Board believes that the issue of CSOP shares to all staff that the issue of CSOP shares to all staff that had been with the Group over 2 that had been with the Group over 2 years at the time of the Company’s IPO, years at the time of the Company’s IPO, and the issue of LTIP awards during and the issue of LTIP awards during the year, ensures alignment of interest the year, ensures alignment of interest between the shareholders and employees. between the shareholders and employees. Remuneration packages for all employees Remuneration packages for all employees are also reviewed regularly. are also reviewed regularly. Link to strategy: Organic Growth Link to strategy: Organic Growth Impact on the Environment Impact on the Environment and the Community and the Community The Group is committed to reducing the The Group is committed to reducing the environmental impact of its operations environmental impact of its operations and to making a positive impact in the and to making a positive impact in the community. Further information on the community. Further information on the steps taken to reduce the environmental steps taken to reduce the environmental impact of the Group’s operations, and impact of the Group’s operations, and its charitable activities, are set out on in its charitable activities, are set out on in the Corporate and Social Responsibility the Corporate and Social Responsibility statement on pages 28 and 29. statement on pages 28 and 29. S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T 23 23 Strategy Strategy The Directors also take into account the views and interests of a wider The Directors also take into account the views and interests of a wider set of stakeholders when making decisions. During the year, the Board set of stakeholders when making decisions. During the year, the Board received information to enable them to consider the impact of the received information to enable them to consider the impact of the Company’s decisions on its key stakeholders. This information was Company’s decisions on its key stakeholders. This information was distributed in a range of different formats, including through reports distributed in a range of different formats, including through reports and presentations on our financial and operational performance, and presentations on our financial and operational performance, non financial KPIs and risk. We acknowledge that every decision we non financial KPIs and risk. We acknowledge that every decision we make will not necessarily result in a positive outcome for all of our make will not necessarily result in a positive outcome for all of our stakeholders and the Board frequently has to make difficult decisions stakeholders and the Board frequently has to make difficult decisions based on competing priorities. By considering the Company’s purpose based on competing priorities. By considering the Company’s purpose and values, together with its strategic priorities and having a process and values, together with its strategic priorities and having a process in place for decision making, we do, however, aim to balance those in place for decision making, we do, however, aim to balance those different perspectives. different perspectives. Chief Financial Officer’s Review £181.1m £38.0m £17.5m £11.2m Revenue decline of 3.2% to £181.1 million, with like-for-like decline of 13.2% Gross Profit increased by 0.8% to £38.0m. Adjusted EBITDA decreased by 10.1% to £17.5m Profit Before Tax decreased by 8.4% from 2020 The financial results for the year ended 31 March 2021 reflect the impact of COVID-19 on the business. This impact was mitigated by careful cost control and the utilisation of around £1.3 million of the Government’s Coronavirus Job Retention Scheme (CJRS). Overall business performance is shown in our key performance indicators on page 16. Revenue Revenue totalled £181.1 million for the year ended 31 March 2021. This represented a decrease of 3.2% compared to the previous year (2020: £187.1 million). Division Bricks and Building Materials Roofing Services Heating, Plumbing and Joinery Total 2021 £m 144.2 12.4 24.5 181.1 2020 £m 144.0 17.1 26.1 187.1 % Change 0.1 (27.5) (6.1) (3.2) Sales performance was very different in the two halves of the year, following recovery from the initial COVID-19 related lockdown, as shown in the table below, on a like-for-like basis, as a % change from the equivalent period in the prior year. Bricks and Building Materials % Change Roofing Services % Change Heating, Plumbing and Joinery % Change Total % Change H1 H2 Full year (30.4) 8.9 (12.2) (49.3) (1.3) (28.3) (24.3) 5.2 (9.6) (31.3) 7.6 (13.2) Gross Profit Gross profit for the year increased to £38.0 million from £37.7 million, with a slight improvement in gross margin of 0.8% to 21.0% (2020: 20.1%) Adjusted Profit and Adjusted EBITDA Statutory profit before tax of £11.2 million (2020: £12.2 million) includes other items of £3.8 million (2020: £4.8 million) which are not considered to be part of the Group’s underlying operations. 24 These are analysed as follows: Statutory profit before tax Acquisition costs Share based payment expense 2021 £’000 2020 £’000 11,165 12,184 105 338 - 56 Amortisation of intangible assets 3,619 3,059 Impairment of goodwill Unwinding of discount on contingent consideration Interest payable on loan notes Interest payable on deferred consideration Share of post-tax losses of equity accounted associates Fair value (gains)/ losses on contingent consideration Exceptional income Exceptional expenses Total other items before tax Adjusted profit before tax - 127 - - 6 16 227 977 13 32 (360) 45 - - (2,000) 2,407 3,835 4,832 15,000 17,016 Further details regarding the above other items are disclosed in note 14 to the financial statements. Adjusted EBITDA is the adjusted profit before tax prior to the addition of finance income and deduction of depreciation, amortisation and finance expenses. Adjusted EBITDA decreased by 10.1% to £17.5 million for the year ended 31 March 2021. Detailed segmental analysis is per note 6 of the financial statements. The COVID-19 pandemic has resulted in a decrease across all divisions on a like for like basis. However, as reported, the Bricks and Building Materials division adjusted EBITDA has increased from £11.5 million to £11.7 million, following acquisitions that were made during the current year and part way through the previous year. Taxation The charge for taxation was £1.5 million (2020: £2.9 million), an effective rate of taxation (Tax expense divided by Profit Before Tax) of 13.5% (2020: 23.7%). The effective rate for the year falls below the main rate of corporation tax (19%), due to research and development tax credits being claimed during the year in relation to prior years. The 2020 effective tax rate was higher than the main rate of tax following the remeasurement of deferred tax after the announcement of a change in tax rate from 17% to 19%. Earnings Per Share Basic EPS for the year was 4.19p (2020: 4.79p). The Group also reports an adjusted underlying EPS which adjusts for the impact of the other items analysed in the table above. Adjusted EPS has fallen from 7.27p to 5.56p per share. Dividends In light of the strength of the Group’s trading performance since the easing of the initial COVID-19 related lockdown measures for the construction industry and also in recognition of the strength of the balance sheet at the year end, the Board is recommending a final dividend of 1.0850p per share. Subject to approval by shareholders, the final dividend will be paid on 23 September 2021, with a record date of 27 August 2021 and an ex-dividend date of 26 August 2021. Cash Flow and Net Debt Operating cash flows before movements in working capital decreased to £17.4 million from £21.0 million in 2020. Cash generated from operations decreased to £13.1 million from £20.9 million. Inventories increased primarily as a result of the Group’s preparations for Brexit. The initial COVID-19 lockdown hampered sales in the final month of the 2020 financial year whilst in comparison the Group was fully trading in March 2021, resulting in a higher receivables balance as at 31 March 2021. Creditor payments were also normalised following the staggered payments at 31 March 2020 during lockdown. Additional working capital requirements are also included for the new acquisitions, since their addition to the Group. At 31 March 2021, net debt (borrowings less cash) was £7.3 million which compares to net cash of £2.3 million at the prior year end. This is after additional investment in property, plant and equipment of £5.7 million (2020: £0.9 million), tax paid of £2.4 million (2020: £4.7 million), the initial payments for two new subsidiaries of £2.5 million (2020: £11.4 million) and the payment of deferred consideration, in relation to prior year acquisitions, of £7.9 million (2020: £5.9 million). Dividends of £4.5 million (2020: £2 million) were also paid in the year. We continue to expect that the Brickability Group will remain a business that is cash generative. Bank Facilities At the year end, the Group had debt facilities with HSBC, totalling £30 million. This consists of a £25 million revolving credit facility repayable in full in March 2023 (with the option of two one-year extensions) and a £5 million overdraft facility until March 2023. Since the year end, the Group has re-financed into a £60 million revolving credit facility, on a club basis with HSBC and Barclays, that runs for 3 years (with the option of two one-year extensions). The Group also has access to an additional £25 million accordion. Subsequent Events The Group completed the acquisition of Taylor Maxwell (2017) Limited in June 2021, for consideration of up to £63 million. Leadcraft Limited was also acquired in July 2021, for consideration initially expected to be up to £5.5 million. Further investment has also been made in opening a new branch, within the U Plastics business, with a new property purchased for £2.4 million. Full details of events occurring since the year end are disclosed in note 39 to the financial statements. Going Concern The directors are confident, having made appropriate enquiries, that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. Further details concerning the assessment of going concern are outlined within the Going Concern and Outlook section on pages 26 and 27. Mike Gant Chief Financial Officer 4 August 2021 S T R A T E G I C R E P O R T 25 Going Concern and Outlook Going Concern and Outlook The business activities of the Group, its current operations and factors likely The business activities of the Group, its current operations and factors likely to affect its future development, performance and position are set out in the Chief to affect its future development, performance and position are set out in the Chief Executive’s Review on pages 8 and 9 and in the Chief Financial Officer’s Review on Executive’s Review on pages 8 and 9 and in the Chief Financial Officer’s Review on pages 24 and 25. In addition, note 33 of the financial statements includes an analysis of pages 24 and 25. In addition, note 33 of the financial statements includes an analysis of the Group’s financial risk management objectives, details of its financial instruments and hedging the Group’s financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit and liquidity risk. activities and its exposures to credit and liquidity risk. The Group has a formalised process of monthly reporting and review, and information is provided to the Board The Group has a formalised process of monthly reporting and review, and information is provided to the Board of Directors in order to allow sufficient review to be performed to enable the Board to ensure the adequacy of Directors in order to allow sufficient review to be performed to enable the Board to ensure the adequacy of resources available for the Group to achieve its business objectives and in particular the impact of COVID-19. of resources available for the Group to achieve its business objectives and in particular the impact of COVID-19. Budget scenarios have been prepared Budget scenarios have been prepared comparing a number of outcomes, comparing a number of outcomes, however, the Board focussed on three however, the Board focussed on three cases to determine how COVID-19 could cases to determine how COVID-19 could continue to impact the Group over the 12 continue to impact the Group over the 12 months following approval of the financial months following approval of the financial statements. The three scenarios assessed statements. The three scenarios assessed a percentage drop in sales compared to a percentage drop in sales compared to the Group’s trading forecasts as follows: the Group’s trading forecasts as follows: a) 40%; b) 50% and c) 60%. The three a) 40%; b) 50% and c) 60%. The three scenarios represent various levels of scenarios represent various levels of reducing trading in response to local reducing trading in response to local lockdowns and periods of total lockdown lockdowns and periods of total lockdown enforced by the Government in response to enforced by the Government in response to rising cases of COVID-19. In determining rising cases of COVID-19. In determining these the Group considered macro- these the Group considered macro- economic and industry wide projections as economic and industry wide projections as well as matters specific to the Group. well as matters specific to the Group. The models demonstrated that annual The models demonstrated that annual turnover would have to fall by 50% before turnover would have to fall by 50% before the Group would breach bank covenants. the Group would breach bank covenants. If turnover reduced evenly over the period, If turnover reduced evenly over the period, bank covenants would be in breach by bank covenants would be in breach by 31 December 2021. However, given the 31 December 2021. However, given the Group’s experience of trading through Group’s experience of trading through various restrictions, strong post year end various restrictions, strong post year end trading results and the current market trading results and the current market expectations, this is considered extremely expectations, this is considered extremely unlikely. If the situation arose whereby unlikely. If the situation arose whereby turnover was sustained at this low level, turnover was sustained at this low level, significant cost cutting measures would significant cost cutting measures would 26 26 also be undertaken to accommodate the also be undertaken to accommodate the reduced level of turnover thereby increasing reduced level of turnover thereby increasing EBITDA. The above assessment was also EBITDA. The above assessment was also carried out based on the facilities in place carried out based on the facilities in place at the year end. As noted later in this report, at the year end. As noted later in this report, the position has been re-assessed following the position has been re-assessed following an acquisition and increased bank facility an acquisition and increased bank facility secured post year end. secured post year end. As a result of the COVID-19 Pandemic on As a result of the COVID-19 Pandemic on the national economy, the Group’s supply the national economy, the Group’s supply chain has become challenged in terms chain has become challenged in terms of product availability. Through bolt on of product availability. Through bolt on acquisitions in recent years the Group has acquisitions in recent years the Group has maintained very strong buying power with maintained very strong buying power with European factories who are able to bridge European factories who are able to bridge the supply gap to satisfy the demands of the the supply gap to satisfy the demands of the UK housing market. UK housing market. Due to the supply chain issues the Group Due to the supply chain issues the Group is also experiencing increased costs from is also experiencing increased costs from suppliers. The board monitors price suppliers. The board monitors price increases carefully and ensures that steps increases carefully and ensures that steps are taken to preserve the operating margins are taken to preserve the operating margins returned by the Group. returned by the Group. The Group sells throughout the UK and The Group sells throughout the UK and has a spread of customers, with credit has a spread of customers, with credit insurance covering the main brick business. insurance covering the main brick business. The Group sources a range of products The Group sources a range of products from third-party suppliers both in UK and from third-party suppliers both in UK and Europe. During the year, the Group had Europe. During the year, the Group had average net debt of £5 million and, at the average net debt of £5 million and, at the year end, had unutilised bank facilities with year end, had unutilised bank facilities with available funding of £14 million. available funding of £14 million. As disclosed in note 39, since the year end As disclosed in note 39, since the year end the Group acquired the entire share capital the Group acquired the entire share capital of Taylor Maxwell (2017) Limited. The of Taylor Maxwell (2017) Limited. The Group raised equity finance of £55 million Group raised equity finance of £55 million to fund the acquisition and replaced the to fund the acquisition and replaced the existing bank debt facility of £30 million existing bank debt facility of £30 million with a new facility of £60 million. The initial with a new facility of £60 million. The initial cash consideration of £40 million for the cash consideration of £40 million for the acquisition has been settled (aside from acquisition has been settled (aside from an agreed retention) and the Group has an agreed retention) and the Group has significant headroom within the available significant headroom within the available banking facilities. Budget scenarios, banking facilities. Budget scenarios, incorporating this acquisition, have been incorporating this acquisition, have been prepared based on expected trading to prepared based on expected trading to assess the impact on banking covenants assess the impact on banking covenants in the period covering 12 months from in the period covering 12 months from approval of the financial statements. Due approval of the financial statements. Due to the available headroom in the facility, to the available headroom in the facility, no breaches of banking covenants are no breaches of banking covenants are expected during the period. expected during the period. After making enquiries and reviewing After making enquiries and reviewing budgets and forecasts for the Group, the budgets and forecasts for the Group, the Directors have a reasonable expectation Directors have a reasonable expectation that the Company and the Group have that the Company and the Group have adequate resources to continue in adequate resources to continue in operational existence for the foreseeable operational existence for the foreseeable future. Accordingly, they continue to adopt future. Accordingly, they continue to adopt the going concern basis in preparing the the going concern basis in preparing the Annual Report and Accounts. Annual Report and Accounts. Outlook The Group has successfully traded through a year of a global pandemic. We look forward to the financial year ended 31 March 2022 with cautious optimism and, at this very early stage of the year, anticipate trading will be in line with expectations. Our strategy and core values remain unchanged. We are focused on driving profitable sales growth organically and through acquisitions and enhancing our operational capabilities and efficiency. As such, we remain confident in our ability to create shareholder value in the short, medium and long-term. S T R A T E G I C R E P O R T 27 Outlook Outlook The Group has successfully traded through a year of a global pandemic. We look forward to the financial year ended 31 March The Group has successfully traded through a year of a global pandemic. We look forward to the financial year ended 31 March 2022 with cautious optimism and, at this very early stage of the year, anticipate trading will be in line with expectations. 2022 with cautious optimism and, at this very early stage of the year, anticipate trading will be in line with expectations. Our strategy and core values remain unchanged. We are focused on driving profitable sales growth organically and through Our strategy and core values remain unchanged. We are focused on driving profitable sales growth organically and through acquisitions and enhancing our operational capabilities and efficiency. acquisitions and enhancing our operational capabilities and efficiency. As such, we remain confident in our ability to create shareholder value in the short, medium and long-term. As such, we remain confident in our ability to create shareholder value in the short, medium and long-term. S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T 27 27 Corporate and Social Responsibility We are committed to fairness, integrity and doing the right thing. We believe in treating our people well and giving back to the communities where our people work. Safety and Well-being The safety and well-being of colleagues is the Group’s first priority. During the COVID-19 pandemic, we have taken all extra precautions to keep our sites clean and sanitised and have put in procedures to keep our workforce safe. Some sites were initially closed and then gradually reopened under secure and socially distanced conditions. Those employees who could work from home did so. The Group promotes a positive health and safety culture throughout the business to ensure that all our people consider health, safety and welfare issues while at work. A workforce that is safe and physically & mentally healthy is key to the success of the Group. All new employees receive in-house health and safety training with further training undertaken as the employee role or need requires. All our processes and procedures are reviewed regularly by an external agency. Diversity and Gender Building a diverse workforce and maintaining an inclusive workplace is vitally important to the Group. This ensures everyone feels welcome and valued. As a Group we strive to eliminate any gender bias in our pay and employment policies and practices. We have a robust recruitment policy that the Group will recruit, train and reward based on merit and provide opportunities for our employees to fulfil their ambitions regardless of gender. Our People Growing our business generates opportunities for our employees and creates value for our shareholders and stakeholders. Our focus is to create a high-performance entrepreneurial culture through effective employee engagement, people development plans and effective resource management. Our people are our key asset. The Group’s performance and its success within our marketplace are directly related to the effectiveness of our people, who deliver the high-quality products and provide exceptional services. The Group aims to attract, retain and motivate the highest calibre of employees. We recognise highly competent and engaged staff is key for customers. Our customers are central to our success and the day to day relationships staff have with customers is key. Many of these relationships have been built over many years so it is important that we maintain a high employee retention rate. A variety of methods are used to engage with employees. Under normal circumstances, this includes office and team meetings and an annual in-house conference. During the COVID-19 pandemic, we have primarily engaged through online communications and virtual meetings. We use one or more of these channels to brief employees about our business performance and financial and economic factors affecting us. The Group has policies for dealing with gifts, hospitality, bribery, corruption, modern slavery, whistle-blowing and inside information. Training and Development Developing talent and supporting diversity across our Group helps to ensure that we have the best teams motivated to deliver our goals. In an industry that is keen to attract young talent, development schemes allow the Group to retain and nurture new staff. The Group has need-focused on recruiting younger staff to ensure the skills are transferred but also to help with succession planning. A number of the acquisitions recently made have had young management teams who we hope will develop over time to provide the talent the Group needs as growth continues. 28 Reward and Recognition Key to the retention of our employees is recognising and rewarding their hard work. Our reward strategy aims to align the interests of the employees and the Company. As a sales organisation, the rewards are based on bonus/commission based on sales achieved for our sales representatives. As part of the IPO, staff that had been with the Group for more than 2 years received options over shares to ensure staff interests are aligned with the Group. LTIP awards were also granted during the year. Community and Social The communities where our offices and premises are based are important to us and we try to encourage our employees to make a difference within our local communities by being involved in local charities. Most of our financial contributions to charities come from the efforts and personal involvement of our employees. During the year ended 31 March 2021 the Company made donations of £4,899 to charities (2020: £14,283). In addition, we have set up the Brickability Group Foundation which will raise funds to support charities close to the Group’s areas of operation. Ethics and Relationships Our vision to be a leading specialist supplier in the house- building sector will only be maintained through a culture of honesty, integrity and openness and by respecting human rights and the interests of our employees, customers and third parties. Relations with Customers The Group is committed to putting its customers at the heart of everything it does by providing high quality products and service. All employees are expected to behave respectfully and honestly in all their dealings with customers and the general public. Relations with Suppliers The Group expects its suppliers to adhere to business principles consistent with the Group’s own. Suppliers are expected to adopt and implement acceptable health and safety, environmental, product quality, labour, human rights, social and legal standards. Conformance to these standards is assessed by on-site supplier visits on a regular basis. Environmental The Group is dedicated to being environmentally responsible through our commitment to eliminate waste and wasteful practices. We strive for operational excellence whilst reducing environmental impact. Policies are designed and implemented to reduce damage that might be caused by the Group’s activities. Initiatives to reduce the Group’s impact on the environment include the recycling of waste, reducing carbon emissions and utilisation of recyclable packaging materials. Carbon Dioxide Equivalent (CO2e) Tonnes 2021 2020 Scope 1 Scope 2 94.8 22.3 25.8 29.6 Intensity Tonnes of CO2e from scope 1 and 2 sources per £m of turnover 2.00 0.79 Brick-ability Limited, being the largest subsidiary, has reported on all the emissions’ sources required under the Companies Act 2006 (Strategic Report and Directors Reports) Regulation 2013. Other parts of the Group are outside the reporting requirement. Scope 1 and 2 emissions are calculated using the UK Government Conversion Factors for Company Reporting 2021 on an operational control basis. 35% (2020: 86%) of Scope 1 and 2 data is from measured sources, with the remainder extrapolated from distance travelled. The increase in Scope 1 in 2021 follows the addition of two lorries used for distribution from the Alfiam warehouse. The Strategic Report on pages 4 to 29 was reviewed and approved by the Board on 4 August 2021. Alan Simpson Chief Executive Officer S T R A T E G I C R E P O R T 29 Board of Directors Board of Directors JOHN RICHARDS JOHN RICHARDS Non-Executive Chairman Non-Executive Chairman ALAN SIMPSON ALAN SIMPSON Chief Executive Officer Chief Executive Officer MIKE GANT MIKE GANT Chief Financial Officer Chief Financial Officer CLIVE NORMAN Non-Executive Director DAVID SIMPSON Non-Executive Director GILES BEALE Non-Executive Director John Richards joined the building John Richards joined the building materials industry after serving materials industry after serving a graduate traineeship with the a graduate traineeship with the Delta Engineering Group. He Delta Engineering Group. He served at Ibstock Brick for 31 years served at Ibstock Brick for 31 years as Sales and Marketing Director, as Sales and Marketing Director, Director and General Manager Director and General Manager and as Managing Director of and as Managing Director of several of the group’s subsidiaries. several of the group’s subsidiaries. He now serves as Chairman of He now serves as Chairman of ADF, a leading supplier of trailers ADF, a leading supplier of trailers and logistics to the TV and film and logistics to the TV and film industry, Chairman of JR and M industry, Chairman of JR and M Investments, a supplier of finance Investments, a supplier of finance to contractors, and is a Director of to contractors, and is a Director of Birmingham Moseley Rugby Club. Birmingham Moseley Rugby Club. John joined the Board in March John joined the Board in March 2018 as Chairman. 2018 as Chairman. Alan Simpson joined Building Alan Simpson joined Building Materials Distribution with Taylor Materials Distribution with Taylor Maxwell in 1983 and five years Maxwell in 1983 and five years later moved to Brick-ability. He later moved to Brick-ability. He became Sales Director and a became Sales Director and a shareholder, graduating to the shareholder, graduating to the position of Managing Director. position of Managing Director. He founded Towelrads, Frazer He founded Towelrads, Frazer Simpson and FSN Doors, all of Simpson and FSN Doors, all of which are now part of the Group. which are now part of the Group. Alan became a Director in Alan became a Director in 1996 before stepping up to 1996 before stepping up to Chief Executive Officer of the Chief Executive Officer of the Group following the successful Group following the successful management buyout of management buyout of Peter Milton, the founder of Peter Milton, the founder of the Brickability business, in the Brickability business, in September 2016. September 2016. Mike is a Chartered Mike is a Chartered Management Accountant with Management Accountant with an MBA from Nottingham an MBA from Nottingham Business School. Prior to joining, Business School. Prior to joining, he served as Group CFO at he served as Group CFO at Walker Greenbank PLC. Mike is Walker Greenbank PLC. Mike is a highly experienced CFO and a highly experienced CFO and brings a breadth of financial, brings a breadth of financial, strategic and M&A experience strategic and M&A experience to the Group from his previous to the Group from his previous roles at Bass plc, Marstons plc, roles at Bass plc, Marstons plc, Geest plc, Constellation Brands Geest plc, Constellation Brands Inc, Britvic plc and Walker Inc, Britvic plc and Walker Greenbank plc. Mike joined the Greenbank plc. Mike joined the Board in April 2021. Board in April 2021. Our Board of Directors has exceptional Our Board of Directors has exceptional experience within the supply and manufacture experience within the supply and manufacture of building materials for the construction industry. of building materials for the construction industry. Within the Group businesses there is a large pool Within the Group businesses there is a large pool of talented people who bring dynamism and of talented people who bring dynamism and growth to our operations. growth to our operations. Clive Norman has over 30 years’ experience in the radiator import and service business throughout both Europe and the UK. As the Vice-President of Delonghi Heating and CEO of Ferroli, a commercial producer of boilers, radiators, towelrails and air conditioning, he oversaw sales growth to substantial numbers. Clive joined the Board in March 2018. David Simpson, an Accountant by profession, has significant experience in the housebuilding sector, having worked with luxury home developer, Millgate for over 17 years, including as Managing Director for nine years. He was appointed to the Executive Committee Board of Countryside Properties plc from 2014 to 2018, following its merger with Millgate. David joined the Board in July 2019. Giles Beale, a Solicitor by profession, has over 30 years’ experience of working with listed and quoted companies and their corporate governance. As a Corporate Lawyer he also has significant experience of mergers and acquisitions and related matters both domestically and internationally. He is a Director and Trustee of the Kairos Community Trust and a Freeman of the City of London. Giles joined the Board in August 2019. Number of Meetings Held J Richards (Chairman) A Simpson (CEO) M Gant (CFO)* G Beale (Non-Executive) C Norman (Non-Executive) D Simpson (Non-Executive)** Board 12 12 12 12 12 11 N/A Audit Committee Remuneration Committee Nomination Committee 4 4 N/A N/A 4 4 N/A 4 4 N/A N/A 4 4 N/A N/A N/A 1 1 1 1 1 * Mike Gant joined the Board in April 2021 and therefore attended meetings prior to that date as a guest. ** David Simpson was unable to make one meeting due to a diary conflict. 30 30 C O R P O R A T E G O V E R N A N C E 31 CLIVE NORMAN CLIVE NORMAN Non-Executive Director Non-Executive Director DAVID SIMPSON DAVID SIMPSON Non-Executive Director Non-Executive Director GILES BEALE GILES BEALE Non-Executive Director Non-Executive Director Clive Norman has over 30 years’ Clive Norman has over 30 years’ experience in the radiator import experience in the radiator import and service business throughout and service business throughout both Europe and the UK. As both Europe and the UK. As the Vice-President of Delonghi the Vice-President of Delonghi Heating and CEO of Ferroli, a Heating and CEO of Ferroli, a commercial producer of boilers, commercial producer of boilers, radiators, towelrails and air radiators, towelrails and air conditioning, he oversaw sales conditioning, he oversaw sales growth to substantial numbers. growth to substantial numbers. Clive joined the Board in Clive joined the Board in March 2018. March 2018. David Simpson, an Accountant David Simpson, an Accountant by profession, has significant by profession, has significant experience in the housebuilding experience in the housebuilding sector, having worked with sector, having worked with luxury home developer, Millgate luxury home developer, Millgate for over 17 years, including as for over 17 years, including as Managing Director for nine Managing Director for nine years. He was appointed to the years. He was appointed to the Executive Committee Board Executive Committee Board of Countryside Properties plc of Countryside Properties plc from 2014 to 2018, following from 2014 to 2018, following its merger with Millgate. David its merger with Millgate. David joined the Board in July 2019. joined the Board in July 2019. Giles Beale, a Solicitor by Giles Beale, a Solicitor by profession, has over 30 years’ profession, has over 30 years’ experience of working with listed experience of working with listed and quoted companies and and quoted companies and their corporate governance. As their corporate governance. As a Corporate Lawyer he also has a Corporate Lawyer he also has significant experience of mergers significant experience of mergers and acquisitions and related and acquisitions and related matters both domestically and matters both domestically and internationally. He is a Director internationally. He is a Director and Trustee of the Kairos and Trustee of the Kairos Community Trust and a Freeman Community Trust and a Freeman of the City of London. Giles joined of the City of London. Giles joined the Board in August 2019. the Board in August 2019. Number of Meetings Held Number of Meetings Held J Richards (Chairman) J Richards (Chairman) A Simpson (CEO) A Simpson (CEO) M Gant (CFO)* M Gant (CFO)* G Beale (Non-Executive) G Beale (Non-Executive) C Norman (Non-Executive) C Norman (Non-Executive) D Simpson (Non-Executive)** D Simpson (Non-Executive)** Board Board 12 12 12 12 12 12 N/A N/A 12 12 12 12 11 11 Audit Audit Committee Committee Remuneration Remuneration Committee Committee Nomination Nomination Committee Committee 4 4 4 4 N/A N/A N/A N/A 4 4 N/A N/A 4 4 4 4 4 4 N/A N/A N/A N/A 4 4 N/A N/A 4 4 1 1 1 1 N/A N/A N/A N/A 1 1 1 1 1 1 * Mike Gant joined the Board in April 2021 and therefore attended meetings prior to that date as a guest. ** David Simpson was unable to make one meeting due to a diary conflict. * Mike Gant joined the Board in April 2021 and therefore attended meetings prior to that date as a guest. ** David Simpson was unable to make one meeting due to a diary conflict. C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 31 31 Group Management Board JOHN RICHARDS Non-Executive Chairman ALAN SIMPSON Chief Executive Officer MIKE GANT Chief Financial Officer John Richards joined the building materials industry after serving a graduate traineeship with the Delta Engineering Group. He served at Ibstock Brick for 31 years as Sales and Marketing Director, Director and General Manager and as Managing Director of several of the group’s subsidiaries. He now serves as Chairman of ADF, a leading supplier of trailers and logistics to the TV and film industry, Chairman of JR and M Investments, a supplier of finance to contractors, and is a Director of Birmingham Moseley Rugby Club. John joined the Board in March 2018 as Chairman. Alan Simpson joined Building Materials Distribution with Taylor Maxwell in 1983 and five years later moved to Brick-ability. He became Sales Director and a shareholder, graduating to the position of Managing Director. He founded Towelrads, Frazer Simpson and FSN Doors, all of which are now part of the Group. Alan became a Director in 1996 before stepping up to Chief Executive Officer of the Group following the successful management buyout of Peter Milton, the founder of the Brickability business, in September 2016. Mike is a Chartered Management Accountant with an MBA from Nottingham Business School. Prior to joining, he served as Group CFO at Walker Greenbank PLC. Mike is a highly experienced CFO and brings a breadth of financial, strategic and M&A experience to the Group from his previous roles at Bass plc, Marstons plc, Geest plc, Constellation Brands Inc, Britvic plc and Walker Greenbank plc. Mike joined the Board in April 2021. 32 SIMON MELLOR Managing Director within Bricks and Building Materials Division Simon Mellor has over 30 years’ experience in the brick market having joined the industry in 1985. He first gained experience in brick manufacturing at Steetley Brick & Redland Brick as a Regional Sales Manager. He joined Brickability in 1995 as Wales Sales Manager and was appointed Managing Director of The Matching Brick Company in 2007 and of Brickability Limited in 2009. During his career with Brickability, Simon has been responsible for overseeing a number of acquisitions and developing relationships and trading agreements with European suppliers including ongoing product development to satisfy opportunities and product shortages in the UK. Simon Pearson has over 35 years of construction and roofing sector experience, having first joining the industry in 1981 and setting up his first roofing business in 1984. He formed Crest Building Products in 1989 and Crest Roofing in 1993, which became part of the Group in 2018 and has been Managing Director of the Roofing Division since. PAUL HAMILTON Managing Director of Heating, Plumbing and Joinery Division SIMON PEARSON Managing Director of Roofing Services Division ARNOLD VAN HUET Managing Director of Crest Group The Management Board is responsible for the day to day operations of the Group. The members are drawn from key managers within individual Brickability Group businesses. ANDY WILSON Managing Director of The Bespoke Brick Co. Paul Hamilton has 17 years’ experience in the heating and building supplier market. He joined the Towelrads business in 2004 and became a shareholder and Director in 2008. Paul has overseen the growth of the Towelrads business from sales of less than £1 million to over £18 million a year. He led a management buyout of the Towelrads business in 2016 and was a founder of DSH Flooring. Paul is currently Divisional Managing Director of the Heating Plumbing and Joinery Group which includes Towelrads, DSH Flooring, Frazer Simpson, FSN Doors, Forum Tiles, Radiators Valves UK and Radiators Online. Arnold Van Huet has over 35 years’ experience in the brick and tile market across Europe, having been heavily involved in import and export markets and the development of many brick and roofing products in Europe. He was the founder of the Crest Group of companies over 30 years ago which became part of the Group in 2018. He has also held senior and board positions in Desimpel Brick plc, Hanson Brick and Enhobel plc. Andy joined the brick industry in 2004 after graduating with 2:1 BA Hons from Nottingham Trent University. Andy served as Regional Sales Manager for Traditional Brick & Stone Ltd before joining Wienerberger as Southern Specification Manager. In 2014 Andy founded The Bespoke Brick Company Limited, followed by The Brick Slip Business Limited in 2016. He later co- founded William Wilson Properties Ltd in April 2019. Andy joined the Management Board of Brickability Group in May 2019. C O R P O R A T E G O V E R N A N C E 33 Corporate Governance QCA CODE OF CORPORATE GOVERNANCE AND AIM RULE 26 The Board recognises the importance of good corporate governance and since our flotation on AIM in August 2019 we have chosen to adopt the Quoted Companies Alliance Corporate Governance Code (QCA Code) which we believe is the appropriate recognised corporate governance code for the Company, consistent with the majority of AIM companies, given its size, structure and stage of development. DELIVER GROWTH 1. Establish a strategy and business model which promote long-term value for shareholders. 2. Seek to understand and meet shareholder needs and expectations. We have ensured that presentations have been made to both shareholders and potential investors. Both have been able to make comment to and question the directors. We also regularly get questions from private shareholders by email, all of which are dealt with. 3. Take into account wider stakeholder and social responsibilities and their implications for long- term success. 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation. 34 MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK 5. Maintain the Board as a well-functioning, balanced team led by the Chairman. 6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities. All our Directors have expertise in the relevant areas and we use our professional advisers to ensure that their knowledge and skill sets are kept up to date. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement. We evaluate the Board’s performance against the Company’s objectives laid out at the time of IPO. This evaluation also extends to performance in areas of compliance, risk management, remuneration and communication amongst others. 8. Promote a corporate culture that is based on ethical values and behaviours. The Board’s assessment is that the corporate culture is consistent with ethical values and behaviours. 9. Maintain governance structures and processes that are fit for purpose and support good decision- making by the Board. BUILD TRUST 10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. The Group’s corporate governance culture will be measured against the QCA Code fundamentals and regularly reviewed with developments and changes communicated to shareholders. The QCA Code is built on the three fundamentals of delivering growth, maintaining a dynamic management framework and building trust. The Group’s Board is committed to each one of the fundamentals, as it believes these will support the Company’s medium to long-term success. C O R P O R A T E G O V E R N A N C E 35 COMMITTEE CHAIRMAN John Richards OTHER MEMBERS Giles Beale Clive Norman David Simpson All members of the Committee are non-executive Directors of the Company whose biographies are set out on pages 30 to 31. 36 Report of the Nomination Committee As Chairman of the Nomination Committee (“the Committee”) and on behalf of the Board I am pleased to present the report of the Committee for the year ended 31 March 2021. Meetings and Attendance Member John Richards (Chairman) Giles Beale Clive Norman David Simpson Meetings Attended 1/1 1/1 1/1 1/1 The Committee meets as and when required, but at least once a year. The Chief Executive attends as invited. Duties The Duties of the Committee are set out in terms of reference which are available for inspection on the Company’s website at www.brickabilitygroupplc.com. The terms of reference will be subject to an annual review by the Committee. As well as considering succession planning for the Board, the Committee also considers succession planning for senior executive positions. The Committee is aware of gender and diversity issues and these are considered, amongst other factors, when reviewing potential candidates for Board and other senior management positions and determining their suitability for such positions. Committee Activity During the Year Following the sudden death of Stuart Overend in November 2020, the Committee appointed an external search agency to identify suitable candidates for the Chief Financial Officer’s role (CFO). A short list of candidates was prepared for consideration and, following interviews, the Committee recommended to the Board that Mike Gant should be appointed as interim CFO with the possibility of this appointment becoming permanent in due course. The recommendation of the Committee was approved by the Board in December 2020 with the appointment being effective as from January 2021. An appropriate induction programme was prepared by myself as Chairman in consultation with Mike Gant. Following a recommendation made by the Committee, at a meeting in April 2021, Mike Gant was appointed to the role permanently. By order of the Board John Richards Chairman of the Nomination Committee 4 August 2021 Report of the Audit Committee On behalf of the Board, I am pleased to present my report to you as Chair of the Audit Committee for the financial year to 31 March 2021. This report provides shareholders with an overview of the activities carried out by the Committee during the year. Current Committee Members David Simpson and Giles Beale are considered independent by the Board within the meaning of the QCA Code. John Richards, Chairman and the Chairman of the Group Management Board, is regarded by the Board as independent for the purposes of membership of the Committee; his experience and role in liaising with shareholders assists the Committee as his membership is considered both appropriate and beneficial. Duties The Duties of the Committee are set out in terms of reference which are available for inspection on the Company’s website at www.brickabilitygroupplc.com. The terms of reference will be subject to an annual review by the Committee. Areas of focus for the year: • Review of the interim results • Consideration of key audit matters and how they are addressed • Reviewing significant accounting and reporting judgements • Going concern review • Monitoring and reviewing the effectiveness of the Group’s external audit • Monitoring Auditor independence • Meeting the external Auditor without management present • Considering the external audit report • Reviewing the financial statements and Annual Report • Developing and implementing policy on non-audit services provided by the external Auditor • Review of risk management and internal control systems • Reviewing the Group’s procedures for detecting and preventing fraud, bribery and the governance of anti-money laundering systems and controls • Financial Calendar/Audit timetable • Review of ESG policies • Delegated Authority Schedule • Related Party Transactions Register Risk Management and Internal Controls The Board, assisted by the Audit Committee, is responsible for regularly reviewing the operation and effectiveness of the Group’s internal controls. The internal control system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives. The Group’s key internal control procedures include a review of the Group’s strategy and the performance of subsidiaries. This involves a comprehensive system of reporting based on variances to annual budgets, key performance indicators and regular forecasting. The Audit Committee in partnership with the Board is responsible for reviewing the risk management and internal control framework and ensuring that it operates effectively. The Committee is satisfied that the internal control systems in place were operating effectively during the period. External Auditor The Audit Committee monitors the relationship with the external Auditor, BDO LLP, to ensure that Auditor independence and objectivity is maintained. As part of its review, the Committee monitors the provision of non-audit services by the external Auditor. The breakdown of fees between audit and non-audit services is provided on page 80 in note 9 to the financial statements. The non-audit fees for the year were £6,500 (2020: £333,649) which was in relation to a review of the Company’s interim financial statements. Management and the Chair of the Audit Committee liaise with the Auditor throughout the year to ensure that if there are areas of significant risk, or other matters of audit relevance, they are regularly communicated. The external Auditor prepares a plan for its audit of the financial statements. The audit plan sets out the scope of the audit, areas to be targeted and the audit timetable. The plan is reviewed and by the Committee. Following the audit, the Auditor presents their findings to Audit Committee for discussion. No major areas of concern were highlighted by the Auditor during the year. BDO LLP has been the Group Auditor since the Company’s IPO on 20 August 2019; the Company is not proposing to tender for external audit services in the near future. Having reviewed the Auditor’s independence and performance to date, the Committee has recommended to the Board that BDO LLP be re-appointed as the Group’s Auditor and a resolution to this effect will be proposed at the forthcoming Annual General Meeting. COMMITTEE CHAIRMAN David Simpson OTHER MEMBERS Giles Beale John Richards Meetings and Attendance Member David Simpson (Chairman) Giles Beale John Richards Meetings Attended 4/4 4/4 4/4 The Committee meets at least twice a year and during the year met four times. The Chief Executive, Chief Financial Officer and external Auditor attend meetings as invited. Going Concern The Group is required to assess its ability to trade as a going concern for a period of 12 months from the period of signing the annual financial statements. The Committee reviewed the Board’s assessment on pages 26 and 27 and concluded that it remained appropriate to continue to adopt the going concern basis in preparing the financial statements. Whistleblowing The Group has in place a whistleblowing policy which sets out the formal process by which an employee of the Group may, in confidence raise concerns about possible improprieties in financial reporting or other matters. No concerns were raised during the period. Anti-Bribery The Group has in place an anti-bribery and corruption policy which sets out a zero-tolerance position and provides information and guidance to those working for the Group on how to recognise and deal with bribery and corruption matters. The Committee relies upon assurances from senior management in satisfying itself that the current policy is operating effectively. The Committee is satisfied that the policy in place has been operating effectively during the period. By order of the Board David Simpson Chair of Audit Committee 4 August 2021 C O R P O R A T E G O V E R N A N C E 37 This image of our wonderful, Bespoke Brick This image of our wonderful, Bespoke Brick showroom gives some indication of the showroom gives some indication of the breadth of brick product range that we are breadth of brick product range that we are able to offer our customers. Product selection, able to offer our customers. Product selection, technical assistance and the start of the technical assistance and the start of the service delivery journey all take place here. service delivery journey all take place here. Report of the Remuneration Committee On behalf of the Board, I am pleased to present my report to you as Chair of the Remuneration Committee for the financial year to 31 March 2021. The purpose of this report is to provide shareholders with the information necessary to understand our remuneration policy, its linkage to the Group’s performance, strategy and core values as well as providing a clear explanation of how our Directors have been rewarded over the period. Remuneration for executive and other senior management include, where Mergers, details of which are set out in the Company’s admission document (available appropriate, pensions, bonuses, incentive at www.brickabilitygroupplc.com). arrangements, share options and other share-based awards. The Remuneration Committee’s focus is to reward fairly and responsibly with a remuneration policy that supports and encourages senior managers and Group employees generally with a clear link to individual performance as well as the financial health of the Company and the interests of its shareholders as a whole. The Group has historically grown by acquisition through which it has inherited several differing remuneration arrangements often embedded by contract. Growth by acquisition remains an important part of the Company’s strategy. The Committee considers it important, subject to legal constraints, to establish a consistent remuneration policy throughout the Group. The Directors believe that the success of the Group depends to a significant degree on the future performance of its senior management team. The Board and the Committee also recognise the importance of ensuring that all Group employees remain well motivated and identify closely with its success. The Committee reviews information regarding the remuneration and reward levels of other Group employees to provide context when considering remuneration policy and the remuneration of the executive directors. The Board has adopted the Quoted Companies Alliance Corporate Governance Code (QCA Code) and consider that the QCA Code is most appropriate for the size, scale and complexity of the Company. Where the Board believes that a departure from the QCA Code is warranted, an explanation A member of the Group’s senior is provided. management team is party to an on-going earn-out arrangement. A number are also significant shareholders of the Company and some are party to a concert party identified by the Panel on Takeovers and We recognise the importance of shareholder views and their feedback on remuneration policy and we welcome feedback from our shareholders on the content of this report. 38 38 C O R P O R A T E G O V E R N A N C E 39 Report of the Remuneration Committee Report of the Remuneration Committee On behalf of the Board, I am pleased to present my On behalf of the Board, I am pleased to present my report to you as Chair of the Remuneration Committee report to you as Chair of the Remuneration Committee for the financial year to 31 March 2021. The purpose for the financial year to 31 March 2021. The purpose of this report is to provide shareholders with the of this report is to provide shareholders with the information necessary to understand our remuneration information necessary to understand our remuneration policy, its linkage to the Group’s performance, strategy policy, its linkage to the Group’s performance, strategy and core values as well as providing a clear explanation and core values as well as providing a clear explanation of how our Directors have been rewarded over the period. of how our Directors have been rewarded over the period. Remuneration for executive and other Remuneration for executive and other senior management include, where senior management include, where appropriate, pensions, bonuses, incentive appropriate, pensions, bonuses, incentive arrangements, share options and other arrangements, share options and other share-based awards. The Remuneration share-based awards. The Remuneration Committee’s focus is to reward fairly and Committee’s focus is to reward fairly and responsibly with a remuneration policy that responsibly with a remuneration policy that supports and encourages senior managers supports and encourages senior managers and Group employees generally with a and Group employees generally with a clear link to individual performance as well clear link to individual performance as well as the financial health of the Company and as the financial health of the Company and the interests of its shareholders as a whole. the interests of its shareholders as a whole. The Group has historically grown The Group has historically grown by acquisition through which it has by acquisition through which it has inherited several differing remuneration inherited several differing remuneration arrangements often embedded by arrangements often embedded by contract. Growth by acquisition remains an contract. Growth by acquisition remains an important part of the Company’s strategy. important part of the Company’s strategy. The Committee considers it important, The Committee considers it important, subject to legal constraints, to establish a subject to legal constraints, to establish a consistent remuneration policy throughout consistent remuneration policy throughout the Group. the Group. A member of the Group’s senior A member of the Group’s senior management team is party to an on-going management team is party to an on-going earn-out arrangement. A number are also earn-out arrangement. A number are also significant shareholders of the Company significant shareholders of the Company and some are party to a concert party and some are party to a concert party identified by the Panel on Takeovers and identified by the Panel on Takeovers and Mergers, details of which are set out in the Mergers, details of which are set out in the Company’s admission document (available Company’s admission document (available at www.brickabilitygroupplc.com). at www.brickabilitygroupplc.com). The Directors believe that the success of the The Directors believe that the success of the Group depends to a significant degree on the Group depends to a significant degree on the future performance of its senior management future performance of its senior management team. The Board and the Committee also team. The Board and the Committee also recognise the importance of ensuring that recognise the importance of ensuring that all Group employees remain well motivated all Group employees remain well motivated and identify closely with its success. The and identify closely with its success. The Committee reviews information regarding Committee reviews information regarding the remuneration and reward levels of other the remuneration and reward levels of other Group employees to provide context when Group employees to provide context when considering remuneration policy and the considering remuneration policy and the remuneration of the executive directors. remuneration of the executive directors. The Board has adopted the Quoted The Board has adopted the Quoted Companies Alliance Corporate Governance Companies Alliance Corporate Governance Code (QCA Code) and consider that the Code (QCA Code) and consider that the QCA Code is most appropriate for the size, QCA Code is most appropriate for the size, scale and complexity of the Company. Where scale and complexity of the Company. Where the Board believes that a departure from the the Board believes that a departure from the QCA Code is warranted, an explanation QCA Code is warranted, an explanation is provided. is provided. We recognise the importance of shareholder We recognise the importance of shareholder views and their feedback on remuneration views and their feedback on remuneration policy and we welcome feedback from our policy and we welcome feedback from our shareholders on the content of this report. shareholders on the content of this report. C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 39 39 Report of the Report of the Remuneration Remuneration Committee Committee COMMITTEE CHAIRMAN COMMITTEE CHAIRMAN Giles Beale Giles Beale OTHER MEMBERS OTHER MEMBERS David Simpson David Simpson John Richards John Richards Giles Beale and David Simpson are Giles Beale and David Simpson are considered independent by the Board considered independent by the Board within the meaning of the QCA Code. within the meaning of the QCA Code. John Richards, Chairman and the John Richards, Chairman and the Chairman of the Group Management Chairman of the Group Management Board, is regarded by the Board as Board, is regarded by the Board as independent for the purposes of independent for the purposes of membership of the Committee; his membership of the Committee; his experience and role in liaising with experience and role in liaising with shareholders assists the Committee shareholders assists the Committee as his membership is considered both as his membership is considered both appropriate and beneficial. Giles Beale appropriate and beneficial. Giles Beale has chaired the Committee since has chaired the Committee since its establishment. its establishment. Meetings and Attendance Meetings and Attendance Member Member Meetings Meetings Attended Attended Giles Beale (Chairman) Giles Beale (Chairman) 4/4 4/4 David Simpson David Simpson John Richards John Richards 4/4 4/4 4/4 4/4 The Committee meets at least twice a year The Committee meets at least twice a year and further as necessary to fulfil its role. and further as necessary to fulfil its role. Over the reporting period the Committee Over the reporting period the Committee met four times. Additional decisions were met four times. Additional decisions were taken by common consent following a due taken by common consent following a due exchange of information and views. Where exchange of information and views. Where required, the Chief Executive and Chief required, the Chief Executive and Chief Financial Officer attended or contributed Financial Officer attended or contributed to the Committee’s deliberations, in each to the Committee’s deliberations, in each case by invitation. case by invitation. 40 40 Duties Duties The duties of the Committee are set out in its terms of The duties of the Committee are set out in its terms of reference which are available on the Company’s website at reference which are available on the Company’s website at www.brickabilitygroupplc.com. The terms of reference are reviewed annually. www.brickabilitygroupplc.com. The terms of reference are reviewed annually. The Committee’s principal role is to assist the Board in ensuring that the Group’s The Committee’s principal role is to assist the Board in ensuring that the Group’s remuneration policy rewards fairly and responsibly with a clear link to individual and remuneration policy rewards fairly and responsibly with a clear link to individual and corporate performance. corporate performance. Key items of business considered by the Key items of business considered by the Committee during the year include: Committee during the year include: • determining the remuneration of • determining the remuneration of executive Directors; executive Directors; • monitoring and recommending, where • monitoring and recommending, where relevant, the remuneration of the Group’s relevant, the remuneration of the Group’s wider senior management team; and wider senior management team; and • the oversight and administration of the • the oversight and administration of the Group’s share plans. Group’s share plans. No member of the Committee has a No member of the Committee has a personal interest (save as a shareholder personal interest (save as a shareholder of the Company) in the outcome of its of the Company) in the outcome of its decisions and no Director is party to a decisions and no Director is party to a decision or recommendation regarding their decision or recommendation regarding their own remuneration. The Committee gives own remuneration. The Committee gives due regard to the interest of shareholders due regard to the interest of shareholders and the financial and commercial health and the financial and commercial health of the Company. Addleshaw Goddard LLP of the Company. Addleshaw Goddard LLP provided advice during the period. provided advice during the period. The determination of executive Directors’ The determination of executive Directors’ annual remuneration, including bonus and annual remuneration, including bonus and related performance criteria, is undertaken by related performance criteria, is undertaken by the Committee. The remuneration packages the Committee. The remuneration packages of our senior management team are designed of our senior management team are designed to attract, motivate and retain executives of to attract, motivate and retain executives of the highest calibre and to reward them for the highest calibre and to reward them for enhancing shareholder value. enhancing shareholder value. In each case these include some or all of the following elements: In each case these include some or all of the following elements: • basic salary and benefits; • basic salary and benefits; • annual bonus and/or commission • annual bonus and/or commission arrangements; arrangements; • share plans including awards under the • share plans including awards under the Group’s LTIP; and Group’s LTIP; and • pension arrangements (all of which are • pension arrangements (all of which are defined contribution or cash in lieu). defined contribution or cash in lieu). We consider it important that a significant We consider it important that a significant proportion of the executive and senior proportion of the executive and senior management teams’ remuneration management teams’ remuneration should be performance related with should be performance related with the objective of enhancing shareholder the objective of enhancing shareholder returns as well as the long-term financial returns as well as the long-term financial health and stability of the Company. This health and stability of the Company. This includes, as appropriate, the exploitation includes, as appropriate, the exploitation of Group synergies, the development and of Group synergies, the development and enhancement of our potential and existing enhancement of our potential and existing senior management team, specific unit senior management team, specific unit performance and the upholding of our performance and the upholding of our values and culture. Objectives for individuals values and culture. Objectives for individuals will vary depending upon their role within will vary depending upon their role within the Group but we consider that a consistent, the Group but we consider that a consistent, transparent remuneration program based transparent remuneration program based upon common principles is important to upon common principles is important to ensure that overall Group performance and ensure that overall Group performance and shareholder value is enhanced. shareholder value is enhanced. Share Plans The Committee is responsible for the administration of the Company’s share plans, being the Company’s employee share option plan (CSOP) and a long-term incentive plan (LTIP). Where appropriate grants under the CSOP might also be utilised although none have been made since the Committee’s establishment and none are currently envisaged. Policy regarding the administration of grants under these plans may develop to accommodate changing needs of the Group. Bonus Pensions During the period an annual bonus plan was adopted which recognises the emphasis on rewarding key Group employees with competitive performance related remuneration. A maximum of 125% of base salary can be paid as a bonus. The implementation of this plan remains under review and participation is by invitation only, reflecting both the inherited contractual terms of employees where relevant and our emphasis on performance. Its purpose is to enable the senior management team to attract and retain key employees to the Group in a competitive market for talent whilst ensuring that participants are subject to demanding criteria that best reflect the interests of the Group and the Company’s shareholders. Members of the Group operate several defined contribution pension schemes. In addition, there is an auto enrolment Group wide defined contribution pension scheme. Under these schemes contributions are based upon base salary with a contribution of 5% per employee and 3% by the employer. In certain cases, the employer’s proportion (or cash in lieu where applicable) rise to 7.5% or 10%. C O R P O R A T E G O V E R N A N C E 41 Share Plans Share Plans The Committee is responsible for the administration of the The Committee is responsible for the administration of the Company’s share plans, being the Company’s employee share Company’s share plans, being the Company’s employee share option plan (CSOP) and a long-term incentive plan (LTIP). Where option plan (CSOP) and a long-term incentive plan (LTIP). Where appropriate grants under the CSOP might also be utilised although none appropriate grants under the CSOP might also be utilised although none have been made since the Committee’s establishment and none are currently have been made since the Committee’s establishment and none are currently envisaged. Policy regarding the administration of grants under these plans may develop envisaged. Policy regarding the administration of grants under these plans may develop to accommodate changing needs of the Group. to accommodate changing needs of the Group. Bonus Bonus During the period an annual bonus plan was adopted which recognises the emphasis on rewarding key Group employees with competitive During the period an annual bonus plan was adopted which recognises the emphasis on rewarding key Group employees with competitive performance related remuneration. A maximum of 125% of base salary can be paid as a bonus. The implementation of this plan remains under performance related remuneration. A maximum of 125% of base salary can be paid as a bonus. The implementation of this plan remains under review and participation is by invitation only, reflecting both the inherited contractual terms of employees where relevant and our emphasis on review and participation is by invitation only, reflecting both the inherited contractual terms of employees where relevant and our emphasis on performance. Its purpose is to enable the senior management team to attract and retain key employees to the Group in a competitive market for performance. Its purpose is to enable the senior management team to attract and retain key employees to the Group in a competitive market for talent whilst ensuring that participants are subject to demanding criteria that best reflect the interests of the Group and the Company’s shareholders. talent whilst ensuring that participants are subject to demanding criteria that best reflect the interests of the Group and the Company’s shareholders. Pensions Pensions Members of the Group operate several defined contribution pension schemes. In addition, there is an auto enrolment Group wide defined Members of the Group operate several defined contribution pension schemes. In addition, there is an auto enrolment Group wide defined contribution pension scheme. Under these schemes contributions are based upon base salary with a contribution of 5% per employee and contribution pension scheme. Under these schemes contributions are based upon base salary with a contribution of 5% per employee and 3% by the employer. In certain cases, the employer’s proportion (or cash in lieu where applicable) rise to 7.5% or 10%. 3% by the employer. In certain cases, the employer’s proportion (or cash in lieu where applicable) rise to 7.5% or 10%. C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 41 41 Report of the Report of the Remuneration Remuneration Committee Committee Annual Remuneration Report Annual Remuneration Report The information on pages 42 and 43 has been audited. The information on pages 42 and 43 has been audited. Directors’ Total Remuneration Directors’ Total Remuneration Executive Directors’ Remuneration Executive Directors’ Remuneration Each individual executive Directors’ total remuneration paid over the Each individual executive Directors’ total remuneration paid over the period by Group members is summarised below together with a total period by Group members is summarised below together with a total comparison for the financial year ended 31 March 2020. comparison for the financial year ended 31 March 2020. * Stuart Overend passed away in November 2020. * Stuart Overend passed away in November 2020. Non-executive Directors’ Remuneration Non-executive Directors’ Remuneration Each individual non-executive Directors’ total remuneration paid over the period by Group members is summarised below together with a Each individual non-executive Directors’ total remuneration paid over the period by Group members is summarised below together with a total comparison for the financial year ended 31 March 2020. No such change occurred in the period save that Mr John Richards’ annual total comparison for the financial year ended 31 March 2020. No such change occurred in the period save that Mr John Richards’ annual fee was increased during the year to £100,000 from £75,000 in recognition of his significant on-going time contribution to the Group. fee was increased during the year to £100,000 from £75,000 in recognition of his significant on-going time contribution to the Group. Directors’ Loans Directors’ Loans Prior to the Company’s IPO, a Group company provided a loan to Mr Overend of £838,584 and to Mr Richards of £139,764 to Prior to the Company’s IPO, a Group company provided a loan to Mr Overend of £838,584 and to Mr Richards of £139,764 to purchase shares in the Group as disclosed in the Company’s admission document. Each loan is unsecured and interest free and purchase shares in the Group as disclosed in the Company’s admission document. Each loan is unsecured and interest free and repayable on the sale of the relevant shares in the Company. repayable on the sale of the relevant shares in the Company. Directors’ Interest in Shares Directors’ Interest in Shares The beneficial interests of Directors, and persons connected with them, as at 31 March 2021 in the ordinary shares of the Company The beneficial interests of Directors, and persons connected with them, as at 31 March 2021 in the ordinary shares of the Company (excluding share options) were are follows: (excluding share options) were are follows: Held at 31 March 2020 Held at 31 March 2020 Acquired in the year Acquired in the year Held at 31 March 2021 Held at 31 March 2021 Alan Simpson Alan Simpson John Richards John Richards Clive Norman Clive Norman David Simpson David Simpson 50,453,504 50,453,504 5,919,733 5,919,733 5,567,871 5,567,871 151,500 151,500 - - - - - - - - 50,453,504 50,453,504 5,919,733 5,919,733 5,567,871 5,567,871 151,500 151,500 Since 31 March 2021, the following directors, and persons connected with them, have sold shares in the recent oversubscribed fundraise and share placement. Their holdings as at 4 August 2021 are as follows: Held at 31 March 2021 Sold Held at 4 August 2021 50,453,504 5,919,733 5,567,871 17,007,146 1,872,048 1,760,775 33,446,358 4,047,685 3,807,096 Alan Simpson John Richards Clive Norman Share Plans - LTIP Date of Award Number of Shares (£000) % of salary Face value at grant End of three-year performance period Stuart Overend 16/11/20 747,283 560 125 01/10/23 Face value of awards at the date of grant is calculated based on the closing share price of 75p per ordinary share. The options are exercisable at the nominal price of £0.01 and have vesting conditions tied to adjusted EBITDA and total shareholder return, with each award split equally between the two performance conditions. Vesting will occur on a straight-line basis on achieving 18% (equivalent to 6% annually) to 30% (equivalent to 10% annually) of the relevant performance condition over the performance period. There is no vesting if the relevant target is not met but a 50% vesting if the initial 18% hurdle is met with a proportionate additional vesting up to 100% at the 30% threshold being met. Following Mr Overend’s death in November 2020, the Committee agreed that up to a third of his shares would vest, should the performance conditions be met over a 12 month performance period to 1 October 2021. Grants under the LTIP are the subject of discretionary good/bad leaver provisions and malus and clawback arrangements. Share Plans - CSOP Date of Award Number of Shares the year Exercised Forfeited during Balance at 31 March 2021 Stuart Overend* 02/08/19 72,443 (41,283) - 31,160 *Stuart Overend passed away in November 2020 and his awards were pro-rated accordingly during the year. The CSOP was adopted on 2 August 2019. Options are exercisable at an exercise price of 41p between the third and tenth anniversary of the grant subject to the participant remaining an employee but are not subject to performance conditions. Under the terms of the scheme, Mr Overend’s pro-rated options are exercisable for a period of up to 12 months following his death. 42 42 C O R P O R A T E G O V E R N A N C E 43 Executive DirectorSalary or fee£’000Taxable benefits£’000Bonus£’000Pension contributions£’000Total Year ended 31 March 2021£’000Total Year ended 31 March 2020£’000Alan Simpson4324200-636463Stuart Overend*201--21222341Non-executive DirectorSalary or fee£’000Taxable benefits£’000Bonus£’000Pension contributions£’000Total Year ended 31 March 2021£’000Total Year ended 31 March 2020£’000John Richards83---8359David Simpson55 ---5532Giles Beale55---5532Clive Norman50---5029Executive DirectorSalary or fee£’000Taxable benefits£’000Bonus£’000Pension contributions£’000Total Year ended 31 March 2021£’000Total Year ended 31 March 2020£’000Alan Simpson4324200-636463Stuart Overend*201--21222341Non-executive DirectorSalary or fee£’000Taxable benefits£’000Bonus£’000Pension contributions£’000Total Year ended 31 March 2021£’000Total Year ended 31 March 2020£’000John Richards83---8359David Simpson55 ---5532Giles Beale55---5532Clive Norman50---5029 Since 31 March 2021, the following directors, and persons connected with them, have sold shares in the recent oversubscribed Since 31 March 2021, the following directors, and persons connected with them, have sold shares in the recent oversubscribed fundraise and share placement. Their holdings as at 4 August 2021 are as follows: fundraise and share placement. Their holdings as at 4 August 2021 are as follows: Held at 31 March 2021 Held at 31 March 2021 Sold Sold Held at 4 August 2021 Held at 4 August 2021 50,453,504 50,453,504 5,919,733 5,919,733 5,567,871 5,567,871 17,007,146 17,007,146 1,872,048 1,872,048 1,760,775 1,760,775 33,446,358 33,446,358 4,047,685 4,047,685 3,807,096 3,807,096 Alan Simpson Alan Simpson John Richards John Richards Clive Norman Clive Norman Share Plans - LTIP Share Plans - LTIP Date of Award Date of Award Number of Shares Number of Shares Face value at grant (£000) Face value at grant (£000) % of salary % of salary End of three-year End of three-year performance period performance period Stuart Overend Stuart Overend 16/11/20 16/11/20 747,283 747,283 560 560 125 125 01/10/23 01/10/23 Face value of awards at the date of grant is calculated based on the closing share price of 75p per ordinary share. Face value of awards at the date of grant is calculated based on the closing share price of 75p per ordinary share. The options are exercisable at the nominal price of £0.01 and have vesting conditions tied to adjusted EBITDA and total shareholder The options are exercisable at the nominal price of £0.01 and have vesting conditions tied to adjusted EBITDA and total shareholder return, with each award split equally between the two performance conditions. Vesting will occur on a straight-line basis on return, with each award split equally between the two performance conditions. Vesting will occur on a straight-line basis on achieving 18% (equivalent to 6% annually) to 30% (equivalent to 10% annually) of the relevant performance condition over the achieving 18% (equivalent to 6% annually) to 30% (equivalent to 10% annually) of the relevant performance condition over the performance period. There is no vesting if the relevant target is not met but a 50% vesting if the initial 18% hurdle is met with a performance period. There is no vesting if the relevant target is not met but a 50% vesting if the initial 18% hurdle is met with a proportionate additional vesting up to 100% at the 30% threshold being met. proportionate additional vesting up to 100% at the 30% threshold being met. Following Mr Overend’s death in November 2020, the Committee agreed that up to a third of his shares would vest, should the Following Mr Overend’s death in November 2020, the Committee agreed that up to a third of his shares would vest, should the performance conditions be met over a 12 month performance period to 1 October 2021. performance conditions be met over a 12 month performance period to 1 October 2021. Grants under the LTIP are the subject of discretionary good/bad leaver provisions and malus and clawback arrangements. Grants under the LTIP are the subject of discretionary good/bad leaver provisions and malus and clawback arrangements. Share Plans - CSOP Share Plans - CSOP Date of Award Date of Award Number of Shares Number of Shares Forfeited during the year Forfeited during the year Exercised Exercised Balance at Balance at 31 March 2021 31 March 2021 Stuart Overend* Stuart Overend* 02/08/19 02/08/19 72,443 72,443 (41,283) (41,283) - - 31,160 31,160 *Stuart Overend passed away in November 2020 and his awards were pro-rated accordingly during the year. *Stuart Overend passed away in November 2020 and his awards were pro-rated accordingly during the year. The CSOP was adopted on 2 August 2019. Options are exercisable at an exercise The CSOP was adopted on 2 August 2019. Options are exercisable at an exercise price of 41p between the third and tenth anniversary of the grant subject to the price of 41p between the third and tenth anniversary of the grant subject to the participant remaining an employee but are not subject to performance participant remaining an employee but are not subject to performance conditions. Under the terms of the scheme, Mr Overend’s conditions. Under the terms of the scheme, Mr Overend’s pro-rated options are exercisable for a period of up to pro-rated options are exercisable for a period of up to 12 months following his death. 12 months following his death. C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 43 43 Remuneration Policy The Remuneration Policy was created and approved at the Company’s IPO in August 2019 and has been carried through to this financial year. The tables below summarise the key elements of the policy. Purpose and link to strategy Operation Maximum potential value Performance conditions To be reviewed on an annual basis having regard to our competitors, industry and needs as well as pay levels elsewhere within the Group, its size and complexity. Total salaries paid during the period are set out on page 42. Changes in the scope of responsibilities or role may require an adjustment to salary levels. Assessment of personal and corporate performance. A car allowance, private medical insurance, death in service insurance and reimbursement for reasonable business expenses. Other benefits may be offered in line with market practice if it is considered appropriate to do so. Our policy is to provide a contribution (or cash allowance in lieu) to a personal pension plan as a capped proportion of basic salary if it is considered appropriate to do so. The current performance targets were adopted during the period but the current financial year will be the first year of the current plan’s implementation. Grants may not normally exceed 200% of the grantee’s base salary. Grants are the subject of discretionary good leaver/bad leaver provisions and, in the case of the LTIP, malus and clawback provisions. Further details of the share plans and their operation are set out on page 43 and in note 36 of the financial statements. The maximum potential value is the cost to the Company in providing these benefits. Not applicable. The Chief Executive Officer does not receive a pension contribution or allowance. The Chief Financial Officer receives a cash allowance in lieu equal to 7.5% of his basic salary. Each executive Director is entitled to receive a cash bonus of up to 125% of basic salary on the attainment of performance objectives. Subject to exercise or vesting, the market value of the shares that are the subject of the grant less any cost payable by the grantee on exercise or vesting. Under the LTIP, a grantee maybe entitled to a dividend equivalent to the value of dividends paid on a vested share had it been in issue from the date of the grant. Not applicable. The Remuneration Committee reviews performance measures annually. Options granted under the Company share plans may be subject to performance conditions. Options granted under the LTIP during the period are all subject to performance conditions detailed below. No options under the CSOP were granted during the period. Our policy for grants under the LTIP is that they are the subject of performance conditions which will be measured over a three-year period. Performance conditions are divided equally between two metrics; compound annual growth in adjusted EBITDA and compound annual growth in total shareholder return. Base salary The provision of a competitive, fixed salary that attracts and retains key individuals reflecting their experience and role. Benefits To provide market benefits on a cost-effective basis. Pension To assist executive Directors in providing for retirement where this is considered an aid in attracting and retaining the individual. Annual bonus To recognise an executive’s achievement of annual objectives that support the Group’s strategy and financial well-being. Share plans To encourage value creation by way of share price growth through the delivery of shares. The purpose of the LTIP is to provide meaningful awards based upon demanding performance criteria that provide a significant incentive to grantees that is aligned with our shareholders’ interests. 44 Non-executive Directors’ Remuneration The table below summarises the key elements for the period of our non-executive Directors’ remuneration. Purpose and link to strategy Operation Maximum potential value Performance conditions Non-executive fees are reviewed on a periodic basis. Fees payable to non-executives are a matter for the Chairman (save in respect of his own fee) and executive members of the Board. Fees paid during the period are set out on page 42. Assessment of personal and corporate performance. Base fee To provide competitive fixed fees so as to (a) procure and retain the appropriate skills and experience required and (b) expected time commitment. Additional fees are incorporated for those performing duties in a Committee Chair role. Benefits and incentives The provision of market benefits on a cost-effective basis. Reimbursement for reasonable business expenses. John Richards and Giles Beale are covered under the Group’s death in service insurance plan. Not applicable. The maximum potential value is the cost to the Company in providing these benefits. Save as noted above, non-executives do not receive any benefits provided to Group employees or otherwise. No non-executive Director participates in any bonus, incentive or share plan provided by the Group. By order of the Board Giles Beale Chair of the Remuneration Committee 4 August 2021 C O R P O R A T E G O V E R N A N C E 45 Directors The current Directors of the Company are listed on pages 30 and 31 together with their biographical and Committee membership details. All of the Directors served throughout the year ended 31 March 2021 with the exception of Mike Gant who was appointed to the Board after the year end on 30 April 2021. Stuart Overend served as a Director of the Company from 1 April 2020 until his death on 16 November 2020. Directors’ remuneration, share options, long-term executive plans, pension contributions, benefits and interests are set out in the Directors’ remuneration report on pages 39 to 45. In accordance with our commitment to good corporate governance practice that is relevant to our business, the Board has voluntarily adopted the policy that all continuing Directors will stand for re-election on an annual basis in line with best practice recommendations. Review of the Business The Strategic report on pages 4 to 29 provides an operating and financial review of the business and the Group’s trading for the year ended 31 March 2021 as well as risk management. Dividends The Directors recommend a final dividend for the year of 1.0850p per share payable on 23 September 2021 (2020: 1.0850p). An interim dividend of 0.8678p per shares was paid during on 25 February 2021 (2020: 0.8678p). The Company’s articles of association allow the indemnification of Directors out of the assets of the Company to the extent permitted by law. These indemnities came into force on 29 August 2019 and remain in force as at the date of this Annual Report and Accounts. The Company maintains liability insurance for its Directors and Officers. Share Capital and Substantial Shareholdings Full details of the issued share capital of the Company are set out in note 34 to the financial statements on page 105. At 27 July 2021, the latest practicable date prior to the approval of this report, the Company had been notified of the following interests amounting to 3% or more of the voting rights attaching to the Company’s issued share capital: 9.96% 29.694,391 8.04% 30,798,898 6.71% 20,007,298 4.22% 12,602,900 Liontrust Asset Management Alan Jonathan Simpson Paul Michael Hamilton Otus Capital Management 4.11% 12,261,560 Octopus Investments Nominees 3.35% 10,000,000 Arnold Bernard Geradus van Huet 3.18% 9,475,902 Sarah Simpson Report of the Directors Report of the Directors The Directors have pleasure in presenting their Annual Report, together with the audited financial statements of the Company, for the The Directors have pleasure in presenting their Annual Report, together with the audited financial statements of the Company, for the year ended 31 March 2021. The Corporate Governance Statement set out on pages 34 and 35 forms part of this report. year ended 31 March 2021. The Corporate Governance Statement set out on pages 34 and 35 forms part of this report. The Company is a public limited company, registered in England and Wales, with registered number 11123804 and is listed on the The Company is a public limited company, registered in England and Wales, with registered number 11123804 and is listed on the Alternate Investment Market segment of the London Stock Exchange. The Company has been permanently domiciled in the UK since Alternate Investment Market segment of the London Stock Exchange. The Company has been permanently domiciled in the UK since incorporation and is the ultimate parent company of the Brickability Group. incorporation and is the ultimate parent company of the Brickability Group. The Directors’ Report comprises pages 46 to 49 and the following cross-referenced material is incorporated into this Directors’ Report: The Directors’ Report comprises pages 46 to 49 and the following cross-referenced material is incorporated into this Directors’ Report: Future Development of the Business – pages 6 to 15 Future Development of the Business – pages 6 to 15 Going Concern Statement – pages 26 and 27 Going Concern Statement – pages 26 and 27 People, culture, and employee engagement – pages 28 and 29 People, culture, and employee engagement – pages 28 and 29 Health and Safety – pages 9 and 28 Health and Safety – pages 9 and 28 Environmental policy, including Greenhouse Gas Environmental policy, including Greenhouse Gas Emissions – page 29 Emissions – page 29 Stakeholder Engagement – pages 22, 23 and 29 Stakeholder Engagement – pages 22, 23 and 29 Governance Report – pages 34 and 35 Governance Report – pages 34 and 35 Statement of Directors’ Responsibilities – page 50 Statement of Directors’ Responsibilities – page 50 46 46 C O R P O R A T E G O V E R N A N C E 47 Directors Directors The current Directors of the Company are listed on pages 30 and 31 The current Directors of the Company are listed on pages 30 and 31 together with their biographical and Committee membership details. together with their biographical and Committee membership details. All of the Directors served throughout the year ended 31 March 2021 All of the Directors served throughout the year ended 31 March 2021 with the exception of Mike Gant who was appointed to the Board after with the exception of Mike Gant who was appointed to the Board after the year end on 30 April 2021. Stuart Overend served as a Director of the year end on 30 April 2021. Stuart Overend served as a Director of the Company from 1 April 2020 until his death on 16 November 2020. the Company from 1 April 2020 until his death on 16 November 2020. Directors’ remuneration, share options, long-term executive plans, Directors’ remuneration, share options, long-term executive plans, pension contributions, benefits and interests are set out in the pension contributions, benefits and interests are set out in the Directors’ remuneration report on pages 39 to 45. Directors’ remuneration report on pages 39 to 45. In accordance with our commitment to good corporate In accordance with our commitment to good corporate governance practice that is relevant to our business, the Board governance practice that is relevant to our business, the Board has voluntarily adopted the policy that all continuing Directors will has voluntarily adopted the policy that all continuing Directors will stand for re-election on an annual basis in line with best practice stand for re-election on an annual basis in line with best practice recommendations. recommendations. The Company’s articles of association allow the indemnification of The Company’s articles of association allow the indemnification of Directors out of the assets of the Company to the extent permitted by Directors out of the assets of the Company to the extent permitted by law. These indemnities came into force on 29 August 2019 and remain law. These indemnities came into force on 29 August 2019 and remain in force as at the date of this Annual Report and Accounts. in force as at the date of this Annual Report and Accounts. The Company maintains liability insurance for its Directors and Officers. The Company maintains liability insurance for its Directors and Officers. Review of the Business Review of the Business The Strategic report on pages 4 to 29 provides an The Strategic report on pages 4 to 29 provides an operating and financial review of the business and the operating and financial review of the business and the Group’s trading for the year ended 31 March 2021 as Group’s trading for the year ended 31 March 2021 as well as risk management. well as risk management. Dividends Dividends The Directors recommend a final dividend for the year The Directors recommend a final dividend for the year of 1.0850p per share payable on 23 September 2021 of 1.0850p per share payable on 23 September 2021 (2020: 1.0850p). An interim dividend of 0.8678p per shares (2020: 1.0850p). An interim dividend of 0.8678p per shares was paid during on 25 February 2021 (2020: 0.8678p). was paid during on 25 February 2021 (2020: 0.8678p). Share Capital and Substantial Shareholdings Share Capital and Substantial Shareholdings Full details of the issued share capital of the Company are set out in note 34 to the financial statements on page 105. At 27 July 2021, Full details of the issued share capital of the Company are set out in note 34 to the financial statements on page 105. At 27 July 2021, the latest practicable date prior to the approval of this report, the Company had been notified of the following interests amounting the latest practicable date prior to the approval of this report, the Company had been notified of the following interests amounting to 3% or more of the voting rights attaching to the Company’s issued share capital: to 3% or more of the voting rights attaching to the Company’s issued share capital: 9.96% 9.96% 29.694,391 29.694,391 Liontrust Asset Management Liontrust Asset Management 8.04% 8.04% 30,798,898 30,798,898 Alan Jonathan Simpson Alan Jonathan Simpson 6.71% 6.71% 20,007,298 20,007,298 Paul Michael Hamilton Paul Michael Hamilton 4.22% 4.22% 12,602,900 12,602,900 Otus Capital Management Otus Capital Management 4.11% 4.11% 12,261,560 12,261,560 Octopus Investments Octopus Investments Nominees Nominees 3.35% 3.35% 10,000,000 10,000,000 Arnold Bernard Arnold Bernard Geradus van Huet Geradus van Huet 3.18% 3.18% 9,475,902 9,475,902 Sarah Simpson Sarah Simpson C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 47 47 Significant Agreements Significant Agreements (Change of Control) (Change of Control) The Company is required to disclose any The Company is required to disclose any significant agreements that take effect, alter or significant agreements that take effect, alter or terminate on a change of control of the Company terminate on a change of control of the Company following a takeover bid. following a takeover bid. The Company has committed debt facilities all of The Company has committed debt facilities all of which are directly or indirectly subject to change which are directly or indirectly subject to change of control provisions, albeit that the facilities do of control provisions, albeit that the facilities do not necessarily require mandatory repayment on not necessarily require mandatory repayment on a change of control. In the event of a takeover or a change of control. In the event of a takeover or other change of control outstanding awards under other change of control outstanding awards under the Group share plans will become exercisable. the Group share plans will become exercisable. Equal Opportunities Equal Opportunities The Group is committed to eliminating The Group is committed to eliminating discrimination and encouraging diversity. Its discrimination and encouraging diversity. Its aim is that each employee is able to perform to aim is that each employee is able to perform to the best of their ability. The Group will not make the best of their ability. The Group will not make assumptions about a person’s ability to carry assumptions about a person’s ability to carry out their work, for example on their ethnic origin, out their work, for example on their ethnic origin, gender, sexual orientation, marital status, religion gender, sexual orientation, marital status, religion or beliefs, age or disability. or beliefs, age or disability. Disabled Employees Disabled Employees In the event of an employee becoming disabled, In the event of an employee becoming disabled, every effort is made to retain them in order that every effort is made to retain them in order that their employment with the Group may continue. their employment with the Group may continue. It is the policy of the Group that training, career It is the policy of the Group that training, career development and promotion opportunities should development and promotion opportunities should be available to all employees. be available to all employees. Political and Charitable Donations Political and Charitable Donations Donations of £4,899 were made by the Donations of £4,899 were made by the Group for charitable purposes during the year Group for charitable purposes during the year (2020: £14,283). The Group does not make (2020: £14,283). The Group does not make political donations. Further details on our political donations. Further details on our charitable initiatives are given on page 29. charitable initiatives are given on page 29. Research and Development Research and Development The Group carries out research and development The Group carries out research and development in relation to the design and development of in relation to the design and development of technologies and processes in connection with technologies and processes in connection with its products and services. its products and services. Financial Risk Management Information in respect of the financial risk management of the Group, is contained on page 95 in note 28 on borrowings and on pages 100 to 105 in note 33 on financial instruments of the financial statements. Related Party Transactions Any related party transactions required to be disclosed under the AIM rules are disclosed on pages 109 to 111 in note 38 to the Financial Statements. Modern Slavery Act Our anti-slavery policy, which sets out our commitment to preventing modern slavery and human trafficking from occurring within any part of our business and supply chain, is available on our website www.brickabilitygroupplc.com. Statement, as to Disclosure of Information to Auditors The Directors in office on 4 August 2021 have confirmed that, as far as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the Directors have confirmed that they have taken all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. Post Balance Sheet Events Particulars of events after the reporting period are detailed in note 39 to the financial statements. Annual General Meeting The AGM will be held on 7 September 2021 at 11am at Queensgate House, Cookham Road, Bracknell, Berkshire, RG12 1RB. The 2021 Notice of AGM will be available on the Company’s website, www.brickabilitygroupplc.com. This Directors’ report was approved by the Board of Directors on 4 August 2021. By order of the Board Prism Cosec Limited Company Secretary 4 August 2021 48 48 C O R P O R A T E G O V E R N A N C E 49 Financial Risk Management Financial Risk Management Information in respect of the financial risk management of the Group, Information in respect of the financial risk management of the Group, is contained on page 95 in note 28 on borrowings and on pages 100 to is contained on page 95 in note 28 on borrowings and on pages 100 to 105 in note 33 on financial instruments of the financial statements. 105 in note 33 on financial instruments of the financial statements. Related Party Transactions Related Party Transactions Any related party transactions required to be disclosed under the Any related party transactions required to be disclosed under the AIM rules are disclosed on pages 109 to 111 in note 38 to the AIM rules are disclosed on pages 109 to 111 in note 38 to the Financial Statements. Financial Statements. Modern Slavery Act Modern Slavery Act Our anti-slavery policy, which sets out our commitment to Our anti-slavery policy, which sets out our commitment to preventing modern slavery and human trafficking from occurring within preventing modern slavery and human trafficking from occurring within any part of our business and supply chain, is available on our website any part of our business and supply chain, is available on our website www.brickabilitygroupplc.com. www.brickabilitygroupplc.com. Statement, as to Disclosure of Information to Auditors Statement, as to Disclosure of Information to Auditors The Directors in office on 4 August 2021 have confirmed that, as far as The Directors in office on 4 August 2021 have confirmed that, as far as they are aware, there is no relevant audit information of which the auditor they are aware, there is no relevant audit information of which the auditor is unaware. Each of the Directors have confirmed that they have taken is unaware. Each of the Directors have confirmed that they have taken all steps that they ought to have taken as Directors in order to make all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. that it has been communicated to the auditor. Post Balance Sheet Events Post Balance Sheet Events Particulars of events after the reporting period are detailed in Particulars of events after the reporting period are detailed in note 39 to the financial statements. note 39 to the financial statements. Annual General Meeting Annual General Meeting The AGM will be held on 7 September 2021 at 11am at Queensgate The AGM will be held on 7 September 2021 at 11am at Queensgate House, Cookham Road, Bracknell, Berkshire, RG12 1RB. The 2021 House, Cookham Road, Bracknell, Berkshire, RG12 1RB. The 2021 Notice of AGM will be available on the Company’s website, Notice of AGM will be available on the Company’s website, www.brickabilitygroupplc.com. www.brickabilitygroupplc.com. This Directors’ report was approved by the Board of Directors on This Directors’ report was approved by the Board of Directors on 4 August 2021. 4 August 2021. By order of the Board By order of the Board Prism Cosec Limited Prism Cosec Limited Company Secretary Company Secretary 4 August 2021 4 August 2021 C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 49 49 Statement of Directors’ Responsibilities Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with Group and Parent Company financial statements in accordance with applicable law and regulations. applicable law and regulations. Company law requires the Directors to prepare Group and Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Parent Company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange, As required by the AIM Rules of the London Stock Exchange, they are required to prepare the Group financial statements they are required to prepare the Group financial statements in accordance with international accounting standards in in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 conformity with the requirements of the Companies Act 2006 and applicable law. The Directors have elected to prepare and applicable law. The Directors have elected to prepare the Parent Company financial statements under the FRS 101 the Parent Company financial statements under the FRS 101 Reduced Disclosure Framework. Reduced Disclosure Framework. Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to: In preparing each of the Group and Parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable, relevant and reliable; • make judgements and estimates that are reasonable, relevant and reliable; • state whether they have been prepared in accordance with international and UK accounting standards; • state whether they have been prepared in accordance with international and UK accounting standards; • assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, • assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent • use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations or have no realistic alternative but to do so. Company or to cease operations or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and the assets of the Group and to prevent and detect fraud and other irregularities. other irregularities. Under applicable law and regulations, the Directors are also Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report and a Directors’ responsible for preparing a Strategic Report and a Directors’ Report that complies with that law and those regulations. Report that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the of the corporate and financial information included on the Company’s website. Legislation in the UK governing the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ preparation and dissemination of financial statements may differ from legislation in other jurisdictions. from legislation in other jurisdictions. By order of the Board By order of the Board Alan Simpson Alan Simpson Chief Executive Chief Executive 4 August 2021 4 August 2021 Mike Gant Chief Financial Officer Mike Gant Chief Financial Officer Independent Auditor’s Report to the members of Brickability Group PLC Opinion on the financial statements In our opinion: • the financial statements give a true and fair view of the state • the Parent Company financial statements have been of the Group’s and of the Parent Company’s affairs as at 31 properly prepared in accordance with United Kingdom March 2021 and of the Group’s profit for the year then ended; Generally Accepted Accounting Practice; and • the Group financial statements have been properly • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; We have audited the financial statements of Brickability Group Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 March 2021 which comprise the Consolidated Statement of Profit or Loss and Other Comprehensive Income, the Consolidated Balance Sheet, the Company Balance Sheet, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows and 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 Group financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. 50 50 C O R P O R A T E G O V E R N A N C E 51 Independent Auditor’s Report Independent Auditor’s Report to the members of Brickability Group PLC to the members of Brickability Group PLC Opinion on the financial statements Opinion on the financial statements In our opinion: In our opinion: • the financial statements give a true and fair view of the state • 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 of the Group’s and of the Parent Company’s affairs as at 31 March 2021 and of the Group’s profit for the year then ended; March 2021 and of the Group’s profit for the year then ended; • the Group financial statements have been properly • the Group financial statements have been properly prepared in accordance with international accounting prepared in accordance with international accounting standards in conformity with the requirements of the standards in conformity with the requirements of the Companies Act 2006; Companies Act 2006; • the Parent Company financial statements have been • the Parent Company financial statements have been properly prepared in accordance with United Kingdom properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. with the requirements of the Companies Act 2006. We have audited the financial statements of Brickability Group Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for We have audited the financial statements of Brickability Group Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 March 2021 which comprise the Consolidated Statement of Profit or Loss and Other Comprehensive Income, the year ended 31 March 2021 which comprise the Consolidated Statement of Profit or Loss and Other Comprehensive Income, the Consolidated Balance Sheet, the Company Balance Sheet, the Consolidated Statement of Changes in Equity, the Company the Consolidated Balance Sheet, the Company Balance Sheet, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the financial statements, including a Statement of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006. The financial reporting and international accounting standards in conformity with the requirements of the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). Generally Accepted Accounting Practice). Basis for opinion Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our 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 responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence Independence We remain independent of the Group and the Parent Company in accordance We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. responsibilities in accordance with these requirements. C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 51 51 Independent Auditor’s Report Independent Auditor’s Report to the members of Brickability Group PLC to the members of Brickability Group PLC Conclusions relating to going concern Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included: Company’s ability to continue to adopt the going concern basis of accounting included: sections of this report. Overview We assessed the appropriateness of sensitivity analyses We assessed the appropriateness of sensitivity analyses prepared by management over the Group’s cash flow prepared by management over the Group’s cash flow forecasts including the effects of adverse movements in forecasts including the effects of adverse movements in revenue to determine the sufficiency of available cash revenue to determine the sufficiency of available cash resources to settle short term liabilities as they fall due over the resources to settle short term liabilities as they fall due over the next 12 months. next 12 months. We reviewed the reverse stress testing and challenged the We reviewed the reverse stress testing and challenged the Directors’ assessment of the quantification of the revenue Directors’ assessment of the quantification of the revenue shortfall required for covenants to be breached in the forecast shortfall required for covenants to be breached in the forecast period. We considered the likelihood and reasonableness of period. We considered the likelihood and reasonableness of the shortfall with reference to the Directors’ historical data of the shortfall with reference to the Directors’ historical data of revenue and EBITDA during the Coronavirus pandemic and revenue and EBITDA during the Coronavirus pandemic and lockdowns, and recent management accounts. lockdowns, and recent management accounts. We reviewed the adequacy of disclosures in note 2 to the We reviewed the adequacy of disclosures in note 2 to the financial statements regarding going concern. financial statements regarding going concern. Based on the work we have performed, we have not identified Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt that, individually or collectively, may cast significant doubt on the Group and parent company’s ability to continue as on the Group and parent company’s ability to continue as a going concern for a period of at least twelve months from a going concern for a period of at least twelve months from when the financial statements are authorised for issue. when the financial statements are authorised for issue. We obtained the going concern assessment, approved by We obtained the going concern assessment, approved by the Directors, including detailed cash flow forecasts up to the Directors, including detailed cash flow forecasts up to at least 12 months after the date of approval of these at least 12 months after the date of approval of these financial statements. financial statements. We assessed the Directors’ assumptions in the going concern We assessed the Directors’ assumptions in the going concern forecast including revenue and growth profiles, profit forecast including revenue and growth profiles, profit margin, Coronavirus risk assessment and funding headroom margin, Coronavirus risk assessment and funding headroom availability. We performed this with reference to available availability. We performed this with reference to available market data, reviewed the forecasts for any anomalies and market data, reviewed the forecasts for any anomalies and investigated unusual large cash payments that would affect investigated unusual large cash payments that would affect profit margins and assessed actual trading performance profit margins and assessed actual trading performance during the Coronavirus pandemic and how this was during the Coronavirus pandemic and how this was incorporated into future projections. incorporated into future projections. We assessed the historical accuracy of the Directors forecasts, We assessed the historical accuracy of the Directors forecasts, including comparing the current forecasts against post year including comparing the current forecasts against post year end actual results. end actual results. We inspected the Group’s signed revolving facility agreements We inspected the Group’s signed revolving facility agreements to check that the Group has sufficient funds to: settle to check that the Group has sufficient funds to: settle the deferred consideration due of £4.5m (note 27) for the deferred consideration due of £4.5m (note 27) for acquisitions made in the prior year as well as the two new acquisitions made in the prior year as well as the two new acquisitions in the current year and two new acquisitions post acquisitions in the current year and two new acquisitions post year end; and maintain sufficient working capital to continue year end; and maintain sufficient working capital to continue daily operations as normal. daily operations as normal. We obtained the documentation covering the availability of a We obtained the documentation covering the availability of a 3 year extension to the facility from 3 March 2023. 3 year extension to the facility from 3 March 2023. We assessed the impact on banking covenants to determine We assessed the impact on banking covenants to determine if they would be breached if the drawn down of all if they would be breached if the drawn down of all facilities were to occur. facilities were to occur. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant Coverage: from Significant components and specific procedures 91% (2020: 74%) of Group profit before tax 89% (2020: 81%) of Group revenue 94% (2020: 64%) of Group total net assets Key audit matters 2021 2020 KAM 1 – Revenue cut-off of direct sales KAM 2 - Existence of Inventory KAM 3 – Acquisition accounting KAM 4 – Carrying value of goodwill and intangibles KAM 5 – Going concern KAM 1 for the current year we have focussed our audit work on the cut-off of direct sales. Our assessment of manual adjustments to revenue in the prior year did not bear significance in the current year. KAM 2 is no longer considered to be a key audit matter because in the current year we were able to attend stock counts without any restrictions as a result of Covid 19 and as a result existence of inventory has not been deemed a risk by the audit team in the current year. KAM 3 is no longer considered to be a key audit matter because the current year there were only 2 immaterial acquisitions and in consideration of the scope of our audit we have not considered this as a KAM for the current year. KAM 5 is no longer considered to be a key audit matter because of the limited impact of the Coronavirus on the Group and the resulting impact on our risk assessment. Materiality Group financial statements as a whole £720,000 (2020: £600,000) based on 5% (2020: 4.9%) of adjusted profit before tax (2020: profit before tax). 52 52 C O R P O R A T E G O V E R N A N C E 53 Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. sections of this report. Overview Overview Coverage: from Coverage: from Significant components Significant components and specific procedures and specific procedures 91% (2020: 74%) of Group profit before tax 89% (2020: 81%) of Group revenue 94% (2020: 64%) of Group total net assets 91% (2020: 74%) of Group profit before tax 89% (2020: 81%) of Group revenue 94% (2020: 64%) of Group total net assets Key audit matters Key audit matters 2021 2021 2020 2020 KAM 1 – Revenue cut-off of direct sales KAM 1 – Revenue cut-off of direct sales KAM 2 - Existence of Inventory KAM 2 - Existence of Inventory KAM 3 – Acquisition accounting KAM 3 – Acquisition accounting KAM 4 – Carrying value of goodwill and intangibles KAM 4 – Carrying value of goodwill and intangibles KAM 5 – Going concern KAM 5 – Going concern KAM 1 for the current year we have focussed our audit work on the cut-off of direct sales. Our assessment of manual adjustments to revenue in the prior year did not bear significance in the current year. KAM 1 for the current year we have focussed our audit work on the cut-off of direct sales. Our assessment of manual adjustments to revenue in the prior year did not bear significance in the current year. KAM 2 is no longer considered to be a key audit matter because in the current year we were able to attend KAM 2 is no longer considered to be a key audit matter because in the current year we were able to attend stock counts without any restrictions as a result of Covid 19 and as a result existence of inventory has not been stock counts without any restrictions as a result of Covid 19 and as a result existence of inventory has not been deemed a risk by the audit team in the current year. deemed a risk by the audit team in the current year. KAM 3 is no longer considered to be a key audit matter because the current year there were only 2 immaterial KAM 3 is no longer considered to be a key audit matter because the current year there were only 2 immaterial acquisitions and in consideration of the scope of our audit we have not considered this as a KAM for the acquisitions and in consideration of the scope of our audit we have not considered this as a KAM for the current year. current year. KAM 5 is no longer considered to be a key audit matter because of the limited impact of the Coronavirus on the Group and the resulting impact on our risk assessment. KAM 5 is no longer considered to be a key audit matter because of the limited impact of the Coronavirus on the Group and the resulting impact on our risk assessment. Materiality Materiality Group financial statements as a whole Group financial statements as a whole £720,000 (2020: £600,000) based on 5% (2020: 4.9%) of adjusted profit before tax (2020: profit before tax). £720,000 (2020: £600,000) based on 5% (2020: 4.9%) of adjusted profit before tax (2020: profit before tax). C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 53 53 From our testing performed we consider the cut –off of revenue to be appropriate. As a consequence of the Group’s growth strategy a significant value of goodwill and intangible assets has arisen from For all intangible assets where an indicator for impairment exist and for goodwill on an annual basis, we reviewed management’s methodology and assumptions used in their impairment assessment. Our detailed procedures acquisitions. included the following: Key audit matter Revenue cut-off of direct sales See note 3.4 to the financial statements for the Directors’ disclosures of the related revenue recognition accounting policies. Key observations: Carrying value of goodwill and intangibles Refer to note 3.11 and 4 to the financial statements for the Directors’ disclosures on the critical accounting estimates and judgements related to impairment. Trade in the Bricks division predominantly comprises direct sales where goods are delivered directly from the supplier to the customer. Transfer of risk and rewards are at a point in time when the goods are delivered at the client site for all direct sales. We considered that there is a risk of inappropriate revenue recognition arising from cut-off of direct sales, where revenue is incorrectly recorded and risk and rewards transfer is incorrectly applied to goods delivered around year end. This could lead to the overstatement of revenue as a result of the recognition of revenue in the incorrect period. The carrying amounts of the Group’s goodwill, which is assessed annually and other acquired intangible assets, for which there are an indicator for impairment, are assessed against potential future cash flows. There is a risk that the year end values assigned to goodwill and intangible assets are materially misstated. As this is subjective and judgemental, this increases the risk of misstatement. This risk has been heightened by uncertainty over future trading prospects and cash flows caused by the Covid-19 pandemic, Brexit and other macro-economic factors affecting the construction industry which may lead to an impairment charge that has not been recognised by management. How the scope of our audit addressed the key audit matter We challenged management on the application of the accounting policies with reference to the cut-off of direct sales and the application of the timing of the transfer of risk and rewards in accordance with the accounting standards and terms and conditions of the direct sales. We agreed a sample of sales invoices recognised covering a risk period before and after the year end through to supporting third party delivery documentation and customer confirmation, to confirm that the Group has satisfied its performance obligations and revenue was appropriately recorded in the correct period. We compared the assessment of the indicators identified by the Directors against our own expectation of the market. We challenged management’s models for assessing the valuation of significant goodwill and intangible balances to understand the composition of management’s future cash flow forecasts, and the process undertaken to prepare them to conclude on the appropriateness of the models and assumptions used by management. We confirmed the underlying cash flows were consistent with the Board approved budgets, which reflected the forecasted impact of COVID-19, Brexit and other macro-economic factors on the construction industry and the business. We assessed the reasonableness of the key assumptions, including growth rate, discount rate used, and other key assumptions by testing this to supporting documentation which include historical information, budget verses actual results, recent acquisitions and industry published information and trends. We checked the mathematical integrity of the model. For all cash generating unit (“CGUs”), we scrutinised the Directors’ assessment of the degree to which the key assumptions would need to fluctuate before an impairment was triggered. This includes testing sensitivities to ensure sufficient headroom exist for each CGU. In respect of the CGUs identified as having impairment indicators or lower levels of headroom we performed detailed testing with support from our internal BDO valuations experts to critically assess and corroborate the key inputs of the forecast cash flows including: An assessment of the discount rate used by obtaining the underlying data used in the calculation and benchmarking it against comparable organisations and market data; A consideration of the length of the period for which cash flows were modelled and the growth rates assumed in the cash flows as well as the terminal value, by comparing them to economic and industry forecasts; and An analysis of the historical accuracy of budgets to actual results for previously acquired components, to determine whether forecast cash flows are reliable based on past experience and checking that sensitivities applied to the models are in excess of any forecasting inaccuracy identified our assessment of budgets vs actual results. Key observations: Based on our procedures performed we consider managements judgements and estimates to be appropriate. Independent Auditor’s Report Independent Auditor’s Report to the members of Brickability Group PLC to the members of Brickability Group PLC An overview of the scope of our audit An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of in the financial statements. We also addressed the risk of management override of internal controls, including assessing management override of internal controls, including assessing whether there was evidence of bias by the Directors that may whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. have represented a risk of material misstatement. In determining the scope of our audit we considered the size and In determining the scope of our audit we considered the size and nature of each component within the Group to determine the nature of each component within the Group to determine the level of work to be performed at each in order to ensure sufficient level of work to be performed at each in order to ensure sufficient assurance was gained to allow us to express an opinion on the assurance was gained to allow us to express an opinion on the financial statements as a whole. financial statements as a whole. We have identified 12 components to be significant to the We have identified 12 components to be significant to the Group (Brick-ability Ltd, Brick Services Limited, Bespoke Brick Group (Brick-ability Ltd, Brick Services Limited, Bespoke Brick Company Limited, Brick-link Limited, LBT Brick & Facades Company Limited, Brick-link Limited, LBT Brick & Facades Limited, Crest Brick Slate & Tile Limited, Crest Roofing Limited, Limited, Crest Brick Slate & Tile Limited, Crest Roofing Limited, U Plastics Limited, Excel Roofing Services Limited, Crown U Plastics Limited, Excel Roofing Services Limited, Crown Roofing (Centres) Limited, McCann Roofing Products Limited, Roofing (Centres) Limited, McCann Roofing Products Limited, Towelrads.com Limited). Full scope audits were undertaken by Towelrads.com Limited). Full scope audits were undertaken by the Group audit team. the Group audit team. There are 16 other components within the Group that There are 16 other components within the Group that were not considered to be significant components. For were not considered to be significant components. For these components, the Group audit team performed other these components, the Group audit team performed other procedures, including analytical review where we corroborated procedures, including analytical review where we corroborated any unusual trends and material movements by further testing any unusual trends and material movements by further testing a sample of those material items to supporting documentation a sample of those material items to supporting documentation with reference to the Group materiality threshold. These specific with reference to the Group materiality threshold. These specific audit procedures performed increased the level of coverage audit procedures performed increased the level of coverage obtained from our audit over revenue, profit before taxation and obtained from our audit over revenue, profit before taxation and net assets. net assets. We obtained an understanding of the internal control We obtained an understanding of the internal control environment related to the financial reporting process and environment related to the financial reporting process and assessed the appropriateness, completeness and accuracy assessed the appropriateness, completeness and accuracy of the Group journals and other adjustments performed on of the Group journals and other adjustments performed on consolidation. All procedures were undertaken by the Group consolidation. All procedures were undertaken by the Group audit team. audit team. Key audit matters Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial 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 statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial 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. statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 54 54 C O R P O R A T E G O V E R N A N C E 55 Key audit matter Key audit matter Revenue cut-off Revenue cut-off of direct sales of direct sales See note 3.4 to the See note 3.4 to the financial statements financial statements for the Directors’ for the Directors’ disclosures of the disclosures of the related revenue related revenue recognition recognition accounting policies. accounting policies. Trade in the Bricks division predominantly Trade in the Bricks division predominantly comprises direct sales where goods are comprises direct sales where goods are delivered directly from the supplier to the delivered directly from the supplier to the customer. Transfer of risk and rewards customer. Transfer of risk and rewards are at a point in time when the goods are are at a point in time when the goods are delivered at the client site for all direct sales. delivered at the client site for all direct sales. We considered that there is a risk of We considered that there is a risk of inappropriate revenue recognition arising inappropriate revenue recognition arising from cut-off of direct sales, where revenue from cut-off of direct sales, where revenue is incorrectly recorded and risk and is incorrectly recorded and risk and rewards transfer is incorrectly applied rewards transfer is incorrectly applied to goods delivered around year end. to goods delivered around year end. This could lead to the overstatement of This could lead to the overstatement of revenue as a result of the recognition of revenue as a result of the recognition of revenue in the incorrect period. revenue in the incorrect period. How the scope of our audit addressed the key audit matter How the scope of our audit addressed the key audit matter We challenged management on the application of the accounting policies with We challenged management on the application of the accounting policies with reference to the cut-off of direct sales and the application of the timing of the reference to the cut-off of direct sales and the application of the timing of the transfer of risk and rewards in accordance with the accounting standards and transfer of risk and rewards in accordance with the accounting standards and terms and conditions of the direct sales. terms and conditions of the direct sales. We agreed a sample of sales invoices recognised covering a risk period We agreed a sample of sales invoices recognised covering a risk period before and after the year end through to supporting third party delivery before and after the year end through to supporting third party delivery documentation and customer confirmation, to confirm that the Group has documentation and customer confirmation, to confirm that the Group has satisfied its performance obligations and revenue was appropriately recorded satisfied its performance obligations and revenue was appropriately recorded in the correct period. in the correct period. Key observations: From our testing performed we consider the cut –off of revenue to be appropriate. Key observations: From our testing performed we consider the cut –off of revenue to be appropriate. Carrying value Carrying value of goodwill and of goodwill and intangibles intangibles Refer to note Refer to note 3.11 and 4 to the 3.11 and 4 to the financial statements financial statements for the for the Directors’ disclosures Directors’ disclosures on the critical on the critical accounting accounting estimates and estimates and judgements related judgements related to impairment. to impairment. As a consequence of the Group’s growth As a consequence of the Group’s growth strategy a significant value of goodwill strategy a significant value of goodwill and intangible assets has arisen from and intangible assets has arisen from acquisitions. acquisitions. The carrying amounts of the Group’s The carrying amounts of the Group’s goodwill, which is assessed annually goodwill, which is assessed annually and other acquired intangible assets, and other acquired intangible assets, for which there are an indicator for for which there are an indicator for impairment, are assessed against impairment, are assessed against potential future cash flows. There is a potential future cash flows. There is a risk that the year end values assigned risk that the year end values assigned to goodwill and intangible assets are to goodwill and intangible assets are materially misstated. As this is subjective materially misstated. As this is subjective and judgemental, this increases the risk and judgemental, this increases the risk of misstatement. of misstatement. This risk has been heightened by This risk has been heightened by uncertainty over future trading uncertainty over future trading prospects and cash flows caused by the prospects and cash flows caused by the Covid-19 pandemic, Brexit and other Covid-19 pandemic, Brexit and other macro-economic factors affecting the macro-economic factors affecting the construction industry which may lead to construction industry which may lead to an impairment charge that has not been an impairment charge that has not been recognised by management. recognised by management. For all intangible assets where an indicator for impairment exist and for For all intangible assets where an indicator for impairment exist and for goodwill on an annual basis, we reviewed management’s methodology and goodwill on an annual basis, we reviewed management’s methodology and assumptions used in their impairment assessment. Our detailed procedures assumptions used in their impairment assessment. Our detailed procedures included the following: included the following: We compared the assessment of the indicators identified by the Directors We compared the assessment of the indicators identified by the Directors against our own expectation of the market. against our own expectation of the market. We challenged management’s models for assessing the valuation of We challenged management’s models for assessing the valuation of significant goodwill and intangible balances to understand the composition significant goodwill and intangible balances to understand the composition of management’s future cash flow forecasts, and the process undertaken of management’s future cash flow forecasts, and the process undertaken to prepare them to conclude on the appropriateness of the models and to prepare them to conclude on the appropriateness of the models and assumptions used by management. assumptions used by management. We confirmed the underlying cash flows were consistent with the Board approved We confirmed the underlying cash flows were consistent with the Board approved budgets, which reflected the forecasted impact of COVID-19, Brexit and other budgets, which reflected the forecasted impact of COVID-19, Brexit and other macro-economic factors on the construction industry and the business. macro-economic factors on the construction industry and the business. We assessed the reasonableness of the key assumptions, including growth rate, We assessed the reasonableness of the key assumptions, including growth rate, discount rate used, and other key assumptions by testing this to supporting discount rate used, and other key assumptions by testing this to supporting documentation which include historical information, budget verses actual documentation which include historical information, budget verses actual results, recent acquisitions and industry published information and trends. results, recent acquisitions and industry published information and trends. We checked the mathematical integrity of the model. We checked the mathematical integrity of the model. For all cash generating unit (“CGUs”), we scrutinised the Directors’ assessment For all cash generating unit (“CGUs”), we scrutinised the Directors’ assessment of the degree to which the key assumptions would need to fluctuate before an of the degree to which the key assumptions would need to fluctuate before an impairment was triggered. This includes testing sensitivities to ensure sufficient impairment was triggered. This includes testing sensitivities to ensure sufficient headroom exist for each CGU. headroom exist for each CGU. In respect of the CGUs identified as having impairment indicators or lower In respect of the CGUs identified as having impairment indicators or lower levels of headroom we performed detailed testing with support from our levels of headroom we performed detailed testing with support from our internal BDO valuations experts to critically assess and corroborate the key internal BDO valuations experts to critically assess and corroborate the key inputs of the forecast cash flows including: inputs of the forecast cash flows including: An assessment of the discount rate used by obtaining the underlying data used An assessment of the discount rate used by obtaining the underlying data used in the calculation and benchmarking it against comparable organisations and in the calculation and benchmarking it against comparable organisations and market data; market data; A consideration of the length of the period for which cash flows were modelled A consideration of the length of the period for which cash flows were modelled and the growth rates assumed in the cash flows as well as the terminal value, and the growth rates assumed in the cash flows as well as the terminal value, by comparing them to economic and industry forecasts; and by comparing them to economic and industry forecasts; and An analysis of the historical accuracy of budgets to actual results for previously An analysis of the historical accuracy of budgets to actual results for previously acquired components, to determine whether forecast cash flows are reliable acquired components, to determine whether forecast cash flows are reliable based on past experience and checking that sensitivities applied to the models based on past experience and checking that sensitivities applied to the models are in excess of any forecasting inaccuracy identified our assessment of are in excess of any forecasting inaccuracy identified our assessment of budgets vs actual results. budgets vs actual results. Key observations: Based on our procedures performed we consider managements judgements and estimates to be appropriate. Key observations: Based on our procedures performed we consider managements judgements and estimates to be appropriate. C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 55 55 Independent Auditor’s Report Independent Auditor’s Report to the members of Brickability Group PLC to the members of Brickability Group PLC Our application of materiality Our application of materiality We apply the concept of materiality both in planning We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. users that are taken on the basis of the financial statements. to determine the extent of testing needed. Importantly, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. effect on the financial statements as a whole. In order to reduce to an appropriately low level the In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, we use a lower materiality level, performance materiality, Based on our professional judgement, we determined Based on our professional judgement, we determined materiality for the financial statements as a whole and materiality for the financial statements as a whole and performance materiality as follows: performance materiality as follows: Group financial statements Group financial statements Parent company financial statements Parent company financial statements 2021 2021 £ £ 2020 2020 £ £ 2021 2021 £ £ 2020 2020 £ £ Materiality Materiality 720,000 720,000 600,000 600,000 472,000 472,000 495,000 495,000 Basis for Basis for determining determining materiality materiality Rationale for Rationale for the benchmark the benchmark applied applied 5% of Adjusted Profit 5% of Adjusted Profit before Taxation before Taxation 4.9% of Profit 4.9% of Profit before Taxation before Taxation 66% of Group 66% of Group materiality materiality 82.5% of group 82.5% of group materiality materiality Capped at 66% of Group materiality Capped at 66% of Group materiality (2020: 82.5% of Group materiality) (2020: 82.5% of Group materiality) given the assessment of the significant given the assessment of the significant components aggregation risk. components aggregation risk. We considered We considered that profit before that profit before tax is a key tax is a key performance performance measure to the measure to the stakeholders of stakeholders of the entity and the entity and therefore an therefore an appropriate appropriate benchmark. benchmark. We considered that We considered that adjusted profit before adjusted profit before tax is a key performance tax is a key performance measure to the measure to the stakeholders of the stakeholders of the entity and therefore an entity and therefore an appropriate benchmark. appropriate benchmark. This has been changed This has been changed on the basis that the on the basis that the Group is acquisitive, with Group is acquisitive, with large intangible asset large intangible asset balances and the entity’s balances and the entity’s performance is more performance is more accurately reflected when accurately reflected when adjusted for amortisation, adjusted for amortisation, fair value changes in fair value changes in contingent consideration, contingent consideration, and acquisition and other and acquisition and other exceptional costs. exceptional costs. Performance Performance materiality materiality Basis for Basis for determining determining performance performance materiality materiality 508,000 508,000 400,000 400,000 354,000 354,000 326,000 326,000 70% (65%) of Group materiality taking into 70% (65%) of Group materiality taking into consideration of the overall risk assessment, including consideration of the overall risk assessment, including factors such as areas of estimation within the financial factors such as areas of estimation within the financial statements, the type of audit testing to be completed statements, the type of audit testing to be completed and history of misstatement. and history of misstatement. 70% (65%) of Parent Company materiality 70% (65%) of Parent Company materiality taking into consideration factors such as taking into consideration factors such as areas of estimation within the financial areas of estimation within the financial statements and the type of audit testing to statements and the type of audit testing to be completed. be completed. Component materiality Component materiality We set materiality for each component of the Group based on a percentage of between 3% and 66% of Group We set materiality for each component of the Group based on a percentage of between 3% and 66% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £20,700 to £472,000. In the audit of each component, we further applied Component materiality ranged from £20,700 to £472,000. In the audit of each component, we further applied performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Because each of these components were also subject exceeding component materiality was appropriately mitigated. Because each of these components were also subject to standalone statutory audits, we used the materiality applicable to those audits for Group purposes. to standalone statutory audits, we used the materiality applicable to those audits for Group purposes. 56 56 C O R P O R A T E G O V E R N A N C E 57 C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E 57 57 Independent Auditor’s Report to the members of Brickability Group PLC Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £14,500 (2020: £14,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report and accounts 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. 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 course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report and Directors’ report In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which 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 Directors As explained more fully in the Statement of Directors’ responsibilities, 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 the 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. 58 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. Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non- compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are the companies Act 2006, accounting standards, AIM Rules and the Corporation Tax Act 2010. We identified these areas of laws and regulations as those that could reasonably be expected to have a material effect on the financial statements from sector experience and through discussion with the Directors and other management. We assessed compliance with the these laws and regulations through enquiry with management and the Audit Committee, review of reporting to Directors with respect to compliance with laws and regulations, review of board meeting minutes and review of legal correspondence. We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur. In addressing the risk of fraud including management override of controls, we have performed journals testing based on a set of fraud risk criteria and tested to supporting documentation also verifying the business rationale. This criteria included round sum posted journals, material journals, unexpected account combinations, unusual journal descriptions and authorised users testing. Other procedures in response to management override included checking discretionary bonus payments to approval from the remuneration committee, challenging management on the rationale for the defects provision and potential senior management influence on adequacy of the provision by corroborating management’s assumptions and further challenging retention provisions on similar projects. We also incorporated unpredictability procedures as part of our response to the risk of management override of controls. We addressed the risk of fraud in revenue recognition through testing of manual entries impacting reported revenue as well as cut-off. We analysed the journal entries made to revenue account codes across the Group and investigated the reason for journal entries made that appeared unusual and not in line with our expected transaction flows. We agreed management’s explanations back through to supporting documentation. For cut-off, please refer to the key audit matter section above. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available 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 Parent 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 Parent 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Sarah Applegate (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor Bristol, UK 4 August 2021 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). C O R P O R A T E G O V E R N A N C E 59 Financial Statements CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2021 All results relate to continuing operations. 60 2021 Other items2020 Other items NotesAdjusted £’000(Note 14) £’000Total £’000Adjusted£’000(Note 14)£’000Total£’000Revenue5181,084-181,084187,126-187,126Cost of sales (143,112)-(143,112)(149,442)-(149,442)Gross profit 37,972-37,97237,684-37,684Other operating income792-9226-26Administrative expenses(20,181)(443)(20,624)(17,710)(56)(17,766)Impairment losses on financial assets25(341)-(341)(433)-(433)Depreciation and amortisation(1,837)(3,619)(5,456)(1,312)(3,075)(4,387)Finance income1113-1371-71Finance expense12(718)(127)(845)(1,310)(1,217)(2,527)Share of post-tax loss of equity accounted associates22-(6)(6)-(32)(32)Fair value gains/ (losses)13-360360-(45)(45)Exceptional income14----2,0002,000Exceptional expenses14----(2,407)(2,407)Profit before tax 815,000(3,835)11,16517,016(4,832)12,184Tax expense15(2,193)687(1,506)(2,905)12(2,893)Profit for the year and total comprehensive income12,807(3,148)9,65914,111(4,820)9,291Attributable to:Equity holders of the parent12,813(3,148)9,66514,111(4,820)9,291Non-controlling interests(6)-(6)---12,807(3,148)9,65914,111(4,820)9,291Earnings per shareBasic earnings per share17 4.19 p 4.79 pDiluted earnings per share174.18 p4.77 pAdjusted basic earnings per share175.56 p7.27 pAdjusted diluted earnings per share175.54 p7.25 p CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2021 These financial statements were approved by the Board of Directors and authorised for issue on 4 August 2021. They are signed on behalf of the Board by: Alan Simpson Director Mike Gant Director Company registration number: 11123804 F I N A N C I A L S T A T E M E N T S 61 Notes2021£’0002020£’000Non-current assets Property, plant and equipment 189,1254,173Right of use assets 297,9456,375Intangible assets 1976,84878,050Investments in equity accounted associates 22221352Investments in financial assets23125-Deferred tax assets 3198205Trade and other receivables 25460391Total non-current assets 94,82289,546Current assetsInventories2412,1279,791Trade and other receivables2542,83236,560Cash and cash equivalents268,59227,269Total current assets63,55173,620Total assets158,373163,166Current liabilitiesTrade and other payables27(38,769)(41,912)Current income tax liabilities(426)(277)Lease liabilities29(1,497)(776)Total current liabilities(40,692)(42,965)Non-current liabilitiesTrade and other payables27(3,153)(2,402)Loans and borrowings28(15,750)(24,912)Lease liabilities29(6,796)(5,802)Provisions30(1,247)(1,389)Deferred tax liabilities31(5,301)(5,631)Total non-current liabilities(32,247)(40,136)Total liabilities(72,939)(83,101)Net assets85,43480,065EquityCalled up share capital342,3052,305Share premium account 3549,99949,999Capital redemption reserve3522Share-based payment reserve3526656Merger reserve351,2451,245Retained earnings3531,62326,458Equity attributable to equity holders of the parent85,44080,065Non-controlling interests(6)-Total equity85,43480,065 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2021 Notes Notes 2021 2021 £’000 £’000 2020 2020 £’000 £’000 20 20 25 25 25 25 26 26 6,542 6,542 9,343 9,343 6,542 6,542 9,343 9,343 15,885 15,885 15,885 15,885 75,482 75,482 79,819 79,819 22 22 - - 75,504 75,504 79,819 79,819 91,389 91,389 95,704 95,704 27 27 (10,084) (10,084) - - (10,084) (10,084) (166) (166) (15) (15) (181) (181) 28 28 (15,750) (15,750) (24,912) (24,912) (15,750) (15,750) (24,912) (24,912) (25,834) (25,834) (25,093) (25,093) 65,555 65,555 70,611 70,611 2,305 2,305 2,305 2,305 49,999 49,999 49,999 49,999 2 2 266 266 6,506 6,506 6,477 6,477 65,555 65,555 2 2 56 56 6,506 6,506 11,743 11,743 70,611 70,611 34 34 35 35 35 35 35 35 35 35 35 35 COMPANY BALANCE SHEET COMPANY BALANCE SHEET AS AT 31 MARCH 2021 AS AT 31 MARCH 2021 Non-current assets Non-current assets Investment in subsidiaries Investment in subsidiaries Trade and other receivables Trade and other receivables Total non-current assets Total non-current assets Current assets Current assets Trade and other receivables Trade and other receivables Cash and cash equivalents Cash and cash equivalents Total current assets Total current assets Total assets Total assets Current liabilities Current liabilities Trade and other payables Trade and other payables Current income tax liabilities Current income tax liabilities Total current liabilities Total current liabilities Non-current liabilities Non-current liabilities Loans and borrowings Loans and borrowings Total non-current liabilities Total non-current liabilities Total liabilities Total liabilities Net assets Net assets Equity Equity Called up share capital Called up share capital Share premium account Share premium account Capital redemption reserve Capital redemption reserve Share-based payment reserve Share-based payment reserve Merger reserve Merger reserve Retained earnings Retained earnings Total equity Total equity The loss of the Company for the financial year was £766,000 (2020: £175,000 profit). The loss of the Company for the financial year was £766,000 (2020: £175,000 profit). These financial statements were approved by the Board of Directors and authorised for issue on 4 August 2021. They are signed on behalf of the board by: These financial statements were approved by the Board of Directors and authorised for issue on 4 August 2021. They are signed on behalf of the board by: Alan Simpson Director Alan Simpson Director Mike Gant Director Mike Gant Director Company registration number: 11123804 Company registration number: 11123804 62 62 F I N A N C I A L S T A T E M E N T S 63 Share capital£’000Share premium account £’000Capital redemption£’000Share-based payments£’000Merger reserve£’000RetainedEarnings£’000Total attributable to equity holders of the parent£’000Non- controlling interest£’000Total£’000At 1 April 201948,970--1,2456,16716,386-16,386Profit for the year-----9,2919,291-9,291Total comprehensive income for the year-----9,2919,291-9,291Dividends paid-----(2,000)(2,000)-(2,000)Issue of paid shares (note 37)67844,223----44,901-44,901Bonus issue of shares1,429(1,429)-------Conversion of debt to equity (note 37)19613,736----13,932-13,932Purchase of own shares(2)-2------Increase in share-based payment reserve---56--56-56Share issue costs-(2,501)----(2,501)-(2,501)Share premium reduction-(13,000)---13,000---Total contributions by and distributions to owners2,30141,029256-11,00054,388-54,388At 31 March 20202,30549,9992561,24526,45880,065-80,065Profit or (loss) for the year-----9,6659,665(6)9,659Total comprehensive income for the year-----9,6659,665(6)9,659Dividends paid-----(4,500)(4,500)-(4,500)Increase in share-based payment reserve---210--210-210Total contributions by and distributions to owners ---210-(4,500)(4,290)-(4,290)At 31 March 20212,30549,99922661,24531,62385,440(6)85,434 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2021 FOR THE YEAR ENDED 31 MARCH 2021 F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S 63 63 Share capital£’000Share premium account £’000Capital redemption£’000Share-based payments£’000Merger reserve£’000RetainedEarnings£’000Total attributable to equity holders of the parent£’000Non- controlling interest£’000Total£’000At 1 April 201948,970--1,2456,16716,386-16,386Profit for the year-----9,2919,291-9,291Total comprehensive income for the year-----9,2919,291-9,291Dividends paid-----(2,000)(2,000)-(2,000)Issue of paid shares (note 37)67844,223----44,901-44,901Bonus issue of shares1,429(1,429)-------Conversion of debt to equity (note 37)19613,736----13,932-13,932Purchase of own shares(2)-2------Increase in share-based payment reserve---56--56-56Share issue costs-(2,501)----(2,501)-(2,501)Share premium reduction-(13,000)---13,000---Total contributions by and distributions to owners2,30141,029256-11,00054,388-54,388At 31 March 20202,30549,9992561,24526,45880,065-80,065Profit or (loss) for the year-----9,6659,665(6)9,659Total comprehensive income for the year-----9,6659,665(6)9,659Dividends paid-----(4,500)(4,500)-(4,500)Increase in share-based payment reserve---210--210-210Total contributions by and distributions to owners ---210-(4,500)(4,290)-(4,290)At 31 March 20212,30549,99922661,24531,62385,440(6)85,434Share capital£’000Share premium account £’000Capital redemption£’000Share-based payments£’000Merger reserve£’000RetainedEarnings£’000Total attributable to equity holders of the parent£’000Non- controlling interest£’000Total£’000At 1 April 201948,970--1,2456,16716,386-16,386Profit for the year-----9,2919,291-9,291Total comprehensive income for the year-----9,2919,291-9,291Dividends paid-----(2,000)(2,000)-(2,000)Issue of paid shares (note 37)67844,223----44,901-44,901Bonus issue of shares1,429(1,429)-------Conversion of debt to equity (note 37)19613,736----13,932-13,932Purchase of own shares(2)-2------Increase in share-based payment reserve---56--56-56Share issue costs-(2,501)----(2,501)-(2,501)Share premium reduction-(13,000)---13,000---Total contributions by and distributions to owners2,30141,029256-11,00054,388-54,388At 31 March 20202,30549,9992561,24526,45880,065-80,065Profit or (loss) for the year-----9,6659,665(6)9,659Total comprehensive income for the year-----9,6659,665(6)9,659Dividends paid-----(4,500)(4,500)-(4,500)Increase in share-based payment reserve---210--210-210Total contributions by and distributions to owners ---210-(4,500)(4,290)-(4,290)At 31 March 20212,30549,99922661,24531,62385,440(6)85,434 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2021 COMPANY STATEMENT OF COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2021 YEAR ENDED 31 MARCH 2021 64 64 F I N A N C I A L S T A T E M E N T S 65 The Consolidated Statement of Cash Flows continues on the following page. Share capital£’000Share premium account £’000Capital redemption£’000Share based payments£’000Merger Reserve£’000RetainedEarnings£’000Total£’000At 1 April 201948,970--6,50656816,048Profit for the year-----175175Total comprehensive income for the year-----175175Dividends paid-----(2,000)(2,000)Issue of paid shares (note 37)67844,223----44,901Bonus issue of shares1,429(1,429)-----Conversion of debt to equity (note 37)19613,736----13,932Purchase of own shares(2)-2----Increase in share-based payment reserve---56--56Share issue costs-(2,501)----(2,501)Share premium reduction-(13,000)---13,000-Total contributions by and distributions to owners2,30141,029256-11,00054,388At 31 March 20202,30549,9992566,50611,74370,611Loss for the year-----(766)(766)Total comprehensive income for the year-----(766)(766)Dividends paid-----(4,500)(4,500)Increase in share-based payment reserve---210--210Total contributions by and distributions to owners ---210-(4,500)(4,290)At 31 March 20212,30549,99922666,5066,47765,555Share capital£’000Share premium account £’000Capital redemption£’000Share based payments£’000Merger Reserve£’000RetainedEarnings£’000Total£’000At 1 April 201948,970--6,50656816,048Profit for the year-----175175Total comprehensive income for the year-----175175Dividends paid-----(2,000)(2,000)Issue of paid shares (note 37)67844,223----44,901Bonus issue of shares1,429(1,429)-----Conversion of debt to equity (note 37)19613,736----13,932Purchase of own shares(2)-2----Increase in share-based payment reserve---56--56Share issue costs-(2,501)----(2,501)Share premium reduction-(13,000)---13,000-Total contributions by and distributions to owners2,30141,029256-11,00054,388At 31 March 20202,30549,9992566,50611,74370,611Loss for the year-----(766)(766)Total comprehensive income for the year-----(766)(766)Dividends paid-----(4,500)(4,500)Increase in share-based payment reserve---210--210Total contributions by and distributions to owners ---210-(4,500)(4,290)At 31 March 20212,30549,99922666,5066,47765,555Notes2021£’0002020£’000Operating activities Profit for the year9,6599,291Adjustments for: Depreciation of property, plant and equipment18726595 Depreciation of right of use assets291,111717 Amortisation of intangible assetss193,6193,059 Loss/ (Gain) on disposal of property, plant & equipment and right of use assets84(8) Foreign exchange (gains)/ losses(19)4 Share-based payments expense3633856 Share of post-tax loss in equity accounted associates22632 Impairment of goodwill19-16 Fair value changes in contingent consideration13(360)45 Movements in provisions30(142)(586) Finance income11(13)(71) Finance expense128452,527 Acquisition/ exceptional expenses141052,407 Income tax expense151,5062,893 Amortisation of loan note issue costs -2Operating cash flows before movements in working capital17,38520,979Changes in working capital: Increase in inventories(2,011)(1,890) (Increase)/ Decrease in trade and other receivables(4,077)6,862 Increase/ (Decrease) in trade and other payables1,792(5,024)Cash generated from operations13,08920,927Payment of exceptional acquisition expenses (105)(320)Interest received 1370Interest paid(367)(6,049)Income taxes paid(2,435)(4,710)Net cash generated from operating activities10,1959,918Investing activitiesPurchase of property, plant and equipment 18(5,669)(941)Proceeds from sale of property, plant and equipment5925Purchase of right of use assets 29-(32)Proceeds from sale of right of use assets9-Acquisition of subsidiaries 21(2,548)(11,426)Net cash acquired with subsidiary undertakings 212,2745,146Dividends received from associates22-33Net cash used in investing activities(5,875)(7,195) CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2021 FOR THE YEAR ENDED 31 MARCH 2021 The Consolidated Statement of Cash Flows continues on the following page. The Consolidated Statement of Cash Flows continues on the following page. F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S 65 65 Notes2021£’0002020£’000Operating activities Profit for the year9,6599,291Adjustments for: Depreciation of property, plant and equipment18726595 Depreciation of right of use assets291,111717 Amortisation of intangible assetss193,6193,059 Loss/ (Gain) on disposal of property, plant & equipment and right of use assets84(8) Foreign exchange (gains)/ losses(19)4 Share-based payments expense3633856 Share of post-tax loss in equity accounted associates22632 Impairment of goodwill19-16 Fair value changes in contingent consideration13(360)45 Movements in provisions30(142)(586) Finance income11(13)(71) Finance expense128452,527 Acquisition/ exceptional expenses141052,407 Income tax expense151,5062,893 Amortisation of loan note issue costs -2Operating cash flows before movements in working capital17,38520,979Changes in working capital: Increase in inventories(2,011)(1,890) (Increase)/ Decrease in trade and other receivables(4,077)6,862 Increase/ (Decrease) in trade and other payables1,792(5,024)Cash generated from operations13,08920,927Payment of exceptional acquisition expenses (105)(320)Interest received 1370Interest paid(367)(6,049)Income taxes paid(2,435)(4,710)Net cash generated from operating activities10,1959,918Investing activitiesPurchase of property, plant and equipment 18(5,669)(941)Proceeds from sale of property, plant and equipment5925Purchase of right of use assets 29-(32)Proceeds from sale of right of use assets9-Acquisition of subsidiaries 21(2,548)(11,426)Net cash acquired with subsidiary undertakings 212,2745,146Dividends received from associates22-33Net cash used in investing activities(5,875)(7,195)Notes2021£’0002020£’000Operating activities Profit for the year9,6599,291Adjustments for: Depreciation of property, plant and equipment18726595 Depreciation of right of use assets291,111717 Amortisation of intangible assetss193,6193,059 Loss/ (Gain) on disposal of property, plant & equipment and right of use assets84(8) Foreign exchange (gains)/ losses(19)4 Share-based payments expense3633856 Share of post-tax loss in equity accounted associates22632 Impairment of goodwill19-16 Fair value changes in contingent consideration13(360)45 Movements in provisions30(142)(586) Finance income11(13)(71) Finance expense128452,527 Acquisition/ exceptional expenses141052,407 Income tax expense151,5062,893 Amortisation of loan note issue costs -2Operating cash flows before movements in working capital17,38520,979Changes in working capital: Increase in inventories(2,011)(1,890) (Increase)/ Decrease in trade and other receivables(4,077)6,862 Increase/ (Decrease) in trade and other payables1,792(5,024)Cash generated from operations13,08920,927Payment of exceptional acquisition expenses (105)(320)Interest received 1370Interest paid(367)(6,049)Income taxes paid(2,435)(4,710)Net cash generated from operating activities10,1959,918Investing activitiesPurchase of property, plant and equipment 18(5,669)(941)Proceeds from sale of property, plant and equipment5925Purchase of right of use assets 29-(32)Proceeds from sale of right of use assets9-Acquisition of subsidiaries 21(2,548)(11,426)Net cash acquired with subsidiary undertakings 212,2745,146Dividends received from associates22-33Net cash used in investing activities(5,875)(7,195) CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 MARCH 2021 The notes on pages 66 to 113 form part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 MARCH 2021 1. General information Brickability Group plc is a company incorporated in England and Wales. The address of the registered office is shown on page 114. The nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 4 to 29. 2. Basis of preparation The consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The Company, as the ultimate parent of the Group, has elected prepare its individual financial statements in accordance with FRS 101 Reduced Disclosure Framework. The Company’s individual financial statements are presented within these Group financial statements. The Company has adopted the following disclosure exemptions: i. the requirements of IFRS 7 Financial Instruments: Disclosures; ii. the requirement to present a cash flow statement under IAS 7 Statement of Cash Flows; iii. the requirement to disclose key management personnel compensation; and iv. the requirement to disclose related party transactions with wholly owned members of the Group. The financial statements are presented in pounds sterling, which is the functional currency of the Group. Amounts are rounded to the nearest thousand, unless otherwise stated. 66 The financial statements are prepared on the historical cost basis, with the exception of certain financial assets and liabilities (including derivative financial instruments) which are stated at fair value. After making appropriate enquiries, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future and for at least twelve months from the date of signing these financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Group’s going concern basis has been considered further on pages 26 and 27 of the Strategic Report. New standards, interpretations and amendments effective from 1 January 2020 The following new standards and amendments have been adopted by the Group for the first time in the annual financial statements for the year ended 31 March 2021: • Definition of material (amendments to IAS 1 and IAS 8); • Definition of a business (amendments to IFRS 3); • Interest rate benchmark reform (amendments to IFRS 9, IAS 39 and IFRS 7); • COVID-19 related rent concessions (amendments to IFRS 16); and • Revised conceptual framework for financial reporting. The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. Notes2021£’0002020£’000Financing activitiesEquity dividends paid16(4,500)(2,000)Proceeds from issue of ordinary shares-43,923Payment of share issue costs-(414)Payment of exceptional financing costs-(490)Proceeds from bank borrowings3,40013,015Repayment of bank borrowings(12,500)(25,000)Repayment of loan notes-(14,562)Payment of lease liabilities29(1,398)(871)Payment of deferred and contingent consideration37(7,883)(5,885)Payment of transaction costs relating to loans and borrowings(90)(70)Settlement of derivative financial instruments37-(105)Net cash (used in)/ generated from financing activities(22,971)7,541Net increase in cash and cash equivalents(18,651)10,264Cash and cash equivalents at beginning of year27,26917,001Effect of changes in foreign exchange rates(26)4Cash and cash equivalents at end of year268,59227,269 Amendments to IFRS 16: COVID-19 Related Rent Concessions Effective 1 June 2020, IFRS 16 was amended to provide a practical expedient for lessees accounting for rent concessions that arise as a direct consequence of the COVID-19 pandemic and satisfy the following criteria: i. The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; ii. The reduction in lease payments affects only payments originally due on or before 30 June 2021; and iii. There is no substantive change to other terms and conditions of the lease. Rent concessions that satisfy the above criteria may be accounted for in accordance with the practical expedient, which means lessees do not need to assess whether the rent concession meets the definition of a lease modification. Lessees apply other requirements in IFRS 16 in accounting for the concession. The Group has elected to utilise the practical expedient for all eligible rent concessions. The practical expedient has also been applied retrospectively to those rent concessions meeting the criteria from 1 April 2020 to 31 May 2020. Accounting for the rent concessions as lease modifications would have resulted in the Group remeasuring the lease liability to reflect the revised consideration using a revised discount rate, with the effect of the change in the lease liability being recorded against the right of use asset. By applying the practical expedient, the Group is not required to determine a revised discount rate and the effect of the change in the lease liability is reflected in profit or loss in the period in which the event or condition that triggers the concession occurs. The impact of applying the practical expedient is disclosed in note 29. New standards, interpretations and amendments not yet effective Certain new standards and amendments have been issued by the IASB and will be effective in future accounting periods. The standards and amendments that are not yet effective, are likely to impact the Group and have not been adopted early by the Group include: • References to the Conceptual Framework (amendments to IFRS 3); • Proceeds before intended use (amendments to IAS 16); • Onerous contracts – cost of fulfilling a contract (amendments to IAS 37); • Annual improvements to IFRS standards 2018-2020 cycle (amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and • Classification of liabilities as current or non-current (amendments to IAS 1). The above amendments are not expected to have a significant impact on the period of initial application or in subsequent reporting periods. 3. Significant accounting policies The accounting policies which follow set out those policies which were applied in preparing the financial statements for the year ended 31 March 2021. 3.1 Basis of consolidation The consolidated financial statements comprise the financial statements of Brickability Group plc and its subsidiary undertakings. Control is achieved when the Group: • has power over the investee; • is exposed or has rights to variable returns from its involvement with the investee; and • has the ability to use its power to affect those variable returns. The results of subsidiaries acquired or disposed of during the year are included from or to the date that control passes. Intra-group transactions and balances are eliminated fully on consolidation and the consolidated financial statements reflect external transactions only. Subsidiaries’ accounting policies are amended where necessary to ensure consistency with the policies adopted by the Group. All accounts for subsidiary undertakings have been prepared for the year ended 31 March 2021, except Forum Tiles Limited which was incorporated in January 2021. Its first set of financial statements will be prepared for the period ending 31 March 2022. The Group accounts therefore include interim financial information to 31 March 2021 for this entity. In the prior year, all subsidiary undertakings prepared accounts for the year ended 31 March 2020, except for McCann Roofing Products Limited and U Plastics Limited, which both had a year end of 31 December 2019. The comparative figures therefore include interim financial information to 31 March 2020 for each of these entities, following their acquisition. The Company has applied the exemption under section 408 of the Companies Act 2006 and not presented its individual income statement. 3.2 Investments Non-current asset investments by the Company in subsidiaries and associates are initially recorded at cost and subsequently stated at cost less any accumulated provision for impairment. 3.3 Investment in associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Investments in associates are accounted for using the equity method of accounting. Under the equity method, investments are initially recognised at cost and subsequently adjusted to reflect changes in the Group’s share of the net assets of the associate or joint venture since the acquisition date. Where a Group company transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant entity. 3.4 Revenue recognition Revenue is recognised when the Group has satisfied its performance obligations to the customer. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and Value Added Tax. The Group generates revenue primarily through the following activities: • the sale of superior quality building materials to all sectors of the construction industry including national house builders, developers, contractors, general builders and retail to members of the public; • the transportation and distribution of building materials from Europe to the UK; • the supply of roofing construction services, primarily within the residential construction sector; and • the sale of high-performance joinery materials and the distribution of radiators and associated parts and accessories. The Group considers itself to be the principal in its revenue arrangements as it typically controls the goods or services before transferring them to the customer; the Group is primarily responsible for fulfilling its promise to provide the goods or services and for those goods or services meeting customer specifications, it assumes the inventory risk prior to delivery to the customer and it has complete discretion in setting its prices for the required goods or services. F I N A N C I A L S T A T E M E N T S 67 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 68 3.4 Revenue recognition (continued) Revenue from the sale of goods is recognised when control of the goods has transferred to the buyer. This is usually when the goods are delivered to the customer. Revenue from the provision of transportation and distribution services is also recognised on delivery of the materials being transported as this is the point at which the service is complete. There is limited judgement required in identifying the point at which the service is complete or control passes as, once physical delivery has taken place, the Group no longer has possession of the goods, does not retain the significant risks and rewards of those goods and has an unconditional right to consideration. A receivable is therefore recognised on delivery and payment expected according to the specific credit terms agreed with each customer.Revenue from contracts for the provision of services, in relation to roof installations, is recognised over time by reference to the stage of completion. Jobs in progress are reviewed and invoiced at the end of each month to reflect the value of work carried out in the period. This is considered an appropriate measure of the progress towards complete satisfaction of the Group’s performance obligations and reflects the Group’s right to consideration for services performed to date. Payment is due throughout the duration of the contract, based on the amounts invoiced and according to the credit terms agreed.Certain roofing products and services provided by the Group are subject to warranty, requiring the Group to rectify defects during the warranty period should those goods and services not comply with agreed-upon specifications. Such warranties cannot be purchased separately and are therefore accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Further details are disclosed in notes 3.17 and 30.The majority of the Group’s revenue is derived from fixed price contracts with stand-alone selling prices. There is therefore no judgement involved in allocating the contract price to the goods or services provided.The Group has applied the practical expedients within IFRS 15 in respect of the following:• not accounting for significant financing components where the time difference between receiving consideration and transferring control of the goods or services to its customers is one year or less; and• expensing the incremental costs of obtaining a contract when the amortisation period of the asset otherwise recognised is one year or less.Customer rebates The Group offers customer rebates in respect of volume discounts. These customer rebates give rise to variable consideration. Where the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring its goods to the customer. The Group applies the most likely amount method to estimate the variable consideration in the contract.Where the Group has rebate agreements with its customers, rebates payable are deducted from revenue in the period that the associated revenue is recognised. The value of rebates payable is based on the terms of the individual contracts in place, to the extent that it is highly probable that the variable consideration estimated will not result in a significant reversal in the amount of cumulative revenue recognised when the uncertainty associated with the variable contract is subsequently resolved.3.5 Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). The results and financial position of each Group company are expressed in pounds sterling, which is also the functional currency of the Company and the presentation currency for the consolidated financial statements.Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate on the dates of the transactions. Monetary assets and liabilities, that are denominated in foreign currencies, are retranslated at the exchange rates ruling at the reporting date. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the year.Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction and not retranslated at the reporting date. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate at the date at which the fair value is determined.3.6 Group pension schemes Payments to defined contribution retirement benefit schemes are recognised as an expense in the period in which the related service is provided. Prepaid contributions are recognised as an asset to the extent that the prepayment will lead to a reduction in future payments or a cash refund.3.7 Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Grants relating to expense items are recognised as income on a systemic basis over the period that the related costs, for which the grant is intended to compensate, are expensed. Grants relating to assets are recognised as deferred income and transferred to income in the profit or loss on a systemic basis over the expected useful life of the related assets. Further details regarding grants received during the year are outlined in note 8.3.8 Taxation The tax expense represents the sum of the tax currently payable and deferred tax. Tax is recognised in the Statement of Profit or Loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, tax is recognised in other comprehensive income or directly in equity, respectively.Current tax Current tax is the expected tax payable or recoverable based on taxable profit for the year and any adjustment to tax payable in respect of prior years. Current tax is calculated using tax rates and laws that have been enacted or substantively enacted at the reporting date.Deferred tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the liability method. Deferred tax assets and liabilities are recognised where the carrying value of an asset or liability in the Consolidated Balance Sheet differs from its tax base, except for differences arising on: • the initial recognition of goodwill; • the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and • investments in subsidiaries and joint arrangements where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Unrecognised deferred tax assets are also re-assessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on the tax rates and laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable group company or different taxable group companies which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. 3.9 Property, plant and equipment Property, plant and equipment is initially recorded at cost and subsequently stated at cost less any accumulated depreciation and impairment losses. Depreciation is charged so as to write off the cost or valuation of an asset, less its residual value, over the estimated useful life of that asset, using the straight-line or reducing balance method, as follows: Freehold land is not depreciated. 3.10 Leases The Group assesses, at the inception of a contract, whether a contract is, or contains, a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed when the Group has both the right to direct the identified asset’s use and to obtain substantially all the economic benefits from that use. For contracts that both convey a right to the Group to use an identified asset and require services to be provided to the Group by the lessor, the Group has elected not to separate non-lease components and thus account for the entire contract as a lease. Lessee accounting All leases are accounted for by recognising a right of use asset and a lease liability except for: • leases of low value assets; and • leases with a term of 12 months or less. Lease payments for short-term (those with a term of 12 months or less) and low value asset leases are recognised as an expense, in the Statement of Profit or Loss, on a straight-line basis over the lease term. Right of use assets At the lease commencement date, right of use assets are measured at the amount of the corresponding lease liability, less any lease incentives received, plus the following: • lease payments made at or before the lease commencement date; • initial direct costs incurred; and • the amount of any provision recognised where the Group is contractually obliged to dismantle, remove or restore the leased asset or site on which the leased asset is located. Right of use assets are presented as a separate line in the Consolidated Balance Sheet. Right of use assets are subsequently measured at cost less accumulated depreciation and impairment losses. Right of use assets are depreciated, on a straight-line basis, over the shorter period of the lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset, or the cost reflects that the Group expects to exercise a purchase option, the related right of use asset is depreciated over the useful life of the asset. Lease liabilities At the lease commencement date, lease liabilities are measured at the present value of the lease payments due to the lessor over the lease term, discounted at the rate implicit in the lease, where this can be readily determined. Where the rate cannot be readily determined, the Group uses its incremental borrowing rate. Lease payments included in the measurement of the lease liability include: • fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; • variable lease payments that depend on an index or rate; • amounts expected to be paid under residual value guarantees; • the exercise price of any purchase option, if it is reasonably certain to be exercised by the Group; and • any penalties payable for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as an expense, in the Statement of Profit or Loss, in the period to which they relate. F I N A N C I A L S T A T E M E N T S 69 Freehold property2% – 25% per annumLeasehold propertyOver the term of the leasePlant and machinery20% to 33% per annumFixtures, fittings and equipment10% to 33% per annumMotor vehicles10% to 25% per annum NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 3.10 Leases (continued) Lease liabilities are presented as a separate line in the Consolidated Balance Sheet. Lease liabilities are subsequently increased to reflect interest charged on the lease liability, using the effective interest method, and reduced for lease payments made. Lease liabilities are remeasured if there is a modification (and the lease modification is not accounted for as a separate lease), a change in the lease term, a change in the lease payments due to changes in an index or rate, a change in the expected payment under a guaranteed residual value or a change in the assessment to exercise a purchase option. In the event of a lease modification, change in lease term or change in the assessment of a purchase option, the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. In the event of a change in the lease payments, the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate, unless the lease payment change is due to a change in a floating interest rate, in which case a revised discount rate is used. When a lease liability is remeasured, a corresponding adjustment is made to the carrying value of the right of use asset, with the revised asset value being depreciated over the remaining lease term. Lessor accounting The Group enters into lease agreements as a lessor in respect of sub-leasing some of its leasehold property. Where the Group is an intermediate lessor, it accounts for the head lease and the sub- lease as two separate contracts. The sub-lease is classified as an operating lease by reference to the right of use asset arising from the head lease. Rental income from operating leases is recognised on a straight- line basis over the term of the lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the underlying asset and recognised on a straight-line basis over the lease term. 3.11 Intangible assets Intangible assets acquired separately are initially recognised at cost. The cost of intangible assets acquired as part of a business combination is their fair value at the acquisition date. Intangible assets are subsequently stated at cost less any accumulated amortisation and impairment losses. Amortisation is charged so as to write off the cost of the asset, less its residual value, over the estimated useful life of that asset, using the straight-line method, as follows: If there is an indication that there has been a change in the amortisation rate, useful life or residual value of an intangible asset, the amortisation charge is revised prospectively to reflect the new estimates. 3.12 Research and development Expenditure on research activities is recognised as an expense in the period in which it is incurred. Development costs are only recognised as an intangible asset if, and only if, the Group can demonstrate all of the following: • the technical feasibility to complete the development so that the asset will be available for use or sale; • its intention to complete the intangible asset and use or sell it; • its ability to use or sell the intangible asset; • how the intangible asset will generate probable economic benefits; • the availability of adequate technical, financial and other resources to complete the development and to use or sell the asset; and • its ability to measure reliably the expenditure attributable to the intangible asset during its development. 3.13 Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non- controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or the proportionate share of the acquiree’s identifiable net assets. Acquisition related costs are expensed as incurred and included in profit or loss. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. 70 Brands10% – 12% per annumCustomer and supplier relationships and other intangibles 10% – 25% per annum Contingent consideration is recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument, and within the scope of IFRS 9 Financial Instruments, is measured at fair value at the reporting date with changes in fair value recognised in the Statement of Profit or Loss in accordance with IFRS 9. Other contingent consideration, that is not within the scope of IFRS 9, is measured at fair value at each reporting date, with changes in fair value recognised in profit or loss. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. 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 that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is remeasured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. 3.14 Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the recoverable amount of the asset. The recoverable amount is the higher of the value in use and the fair value less costs of disposal. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is estimated for the smallest group of assets to which it belongs and for which there are separately identifiable cash flows (its cash generating unit (CGU)). When the carrying value of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised as an expense in the Statement of Profit or Loss, except to the extent that they reverse gains previously recognised in other comprehensive income, in which case the impairment loss is also recognised in other comprehensive income up to the amount of any previous gain. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. For assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the recoverable amount of the asset or CGU. When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised recoverable amount but only to the extent that the carrying value does not exceed the carrying amount that would have been determined, net of amortisation or depreciation, had no impairment loss been recognised for the asset in prior years. The reversal of an impairment loss is recognised in the Statement of Profit or Loss. Goodwill is not amortised but is reviewed for impairment at least annually. CGUs, to which goodwill has been allocated, are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying value, an impairment loss is recognised. It is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset of the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. 3.15 Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and costs 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 sale. F I N A N C I A L S T A T E M E N T S 71 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 3.16 Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and liabilities are recognised in the Group’s Balance Sheet when the Group becomes party to the contractual provisions of the instrument. Financial assets Financial assets, on initial recognition, are classified as those to be subsequently measured at amortised cost or those to be subsequently measured at fair value (either through profit or loss or through other comprehensive income). The classification depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. Financial assets held at amortised cost comprise trade and other receivables and cash and cash equivalents in the Balance Sheet. They are assets held for the collection of contractual cash flows where those cash flows represent solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition. They are subsequently stated at amortised cost, using the effective interest rate method, less provision for impairment. Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9, using lifetime expected credit losses. During this process, the probability of the non-payment of the trade receivables is assessed and multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables that are reported net, such provisions are recorded in a separate provision account with the loss being recognised within in the Statement of Profit or Loss. The gross carrying amount of a financial asset is reduced when the Group has no reasonable expectation of recovering the financial asset in its entirety or a portion thereof. Assets measured at fair value through profit or loss are subsequently remeasured at fair value, with gains and losses being recognised in profit or loss. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. For investments in equity instruments that are not held for trading and fall within the scope of IFRS 9, the Group may (on an instrument-by-instrument basis) irrevocably elect to present subsequent changes in fair value within other comprehensive income. Where this election is made, there is no subsequent re-classification of fair value gains and losses to profit or loss following derecognition of the investment. Dividends from such investments are recognised in profit or loss as other income when the Group’s right to receive payment is established. Financial liabilities Financial liabilities, on initial recognition, are classified as those to be subsequently measured at amortised cost or those to be subsequently measured at fair value through profit or loss. All financial liabilities are initially recognised at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. Financial liabilities measured at amortised cost include trade and other payables and loans and other borrowings, including bank overdrafts. These are subsequently stated at amortised cost, using the effective interest rate method. The interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Financial liabilities measured at fair value are subsequently remeasured at fair value, with gains and losses recognised in profit or loss. Derivative financial instruments The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge its exposure to foreign currency exchange risk and interest risk. The Group does not enter into speculative financial instruments. Such derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and subsequently remeasured at fair value, with gains and losses recognised in profit or loss. Derivatives are held as financial assets when their fair value is positive and as financial liabilities when the fair value is negative. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments. 72 Warranties The Group provides for the expected cost of warranty obligations for defects that existed at the time of sale, as required by law. Provision is based on historical experience and management’s best estimate of the amount required to settle the Group’s obligation. Further details are outlined in note 30. Dilapidations The Group provides for the expected cost of restoring its operating premises to their original state in accordance with its lease terms. Provision is based on management’s best estimate of the work and cost involved in completing this restoration. The cost is recognised as part of the right of use asset and is depreciated over the remaining term of the lease. 3.18 Share-based payments Equity-settled share option schemes and long-term incentive plans are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non- market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 36. The fair value, determined at the grant date of the equity- settled share-based payments, is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. Fair value measurement All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, based on the degree to which the fair value is observable, as follows: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Details of significant unobservable inputs used in determining fair values within level 3 are disclosed in note 33. 3.17 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to transfer economic benefits to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are recognised as a liability in the Balance Sheet with a corresponding expense recognised in profit or loss. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. When the effect of the time value of money is material, provisions are discounted using a pre-tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance expense. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the receivable can be measured reliably. F I N A N C I A L S T A T E M E N T S 73 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 3.19 Statement of cash flows Deferred and contingent consideration arrangements contain an implicit financing element. As such, the Group’s policy is to include the payment of deferred and contingent consideration within cash flows from financing activities. The cash outflow is presented on a gross basis and thus the associated interest is also included in the total paid within cash flows from financing activities. Cash flows in respect of the payment of lease liabilities are also presented on a gross basis, with both the interest and principal amounts included within cash flows from financing activities. Payments in respect of short-term or low value leases that are not included within the measurement of the lease liabilities are presented within cash flows from operating activities. 3.20 Alternative performance measures Alternative performance measures (APMs) are disclosed within the 2021 Annual Report and Accounts where management believes it is necessary to do so to provide further understanding of the financial performance of the Group. Underlying results are used in the day to day management of the Group. They represent statutory measures adjusted for items which could distort the understanding of performance and comparability year on year. Adjusted EBITDA Adjusted EBITDA is the primary non-statutory measure used by the Group. This is represented by earnings before interest, tax, depreciation, amortisation and other items considered non-operational in nature, including acquisition and share based payment related expenses. A reconciliation between adjusted EBITDA and statutory IFRS measures is included in note 6. Exceptional items are those which the Group considers to be significant in nature and quantum but not in the normal course of business. Details of exceptional items are disclosed in note 14. Adjusted basic EPS Adjusted basic EPS is defined as the adjusted profit after tax divided by the weighted average number of shares outstanding during the year. Adjusted diluted EPS is defined as the adjusted profit after tax divided by the weighted average number of shares outstanding during the year plus the weighted average number of shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. An adjusted basic and diluted EPS is also determined by dividing the profit after tax for the year by the total number of shares in issue at the year end and following the Initial Public Offering (IPO). Adjusted basic and diluted EPS are outlined in note 17. Net debt/ cash Net debt is defined as bank borrowings (excluding the impact of arrangement fees) less cash and cash equivalents. Net cash arises when the cash and cash equivalents exceed bank borrowings and is defined as cash and cash equivalents less bank borrowings. 74 4. Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. Critical judgements in applying the Group’s accounting policies The following are the critical judgements that the Directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. Associates Investments in associates are accounted for using the equity method of accounting, whereby the investment is initially recognised at the transaction price and subsequently adjusted to reflect the Group’s share of the profit or loss, other comprehensive income and equity of the associate. Judgements are made as to whether the Group has significant influence (but not control or joint control), being the power to participate in the financial and operating policy decisions of the associate or not. Provisions Provisions are a key area of the financial statements and are subject to both judgement and estimation uncertainty. Provisions are recognised on product defect warranties when claims are made in relation to the products and services supplied. This requires judgement as to whether a claim would likely give rise to a provision based on the Group’s knowledge of its products, services and customers. The provision would then need to be estimated based on management’s assessment of the likely work and cost required to rectify any defect. This estimate is subjective and based on management’s knowledge of the products, services and past customer experience (see note 30). Lease term Judgement is required in determining the lease term where a lease includes periods covered by an option to extend the lease or an option to terminate the lease. The Directors apply judgement in evaluating whether it is reasonably certain or not that an option will be exercised. When recognising the lease, all relevant factors are taken into account, including the Group’s intentions and any factors that create an economic incentive to exercise an option. After the commencement date, the lease term will be re-assessed if there is a significant event or change in circumstances that is within the Group’s control and affects its ability to exercise an option. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. Intangible assets are amortised over their expected useful life. The annual amortisation charge and carrying value of the asset is therefore sensitive to the estimated useful life. The useful life is based on the period over which management expects to benefit from the intangible assets, based on past experience and knowledge of the business acquired. Impairment of non-financial assets The Group acquires intangible assets and goodwill during a business combination. These assets are primarily the assets subject to an impairment review. They are initially recorded at fair value and subsequently at cost less any amortisation (in the case of intangible assets) and impairment losses. Goodwill is reviewed for impairment annually while other assets are assessed when an indication of impairment is identified. In assessing whether an asset is impaired, the asset’s or CGU’s value in use is calculated based on a discounting cash flow model. The cash flows are derived from forecasts covering the next three years. The recoverable amount is therefore sensitive to the assumptions and estimates used in determining the amount and timing of future cash flows, the discount factor applied and the growth rate used for extrapolation purposes. Details of the key assumptions, including consideration of sensitivity, are disclosed further in note 19. Intangible assets The Group recognises identifiable intangible assets acquired through business combinations, such as brands and customer and supplier relationships, at fair value on acquisition. Any excess paid over the value of net assets acquired is included as goodwill. Estimates are required to determine the purchase price allocation (PPA) between intangible assets and goodwill, with the fair value of intangibles sensitive to these estimates. The key estimates involved in establishing the fair values are the future cash flows forecast for the acquired entity, inputs into appropriate valuation models and the expected useful life of the assets. Projected cash flows underpin the valuation of all identifiable intangible assets. These are based on management’s best estimate of the expected levels of trade and profits following acquisition, taking into account actual results around the time of acquisition. Forecasts are prepared for a three year period, with an inflationary 2% growth rate applied thereafter. The fair value of brands is based on a relief from royalty method. The royalty rates applied in this model are based on other business to business operations in the market, reflecting the size of the entities acquired and that their reach is limited given the business to business nature. The brand value is sensitive to the royalty rate incorporated into the model. For acquisitions during the year, the Group applied a royalty rate of 1% based upon other business to business brands in the sector and analysis of the underlying profit margin. Provision for expected credit losses (ECLs) The Group uses a provision matrix to calculate the ECLs for trade receivables. The provision rates are based on days past due for groupings of customers with similar credit risk characteristics. The provision matrix is initially based on the Group’s historical observed default rates. However, the historical rate is adjusted to consider forward looking information, which may lead to a change in the expected number of defaults. The assessment of correlation between the historically observed default rates and forecast economic conditions is therefore a significant estimate. The ECLs calculated are sensitive to changes in circumstances and forecast economic conditions as the historical experience and forecasts may not be representative of a customer’s actual default in the future. Details of the ECLs on the Group’s trade receivables and contract assets, are disclosed in note 25. Share-based payments Key estimates are used in determining the fair value of share- based payment transactions, including selecting the most appropriate valuation model and related inputs into that model. The Group operates a Company Share Option Plan (CSOP) and Long-term Incentive Plan (LTIP) with equity settled transactions. Fair value of the CSOP options was measured using a binomial model at the grant date. Monte Carlo and Black-Scholes models were used to determine the fair value of the LTIP awards at the grant date. Estimates are also required, at each reporting date, in determining the number of options that are expected to vest. Details of the assumptions and models used are disclosed in note 36. Fair value measurement of financial instruments When fair values cannot be measured based on quoted prices in an active market, the fair value is measured using valuation techniques, including the discounted cash flow model. Inputs into this model are taken from observable markets where possible but a degree of judgement is required where this is not possible. Expert valuers are engaged by the Group where appropriate. Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When contingent consideration meets the definition of a financial asset or liability, it is subsequently remeasured to fair value at each reporting date. The fair value is determined using discounted cash flows. The key estimates are therefore the probability of the performance target being met and the discount rate used. Further details are disclosed in note 33. F I N A N C I A L S T A T E M E N T S 75 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 4. Critical accounting judgements and key sources of estimation uncertainty (continued) Lease incremental borrowing rate Where the interest rate in a lease cannot be readily determined, the Group uses its incremental borrowing rate to measure the lease liability. The incremental borrowing rate is that which the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment. This rate therefore requires estimation when no observable rates are available. The Group estimates the rate by assessing the rates implied in similar agreements and using observable inputs, such as market interest rates, when available. COVID-19 The outbreak of the COVID-19 pandemic in March 2020 has led to economic uncertainty over the past 15 months, with significant government interventions on daily life in the UK. While the Group has recovered strongly from the initial lockdown in March and April 2020, that prevented trade, the ongoing impact of COVID-19 on the consolidated financial statements still requires judgement and affects certain estimates. The primary estimates affected are those concerning the testing for impairment of assets (see note 19), including adjustments made for forward looking information in determining the Group’s expected ECL (note 25). 5. Revenue All of the Group’s revenue is derived from contracts with customers. Revenue in relation to the sale of goods comprises amounts receivable from the sale of building and joinery materials. Revenue in connection with the rendering of services relates to amounts receivable from the provision of roofing construction and installation services and the transportation and distribution of building materials. Revenue by segment is included in note 6. Trade receivables and contract assets arising are disclosed in note 25. The Group does not have a significant level of contract assets. These arise where bespoke goods are prepared specifically for a customer, for which the Group has a right to consideration but the goods have not yet been transferred to the customer. Included within other payables is an amount of £336,000 (2020: £202,000) in relation to contract liabilities in respect of amounts paid or invoiced in advance of goods being transferred to the customer. Due to the nature of the business and short turnaround between orders being placed and goods being delivered, liabilities at the reporting date are recognised within revenue in the following year. 6. Segmental analysis For management purposes, the Group is organised into segments based on its products and services. The Group generates revenue through three main activities and thus has three reportable segments, as follows: • Bricks and Building Materials, which incorporates the sale of superior quality building materials to all sectors of the construction industry including national house builders, developers, contractors, general builders and retail to members of the public; • Roofing Services, which incorporates the supply of roofing construction services, primarily within the residential construction sector; and • Heating, Plumbing and Joinery, which incorporates the sale of high-performance joinery materials and the distribution of radiators and associated parts and accessories. The Group’s segments are strategic business units that offer different products and services. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. The accounting policies of the reportable segments are the same as the Group’s accounting policies as described in note 3. Segment performance is evaluated based on adjusted EBITDA, without allocation of depreciation and amortisation, finance expenses and income, impairment losses, fair value movements or the share of results of associates. This is the measure reported to the CODM for the purpose of resource allocation and assessment of segment performance. The Group’s revenue is primarily generated in the United Kingdom. An analysis by geographic location is included within note 5. All of the revenue generated in Europe is included within revenue from the rendering of services within the Bricks and Building Materials segment below. Right of use assets, in respect of trailers, with a carrying value of £1,251,000, are either held in the United Kingdom or Europe at the year end, depending on the timing and location of goods being transported. All other non-current assets are solely held within the United Kingdom. 76 An analysis of the Group’s revenue, by type, is as follows:2021 £’0002020 £’000Sale of goods165,471170,022Rendering of services15,61317,104 181,084187,126An analysis of the Group’s revenue, by geographic location, is as follows:2021 £’0002020 £’000United Kingdom180,122187,126Europe962- 181,084187,126 Included within revenue is a total of £19,910,000 (2020: £31,282,000) in respect of a customer accounting for more than 10% of the Group’s total revenue. Revenue from this customer is included within all three reportable segments. Inter-segment sales are eliminated from the results reported to the CODM and from the consolidated financial statements. F I N A N C I A L S T A T E M E N T S 77 2021Bricks and BuildingMaterials £’000Roofing Services £’000Heating, Plumbing and Joinery £’000 Consolidated £’000Revenue from sale of goods141,019-24,452165,471Revenue from rendering of services3,18712,426-15,613Total revenue144,20612,42624,452181,084EBITDA11,6622,5715,76619,999Centralised costs (2,453)(Loss)/ profit on disposal of assets(4)Group adjusted EBITDA17,542Depreciation(1,837)Amortisation(3,619)Acquisition costs(105)Share-based payment expense(338)Finance income13Finance expense(845)Share of results of associates(6)Fair value gains and losses360Group profit before tax11,1652020Bricks and BuildingMaterials £’000Roofing Services £’000Heating, Plumbing and Joinery £’000 Consolidated £’000Revenue from sale of goods143,954-26,068170,022Revenue from rendering of services-17,104-17,104Total revenue143,95417,10426,068187,126EBITDA11,4693,6836,15621,308Centralised costs (1,805)(Loss)/ profit on disposal of assets8Group adjusted EBITDA19,511Impairment of goodwill(16)Depreciation(1,312)Amortisation(3,059)Finance income71Finance expense(2,527)Share of results of associates(32)Fair value gains and losses(45)Exceptional income2,000Exceptional expenses(2,407)Group profit before tax12,184 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 YEAR ENDED 31 MARCH 2021 6. Segmental analysis (continued) 6. Segmental analysis (continued) For the purposes of monitoring segment performance and allocating resources between segments, the CODM monitors the total For the purposes of monitoring segment performance and allocating resources between segments, the CODM monitors the total non-current and current assets attributable to each segment. All assets are allocated to reportable segments with the exception of non-current and current assets attributable to each segment. All assets are allocated to reportable segments with the exception of those used primarily for corporate purposes (head office), investments in associates and financial assets and deferred tax assets. those used primarily for corporate purposes (head office), investments in associates and financial assets and deferred tax assets. Goodwill has been allocated to reportable segments as detailed in note 19. No other assets are used jointly by reportable segments. Goodwill has been allocated to reportable segments as detailed in note 19. No other assets are used jointly by reportable segments. 7. Other operating income 8. Profit before tax Profit before tax is stated after charging/ (crediting): 78 78 F I N A N C I A L S T A T E M E N T S 79 During the year, the Group received government grants in response to the global COVID-19 pandemic. The Group has elected to deduct the grant income from the associated expenses. The grant income is included within administrative expenses, with £30,000 relating to business rates support, while the remainder relates to support in respect of payroll costs of the Group’s employees. The Group does not have any unfulfilled obligations or other contingencies relating to the support schemes. 2021Bricks and BuildingMaterials £’000Roofing Services £’000Heating, Plumbing and Joinery £’000Consolidated £’000Non-current segment assets46,27618,23529,86794,378Current segment assets45,6353,79912,58262,016Total segment assets91,91122,03442,449156,394Investment in associates221Investments in financial assets125Deferred tax assets98Head office1,535Group assets158,373Total segment liabilities(37,570)(2,815)(7,040)(47,425)Loans and borrowings (excluding leases and overdrafts)(15,750)Deferred tax liabilities(5,301)Other unallocated central liabilities(4,463)Group liabilities(72,939)2020Bricks and BuildingMaterials £’000Roofing Services £’000Heating, Plumbing and Joinery £’000Consolidated £’000Non-current segment assets42,16619,68427,13488,984Current segment assets51,8563,79810,83766,491Total segment assets94,02223,48237,971155,475Investment in associates352Deferred tax assets205Head office7,134Group assets163,166Total segment liabilities(34,205)(2,265)(4,744)(41,214)Loans and borrowings (excluding leases and overdrafts)(24,912)Deferred tax liabilities(5,631)Other unallocated central liabilities(11,344)Group liabilities(83,101)2021Bricks and BuildingMaterials £’000Roofing Services £’000Heating, Plumbing and Joinery £’000Consolidated £’000Non-current segment assets46,27618,23529,86794,378Current segment assets45,6353,79912,58262,016Total segment assets91,91122,03442,449156,394Investment in associates221Investments in financial assets125Deferred tax assets98Head office1,535Group assets158,373Total segment liabilities(37,570)(2,815)(7,040)(47,425)Loans and borrowings (excluding leases and overdrafts)(15,750)Deferred tax liabilities(5,301)Other unallocated central liabilities(4,463)Group liabilities(72,939)2020Bricks and BuildingMaterials £’000Roofing Services £’000Heating, Plumbing and Joinery £’000Consolidated £’000Non-current segment assets42,16619,68427,13488,984Current segment assets51,8563,79810,83766,491Total segment assets94,02223,48237,971155,475Investment in associates352Deferred tax assets205Head office7,134Group assets163,166Total segment liabilities(34,205)(2,265)(4,744)(41,214)Loans and borrowings (excluding leases and overdrafts)(24,912)Deferred tax liabilities(5,631)Other unallocated central liabilities(11,344)Group liabilities(83,101)2021£’0002020£’000Rental income469Other461792262021£’0002020£’000Amortisation of intangible assets3,6193,059Impairment of goodwill-16Depreciation of property, plant and equipment726595Depreciation of right of use assets1,111717Loss/ (Gain) on disposal of property, plant and equipment and right of use assets4(8)Cost of inventories recognised as an expense32,12925,424Impairment of trade receivables341433Net foreign exchange gains(173)(170)Government grant income(1,360)- 7. Other operating income 7. Other operating income 8. Profit before tax 8. Profit before tax Profit before tax is stated after charging/ (crediting): Profit before tax is stated after charging/ (crediting): During the year, the Group received government grants in response to the global COVID-19 pandemic. The Group has elected to deduct the grant income from During the year, the Group received government grants in response to the global COVID-19 pandemic. The Group has elected to deduct the grant income from the associated expenses. The grant income is included within administrative expenses, with £30,000 relating to business rates support, while the remainder the associated expenses. The grant income is included within administrative expenses, with £30,000 relating to business rates support, while the remainder relates to support in respect of payroll costs of the Group’s employees. The Group does not have any unfulfilled obligations or other contingencies relating to the relates to support in respect of payroll costs of the Group’s employees. The Group does not have any unfulfilled obligations or other contingencies relating to the support schemes. support schemes. F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S 79 79 2021£’0002020£’000Rental income469Other461792262021£’0002020£’000Amortisation of intangible assets3,6193,059Impairment of goodwill-16Depreciation of property, plant and equipment726595Depreciation of right of use assets1,111717Loss/ (Gain) on disposal of property, plant and equipment and right of use assets4(8)Cost of inventories recognised as an expense32,12925,424Impairment of trade receivables341433Net foreign exchange gains(173)(170)Government grant income(1,360)-2021£’0002020£’000Rental income469Other461792262021£’0002020£’000Amortisation of intangible assets3,6193,059Impairment of goodwill-16Depreciation of property, plant and equipment726595Depreciation of right of use assets1,111717Loss/ (Gain) on disposal of property, plant and equipment and right of use assets4(8)Cost of inventories recognised as an expense32,12925,424Impairment of trade receivables341433Net foreign exchange gains(173)(170)Government grant income(1,360)- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 9. Auditor’s remuneration During the year, the Group incurred the following costs for services provided by the Company’s Auditor: 10. Staff numbers and costs The average number of persons employed by the Group during the year, including the Directors, amounted to: The aggregate remuneration costs incurred during the year, and included within administration expenses, were: 80 2021£’0002020£’000Fees payable for audit services:Audit of the company annual financial statements3713Audit of the company’s subsidiaries159169Total audit related fees196182Fees payable for other services:Reporting accountant-292Other services 641Total non-audit fees6333Total auditors’ remuneration2025152021Number2020NumberProduction staff69Distribution staff4924Administrative staff6451Management staff4432Sales and sales support staff1651693282852020£’0002020£’000Staff costs:Wages and salaries14,51110,757Social security costs1,6421,198Other pension costs (note 32)586463Share-based payments expense (note 36)3385617,07712,474 The Directors’ aggregate remuneration in respect of qualifying services was: The number of Directors who accrued benefits under company pension plans was as follows: Remuneration of the highest paid Director in respect of qualifying services was: Full details of Directors’ remuneration is included within the Report of the Remuneration Committee on pages 39 to 45. 13. Fair value gains and losses Gain/ (loss) on re-measurement of contingent consideration (notes 21 & 33) 2021 £’000 360 2020 £’000 (45) F I N A N C I A L S T A T E M E N T S 81 2021£’0002020£’000Directors’ emoluments:Remuneration1,0811,248Pension contributions21421,1021,2902021Number2020NumberDefined contribution pension plans112021£’0002020£’000Remuneration636463Pension contributions--63646311. Finance income2021£’0002020£’000Interest on cash and cash equivalents1370Gain on fair value adjustment of financial liabilities at fair value through profit or loss-1137112. Finance expense2021£’0002020£’000Interest on bank loans and overdrafts3601,013Interest on lease liabilities354280Interest payable on loan notes-977Interest payable on deferred consideration-13Unwinding of discount on contingent consideration127227Other interest payable4178452,527 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 14. Other items In order to assist with the understanding of the Group’s performance, items that management consider to not be directly attributable to the Group’s underlying trade are presented separately, on the face of the Consolidated Statement of Profit or Loss and Other Comprehensive Income. This presentation has been adopted for the first time in the current year and thus the prior year figures have been re-presented on a comparable basis. No changes have been made to the individual line item totals reported in the prior year. Other items represent those costs that are considered non-operational in nature and are as follows: Acquisition costs Share based payment expense Total administrative expenses Amortisation of intangible assets (note 19) Impairment of goodwill (note 19) Total depreciation and amortisation Interest payable on loan notes (note 12) Interest payable on deferred consideration (note 12) Unwinding of discount on contingent consideration (note 12) Total finance expense Share of post-tax loss of equity accounted associates (note 22) Fair value gains/ (losses) (note 13) Exceptional income Exceptional expenses Total other items before tax Tax on other items Total other items after tax 2021 £’000 (105) (338) (443) (3,619) - (3,619) - - (127) (127) (6) 360 - - (3,835) 687 (3,148) 2020 £’000 - (56) (56) (3,059) (16) (3,075) (977) (13) (227) (1,217) (32) (45) 2,000 (2,407) (4,832) 12 (4,820) Acquisition costs comprise of transaction costs of £22,000, in relation to stamp duty, plus a further £83,000 in respect of legal and professional fees directly associated with the acquisitions in the year. Acquisition costs in the prior year were included within the exceptional expenses line (below). The share-based payment expense represents the share-based payment charge for the year, including associated accrued employer taxes. Exceptional items were included in the prior year, in respect of those costs that the Group considered to be significant, one-off items that are not incurred as part of the Group’s normal operations. Exceptional income Insurance proceeds in respect of keyman policies Total exceptional income 2021 £’000 - - 2020 £’000 2,000 2,000 The exceptional income in the prior year relates to a recovery under keyman insurance policies, following a medical diagnosis, in connection with a member of key management. Exceptional expenses IPO costs Re-financing costs Acquisition costs Impairment of investments in associates (note 22) Total exceptional expenses 82 2021 £’000 - - - - - 2020 £’000 (522) (585) (425) (875) (2,407) During the prior year, the Company completed an initial public offering (IPO). Exceptional legal and professional fees of £522,000 are included within the 2020 profit or loss in connection with the IPO. Transactions costs of £2,501,000, directly attributable to the issue of shares, were included as a reduction in the share premium account. The Group also undertook a re-financing exercise in the prior year, incurring exceptional costs of £585,000 in respect of the release of loan arrangement fees, following repayment of the previous term loan on listing, and legal fees associated with the re-financing. During the prior year, the Group acquired seven subsidiaries, incurring costs of £425,000. This comprised transaction costs on acquisition of £103,000, in relation to stamp duty, and £322,000 in respect of legal and professional fees directly associated with these acquisitions. Further details regarding the impairment of investments in associates is disclosed in note 22. The tax credit arising on the other items is presented on the same basis as the cost to which it relates. 15. Tax on profit The major components of the income tax expense are: Current tax UK current tax expense Adjustments in respect of prior periods Total current tax Deferred tax Origination and reversal of temporary differences Total tax on profit 2021 £’000 2020 £’000 2,851 (720) 2,131 (625) 1,506 2,885 (618) 2,267 626 2,893 Reconciliation of tax expense The standard rate of corporation tax in the UK is 19% (2020: 19%). The charge for the year can be reconciled, to the standard rate applied to the profit before tax, as follows: On 11 March 2021, the UK Government announced that the main rate of corporation tax in the United Kingdom would increase to 25%, with effect from April 2023. This change was not substantively enacted at the year end and thus there has been no impact on the tax liabilities at the reporting date. However, once this rate has been substantively enacted, deferred tax assets and liabilities, currently recognised at 19%, will be remeasured at 25%. This change is expected to result in an increase of £1,384,000 in the deferred tax liability recognised at 31 March 2022. F I N A N C I A L S T A T E M E N T S 83 2021£’0002020£’000Profit on ordinary activities before taxation11,16512,184Tax on profit on ordinary activities at standard rate2,1212,315Adjustments to current tax charge in respect of prior periods(720)(618)Adjustments to deferred tax charge in respect of prior periods35509Effect of expenses not deductible for tax purposes 5094Effect of capital allowances and depreciation3526Effect of changes in UK tax rates -549Effect of utilisation of tax losses(15)2Changes in unrecognised deferred tax assets-(1)Other tax adjustments-17Tax on profit1,5062,893 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 YEAR ENDED 31 MARCH 2021 The Directors recommend that a final dividend for 2021 of 1.0850p (2020: 1.0850p) per ordinary share be paid. The Directors recommend that a final dividend for 2021 of 1.0850p (2020: 1.0850p) per ordinary share be paid. The final dividend will be paid, subject to shareholders’ approval at the Annual General Meeting, to shareholders on the register at The final dividend will be paid, subject to shareholders’ approval at the Annual General Meeting, to shareholders on the register at the close of business on 27 August 2021. This dividend has not been included as a liability in these financial statements. the close of business on 27 August 2021. This dividend has not been included as a liability in these financial statements. 17. Earnings per share 17. Earnings per share Earnings per share (EPS) is calculated by dividing the profit for the year, attributable to ordinary equity holders of the parent, by the Earnings per share (EPS) is calculated by dividing the profit for the year, attributable to ordinary equity holders of the parent, by the weighted average number of ordinary shares outstanding during the year. weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profit for the year, attributable to ordinary equity holders, by the weighted average number Diluted EPS is calculated by dividing the profit for the year, attributable to ordinary equity holders, by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. conversion of all the dilutive potential ordinary shares into ordinary shares. The calculation of basic and diluted earnings per share is based on the following data: The calculation of basic and diluted earnings per share is based on the following data: 2021 2021 Weighted Weighted average average number of number of shares shares Earnings Earnings £’000 £’000 Earnings Earnings per share per share (p) (p) Earnings Earnings £’000 £’000 2020 2020 Weighted Weighted average average number of number of shares shares Earnings Earnings per share per share (p) (p) Basic earnings per share Basic earnings per share 9,665 9,665 230,458,821 230,458,821 4.19 4.19 9,291 9,291 194,093,236 194,093,236 4.79 4.79 Effect of dilutive securities Effect of dilutive securities Employee share options Employee share options Diluted earnings per share Diluted earnings per share - - 629,983 629,983 - - - - 582,220 582,220 - - 9,665 9,665 231,088,804 231,088,804 4.18 4.18 9,291 9,291 194,675,456 194,675,456 4.77 4.77 Based on the full number of shares in issue at the year end, and following the IPO in the prior year, the adjusted basic and diluted EPS would be as follows: Based on the full number of shares in issue at the year end, and following the IPO in the prior year, the adjusted basic and diluted EPS would be as follows: Adjusted basic earnings per share Adjusted basic earnings per share Adjusted diluted earnings per share Adjusted diluted earnings per share 9,665 9,665 9,665 9,665 230,458,821 230,458,821 231,088,804 231,088,804 4.19 4.19 4.18 4.18 9,291 9,291 9,291 9,291 230,458,821 230,458,821 231,041,041 231,041,041 4.03 4.03 4.02 4.02 Adjusted earnings per share and adjusted diluted earnings per share based on the adjusted profit attributable to the equity holders Adjusted earnings per share and adjusted diluted earnings per share based on the adjusted profit attributable to the equity holders of the parent, as shown in the Adjusted column of the Consolidated Statement of Profit or Loss and Other Comprehensive Income. of the parent, as shown in the Adjusted column of the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Details of the Other items after tax, forming the difference between the statutory earnings above and adjusted earnings below, are Details of the Other items after tax, forming the difference between the statutory earnings above and adjusted earnings below, are outlined in note 14 of the financial statements. outlined in note 14 of the financial statements. 2021 2021 Weighted Weighted average average number of number of shares shares Earnings Earnings £’000 £’000 Earnings Earnings per share per share (p) (p) Earnings Earnings £’000 £’000 2020 2020 Weighted Weighted average average number of number of shares shares Adjusted basic earnings per share Adjusted basic earnings per share 12,813 12,813 230,458,821 230,458,821 5.56 5.56 14,111 14,111 194,093,236 194,093,236 Effect of dilutive securities Effect of dilutive securities Employee share options Employee share options Adjusted diluted earnings per share Adjusted diluted earnings per share - - 629,983 629,983 - - - - 582,220 582,220 12,813 12,813 231,088,804 231,088,804 5.54 5.54 14,111 14,111 194,675,456 194,675,456 Earnings Earnings per share per share (p) (p) 7.27 7.27 - - 7.25 7.25 18. Property, plant and equipment Land and buildings £’000 Plant and machinery £’000 Fixtures, fittings and equipment £’000 Motor vehicles £’000 Acquisition through business combinations Acquisition through business combinations Transferred from right of use assets Cost At 1 April 2019 Additions Disposals At 31 March 2020 Additions Disposals At 31 March 2021 Depreciation At 1 April 2019 Charge for the year On disposals At 31 March 2020 Charge for the year On disposals At 31 March 2021 Net book value At 31 March 2021 At 31 March 2020 Transferred from right of use assets - - - - - - - 3,025 398 60 3,483 5,060 8,543 213 247 460 305 765 7,778 3,023 336 299 63 (1) 697 102 4 - (14) 789 123 141 264 135 - - (4) 396 393 433 242 67 62 - 371 309 9 - - 689 93 81 - 174 93 - - 267 422 197 466 187 144 (43) 754 198 - 127 (115) 964 126 126 (18) 234 193 60 (55) 432 532 520 Total £’000 4,069 951 329 (44) 5,305 5,669 13 127 (129) 10,985 555 595 (18) 1,132 726 60 (59) 1,860 9,125 4,173 The Company has no property, plant and equipment. Included within land and buildings is freehold land amounting to £1,113,000 (2020: £348,000) which is not depreciated. Property, plant and equipment with a carrying value of £7,920,000 (2020: £2,983,000) is pledged as security for the Group’s bank loan. 84 84 F I N A N C I A L S T A T E M E N T S 85 16. Dividends2021£’0002020£’000Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 March 2020 of 1.0850p per share(2020: for the year ended 31 March 2019 of nil p per share)2,500-Interim dividend for the year ended 31 March 2021 of 0.8678p per share(2020: for the year ended 31 March 2020 of 0.8678 p per share)2,0002,000Total dividends paid in the year4,5002,00016. Dividends2021£’0002020£’000Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 March 2020 of 1.0850p per share(2020: for the year ended 31 March 2019 of nil p per share)2,500-Interim dividend for the year ended 31 March 2021 of 0.8678p per share(2020: for the year ended 31 March 2020 of 0.8678 p per share)2,0002,000Total dividends paid in the year4,5002,000 18. Property, plant and equipment 18. Property, plant and equipment Cost Cost At 1 April 2019 At 1 April 2019 Additions Additions Acquisition through business combinations Acquisition through business combinations Disposals Disposals At 31 March 2020 At 31 March 2020 Additions Additions Acquisition through business combinations Acquisition through business combinations Transferred from right of use assets Transferred from right of use assets Disposals Disposals At 31 March 2021 At 31 March 2021 Depreciation Depreciation At 1 April 2019 At 1 April 2019 Charge for the year Charge for the year On disposals On disposals At 31 March 2020 At 31 March 2020 Charge for the year Charge for the year Transferred from right of use assets Transferred from right of use assets On disposals On disposals At 31 March 2021 At 31 March 2021 Net book value Net book value At 31 March 2021 At 31 March 2021 At 31 March 2020 At 31 March 2020 Land and Land and buildings buildings £’000 £’000 Plant and Plant and machinery machinery £’000 £’000 Fixtures, Fixtures, fittings and fittings and equipment equipment £’000 £’000 Motor Motor vehicles vehicles £’000 £’000 3,025 3,025 398 398 60 60 - - 3,483 3,483 5,060 5,060 - - - - - - 8,543 8,543 213 213 247 247 - - 460 460 305 305 - - - - 765 765 7,778 3,023 7,778 3,023 336 336 299 299 63 63 (1) (1) 697 697 102 102 4 4 - - (14) (14) 789 789 123 123 141 141 - - 264 264 135 135 - - (4) (4) 396 396 393 433 393 433 242 242 67 67 62 62 - - 371 371 309 309 9 9 - - - - 689 689 93 93 81 81 - - 174 174 93 93 - - - - 267 267 422 422 197 197 466 466 187 187 144 144 (43) (43) 754 754 198 198 - - 127 127 (115) (115) 964 964 126 126 126 126 (18) (18) 234 234 193 193 60 60 (55) (55) 432 432 532 520 532 520 Total Total £’000 £’000 4,069 4,069 951 951 329 329 (44) (44) 5,305 5,305 5,669 5,669 13 13 127 127 (129) (129) 10,985 10,985 555 555 595 595 (18) (18) 1,132 1,132 726 726 60 60 (59) (59) 1,860 1,860 9,125 9,125 4,173 4,173 The Company has no property, plant and equipment. The Company has no property, plant and equipment. Included within land and buildings is freehold land amounting to £1,113,000 (2020: £348,000) which is not depreciated. Included within land and buildings is freehold land amounting to £1,113,000 (2020: £348,000) which is not depreciated. Property, plant and equipment with a carrying value of £7,920,000 (2020: £2,983,000) is pledged as security for the Group’s bank loan. Property, plant and equipment with a carrying value of £7,920,000 (2020: £2,983,000) is pledged as security for the Group’s bank loan. F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S 85 85 Brick-ability trading group PVH trading group HHG trading group Other CGUs Total 2021 £’000 12,845 16,399 12,690 8,019 49,953 2020 £’000 12,845 16,399 12,690 7,512 49,446 The goodwill allocated to the Brick-ability trading group, PVH the average long-term growth rate for the relevant markets. The trading group and HHG trading group CGUs is considered rates used to discount the forecast cash flows are 10.00% – 12.60% significant in comparison with the Group’s total carrying amount (2020: 10.00%) derived from the CGU’s weighted average cost of of goodwill. CGUs within the Other CGU category represent capital (WACC). between 0.03% and 6.15% of the total goodwill and relate to the business operations of entities acquired during the current and previous years. The impairment loss of £nil (2020: £16,000) in the period relates to goodwill held in a subsidiary and is included within the Other CGU total above. This goodwill arose following incorporation of The Group estimates the recoverable amount of each CGU using that subsidiary and acquisition of the business previously operating a value in use model by projecting cash flows for the next three as a partnership. Given the age of the goodwill asset, management years together with a terminal value using a growth rate. The key no longer considered that economic benefits generated by that assumptions underpinning the recoverable amounts of the CGUs subsidiary were attributable to this asset. Its carrying amount was tested for impairment are forecast revenues and EBITDA and the therefore written down to £nil, based on its value in use. discount rate applied. Revenue and EBITDA forecast in the impairment models are The total recoverable amount in respect of goodwill arising on consolidation, other intangibles and other non-financial assets, based on management’s past experience and future expectations as assessed by management using the above assumptions, is of performance. The projections also consider the ongoing greater than the carrying amount. No further impairment loss has impact of the COVID-19 pandemic, with assumptions for future therefore been recorded, in either the current or previous year. trade supported by actual trends and performance during the The projections used in the impairment reviews have also been pandemic. For each CGU, a growth rate of 2% (2020: 2%) is used sensitised. Given the level of headroom, management currently to extrapolate cash flow projections beyond the three year period consider that it is not reasonably possible for the assumptions to covered by the most recent forecasts. This rate does not exceed change so significantly as to eliminate the excess. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 YEAR ENDED 31 MARCH 2021 The carrying amount of goodwill is allocated to CGUs as follows: 19. Intangible assets 19. Intangible assets Cost Cost At 1 April 2019 At 1 April 2019 Additions Additions Acquisition through business combinations Acquisition through business combinations At 31 March 2020 At 31 March 2020 Additions Additions Acquisition through business combinations Acquisition through business combinations Disposals Disposals At 31 March 2021 At 31 March 2021 Amortisation and impairment Amortisation and impairment At 1 April 2019 At 1 April 2019 Charge for the year Charge for the year Impairment Impairment At 31 March 2020 At 31 March 2020 Charge for the year Charge for the year Impairment Impairment On disposals On disposals At 31 March 2021 At 31 March 2021 Net book value Net book value At 31 March 2021 At 31 March 2021 At 31 March 2020 At 31 March 2020 Customer & supplier Customer & supplier relationships and relationships and other intangibles other intangibles £’000 £’000 Goodwill Goodwill £’000 £’000 20,801 20,801 - - 5,734 5,734 26,535 26,535 - - 1,489 1,489 - - 28,024 28,024 2,221 2,221 2,420 2,420 - - 4,641 4,641 2,813 2,813 - - - - 7,454 7,454 43,388 43,388 - - 6,074 6,074 49,462 49,462 - - 507 507 - - 49,969 49,969 - - 16 16 - - - 16 - - 16 16 - - - 16 Total Total £’000 £’000 69,540 69,540 - - 14,372 14,372 83,912 83,912 - - 2,417 2,417 - - 86,329 86,329 2,787 2,787 3,059 3,059 16 16 5,862 5,862 3,619 3,619 - - - - 9,481 9,481 20,570 20,570 21,894 21,894 49,953 49,953 49,446 49,446 76,848 76,848 78,050 78,050 Brands £’000 Brands £’000 5,351 5,351 - - 2,564 2,564 7,915 7,915 - - 421 421 - - 8,336 8,336 566 566 639 639 - - 1,205 1,205 806 806 - - - - 2,011 2,011 6,325 6,325 6,710 6,710 The Company has no intangible assets. The Company has no intangible assets. Goodwill is reviewed annually for impairment. As outlined within the key sources of estimation uncertainty, in note 4 of the financial Goodwill is reviewed annually for impairment. As outlined within the key sources of estimation uncertainty, in note 4 of the financial statements, the ongoing COVID-19 pandemic led to significant changes in the market in which the Group operates. This has given statements, the ongoing COVID-19 pandemic led to significant changes in the market in which the Group operates. This has given rise to an indication of potential impairment. As such, impairment reviews have also been carried out in respect of other intangible rise to an indication of potential impairment. As such, impairment reviews have also been carried out in respect of other intangible assets and other non financial assets, including property, plant and equipment and right of use assets. assets and other non financial assets, including property, plant and equipment and right of use assets. Impairments of investments in associates are disclosed in note 22. Impairments of investments in associates are disclosed in note 22. The carrying amount of goodwill and impairment losses by segment are as follows: The carrying amount of goodwill and impairment losses by segment are as follows: 20. Subsidiaries At 1 April 2019 Recognised on acquisitions Impairment At 31 March 2020 Recognised on acquisitions Impairment At 31 March 2021 At 1 April 2019 Recognised on acquisitions Impairment At 31 March 2020 Recognised on acquisitions Impairment At 31 March 2021 Bricks and Building Bricks and Building Materials Materials £’000 £’000 Roofing Services Roofing Services £’000 £’000 Heating, Plumbing Heating, Plumbing and Joinery and Joinery £’000 £’000 Consolidated £’000 Consolidated £’000 18,399 18,399 5,940 5,940 (16) (16) 24,323 24,323 388 388 - - 24,711 24,711 12,299 12,299 - - - - 12,299 12,299 - - - - 12,299 12,299 12,690 12,690 134 134 - - 12,824 12,824 119 119 - - 12,943 12,943 43,388 43,388 6,074 6,074 (16) (16) 49,446 49,446 507 507 - - 49,953 49,953 Impairment losses regarding goodwill are included within the depreciation and amortisation expense in the Statement of Profit or Loss. Impairment losses regarding goodwill are included within the depreciation and amortisation expense in the Statement of Profit or Loss. 86 86 F I N A N C I A L S T A T E M E N T S 87 Company2021 £’0002020 £’000Shares in group undertakings Cost and carrying value6,5426,542 The carrying amount of goodwill is allocated to CGUs as follows: The carrying amount of goodwill is allocated to CGUs as follows: Brick-ability trading group Brick-ability trading group PVH trading group PVH trading group HHG trading group HHG trading group Other CGUs Other CGUs Total Total 2021 2021 £’000 £’000 12,845 12,845 16,399 16,399 12,690 12,690 8,019 8,019 49,953 49,953 2020 2020 £’000 £’000 12,845 12,845 16,399 16,399 12,690 12,690 7,512 7,512 49,446 49,446 The goodwill allocated to the Brick-ability trading group, PVH The goodwill allocated to the Brick-ability trading group, PVH trading group and HHG trading group CGUs is considered trading group and HHG trading group CGUs is considered significant in comparison with the Group’s total carrying amount significant in comparison with the Group’s total carrying amount of goodwill. CGUs within the Other CGU category represent of goodwill. CGUs within the Other CGU category represent between 0.03% and 6.15% of the total goodwill and relate to the between 0.03% and 6.15% of the total goodwill and relate to the business operations of entities acquired during the current and business operations of entities acquired during the current and previous years. previous years. The Group estimates the recoverable amount of each CGU using The Group estimates the recoverable amount of each CGU using a value in use model by projecting cash flows for the next three a value in use model by projecting cash flows for the next three years together with a terminal value using a growth rate. The key years together with a terminal value using a growth rate. The key assumptions underpinning the recoverable amounts of the CGUs assumptions underpinning the recoverable amounts of the CGUs tested for impairment are forecast revenues and EBITDA and the tested for impairment are forecast revenues and EBITDA and the discount rate applied. discount rate applied. Revenue and EBITDA forecast in the impairment models are Revenue and EBITDA forecast in the impairment models are based on management’s past experience and future expectations based on management’s past experience and future expectations of performance. The projections also consider the ongoing of performance. The projections also consider the ongoing impact of the COVID-19 pandemic, with assumptions for future impact of the COVID-19 pandemic, with assumptions for future trade supported by actual trends and performance during the trade supported by actual trends and performance during the pandemic. For each CGU, a growth rate of 2% (2020: 2%) is used pandemic. For each CGU, a growth rate of 2% (2020: 2%) is used to extrapolate cash flow projections beyond the three year period to extrapolate cash flow projections beyond the three year period covered by the most recent forecasts. This rate does not exceed covered by the most recent forecasts. This rate does not exceed the average long-term growth rate for the relevant markets. The the average long-term growth rate for the relevant markets. The rates used to discount the forecast cash flows are 10.00% – 12.60% rates used to discount the forecast cash flows are 10.00% – 12.60% (2020: 10.00%) derived from the CGU’s weighted average cost of (2020: 10.00%) derived from the CGU’s weighted average cost of capital (WACC). capital (WACC). The impairment loss of £nil (2020: £16,000) in the period relates The impairment loss of £nil (2020: £16,000) in the period relates to goodwill held in a subsidiary and is included within the Other to goodwill held in a subsidiary and is included within the Other CGU total above. This goodwill arose following incorporation of CGU total above. This goodwill arose following incorporation of that subsidiary and acquisition of the business previously operating that subsidiary and acquisition of the business previously operating as a partnership. Given the age of the goodwill asset, management as a partnership. Given the age of the goodwill asset, management no longer considered that economic benefits generated by that no longer considered that economic benefits generated by that subsidiary were attributable to this asset. Its carrying amount was subsidiary were attributable to this asset. Its carrying amount was therefore written down to £nil, based on its value in use. therefore written down to £nil, based on its value in use. The total recoverable amount in respect of goodwill arising on The total recoverable amount in respect of goodwill arising on consolidation, other intangibles and other non-financial assets, consolidation, other intangibles and other non-financial assets, as assessed by management using the above assumptions, is as assessed by management using the above assumptions, is greater than the carrying amount. No further impairment loss has greater than the carrying amount. No further impairment loss has therefore been recorded, in either the current or previous year. therefore been recorded, in either the current or previous year. The projections used in the impairment reviews have also been The projections used in the impairment reviews have also been sensitised. Given the level of headroom, management currently sensitised. Given the level of headroom, management currently consider that it is not reasonably possible for the assumptions to consider that it is not reasonably possible for the assumptions to change so significantly as to eliminate the excess. change so significantly as to eliminate the excess. 20. Subsidiaries 20. Subsidiaries F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S 87 87 Company2021 £’0002020 £’000Shares in group undertakings Cost and carrying value6,5426,542Company2021 £’0002020 £’000Shares in group undertakings Cost and carrying value6,5426,542 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 20. Subsidiaries (continued) At the reporting date, the Company had the following subsidiary undertakings, all of which are included in these consolidated financial statements: Proportion of shares held 2020 Proportion of shares held 2021 Country of operation and incorporation Class of share held Subsidiary Brickability Enterprises Holding Limited Brickability Enterprises Investments Limited Brickability UK Holdings Limited (1) Brick-ability Ltd. (2) Brick Services Limited (2) The Matching Brick Company Limited (2) Brick-Link Limited (2) Plansure Building Products Limited (2) P V H Holdings Limited (1) Crest Brick Slate & Tile Limited (3) Crest Roofing Limited (3) Crown Roofing (Centres) Limited (5) Excel Roofing Services Limited (5) Hamilton Heating Group Limited (1) Towelrads.com Limited (6) Radiatorsonline.com Ltd (6) Frazer Simpson Limited (1) FSN Doors Limited (1) DSH Flooring Limited (6) CPG Building Supplies Limited (1) Brickwise Ltd (1) The Bespoke Brick Company Limited (1) The Brick Slip Business Limited (1) Brickmongers (Wessex) Ltd (2) LBT Brick & Facades Limited (2) McCann Roofing Products Limited (4) U Plastics Limited (1) Bathroom Barn Limited (7) McCann Logistics Ltd (3) Forum Tiles Limited (8) England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - 100% 100% 100% 100% 100% 100% 100% 100% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - (1) Wholly owned by Brickability Enterprises Investments Limited. (2) Wholly owned by Brickability UK Holdings Limited. (3) Wholly owned by P V H Holdings Limited. (4) Wholly owned by Crest Brick Slate & Tile Limited. (5) Wholly owned by Crest Roofing Limited. (6) Wholly owned by Hamilton Heating Group Limited. (7) Wholly owned by Towelrads.com Limited. (8) 75% owned by Towelrads.com Limited. Brickwise Ltd was a non-trading, dormant subsidiary that was dissolved via voluntary strike-off during the year. Forum Tiles Limited was incorporated on 14 January 2021, with the Group owning 75% of the issued share capital. The non-controlling interest is not material to the Group and thus no further disclosure is included in respect of the profit or loss allocated to non-controlling interests. By virtue of section 479A of the Companies Act 2006, the following subsidiaries are exempt from the requirements relating to the audit of individual accounts, with the ultimate parent company, Brickability Group plc, providing a guarantee for these companies under section 479C: 88 Subsidiary Company number Subsidiary Company number Brickability Enterprises Holding Limited Brickability Enterprises Investments Limited Brickability UK Holdings Limited P V H Holdings Limited Hamilton Heating Group Limited The Matching Brick Company Limited Plansure Building Products Limited CPG Building Supplies Limited 10332050 10332505 07805178 02484708 09921801 02530773 06016447 02937329 The Brick Slip Business Limited Brickmongers (Wessex) Ltd Radiatorsonline.com Ltd Frazer Simpson Limited FSN Doors Limited DSH Flooring Limited McCann Logistics Ltd 09707800 06944174 10757797 06838234 07304174 08209834 01403830 The Directors believe that the likelihood of the guarantee being called upon is remote, based on the above subsidiaries either being intermediate parents within the Group, with primarily just Group debt balances, or considered low risk. 21. Business combinations The Group acquired the entire share capital and 100% of the voting rights in the following companies during the year: Company acquired Bathroom Barn Limited *Formerly McCann Limited Acquisition date Company acquired 30 November 2020 McCann Logistics Ltd* Acquisition date 4 December 2020 The fair value of the assets acquired and liabilities assumed on acquisition are as follows: Property plant and equipment Right of use assets Identifiable intangible assets Inventory Trade and other receivables Cash and cash equivalents Trade and other payables Lease liabilities Deferred tax Total identifiable net assets Goodwill Total consideration Satisfied by: Cash paid Deferred cash consideration Contingent consideration (note 33) Total consideration Bathroom Barn Limited £’000 McCann Logistics Ltd £’000 2 - 427 309 264 1,499 (180) - (81) 2,240 119 2,359 1,323 805 231 2,359 11 287 1,482 16 1,678 775 (1,657) (287) (320) 1,985 405 2,390 1,225 276 889 2,390 Included in the consolidated financial statements are the following amounts of revenue and profit in respect of the subsidiaries acquired: Revenue Net profit Bathroom Barn Limited £’000 McCann Logistics Ltd £’000 361 96 2,312 144 Had the current year business combinations taken place at the beginning of the financial year, the Group’s revenue for the year would have been £185,840,000 (2020: £206,278,000) and Group profit would have been £10,006,000 (2020: £11,215,000). F I N A N C I A L S T A T E M E N T S 89 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 21. Business combinations (continued) Acquisition related costs, included in administrative expenses (note 14), amounted to £105,000, made up as follows: Acquisition costs The Group acquired each of the above subsidiaries in order to expand its network within the UK and increase the range of products that can be offered to its customers. Contingent consideration The Group has entered into contingent consideration arrangements during the purchase of several subsidiaries. Final amounts payable under these agreements are all subject to future performance and the acquired business achieving pre-determined EBITDA targets, over the three years following acquisition. The fair value of all contingent consideration is based on a discounting cash flow model, applying a discount rate of between 1.7% and 4.9% to the expected future cash flows. Bathroom Barn Limited £’000 McCann Logistics Ltd £’000 50 55 Goodwill principally comprises the value of expected synergies arising from the acquisitions and the value of the assembled workforce. None of the goodwill is expected to be deductible for tax purposes. Summarised below are the fair values of the contingent consideration at both acquisition and reporting date, the potential undiscounted amount payable and the discount rates applied within the discounting cash flow models, for each acquisition where contingent consideration arrangements remain in place. Company acquired Discount rate Fair value at acquisition £’000 Fair value at reporting date 2021 £’000 Fair value at reporting date 2020 £’000 Undiscounted amount payable 2021 £’000 Undiscounted amount payable 2020 £’000 The Bespoke Brick Com- pany Limited Brickmongers (Wessex) Ltd CPG Building Supplies Limited U Plastics Limited Bathroom Barn Limited McCann Logistics Ltd 4.9% 4.8% 4.0% 3.5% 1.7% 1.7% - 138 (201) 2,208 231 889 - - - 2,270 241 931 - 143 - 2,214 - - - - - 2,400 248 958 - 155 - 2,400 - - The total potential undiscounted amount payable in respect of U Plastics ranges from £246,000 to £2,400,000 (2020: £nil to £2,400,000). It is not possible to determine a range of outcomes for the other companies acquired as the arrangements do not contain a maximum payable. A sensitivity in respect of the inputs into the discounted cash flow model, determining the contingent consideration, is outlined in note 33. 22. Associates At the reporting date, the Group had the following associated undertaking, which is included in the consolidated financial statements using the equity method: Associate Apex Brickcutters Limited Country of operation and incorporation England and Wales Class of share held Ordinary Proportion of shares held 50% 90 During the year, the Group reduced its share in Financewell Limited to a level where the Group is no longer considered to have significant influence. The investment in associate has therefore been disposed of and the investment is now classified as an investment in a financial asset (see note 23). Investments in associates are not attributed to the Group’s reportable segments. Impairment losses in the prior year, in respect of investments in associates, are included within exceptional expenses within the Statement of Profit or Loss (note 14). No impairment loss has been recognised in the current year. During the prior year, an impairment loss of £509,000 was recognised in relation to the investment in Financewell Limited, as the company was not trading profitably and further losses were anticipated. The investment was written down to its recoverable amount of £125,000, based on fair value less costs of disposal. Costs of disposal were expected to be minimal. The fair value was based on an agreement in principal to sell the investment. As the fair value was based on the price agreed in an active market, but not quoted, it was considered to be at level 2 of the fair value hierarchy. During the year, an impairment loss of £nil (2020: £366,000) was recognised in relation to Apex Brickcutters Limited as the company had not been trading as profitably as it had been historically and the carrying value had included an element of goodwill. The investment in Apex Brickcutters Limited was written down to its recoverable amount of £227,000, based on its fair value less costs of disposal. The fair value was based on an amount equal to the Group’s share of the net assets of the associate, based on its latest financial statements. As the associate is unquoted but its net asset value is observable, with its carrying value of assets and liabilities not expected to be subject to significant adjustments to reflect fair value, it is considered to be at level 2 of the fair value hierarchy. 23. Investments Investments in equity instruments at fair value through other comprehensive income 2021 £’000 2020 £’000 Non-current At 1 April Additions Change in fair value recognised in OCI At 31 March - 125 - 125 - - - - During the year, a group re-organisation took place which resulted in the Group’s 25% share in Financewell Limited being exchanged for a 12.5% share of Lendwell Holdings Limited, a new parent company of Financewell Limited. The Group’s investment is therefore no longer accounted for as an investment in associate, under the equity method, but classified as an investment, measured at fair value through other comprehensive income. The equity investments are not held for trading and thus the Group has made an irrevocable election to classify the equity instruments at fair value through other comprehensive income as it is considered more appropriate for this nature of investment. There has been no significant change in the fair value of the investment since recognition. The fair value is based on the Group’s share of the net assets of the entity in which it has the investment, under a cost approach. The investment is in an unquoted entity but the fair value of the assets and liabilities are not expected to be significantly different to the carrying value. As the net asset value is observable, it is considered to be at level 2 of the fair value hierarchy. F I N A N C I A L S T A T E M E N T S 91 Interest in associates2021£’0002020£’000At 1 April 3521,292Dividends received from associates-(33)Share of profit or loss(6)(32)Disposals(125)-Impairment of investments (note 14)-(875)At 31 March221352Aggregate information of associates that are not individually material2021£’0002020£’000Group’s share of profit or loss from continuing operations(6)(32)Group’s share of other comprehensive income--Group’s share of total comprehensive income(6)(32) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 24. Inventories Goods for resale 25. Trade and other receivables Current Trade receivables Less allowance for expected credit loss Contract assets Amounts owed by group undertakings Prepayments and accrued income Directors’ loan accounts Other receivables Non-current Trade receivables Other receivables Group Company 2021 £’000 12,127 2020 £’000 9,791 2021 £’000 - 2020 £’000 - Group Company 2021 £’000 38,553 (358) 38,195 - - 2,651 978 1,008 2020 £’000 33,696 (592) 33,104 37 - 1,911 978 530 2021 £’000 2020 £’000 - - - - - - - - 75,482 79,819 - - - - - - 42,832 36,560 75,482 79,819 460 - 460 391 - 391 - 9,343 9,343 43,292 36,951 84,825 - 9,343 9,343 89,162 Other receivables for the Company relate to loan notes receivable. The balance is due on the 10th anniversary of the loan note instrument and is receivable from 6 March 2028. Interest, accrued at 9.5% per annum up until IPO, is receivable when the loan notes are repaid. Trade receivables are non-interest bearing. The allowance for credit losses has been determined by reference to past default experience and a review of specific customers’ debts at the year end. The Group considers a financial asset to be in default when contractual payments are 90 days past due. However, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. Trade receivables are written off when there is no reasonable expectation of recovering the amounts due, for example when a customer has entered liquidation. In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments that have similar credit risk and loss patterns, for example by customer type, size or credit rating. 92 The provision matrix is initially based on the Group’s historical observed default rates over the previous 2 years. The Group will then adjust the historical loss rate to take into account forward looking information, for example when forecast economic conditions, such as gross domestic product or unemployment rates, are expected to deteriorate. At each reporting date, the historical default rates are updated and forward looking estimates re-assessed. The Group has primarily experienced an increase in the ECL rate among older debts due to some customers struggling amid the COVID-19 pandemic. The forward looking estimates applied have considered the ongoing impact of the pandemic and potential future risk of loss, given the significant impact the pandemic has had on the UK economy. The Group maintains credit insurance for its main customers within the Bricks and Building Materials segment, which will mitigate some of this risk. Market recovery following the initial lock down period has also been considered. Details of the Group’s credit exposure is included in note 33. Set out below is the risk profile of trade receivables and contract assets based on the Group’s provision matrix. Any reasonable change in rates applied would not result in a material adjustment to the expected credit loss recognised. Trade Receivables and Contract Assets Days past due 31 March 2021 Expected credit loss rate Gross carrying amount Expected credit loss Current £’000 0.16% 24,823 40 < 30 days £’000 30-60 days £’000 61-90 days £’000 0.27% 10,370 28 1.43% 1,888 27 9.2% 718 66 >91 days £’000 16.18% 1,214 197 Total £’000 39,013 358 Trade Receivables and Contract Assets Days past due 31 March 2020 Expected credit loss rate Gross carrying amount Expected credit loss Current £’000 0.19% 16,899 32 < 30 days £’000 30-60 days £’000 61-90 days £’000 >91 days £’000 Total £’000 0.29% 12,444 36 9.31% 2,990 278 4.24% 307 13 15.69% 1,484 233 34,124 592 F I N A N C I A L S T A T E M E N T S 93 Movement in the allowance for expected credit losses2021£’0002020£’000Balance at the beginning of the year 592710Impairment losses recognised341433Amounts written off as uncollectable(575)(551)358592 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 YEAR ENDED 31 MARCH 2021 26. Cash and cash equivalents 26. Cash and cash equivalents 28. Loans and borrowings Cash and cash equivalents Cash and cash equivalents Group Group Company Company 2021 2021 £’000 £’000 8,592 8,592 2020 2020 £’000 £’000 27,269 27,269 2021 2021 £’000 £’000 22 22 2020 2020 £’000 £’000 - - Non-current Bank loans Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value. The carrying amount of these assets approximates to their fair value. by certain trading subsidiaries. Group Company 2021 £’000 2020 £’000 2021 £’000 2020 £’000 15,750 24,912 15,750 24,912 The Directors consider that the carrying amount of loans and borrowings approximates to their fair value. The bank loans are secured by a fixed charge over the Group’s properties and floating charges over the remaining assets of the Group, including all property, investments and assets of the Company’s subsidiary undertakings. A guarantee has also been provided 27. Trade and other payables 27. Trade and other payables Current Current Trade payables Trade payables Amounts owed to group undertakings Amounts owed to group undertakings Accruals and deferred income Accruals and deferred income Other taxation and social security Other taxation and social security Deferred and contingent consideration Deferred and contingent consideration Other payables Other payables Non-current Non-current Deferred and contingent consideration Deferred and contingent consideration Group Group Company Company 2021 2021 £’000 £’000 2020 2020 £’000 £’000 2021 2021 £’000 £’000 2020 2020 £’000 £’000 27,481 27,481 27,159 27,159 - - - - 5,869 5,869 3,388 3,388 1,372 1,372 659 659 38,769 38,769 - - 3,289 3,289 3,070 3,070 8,020 8,020 374 374 41,912 41,912 9,925 9,925 159 159 - - - - - - - - 120 120 46 46 - - - - - - 10,084 10,084 166 166 3,153 3,153 41,922 41,922 2,402 2,402 44,314 44,314 - - 10,084 10,084 - - 166 166 Trade payables are non-interest bearing and principally comprise amounts outstanding for trade Trade payables are non-interest bearing and principally comprise amounts outstanding for trade purchases and ongoing costs. The Group’s policy is to pay all payables within its pre-agreed purchases and ongoing costs. The Group’s policy is to pay all payables within its pre-agreed credit terms, which, for the majority of suppliers, is a period of 30 days. The Directors credit terms, which, for the majority of suppliers, is a period of 30 days. The Directors consider that the carrying amount of trade payables approximates to their fair value. consider that the carrying amount of trade payables approximates to their fair value. 94 94 F I N A N C I A L S T A T E M E N T S 95 28. Loans and borrowings 28. Loans and borrowings Non-current Non-current Bank loans Bank loans Group Group Company Company 2021 2021 £’000 £’000 2020 2020 £’000 £’000 2021 2021 £’000 £’000 2020 2020 £’000 £’000 15,750 15,750 24,912 24,912 15,750 15,750 24,912 24,912 The Directors consider that the carrying amount of loans and borrowings approximates to their fair value. The Directors consider that the carrying amount of loans and borrowings approximates to their fair value. The bank loans are secured by a fixed charge over the Group’s properties and floating charges over the remaining assets of the The bank loans are secured by a fixed charge over the Group’s properties and floating charges over the remaining assets of the Group, including all property, investments and assets of the Company’s subsidiary undertakings. A guarantee has also been provided Group, including all property, investments and assets of the Company’s subsidiary undertakings. A guarantee has also been provided by certain trading subsidiaries. by certain trading subsidiaries. F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S 95 95 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 Land and buildings £’000 Plant and vehicles £’000 Equipment £’000 2,135 3,364 891 (19) 6,371 534 287 - - 7,192 326 522 (19) 829 631 - - 1,460 5,732 5,542 406 563 58 (31) 996 125 1,765 (127) (122) 2,637 124 169 (31) 262 452 (60) (121) 533 2,104 734 100 43 - - 143 34 4 - - 181 18 26 - 44 28 - - 72 109 99 Total £’000 2,641 3,970 949 (50) 7,510 693 2,056 (127) (122) 10,010 468 717 (50) 1,135 1,111 (60) (121) 2,065 7,945 6,375 29. Leases Group as lessee Right of use assets Cost At 1 April 2019 Additions Acquisition through business combinations Disposals At 31 March 2020 Additions Acquisition through business combinations Transferred to property, plant and equipment Disposals At 31 March 2021 Depreciation At 1 April 2019 Charge for the year Depreciation on disposals At 31 March 2020 Charge for the year Transferred to property, plant and equipment Depreciation on disposals At 31 March 2021 Carrying value At 31 March 2021 At 31 March 2020 96 Lease liabilities At 1 April 2019 Additions Acquisition through business combinations Interest expense Lease payments At 31 March 2020 Additions Acquisition through business combinations Interest expense Lease payments Foreign exchange losses At 31 March 2021 Maturity analysis Due within 1 year Due between 1 and 5 years Due after 5 years Land and buildings £’000 Plant and vehicles £’000 Equipment £’000 1,814 3,477 926 257 (624) 5,850 543 287 296 (871) - 6,105 238 532 58 19 (219) 628 125 1,765 52 (494) 1 2,077 81 43 - 4 (28) 100 34 4 6 (33) - 111 2021 £’000 1,497 2,688 4,108 8,293 Total £’000 2,133 4,052 984 280 (871) 6,578 702 2,056 354 (1,398) 1 8,293 2020 £’000 776 2,034 3,768 6,578 The undiscounted maturity analysis in respect of lease payments is disclosed in note 33. Included within administration expenses within the Consolidated Statement of Profit or Loss is an amount of £117,000 (2020: £69,000) in respect of short-term leases and an amount of £6,000 (2020: £3,000) in respect of low value asset leases. During the year, the Group received COVID-19 related rent concessions of £15,000, which is recognised as a credit within administrative expenses within the profit or loss. The lease liabilities are secured over the assets to which they relate. The Group is not permitted to pledge these assets as security for any other borrowings or to sell them to another entity. The Company does not have any right of use assets or lease liabilities. Group as lessor The Group does not have significant leasing activities acting as a lessor. Operating leases, in which the Group is the lessor relate to the sub-let of part of its freehold and leasehold property. Rental income on operating leases recognised in the Statement of Profit or Loss is as follows: Rental income 2021 £’000 46 2020 £’000 9 F I N A N C I A L S T A T E M E N T S 97 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 29. Leases (continued) Future minimum rentals receivable under non-cancellable operating leases at the reporting date are as follows: Maturity analysis Due within 1 year Due between 1 and 5 years The Company does not have any operating lease arrangements. 30. Provisions Group At 1 April 2019 Additions Utilised in the year Unused amounts reversed At 31 March 2020 Additions Utilised in the year Unused amounts reversed At 31 March 2021 2020 £’000 119 351 470 Defect provisions £’000 Dilapidation provisions £’000 1,962 77 - (650) 1,389 209 (62) (289) 1,247 13 - (13) - - - - - - 2019 £’000 9 23 32 Total £’000 1,975 77 (13) (650) 1,389 209 (62) (289) 1,247 The Company does not have any provisions. Defect provisions A 10 year warranty is offered in connection with roofing services. These warranties are offered in the normal course of business and are in line with industry standards. Provision is therefore recognised for expected defect claims on goods and services sold during the last 10 years. The provision is based on the estimated cost to rectify potential claims as a proportion of sales, applied to sales in the previous 10 years. The rectification cost is based on management’s best estimate of the Group’s liability under the warranties granted, based on past experience. The main uncertainty relates to estimating the value and number of claims expected to be made. Management consider their estimate on a case by case basis, following a specific review of jobs carried out during the year. This is considered to be the most appropriate method for determining the provision due to the individual nature of the materials used in construction, the size and geography of the site and other external factors. The cost and number of historical claims forms the basis of the estimated costs that could potentially arise from future claims over the 10 year warranty period. The cost of any warranty claim is charged against the associated provision as those costs become payable. Once the 10 year warranty period has expired, any unutilised provision is released back to profit or loss. Due to the long-term nature of the liabilities and uncertainty surrounding the potential timing of the claims, the provision is inherently subjective. The potential impact of discounting is considered immaterial. Dilapidation provisions Provision was recognised for expected repairs on the Group’s operating premises. Leasehold dilapidations relate to the estimated cost of returning a leasehold property to its original state at the end of the lease in accordance with the lease terms. The cost is now recognised as part of the right of use asset and is depreciated over the remaining term of the lease. The main uncertainty relates to estimating the cost that will be incurred at the end of the lease. 98 31. Deferred tax Group The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period: Accelerated tax depreciation £’000 Other temporary differences £’000 At 1 April 2019 Charged to profit or loss Acquired through business combinations At 31 March 2020 Charged to profit or loss Acquired through business combinations At 31 March 2021 662 (843) (28) (209) 65 (1) (145) Deferred tax assets and liabilities are presented in the Consolidated Balance Sheet as follows: (4,010) 217 (1,424) (5,217) 560 (401) Total £’000 (3,348) (626) (1,452) (5,426) 625 (402) (5,058) (5,203) The Company has no deferred tax assets or liabilities. At the reporting date, the Group had no unused tax losses (2020: £nil), available for offset against future profits, where deferred tax assets have not been provided. 32. Pensions Defined contribution plans The total expense recognised in profit or loss in relation to contributions payable under defined contribution pension plans is £586,000 (2020: £463,000). At the reporting date, contributions of £ 75,000 (2020: £72,000) due in respect of the reporting period had not yet been paid over to the pension provider. F I N A N C I A L S T A T E M E N T S 99 2021£’0002020£’000Deferred tax assets98205Deferred tax liabilities(5,301)(5,631)(5,203)(5,426) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 33. Financial instruments The Group has the following financial assets and liabilities: Fair values Financial instruments not measured at fair value include cash and cash equivalents, trade and other receivables, trade and other payables, loans and borrowings and lease liabilities. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables and trade and other payables approximates their fair value. For details of the fair value of loans and borrowings, refer to note 28. 100 Financial assets2021£’0002020 £’000Financial assets measured at amortised costCash and cash equivalents8,59227,269Trade and other receivables40,64235,040Total financial assets49,23462,309Financial liabilities2021£’0002020£’000Financial liabilities measured at amortised costTrade and other payables35,09238,887Loans and borrowings15,75024,912Lease liabilities8,2936,57859,13570,377Financial liabilities measured at fair value through profit or lossContingent consideration3,4422,3573,4422,357Total financial liabilities62,57772,734 The significant unobservable inputs used in the fair value measurements categorised within level 3 of the fair value hierarchy, together with a quantitative sensitivity analysis at 31 March 2021 and 31 March 2020 are shown below: Valuation technique Significant Unobservable inputs Present value of future cash flows Assumed probability -adjusted EBITDA of acquired entities. Financial instrument Contingent Consideration in a business combination (note 21) Range/ estimate 2021: £1,142,000 – £3,852,000 2020: £1,231,000 – £3,750,000 Discount rate 2021: 1.7% - 4.9% 2020: 3.5% - 4.8% Reconciliation of level 3 fair value measurements of financial instruments. Sensitivity of the input to fair value The higher the adjusted EBITDA, the higher the fair value. If forecast EBITDA was 10% higher, while all other variables remained constant, the fair value of the overall contingent consideration liability would increase by £140,000. A 10% decrease in EBITDA would result in a decrease in the liability of £424,000. (2020: increase of £67,000 and decrease of £404,000) The higher the discount rate, the lower the fair value. If the discount rate applied was 2% higher, while all other variables remained constant, the fair value of the overall contingent consideration liability would decrease by £110,000. A 2% decrease in the rate would result in an increase in the liability of £108,000. (2020: decrease of £103,000 and increase of £109,000) Contingent consideration £’000 At 1 April 2019 Additions through business combinations Finance expense charged to profit or loss Settlement Fair value losses recognised in profit or loss At 31 March 2020 Additions through business combinations Finance expense charged to profit or loss Settlement Fair value gains recognised in profit or loss At 31 March 2021 Financial risk management objectives The Group’s activities expose it to a variety of financial risks: market risk (including cash flow, interest rate and currency risk), investment risk, liquidity risk and credit risk. Risk management is carried out by the directors. The Group finances its operations through a mixture of debt finance, cash and liquid resources and various items such as trade receivables and payables which arise directly from the Group’s operations. Interest rate risk Interest rate risk is the risk that the fair value of future cash flows associated with an instrument will fluctuate due to changes in market interest rates. Interest bearing assets, including cash and cash equivalents, are considered to the short-term liquid assets. It is the Group’s policy to settle trade payables within the credit terms allowed and thus the Group does not incur interest on overdue balances. The Group’s exposure to interest rate risk is therefore primarily in respect of its long-term floating rate borrowings. (566) (2,345) (28) 627 (45) (2,357) (1,120) (89) (236) 360 (3,442) In the prior year, the Group had a mix of fixed and floating rate borrowings and used an interest rate swap to manage interest rate risk volatility and hedge against interest exposure on future firm commitments. The fair values of the assets and liabilities held at fair value through profit or loss at the reporting date are determined using quoted prices. Where quoted prices are not available for derivatives, the fair value of derivatives has been calculated by discounting the expected future cash flows at prevailing interest rates. The Group also has the facility to offset cash and cash equivalents against its bank borrowings in order to minimise its interest charge. Interest rate sensitivity analysis The following table demonstrates the impact on the Group’s profit before tax and equity based on the sensitivity of a reasonably possible change in interest rates on the Group’s floating rate borrowings, with all other variables held constant. The analysis is prepared assuming the liability outstanding at the reporting date was outstanding for the whole year. F I N A N C I A L S T A T E M E N T S 101 Liquidity risk The Group manages liquidity risk by maintaining sufficient cash balances and reserves and by ensuring it has adequate banking and borrowing facilities available. Management reviews cash flow forecasts on a regular basis to determine whether the Group has sufficient cash reserves to meet future working capital requirements and to take advantage of business opportunities. Liquidity and inherent risk tables The following tables detail the Group’s remaining contractual maturity for its financial liabilities, based on the undiscounted cash flows. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 YEAR ENDED 31 MARCH 2021 33. Financial instruments (continued) 33. Financial instruments (continued) Sterling Sterling 2021 2021 2020 2020 Change in rate Change in rate + 0.25% + 0.25% -0.25% -0.25% Effect on profit Effect on profit before tax before tax £’000 £’000 (40) (40) 40 40 Change Change in rate in rate +0.25% +0.25% -0.25% -0.25% Effect on profit Effect on profit before tax before tax £’000 £’000 (63) (63) 63 63 The change in interest rate is based on the observable market environment. The change in interest rate is based on the observable market environment. Foreign currency risk Foreign currency risk The Group undertakes transactions denominated in foreign currencies and thus there is the risk of exposure to changes in foreign currency The Group undertakes transactions denominated in foreign currencies and thus there is the risk of exposure to changes in foreign currency exchange rates. The Group enters into forward foreign exchange contracts in order to hedge against fluctuations in exchange rates. exchange rates. The Group enters into forward foreign exchange contracts in order to hedge against fluctuations in exchange rates. The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities at the reporting date are as follows: The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities at the reporting date are as follows: Assets Assets Liabilities Liabilities 2021 2021 £’000 £’000 2020 2020 £’000 £’000 928 928 - - 928 928 132 132 12 12 144 144 2021 2021 £’000 £’000 4,370 4,370 3 3 4,373 4,373 2020 2020 £’000 £’000 2,190 2,190 - - 2,190 2,190 Euro Euro USD USD Total Total Foreign currency sensitivity analysis Foreign currency sensitivity analysis The Group is mainly exposed to the Euro currency. The Group is mainly exposed to the Euro currency. The following table demonstrates the Group’s sensitivity to a reasonably possible change in the Euro exchange rates, with all other The following table demonstrates the Group’s sensitivity to a reasonably possible change in the Euro exchange rates, with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities, variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities, including non-designated foreign currency derivatives. The impact on equity is due to changes in the fair value of forward contracts including non-designated foreign currency derivatives. The impact on equity is due to changes in the fair value of forward contracts and changes as a result of translating outstanding foreign currency denominated monetary items at the revised exchange rates. and changes as a result of translating outstanding foreign currency denominated monetary items at the revised exchange rates. Euro Euro USD USD 2021 2021 2020 2020 Effect on profit Effect on profit and equity and equity before tax before tax £’000 £’000 Change in rate Change in rate + 10% + 10% - 10% - 10% + 10% + 10% - 10% - 10% 313 313 (382) (382) - - - - Change Change in rate in rate + 10% + 10% - 10% - 10% + 10% + 10% - 10% - 10% Effect on profit Effect on profit and equity and equity before tax before tax £’000 £’000 187 187 (229) (229) (1) (1) 1 1 The change in exchange rate is based on management’s assessment of the reasonably possible change in foreign exchange rates. The change in exchange rate is based on management’s assessment of the reasonably possible change in foreign exchange rates. 102 102 F I N A N C I A L S T A T E M E N T S 103 31 March 2021 < 1 year £’0001 – 5 years £’000> 5 years £’000Total £’000Non-derivative financial liabilitiesTrade and other payables35,3843,323-38,707Lease liabilities1,7373,8565,53211,125Bank loans-15,900-15,900Total financial liabilities37,12123,0795,53265,73231 March 2020< 1 year £’0001 – 5 years £’000> 5 years £’000Total £’000Non-derivative financial liabilitiesTrade and other payables39,0232,515-41,538Lease liabilities1,0782,9334,9368,947Bank loans-25,000-25,000Total financial liabilities40,10130,4484,93675,485 Liquidity risk Liquidity risk The Group manages liquidity risk by maintaining sufficient cash balances and reserves and by ensuring it has adequate banking The Group manages liquidity risk by maintaining sufficient cash balances and reserves and by ensuring it has adequate banking and borrowing facilities available. Management reviews cash flow forecasts on a regular basis to determine whether the Group has and borrowing facilities available. Management reviews cash flow forecasts on a regular basis to determine whether the Group has sufficient cash reserves to meet future working capital requirements and to take advantage of business opportunities. sufficient cash reserves to meet future working capital requirements and to take advantage of business opportunities. Liquidity and inherent risk tables Liquidity and inherent risk tables The following tables detail the Group’s remaining contractual maturity for its financial liabilities, based on the undiscounted cash flows. The following tables detail the Group’s remaining contractual maturity for its financial liabilities, based on the undiscounted cash flows. F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S 103 103 31 March 2021 < 1 year £’0001 – 5 years £’000> 5 years £’000Total £’000Non-derivative financial liabilitiesTrade and other payables35,3843,323-38,707Lease liabilities1,7373,8565,53211,125Bank loans-15,900-15,900Total financial liabilities37,12123,0795,53265,73231 March 2020< 1 year £’0001 – 5 years £’000> 5 years £’000Total £’000Non-derivative financial liabilitiesTrade and other payables39,0232,515-41,538Lease liabilities1,0782,9334,9368,947Bank loans-25,000-25,000Total financial liabilities40,10130,4484,93675,48531 March 2021 < 1 year £’0001 – 5 years £’000> 5 years £’000Total £’000Non-derivative financial liabilitiesTrade and other payables35,3843,323-38,707Lease liabilities1,7373,8565,53211,125Bank loans-15,900-15,900Total financial liabilities37,12123,0795,53265,73231 March 2020< 1 year £’0001 – 5 years £’000> 5 years £’000Total £’000Non-derivative financial liabilitiesTrade and other payables39,0232,515-41,538Lease liabilities1,0782,9334,9368,947Bank loans-25,000-25,000Total financial liabilities40,10130,4484,93675,485 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 YEAR ENDED 31 MARCH 2021 33. Financial instruments (continued) 33. Financial instruments (continued) Capital risk management Capital risk management The capital structure of the Group consists of cash and cash equivalents, debt and equity. Equity comprises The capital structure of the Group consists of cash and cash equivalents, debt and equity. Equity comprises share capital, share premium, retained earnings and the merger reserve which is equal to the amount shown as share capital, share premium, retained earnings and the merger reserve which is equal to the amount shown as ‘Equity’ in the Balance Sheet. Debt comprises loans and borrowings and lease liabilities. ‘Equity’ in the Balance Sheet. Debt comprises loans and borrowings and lease liabilities. The Group’s objectives when maintaining capital are to: The Group’s objectives when maintaining capital are to: • Safeguard the Group’s ability to remain a going concern so that it can continue to pursue its growth plans; • Safeguard the Group’s ability to remain a going concern so that it can continue to pursue its growth plans; • Provide a reasonable expectation of future returns to shareholders; and • Provide a reasonable expectation of future returns to shareholders; and • Maintain adequate financial flexibility to preserve its ability to meet financial obligations, both current and long term. • Maintain adequate financial flexibility to preserve its ability to meet financial obligations, both current and long term. The Group is not subject to any externally imposed capital requirements. The Group is not subject to any externally imposed capital requirements. The Board reviews the capital structure annually, considering the cost of capital and the risks associated with each class of capital. The Board reviews the capital structure annually, considering the cost of capital and the risks associated with each class of capital. The Group’s gearing ratio at the reporting date is as follows: The Group’s gearing ratio at the reporting date is as follows: Debt Debt Cash and cash equivalents Cash and cash equivalents Net debt Net debt Equity Equity 2021 2021 £’000 £’000 24,043 24,043 (8,592) (8,592) 15,451 15,451 2020 2020 £’000 £’000 31,490 31,490 (27,269) (27,269) 4,221 4,221 85,434 85,434 80,065 80,065 Net debt to equity ratio Net debt to equity ratio 18% 18% 5% 5% Debt is defined as short and long-term loans and borrowings and lease liabilities as detailed in notes 28 and 29. Equity includes all Debt is defined as short and long-term loans and borrowings and lease liabilities as detailed in notes 28 and 29. Equity includes all capital and reserves. capital and reserves. Credit risk and impairment Credit risk and impairment Credit risk refers to the risk that a counterparty will default on its Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in a financial loss to the Group. contractual obligations, resulting in a financial loss to the Group. In order to minimise the risk, the Group endeavours to only deal In order to minimise the risk, the Group endeavours to only deal with companies which are demonstrably creditworthy. This, with companies which are demonstrably creditworthy. This, together with the aggregate financial exposure, is continuously together with the aggregate financial exposure, is continuously monitored; Credit approval processes are in place for new monitored; Credit approval processes are in place for new customers and regular reviews of credit limits carried out. customers and regular reviews of credit limits carried out. Credit insurance is also taken out where appropriate. Policies in Credit insurance is also taken out where appropriate. Policies in place primarily cover customers within the Bricks and Building place primarily cover customers within the Bricks and Building Materials segment. Materials segment. The maximum exposure to credit risk is the carrying value of the Credit risk on cash and cash equivalents is considered to be very Group’s financial assets, including trade and other receivables low as the counterparties are all substantial banks with high and cash and cash equivalents. The Group does not consider credit ratings. The Group does not hold any collateral or other credit enhancements to cover its credit risks associated with its financial assets. that there is any concentration of risk within either trade or other receivables. The age of receivables is analysed and evaluated on a regular basis for potential credit losses, considering historic, current and forward-looking information. Details regarding the credit risk exposure on trade receivables is outlined in note 25. 34. Share capital Issued and fully paid Ordinary shares of £0.01 each Group and Company 2021 2020 Number £’000 Number £’000 230,458,821 230,458,821 2,305 2,305 230,458,821 230,458,821 2,305 2,305 Any profits distributed shall be applied pari passu amongst the holders of the ordinary shares. In the event of a liquidation, the surplus assets shall be applied pari passu amongst the holders of the ordinary shares. The Company has share option schemes under which options have been granted to certain employees to acquire ordinary shares. Further details are included in note 36. 104 104 F I N A N C I A L S T A T E M E N T S 105 The maximum exposure to credit risk is the carrying value of the The maximum exposure to credit risk is the carrying value of the Group’s financial assets, including trade and other receivables Group’s financial assets, including trade and other receivables and cash and cash equivalents. The Group does not consider and cash and cash equivalents. The Group does not consider that there is any concentration of risk within either trade or other that there is any concentration of risk within either trade or other receivables. The age of receivables is analysed and evaluated receivables. The age of receivables is analysed and evaluated on a regular basis for potential credit losses, considering historic, on a regular basis for potential credit losses, considering historic, current and forward-looking information. Details regarding the current and forward-looking information. Details regarding the credit risk exposure on trade receivables is outlined in note 25. credit risk exposure on trade receivables is outlined in note 25. Credit risk on cash and cash equivalents is considered to be very Credit risk on cash and cash equivalents is considered to be very low as the counterparties are all substantial banks with high low as the counterparties are all substantial banks with high credit ratings. credit ratings. The Group does not hold any collateral or other credit enhancements The Group does not hold any collateral or other credit enhancements to cover its credit risks associated with its financial assets. to cover its credit risks associated with its financial assets. 34. Share capital 34. Share capital Issued and fully paid Issued and fully paid Ordinary shares of £0.01 each Ordinary shares of £0.01 each Group and Company Group and Company 2021 2021 2020 2020 Number Number £’000 £’000 Number Number £’000 £’000 230,458,821 230,458,821 230,458,821 230,458,821 2,305 2,305 2,305 2,305 230,458,821 230,458,821 230,458,821 230,458,821 2,305 2,305 2,305 2,305 Any profits distributed shall be applied pari passu amongst the holders of the ordinary shares. In the event of a liquidation, the surplus Any profits distributed shall be applied pari passu amongst the holders of the ordinary shares. In the event of a liquidation, the surplus assets shall be applied pari passu amongst the holders of the ordinary shares. assets shall be applied pari passu amongst the holders of the ordinary shares. The Company has share option schemes under which options have been granted to certain employees to acquire ordinary shares. The Company has share option schemes under which options have been granted to certain employees to acquire ordinary shares. Further details are included in note 36. Further details are included in note 36. F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S 105 105 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 35. Reserves The share capital reserve represents the nominal value received for shares issued. The share premium reserve represents the amount received, for shares issued, in excess of the nominal value, less transaction costs. The capital redemption reserve represents the par value of shares purchased back by the Company and subsequently cancelled. The share-based payment reserve represents the value of equity settled share-based payments provided to employees, including key management personnel, as part of their remuneration. See note 36. The retained earnings reserve represents the total of all current and prior period retained profits and losses. The merger reserve in the Consolidated Balance Sheet represents the difference between the carrying value of the assets and liabilities acquired and the value of consideration transferred on a previous group re-organisation. Within the Company Balance Sheet, it represents the merger relief arising on a share for share exchange in which the Company acquired a subsidiary. 36. Share-based payments Equity settled share option plans The Company operates a Company Share Option Plan (CSOP) and Long-term Incentive Plan (LTIP) for certain employees, including senior management and Directors. Company Share Option Plan (CSOP) Options are exercisable at a price equal to the market value per ordinary share at the grant date. Options have a vesting period of three years and a contractual life of ten years. Options are forfeited if the employee leaves employment before the options vest, unless considered a ‘good leaver’. Details of the share options outstanding during the year are as follows: Outstanding at 1 April Granted during the year Forfeited during the year Outstanding at 31 March Exercisable at 31 March 2021 2020 Number of share options Weighted average exercise price £ Number of share options Weighted average exercise price £ 3,635,422 - (519,793) 3,115,629 106,203 0.41 - 0.41 0.41 0.41 - 3,681,311 (45,889) 3,635,422 - - 0.41 0.41 0.41 - No share options were exercised during the year. The options outstanding at the reporting date have an exercise price of £0.41 and a remaining contractual life of 8.33 years (2020 9.33 years). The aggregate of the estimated fair value of the options granted during the year is £nil (2020: £257,692). No options have been granted under the CSOP during the year. For options granted during the prior year, the fair value was determined using the binomial option pricing model. The inputs into this model are as follows: Weighted average share price Weighted average exercise price Expected volatility Option life Expected dividend yield Risk free interest rate Sub-optimal exercise multiple 106 2021 - - - - - - - 2020 £0.41 £0.41 23% 10 years 2.6% 0.34% 4.5x The sub-optimal exercise multiple builds into the binomial option pricing model the assumption that once a vested option’s intrinsic value reaches a certain multiple of the exercise price, the option-holder will choose to ‘cash in’ and exercise the option before it reaches the end of its contractual life. Expected volatility was determined using the average volatility of listed companies in the Building Materials FTSE ICB Subsector weighted by market cap, as obtained from the LBS Risk Measurement Service’s report for the relevant period. Long Term Investment Plan (LTIP) On 16 November 2020, the Group granted options under the LTIP scheme. The options are exercisable at the nominal price of £0.01 and have performance based vesting conditions dependent on total shareholder return (TSR) and adjusted EBITDA, with each award split equally between the two performance conditions. Vesting occurs on a straight-line basis on achieving 18% (equivalent to 6% per annum) to 30% (equivalent to 10% annually) of the relevant performance condition over the performance period (3 years ending 1 October 2023). There is no vesting if the relevant target is not met but a 50% vesting if the initial 18% hurdle is met with a proportionate additional vesting of up to 100% at the 30% threshold being met. Options are forfeited if the employee leaves employment before the options vest, unless considered a ‘good leaver’. Details of the share options outstanding during the year are as follows: 2021 2020 Number of share options Weighted average exercise price £ Number of share options Weighted average exercise price £ - 5,621,074 (260,870) (498,189) 4,862,015 - - 0.01 0.01 0.01 0.01 - - - - - - - - - - - - - Outstanding at 1 April Granted during the year Lapsed during the year Forfeited during the year Outstanding at 31 March Exercisable at 31 March No share options were exercised during the year. The options outstanding at the reporting date have an exercise price of £0.01 and a remaining contractual life of 9.63 years. The aggregate of the estimated fair value of the options granted during the year is £2,315,000. For options granted during the year, the fair value in connection with the TSR awards was determined using a Monte Carlo simulation model, while the fair value of the EBITDA awards was determined using a Black-Scholes model. The inputs into these models are as follows: Weighted average share price Weighted average exercise price Expected volatility Option life Expected dividend yield Risk free interest rate 2021 £0.53 £0.01 25% 10 years 3.5% 0.39% 2020 - - - - - - F I N A N C I A L S T A T E M E N T S 107 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 37. Notes to the statement of cash flows Changes in liabilities arising from financing activities The table below outlines the changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. 1 April 2020 £’000 Financing cash flows (1) £’000 New leases £’000 Acquisition of subsidiaries £’000 Changes In fair value £’000 Other changes (2) £’000 31 March 2021 £’000 Non-cash changes Bank borrowings (note 28) 24,912 6,578 10,422 (9,190) (1,398) (7,883) - 2,471 - - 287 2,217 - - (360) Lease liabilities (note 29) Deferred and contingent consideration Total liabilities from financing activities 41,912 (18,471) 2,471 2,504 (360) 28 355 128 511 15,750 8,293 4,524 28,567 (1) The cash flows make up the net amount of proceeds and repayments of loans and borrowings in the cash flow statement. (2) Other changes include interest and fee accruals and payments. 1 April 2019 £’000 Financing cash flows (1) £’000 New leases £’000 Acquisition of subsidiaries £’000 Conversion to equity £’000 Changes In fair value £’000 Other changes (2) £’000 31 March 2020 £’000 Non-cash changes Bank borrowings (note 28) 36,422 Loan notes Lease liabilities (note 29) Deferred and contingent consideration Derivative financial instruments Total liabilities from financing activities (12,055) (14,562) (871) (5,885) 28,966 2,133 8,449 106 (105) - - 5,036 - - - 1,514 - 8,266 - - (11,845) - - - - - - (167) (1) 545 (4,073) 280 (241) 24,912 - 6,578 10,422 - - 76,076 (33,478) 5,036 9,780 (11,845) (168) (3,489) 41,912 (1) The cash flows make up the net amount of proceeds and repayments of loans and borrowings in the cash flow statement. (2) Other changes include interest and fee accruals and payments. Non cash changes in equity arising from financing activities Shares issued in the prior year for consideration of £978,000 were funded by Directors’ loans (note 38). The cash inflow of £43,923,000 as proceeds from the issue of ordinary shares is therefore £978,000 less than the total reported in the Consolidated and Company Statement of Changes in Equity, for the issue of paid shares, in the year ended 31 March 2020. In addition to the conversion of loan notes into equity, amounting to £nil (2020: £11,845,000), fees of £nil (2020: £2,087,000), in connection with the IPO, were settled by the issue of shares in the Company. Total debt converted to equity was therefore £nil (2020: £13,932,000). For the year ended 31 March 2020, the above mentioned fees of £2,087,000 and the £414,000 of share issue costs paid, form the total share issue costs of £2,501,000, as presented in the Consolidated and Company Statement of Changes in Equity. 108 38. Related party transactions Group Transactions and balances between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions with Directors Included within receivables are the following balances due from a Director and former Director: Directors’ loan accounts There has been no movement in the balance during the year. In respect of Directors who had an overdrawn loan account during the year, the following transactions took place between the Directors and the Group: Opening balance Amounts advanced Amounts repaid Closing balance £’000 978 - - 978 2021 £’000 978 2020 £’000 978 The amounts advanced were for the purpose of paying up the subscription price for ordinary D shares of £0.01 each, during the financial year ended 31 March 2020. The loans are unsecured and interest free and are repayable on the sale of any of the shares held in the Company by the Director and former Director. The balance has been repaid in full since the year end. During the year, interest of £nil (2020: £317,000) was charged at a rate of 9.5% per annum, to profit or loss in respect of loan notes payable to Directors. During the year, loan notes payable to Directors amounting to £nil (2020: £5,883,000) were exchanged for shares in the Company. Loan notes and accrued interest amounting to £nil (2020: £3,818,000) were paid to Directors. Key management personnel Key management personnel compensation Short-term employee benefits Post-employment benefits Share-based payment expense 2021 £’000 3,219 75 96 3,390 2020 £’000 2,033 66 2 2,101 During the year, interest of £nil (2020: £279,000) was charged at a rate of 9.5% per annum, to profit or loss in respect of loan notes payable to key management personnel. Loan notes payable to key management personnel amounting to £nil (2020: £3,850,000) were exchanged for shares in the Company. Loan notes and accrued interest amounting to £nil (2020: £4,403,000) were paid to key management personnel. Included within the deferred consideration liabilities is an amount of £nil (2020: £1,001,000) in respect of deferred consideration payable to key management personnel, in connection with acquisitions made by the Group on 6 March 2018. A finance expense of £16,000 (2020: £85,000) was recognised in respect of the unwinding of the discount applied to deferred consideration due to key management. During the year, the Group made sales amounting to £13,000 (2020: £68,000) to members of key management. A balance of £7,000 (2020: £33,000) was included within trade receivables at the reporting date, in respect of these sales. The Group also purchased a motor vehicle from a member of key management personnel for £nil (2020: £35,000). F I N A N C I A L S T A T E M E N T S 109 110 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 38. Related party transactions (continued) Other related parties Included within trade receivables/ payables are the following amounts due from/ to other related parties, at the reporting date: Associates Other related parties Amounts owed by related parties Amounts owed to related parties 2021 £’000 - - - 2020 £’000 120 - 120 2021 £’000 88 24 112 2020 £’000 44 - 44 Transactions undertaken between the Group and its related parties during the year were as follows: Associates Other related parties Sales to related parties Purchases from related parties 2021 £’000 1 1 2 2020 £’000 100 - 100 2021 £’000 474 199 673 2020 £’000 565 178 743 Other related parties comprise of entities owned by Directors or key management. Purchases relate to rent and administrative expenses. During the year, the Group was charged £nil (2020: £50,000), in respect of monitoring fees, by an entity in which members of that entity previously had significant influence over the Group. Interest of £nil (2020: £71,000) was accrued during the year in respect of loan notes due to a close relative of a Director, at a rate of 9.5% per annum. In the year, £nil (2020: £2,048,000) was paid to this close relative, in respect of these loan notes. Included within the deferred consideration liability is an amount of £nil (2020: £1,363,000) in respect of deferred consideration payable to close relatives of key management, in connection with acquisitions made by the Group on 6 March 2018. A finance expense of £21,000 (2020: £116,000) was recognised in respect of the unwinding of the discount applied to deferred consideration due to these close relatives. Interest of £nil (2020: £211,000) was accrued during the year in respect of loan notes issued to an entity in which members of that entity previously had significant influence over the Group. The loan notes were secured with interest payable, at 9.5% per annum, on redemption. The loan notes were redeemable on 13 September 2026 but were settled during the prior year, with a total of £6,978,000 paid on settlement. Company In accordance with the exemption under FRS 101, transactions and balances with wholly owned Group members and key management personnel are not disclosed. F I N A N C I A L S T A T E M E N T S 111 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED 31 MARCH 2021 39. Post balance sheet events On 20 May 2021, the Group purchased a property for £2,425,000. On 7 June 2021, the Group granted 506,825 options under its LTIP scheme to a Director. The options were granted on the same terms as previous awards, as disclosed in note 36. On 30 June 2021, the Group completed the acquisition of the entire share capital and 100% of the voting rights in Taylor Maxwell (2017) Limited, one of the UK’s leading suppliers of timber and non-combustible cladding to the construction industry. The acquisition was made in order to expand the Group’s position in the UK market and further broaden the Group’s product offering, whilst developing enhancement opportunities within the acquired business. The book value of the separable assets acquired and liabilities assumed on acquisition are estimated as follows: Property plant and equipment Inventory Trade and other receivables Trade and other payables Deferred tax Total identifiable net assets £’000 3,321 6,538 46,913 (47,797) (363) 8,612 Due to the timing of the acquisition, a detailed assessment of the fair value of the identifiable net assets, and value of any uncollectable contractual cash flows, has not yet been completed at the date of approving these financial statements. The total consideration expected to be payable is: Cash Issue of shares Contingent consideration Total consideration £’000 40,000 10,000 13,000 63,000 The above consideration is subject to post completion adjustments and the initial cash consideration of £40 million is subject to a retention in respect of certain indemnities given under the share purchase agreement. It is expected that goodwill will arise on the acquisition and this will primarily comprise the value of expected synergies arising from the acquisition and value of the assembled workforce. This goodwill is not expected to be deductible for tax purposes. The £10 million consideration through the issue of shares has resulted in 9,900,990 new ordinary shares being issued. The contingent consideration is subject to future performance of the acquired business, measured against agreed adjusted EBITDA targets, over the three years following acquisition. Due to the timing of the acquisition, the above value represents the undiscounted estimate of contingent consideration payable. The total potential undiscounted contingent consideration payable ranges from £nil to £13 million. To fund the above acquisition and future bolt-on acquisitions, the Company has placed 57,894,737 new ordinary shares of £0.01 each, at an issue price of £0.95 per share with new and existing institutional investors, raising £55 million before fees and expenses. Shareholders involved in the management of businesses within the Group, including Directors, key management and persons connected with them, also sold 40 million existing ordinary shares, at the issue price of £0.95. 112 The above transactions have resulted in an increase of 67,795,727 ordinary shares, giving a total number of shares of 298,254,548 and a revised share capital balance of £2,983,000. Total costs of £3,048,000 comprising stamp duty, legal and professional fees and transaction costs, directly attributable to the issue of new shares, are estimated to be incurred in connection with the acquisition. Of this total, share transaction costs of £2,280,000 are expected to be recognised as a reduction in the share premium account, while the remaining £768,000 will be recognised as an expense in profit or loss. Again, due to the timing of the acquisition, not all costs have been invoiced or finalised at the time of approving these financial statements. The Company has also entered into an agreement to extend its borrowing facilities, increasing its facility limit from £30 million to £60 million. Arrangement fees and legal and professional fees associated with this re-financing are expected to amount to £325,000. On 30 July 2021, the Group completed the acquisition of the entire share capital and 100% of the voting rights in Leadcraft Limited, a UK provider of energy efficient roofing solutions. The acquisition was carried out to expand the Group’s customer base and further enhance its offering of environmentally sustainable and efficient roofing products and services. The book value of the separable assets acquired and liabilities assumed on acquisition are estimated as follows: Property plant and equipment Inventory Trade and other receivables Trade and other payables Deferred tax Total identifiable net assets £’000 123 13 681 (371) (18) 428 Due to the timing of the acquisition, a detailed assessment of the fair value of the identifiable net assets, and value of any uncollectable contractual cash flows, has not yet been completed at the date of approving these financial statements. The total consideration expected to be payable is: Cash Deferred cash consideration Contingent consideration Total consideration £’000 3,300 1,320 390 5,010 The above consideration is subject to post completion adjustments. The contingent consideration is subject to future performance of the acquired business, measured against agreed adjusted EBITDA targets, over the three years following acquisition. Due to the timing of the acquisition, the above value represents the undiscounted estimate of contingent consideration payable. It is not possible to determine a range of outcomes for the contingent consideration payable as the arrangement does not contain a maximum payable. It is expected that goodwill will arise on the acquisition and this will primarily comprise the value of expected synergies arising from the acquisition and value of the assembled workforce. This goodwill is not expected to be deductible for tax purposes. Acquisition costs of £78,000, in relation to stamp duty and legal and professional fees, are estimated to be incurred in connection with this acquisition and will be recognised in profit or loss. Due to the timing of the acquisition, not all costs have been invoiced or finalised at the time of approving these financial statements. F I N A N C I A L S T A T E M E N T S 113 Financial Calendar Annual General Meeting 7 September 2021 Interim Report November 2021 Dividends Final announced August 2021 Paid September 2021 Interim announced November 2021 Paid February 2022 Registrars Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL Solicitors Addleshaw Goddard LLP Cornerstone 107 West Regent Street Glasgow G2 2BA Nominated Adviser and Broker Cenkos Securities plc Tel: +44 (0) 20 7397 8900 Financial PR Advisers Monfort Communications Tel: +44 (0) 20 3770 7916 Financial Statements COMPANY INFORMATION Board of Directors Chairman John Richards Chief Executive Officer Alan Simpson Chief Financial Officer Mike Gant Non-executive Directors Giles Beale Cllive Norman David Simpson Company Secretary Prism Cosec Limited Registered office and number c/o Brickability Limited South Road Bridgend Industrial Estate Bridgend United Kingdom CF31 3XG Registered number: 11123804 Auditor BDO LLP Bridgewater House Finzels Reach Counterslip Bristol BS1 6BX 114 F I N A N C I A L S T A T E M E N T S 115 Group plc Head Office Brickability Group PLC Queensgate House Cookham Rd Bracknell Berkshire RG12 1RB Telephone 0870 143 3332 Email investors@brickabilitygroupplc.com
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