HSS Hire Group plc
Annual Report and
Financial Statements 2019
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Equipping
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customers
Download the HSS Hire app today
Contents
Strategic Report
Our Business and Our Performance
1 Highlights
2 Business at a Glance
4 Our Business Model
6 Chairman’s Statement
8 Chief Executive Officer’s Strategic Review
13
Investment Case
14 Strategy at a Glance
22 Our Key Performance Indicators
26 Principal Risks and Uncertainties
32 Financial Review
36 Sustainability
42 Engaging with our stakeholders
Corporate Governance
Governance
44 Chairman’s Introduction
46 Board of Directors
48 Corporate Governance
53 Nomination Committee Report
54 Audit Committee Report
57 Remuneration at a Glance
58 Directors’ Remuneration Report
66 Other Statutory Disclosures
69 Directors’ Responsibility Statement
Financial Statements
70
Independent Auditor’s Report
75 Consolidated Income Statement
76 Consolidated Statement
of Comprehensive Income
77 Consolidated Statement
of Financial Position
78 Consolidated Statement of Changes
in Equity
79 Consolidated Statement of Cash Flows
80 Notes to the Consolidated
Financial Statements
116 Company Statement of Financial Position
117 Company Statement of Changes in Equity
118 Notes to the Company Financial
Statements
121 Five Year Summary
Additional Information
122 Shareholder Information
123 Company Information
124 Definitions and Glossary
Equipping
our customers
It’s been another year of substantial
progress at HSS as we continue to deliver
on our strategic priorities and grow the
business, with an increased focus on our
digital offering as well as our training
capabilities.
We have made significant investment in
digital capability, launching the HSS Hire
app, new driver technology and the OneCall
platform, to better meet our customers’
needs and differentiate ourselves within
the industry.
New app launched
Read more
at hss.com/uk
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Highlights: a strong performance in 2019
Revenue
£328.0m
FY18: £322.8m
Adjusted EBITA
£26.5m
FY18: £22.1m
Leverage – total(1)
2.8x
FY18: 3.3x
Adjusted EBITDA
£63.9m
FY18: £60.0m
Operating profit
£16.8m
FY18: £11.2m
Return on Capital Employed (ROCE)(2)
20.8%
FY18: 16.7%
Reported EPS (basic and diluted).
Loss of
(3.66)p
FY18: (3.76)p
Adjusted EPS (diluted)
2.31p
FY18: 1.36p
(1) Total is continuing and discontinued operations, all other measures are for continuing operations
(2) The ROCE calculation is defined on p24, FY18 restated see Note 1(g) to the consolidated financial statements
Operational highlights
We have delivered another significant
improvement in operating performance, with
growth in revenues accompanied by continued
tight cost controls delivering a significant
improvement in ROCE. The new insight tools
we developed in 2018 have improved decision
making amongst both field and office-based
teams, driving improved returns.
We launched a new set of company values
in 2019, as part of a colleague programme
centred on wellbeing, engagement and
performance. We are pleased to see colleague
engagement rates have improved again since
2018, and are well ahead of the UK industry
benchmark1. We are also pleased to see
a 41% reduction in our RIDDOR accident
frequency rate.
Customer satisfaction levels have also
improved during 2019 and remain significantly
higher than the industry benchmark2.
Since the year-end the COVID-19 pandemic
has emerged and we consider the implications
throughout this report.
Strategic highlights
We have reduced total leverage again from
3.3x (29 December 2018) to 2.8x (28 December
2019), through improved adjusted EBITDA
and a significant reduction in debt. This has
been achieved with the proceeds from the sale
of UK Platforms, together with a continued
focus on working capital management, further
improvements in network efficiency and
ongoing reductions in overheads.
The sale of UK Platforms has enabled more
focus on our Tool Hire business which has
seen significant investment in technology,
with the launch of new customer and driver
Apps, and the transformation of our OneCall
business technology platform. We continue our
drive to be simple, transparent and fast for our
customers, and to differentiate ourselves from
our competition.
The investment in technology underpins our
strategic priorities, as we continue to Transform
our Tool Hire business and Strengthen the
Group’s commercial proposition.
Alternative performance measures
The Group discloses Adjusted EBITDA and
Adjusted EBITA (which is also used in the
ROCE calculation) as supplemental non-IFRS
financial performance measures because
the directors believe they are useful metrics
by which to compare the performance of the
business from period to period and measures
similar to Adjusted EBITDA and Adjusted EBITA
are broadly used by analysts, rating agencies
and investors in assessing the performance of
the Group. Accordingly, the directors believe
that the presentation of these measures
provide useful information to users of the
Financial Statements.
As these are non-IFRS measures, Adjusted
EBITDA and Adjusted operating profit
measures used by other entities may not be
calculated in the same way and are hence
not directly comparable. A reconciliation of
adjusted EBITDA and adjusted EBITA to the
the IFRS measures can be found in note 32 to
these Financial Statements.
1 Anthem Engagement UK Industry Average
2 Kantar TNS Industry Benchmark (top third, B2B services including manufacturing and utilities)
This Report contains certain forward-looking statements with respect to the operations, strategy, performance, financial condition and growth opportunities of the Group. By their
nature, these statements involve uncertainty and are based on assumptions and involve risks, uncertainties and other factors that could cause actual results and developments
to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this Report and, other than in
accordance with its legal and regulatory obligations, HSS Hire Group plc undertakes no obligation to update these forward-looking statements. Nothing in this Report should be
construed as a profit forecast.
Corporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
2
Business at a Glance
Equipping
our customers
What makes us different?
Our differentiators
→ National availability
→ One-stop shop
→ Colleague expertise
→ Industry-leading technology
platform
→ Fully integrated website
and apps
→ Regulatory compliance
and systems
→ Customer-centric culture
Our purpose
We exist to equip our customers with the tools, equipment, training
and related services that enable the construction, maintenance
and operation of the UK and Ireland’s commercial, industrial
and residential infrastructure. We are a crucial element of project
completion. Our products and services play a part in the creation
and maintenance of housing projects, schools, hospitals, offices,
industry, roads, utilities and other infrastructure. Without our
products and services, construction firms, maintenance contractors,
FM providers, engineers, tradesmen, retailers, factories, DIYers and
many more would not be able to complete their projects.
Our values
Read more about how
we developed our values
on page 39
Our sectors
Rental
Overview
Market drivers
Highlights of the year
Services
We buy, maintain, inspect,
deliver and collect equipment
for our customers, so that they
can focus on completing their
projects. We own c£185m worth
of equipment (replacement value,
Q1 2020), operate from over 240
locations and employ more than
2,500 highly engaged colleagues.
The £1.9bn addressable market
for our equipment is driven by
general economic output, with
less exposure to the more cyclical
new-build activity and more
focus towards maintenance,
refurbishment and operation of
existing infrastructure.
Our capital-light Services business
comprises two key elements.
Our OneCall rehire business
provides customers with a one-
stop shop for equipment beyond
our owned range. Our Training
business provides customers
with the training required to
use equipment, stay safe and
ensure compliance.
The Services business allows
us to address the entire £4bn
market for equipment hire services
in the UK, and is again driven
by general economic output.
Both elements of the Services
business, OneCall and Training,
are driven strongly by legislation
and safety requirements.
A key element of our strategy
is to Transform our Tool Hire
business, and in 2019 we have
made great strides with the
launch of our customer and driver
apps, alongside the ongoing
development of our fully integrated
industry-leading website.
In addition, through the use of
technology we have continued to
develop our decision-making tools
to maximise profitability.
In 2019 we invested in an
automated technology platform as
part of our OneCall transformation
project, and in doing so have
improved the customer, supplier
and colleague experience, by
simplifying our process and
providing superior visibility.
Segmental revenue breakdown for FY19
£99.0m
Services
£229.0m
Rental
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 3
We’ve got the
nation covered
Read more about our
industry-leading customer app
on page 16
Enabled by technology
Read more in our case
studies on pages 16-19
Key
Branch
Customer distribution centre (CDC)
CDC
Customer
distribution
centres (CDCs)
Responsible for the delivery
and collection of equipment
to customers and also
replenishing branches with
their stock profiles
Our network
Who we serve
We serve an extremely diverse customer base, predominantly
business-to-business (B2B), who engage in a range of activities
across multiple end markets, providing us with less exposure to
highly cyclical sectors.
Where we operate
Our unique national network, with over 240 locations supported
by a hub-and-spoke distribution network, complemented by our
industry-leading fully-transactional website, ensures easy access
and high availability, both key customer requirements.
240+
Locations
27
Customer distribution centres
48
Training centres
2,500+
Colleagues
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 4
Our Business Model
Equipping
our customers
Customers
Customers focus on project
management, people resources
and construction materials
→ Build
→ Maintain
→ Operate
…UK and Ireland Infrastructure
HSS
HSS focuses on equipment
management, safety and timely
provision to customer sites
→ Sources
→ Tests
→ Distributes
→ Repairs & maintains
…The equipment our customers use
Build
Schools, Hospitals, Housing,
Offices, Factories, Roads
Source
equipment
Purchase & own,
Rehire
Test
One Call
Complete order management
How we
generate revenue
Rental revenue(1)
We generate rental income
from the equipment
we hire out from our
owned fleet.
Rehire revenue(2)
We also generate income
when we source equipment
from our extensive OneCall
supply chain.
Accessories and resale(1)
We sell product accessories
(e.g. drill bits) and safety equipment
to many of our customers.
Key enablers and
barriers to entry
Customer
relationships
National
reach
Safety
& quality
>90%
B2B
>27,000
Live accounts
240+
Locations
27
Customer
distribution centres
BSI accreditation
System-driven
equipment
maintenance
regime
Colleagues
2,500+
knowledgeable colleagues
72%
Employee
Engagement Score(3)
(1) Rental and related revenues
(2) Services revenue
(3) Colleague Engagement score 72% (Q4 2019), compared with UK national average score 60%. Source: Anthem Engagement.
(4) NPS score 45 (Q4 2019), versus the threshold for the top third in services, manufacturing and utilities of 21. Source: Kantar TNS.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019
5
Our business model is built on our customers’ requirement to outsource the
provision and management of tools and equipment. Tools and equipment are
essential to our customers’ activities, but the management of equipment is not
their core capability. They often don’t want the capital cost of equipment, nor
the responsibility for testing, maintaining, distributing and managing equipment.
We do all that for them, to ensure that they meet legislation, keep their
colleagues safe and so deliver their projects in full and on time.
Maintain
Service, Repair, Renovate,
Upgrade, Extend
Operate
Power, Heat,
Cool, Light
Distribute
& collect
Maintain
& repair
Train
their people
HSS Training
Transport charges(1)
Nearly 70% of our customers ask us to deliver
and collect kit directly to and from their site, for
which we charge a transport fee.
Equipment cover and damage(1)
Many of our customers pay a premium for
damage waiver so that they are protected
against accidental damage. We also generate
revenue by charging for damage and loss.
Training(2)
We charge customers delegate rates for our
comprehensive range of training courses.
Range of
equipment
>1,500
SKUs
>500
On-call suppliers
Operational
excellence
Easy to
work with
45
NPS score(4)
>50%
Utilisation
Full transactional website
Leading digital offer
One-stop shop
Training
resource
48
Training centres
>50
Directly employed
& certified trainers
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 6
Chairman’s Statement
Transforming
our business
Our strategic priorities
Delever the Group
Transform the
Tool Hire business
Strengthen
the Group’s
commercial
proposition
Read more in our Strategy at a Glance
section on page 14
Alan Peterson OBE
Chairman
We have delivered another year
of profitable growth, achieving
the highest ever Group Adjusted
EBITDA on a comparable
basis, through the continued
excellent execution of our
strategic plan. We now have
the foundations in place to
support our transformation
to a digital-led equipment
services market leader.
Dear shareholder,
This annual report is largely a reflection on
performance in 2019 which has been another
year of progress, with continued improvement
against our strategic framework measures.
It is clear that COVID-19 will materially change
the outlook for all businesses in 2020 and we
are reacting accordingly.
Our primary focus is the safety and security
of our colleagues, customers, suppliers and
other stakeholders, whilst continuing to provide
essential equipment to critical customers.
To this end we have enacted our continuity
plans to minimise business disruption, ranging
from increasing home working for all head
office colleagues to stricter hygiene procedures
across all of our locations.
In response to UK Government instructions on
23 March, we took the difficult but necessary
decision to temporarily close the majority of
our UK branches and move to a delivery only
operation through our national Customer
Distribution Centres and OneCall rehire
business. Similar actions were enacted on
30 March in our Southern Irish business in
response to Government advice. For the first
twelve weeks of FY20 we did not observe any
material impact on the Group’s performance,
however for the 9 weeks since the Government
lockdown instruction on 23 March we have
seen revenue circa 40% below our original
FY20 forecasts.
Immediate actions have been taken to mitigate
the unprecedented risks we now face to
protect liquidity including deferring capital
expenditure and taking advantage of tax relief
and Government job retention schemes.
With such uncertainty, we have considered
a number of scenarios as to the potential
impact that COVID-19 could have on the
Group’s results as set out in the Corporate
Governance section on page 51. In certain
forecast scenarios there is an indication that
financial covenants could be breached and
additional liquidity could be required, indicating
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 the existence of a material uncertainty in the
adoption of going concern should our lenders
not support addressing these areas if they
arise. These have been discussed with our
lenders, all of whom I am pleased to say have
expressed their continued commitment to the
business and support for the Board’s response
to the COVID-19 pandemic.
Sector Opportunity
The UK hire industry is large (£4bn),
but still highly fragmented and relatively
undifferentiated. Most companies have
struggled to differentiate their offering and
embrace new technologies, providing a
significant opportunity for HSS to take a
lead. I am confident that the transformation
programme taking place at HSS will deliver
significant advantages for the Group, its
customers, colleagues, suppliers and
investors alike.
Delivering our strategy
I am pleased to report that progress has been
made against all of our strategic priorities with
significant changes implemented that create
the foundations to transform our customer and
supplier experience going forward.
Our digital transformation is well underway with
the launch of our customer and driver apps,
and the introduction of new technology in our
OneCall business (see our Case Studies for
more information).
We have also implemented a partnership
agreement for our OneCall team with
Nationwide Platforms following the sale of
UK Platforms to Loxam (owner of Nationwide
Platforms). This was managed exceptionally
well and we continue to generate revenues
through our ongoing relationship.
Throughout 2019 we continued to focus on
delivering exceptional levels of customer
service across the whole business in the
most efficient way – implementing additional
changes to our network which further reduced
our cost base by around £3m per annum.
We now have market-leading technology
platforms in place to complement our strong
existing business. These will enable us
to transform our business to a digital-led
equipment services provider, which we believe
will deliver superior returns.
Our results
The implementation of our strategy
has been excellent and this has been
reflected in our strong performance
during the financial year, with all measures
set out on a continuing operations basis
to exclude the impact of the UK Platforms
divesture. In 2019 we step changed the returns
of the business with improvements in profit
margins and Return on Capital Employed
increasing to 20.8% compared with 16.7%
in 2018.
and improved product availability delivered
Rental revenue growth of 1.3%. This was
augmented by continued strong performance
from our Services business with like-for-like
revenue growth of 13.6% and, encouragingly,
contribution improving 6.4%. Improved revenue
combined with lower overheads and a focus on
capital efficiency also resulted in Adjusted EBITA
increasing to £26.5m and margin improving to
8.1%.
Our results are discussed in more detail in the
Financial Review on pages 32 to 35.
Progression of margins
80
70
60
50
40
30
20
10
0
30
25
20
15
10
5
0
60.0
63.9
18.6%
19.5%
2018
2019
EBITDA £m
EBITDA margin %
26.5
22.1
6.8%
8.1%
2018
2019
EBITDA £m
EBITDA margin %
Our Board and management team
The Board aspires to lead by example and
practice the HSS values which were formally
launched in 2019: Make it: Safe, Happen,
Better and Together.
I want to thank all Directors for their individual
contributions and determination to see the
Group through another year of change for our
business, whilst ensuring HSS continues to
deliver for all stakeholders.
We have also strengthened our management
capability during the year with the
appointments of Ailsa Webb to lead our team
in Scotland, and Grant Lockie to run our Power
business. With their extensive experience, both
have been strong additions to the Group.
Adjusted EBITDA for the year at £63.9m, a
6.5% growth year on year, reflects the Group’s
highest ever comparable performance (adjusted
EBITDA from continuing operations) with
margins improving to 19.5%, a 4.8% increase
over the prior year (2018: 18.6%). A combination
of targeted fleet investment, sales initiatives
Governance
I reported last year that we were taking steps
to implement the changes to corporate
governance reflected in the 2018 Code or to
reinforce the work we were already doing.
More detail on this, and particularly our efforts
to date around stakeholder engagement, can
7
be found in the Corporate Governance section
and throughout the Strategic Report. I am
particularly pleased to note the people projects
undertaken and steps to involve colleagues in
the direction and strategy of the business.
Our people
I am continually impressed with the
motivation, dedication and can-do attitude
of our colleagues across the Group to deliver
exceptional results, from consistently high
customer satisfaction scores through to record-
breaking financial performance. This has
been borne out by further improvement in our
employee engagement results in the 2019
survey. On behalf of the Board, I would like
to take this opportunity to thank each and
every one of my colleagues for their efforts
during 2019.
Sustainability
Our primary responsibility is to always ensure
the safety of HSS colleagues and customers,
and the Board remains fully committed
to providing a safe environment for all.
During the year the Board has supported
senior management’s plans to drive forward
a health and safety culture, one of our core
values. Progress has been made in the year as
borne out by a material reduction in the number
of RIDDORs (incidents reported under the
Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations 2013) and feedback
from the colleague engagement survey.
This will be an ongoing focus.
The Board is also focused on ensuring that
the business operates with transparency
and integrity, delivering a sound economic
performance, whilst paying close attention to
reducing our impact on the environment, and
that we are contributing in a positive way to the
local communities in which we operate.
Dividend
The Board is committed to delivering
our strategic priorities, and after careful
consideration of the performance of the
Group during the year, believes it is in the best
interests of the shareholders of the Group to
not pay a final dividend in respect of 2019.
The Board will re-evaluate this position once
the net debt leverage ratio falls below 2.5x.
Looking ahead and COVID-19
I am pleased with our financial results for
2019 and the relentless focus implementing
our strategic priorities, especially developing
our digital channels. However, in 2020 we
must turn our attention to respond to the
global COVID-19 pandemic situation. All of
my colleagues have come together to take
immediate and decisive action to mitigate both
the financial and safety risk that the pandemic
presents and to enact continuity plans to
minimise business disruption, especially
with HSS as a key service provider to critical
customers across the public sector. We always
have, and always will, offer our support to keep
the countries in which we operate in safe.
Alan Peterson OBE
Chairman
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 8
Chief Executive Officer’s Strategic Review
Highlights
Good progress against our
strategic priorities
Strong financial performance, despite the
backdrop of an uncertain market
Significant enhancement of our digital offer
with investment in technology
Investment in people, development of values
and improvement in engagement levels
Ongoing focus on customer service,
reflected by improved net promoter score
Ongoing transformation towards being
the market-leading digital-led brand for
equipment services
Strong investment case and positive outlook
Steve Ashmore
Chief Executive Officer
Read more in our case studies on
pages 16-21
Leading
the way
with digital
I am pleased to reflect on another year of
progress, during which we continued to fulfil our
purpose by ‘Equipping our customers’, and did
so more effectively. This sets us in good stead
to face the significant challenge presented by
COVID-19 in 2020.
Our business exists to equip our customers
with the tools, training and information required
so they can safely and efficiently build,
maintain and operate the UK and Ireland’s
infrastructure and services. We listened to
the feedback received from a comprehensive
customer segmentation review in 2018, and,
combining this with feedback from colleagues
in engagement surveys, targeted specific
improvements in how we operate to make
our customers and colleagues more effective.
We have made good progress delivering on all
elements of our strategy:
→ Delever the Group
→ Transform our Tool Hire business; and
→ Strengthen the Group’s commercial
proposition.
I am pleased with progress in 2019, and
to report that HSS is transforming into
the market-leading, digital-led brand for
equipment services.
However, the trading environment in 2020 has
materially changed due to the global COVID-19
pandemic. Significant focus has been placed
on ensuring our business continuity plans are
robust to deal with the situation, including the
transfer of all of our head office colleagues to
home working arrangements, so that we can
support critical customers in the public sector.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 9
There were no visible signs of the pandemic
impacting trading in the first twelve weeks of
FY20, with the first signs of a slowdown post
the UK Government lockdown announcement
on 23 March. In line with UK Government
instructions we took the necessary decision
to temporarily close the majority of our UK
branches switching to a delivery operation from
our Customer Distribution Centres and our
OneCall rehire business with the subsequent
addition of click and collect capability.
Similar actions were enacted on 30 March
in our Southern Irish business in response to
Government advice. As part of these changes
impacted colleagues have been entered into
Government job retention schemes. For the
9 weeks since 23 March revenue has been
around 40% below our original forecasts for the
financial year.
Whilst it is difficult to quantify the impact of
COVID-19 on the Group’s financial results
it is clear that we are entering a period of
significantly reduced economic activity where
cash preservation is fundamental. To this
end immediate action has already been
taken including deferring capital expenditure,
reducing overheads with temporary salary
reductions for a number of colleagues and
taking advantage of tax relief where available.
We will continue to monitor and manage
the emerging situation through twice daily
Executive Management Team meetings and will
take decisive action as required through what is
undoubtedly a period of material uncertainty.
Overview of the year
HSS has made significant progress
again improving its operational and
financial performance, with the continued
implementation of its strategic priorities.
The business has delivered record
performance once more despite the backdrop
of a challenging market created by Brexit
and political uncertainty. We have also had
little seasonal benefit, with relatively mild
winters and a short-lived hot spell during the
summer providing lower demand for heating
and cooling products. I believe the excellent
financial performance despite these headwinds
is a reflection of our enhanced management
control, improving agility and resilience, as well
as the growing proportion of income derived
from our capital-light Services business.
At the start of 2019 we set out to enhance
our commercial proposition so that we were
better placed to meet our customers’ needs.
Our focus was on two primary areas:
1. Digital transformation; and
2. OneCall transformation.
Technology Spotlight
Customer and Driver apps Launched April 2019
Customers wanted:
→ Order on-the-go
→ Quick and easy
→ Real-time order updates
(‘track and trace’)
Drivers and Transport
Managers wanted:
→ Better communication tools
→ Less paperwork
So we created the market-
leading end-to-end fully
integrated customer and
driver apps:
For customers:
→ Easy hire and off-hire functionality
→ Live availability
→ Live order tracking
→ Notification updates
→ Online account management
→ Electronic proof of delivery/collection
→ Signature capture and photographs
For drivers:
→ Vehicle and health & safety checks
→ Routing and navigation
→ Job information
→ Notification updates
Results
>30k
Customer downloads
→ Excellent driver adherence
→ Great colleague feedback
→ 4.7 star App Store rating
→ 4.1 star Google Play rating
→ >500 app downloads weekly
Digital transformation
We decided to enhance our digital offer
as a result of customer and colleague
feedback about our Tool Hire business.
Customers told us about their requirements
and it was apparent that we had to enhance
our digital offer, so we set out to develop the
market-leading end-to-end customer app.
We also listened to our colleagues, including
drivers and transport managers, who felt that
they did not have the right equipment to carry
out their job efficiently and professionally.
Both the customer and driver apps were
launched in April 2019, and have been very
successful (see the ‘Technology Spotlight’
box above). All our development has been
integrated with our industry-leading fully-
transactional website, which we have
also upgraded.
In addition to the benefits to customers and
colleagues, this technology is also delivering
fuel savings which are an important part of our
sustainability agenda (see pages 36-41).
See more on our Digital offer in our Technology
case study on page 16.
OneCall transformation
At the start of 2019 we also began to
transform our OneCall system in
response to customer feedback about rehire.
Customers told us that they loved the one-stop
shop solution and the advice we gave, but they
said it was often slow, manual, involved a lot
of back-and-forth and that our communication
could be poor. Unsurprisingly, we received
similar feedback from our OneCall colleagues,
who described the activity of raising contracts
as slow and challenging. I personally listened
to managers and team leaders explaining how
difficult and time-consuming it was to recruit,
train and retain people. We consolidated this
feedback and embarked on a mission to
transform our OneCall processes, to make the
rehire experience seamless, for both customers
and colleagues alike.
72%
Colleague engagement score – another year
of improvement and well ahead of UK national
average of 60%
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
10
Chief Executive Officer’s Strategic Review continued
NPS 45
NPS score 45, significantly above the
threshold for the top third in the services,
manufacturing and utilities benchmark (21)
In April 2019, we launched the new OneCall
rehire platform; we call it Brenda. Brenda can
source any hire equipment from our extensive
network of suppliers just as our OneCall
business always did, but Brenda significantly
shortens the customer journey and provides
superior visibility of what is going on for
customers, suppliers and colleagues alike.
Brenda is a new, modern automated platform,
developed by best-in-class third parties,
which is easy to configure, modular, scalable
and applicable to all procurement categories,
providing us with the potential to significantly
extend the scope of our service offering
beyond equipment hire.
See more on our OneCall offer in our case
study on page 18.
Our achievements in these two primary areas
of focus, digital and OneCall, have been
significant over a short period of time, and have
set us on course to transform this business
into the market-leading, digital-led brand for
equipment services.
People and culture
Recognising that people are the lifeblood of our
business, we set out this year to improve how
we attract talent and then engage colleagues
so that they stay with us and perform in their
roles. We have worked on our recruitment
process, significantly improving our careers
website and applicant tracking system.
We continue to strive to provide colleagues with
a sense of purpose, freeing them up to make
a difference and get things done, empowering
them with challenge and stretch, as well as
stimulating a connection with the organisation’s
greater purpose.
We entered 2019 with the objective of
improving our communication and engagement
processes and media. We wanted to support
a positive and open culture where regular,
representative and comprehensive feedback
is promoted and acted upon. We listened to
the feedback provided in the 2018 colleague
engagement survey and took actions in a range
of areas. I am pleased to see the engagement
score has improved to 72.4% following our
latest survey in November 2019 (2018: 71.6%).
Developing our values
At the start of 2019 we also spent time thinking
about how to retain and emphasise the positive
elements of our culture, in a way that would
provide colleagues with clear guidance on the
behaviours that drive performance. You may
recall my initial impressions of the business,
shortly after joining in 2017; I was hugely
impressed with the enthusiasm, loyalty and
can-do attitude of many of our colleagues.
I was keen that we found a way to reinforce
these behaviours through a revised set of
Company values.
In 2019 we launched our new ‘Make it…’ Group
values (for more information see page 39 in the
Sustainability section):
Colleague behaviours drive customer
outcomes and loyalty, and ultimately enhance
profitability and shareholder returns. Our new
values framework has been carefully designed
to support colleagues, drive positive behaviours
and create a sense of pride and belonging in
HSS Hire. We are now weaving these values
into our performance management framework,
leadership behaviours programme and
engagement strategy.
Improving colleague engagement
In 2019 we built on our existing colleague
engagement platforms to increase
opportunities for colleague dialogue,
involvement and feedback. We invited a
wide cross-section of colleagues to a series
of Executive Roadshows to update them
on performance and progress on strategic
priorities. We also held regular Simply Safety
forums to shine a light on any issues and
capture potential areas for improvement.
We conducted benefits roadshows, with the
support of our key colleague benefits partners,
with the aim of both increasing colleagues’
awareness of their reward package and driving
improvements to it. The diagram on page 39
outlines the full spectrum of our colleague
engagement channels, and pages 42-43
provides details on our Section 172 compliance
and stakeholder engagement activities.
Colleague feedback has supported
a widespread review of our internal
communication, training and benefits offering.
Our benefits offering has increased significantly
and we have seen improved uptake from
colleagues in many areas. We have also
raised the profile of our health and wellbeing
agenda, particularly in the area of mental health
(see page 40 in the Sustainability section for
more detail).
Reminder of our strategic priorities
We continue to ensure that all our actions and
initiatives support our three clear strategic
priorities that we set out in December 2017:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial
proposition
Once again, we have made excellent progress
against these priorities and I continue to
believe that this strategy will lead to continued
improvement in terms of shareholder
returns, customer outcomes and colleague
engagement in the future.
Delever
We saw our leverage significantly reduce
from 4.8x at December 2017 to 3.3x at
December 2018, and I am pleased to report a
continued reduction with leverage being 2.8x at
28 December 2019. This has been achieved by
both EBITDA improvement and debt reduction.
Details of both can be found in the Financial
Review section.
In terms of EBITDA improvement, the three key
drivers are: (1) continued revenue growth from
both the Rental and Services elements of our
business driven by targeted investment in our
fleet and strengthening of our salesforce; (2)
further strategic cost reduction initiatives; and
(3) ongoing cost control disciplines.
Debt reduction has been achieved by: (1)
maintaining focus on working capital, primarily
through cash collection; (2) using the proceeds
from the disposal of UK Platforms Ltd in
January to pay down debt; and (3) improving
procurement decision making and becoming
much more selective about how we deploy our
capital investment.
Transform
In 2019, by shining a spotlight on profitability
across three areas – customers, products
and branches – we were able to grow revenue
ahead of the market, significantly improve
margins, deliver a marked improvement in
ROCE and achieve another record year of
adjusted EBITDA on a comparable basis.
We did this whilst improving our NPS score
from 44 to 45 and improving our colleague
engagement score from 71.6 to 72.4.
Both results are industry-leading.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 11
Strategy Spotlight
TRANSFORM the Tool Hire business
STRENGTHEN commercial proposition
Continued reductions in cost to serve:
Digital channels:
→ Cross-dock removed
→ Market-leading end-to-end customer app
→ Increased network efficiency (Tottenham CDC closure)
→ New driver app technology
Ongoing use of new decision-making tools to improve margins
and ROCE:
→ Fully integrated with our industry-leading website
→ Focus now on e-channel adoption
→ Leveraging insight tools across the full product life-cycle
OneCall technology platform:
→ Improved pricing control, driving profitability
Continued digitisation:
→ Embracing technology to improve customer loyalty and
operational efficiency
→ Brenda platform launched in April 2019. Fully rolled out by
September. Colleagues trained and suppliers on-boarded
→ Benefits realised: improved productivity, conversion rates,
margins, and positive customer, supplier and colleague feedback
Next Steps:
Next Steps:
Delivering Standout Service to customers:
Putting Brenda technology in branches:
→ New scheduling technology
→ Continuous development of digital tools
Demand Creation: driving growth ahead of the market:
→ Maximising cross-selling opportunities
→ Salesforce effectiveness, leveraging customer segmentation
Targeting increased cost agility:
→ Building on proven cost management track record
→ Explore lower cost go-to-market models
→ Customers: quicker response times, simple consistent
journey, digital adoption
→ Colleagues: quicker time to competency, modern and
user-friendly, more effective
→ Suppliers: more enquiries, earlier notice, higher volumes
I am delighted to say that the transformation
in our core Tool Hire business has the
potential to deliver further improvements
in financial returns, customer service and
colleague engagement.
Going forward, we see transformation
opportunities in five areas:
1. Continued Digitisation of our Business
2. Standout Service
3. Profit Smart
4. Demand Creation
5. Go-to-Market Optimisation
Continued Digitisation of Our Business
We must continue embracing technology to
enhance the customer experience and improve
our decision making. The investments we
have made in our driver app, customer app,
Brenda technology and new insight tools
are an important step forward, but there is
still significant opportunity to evolve these
technologies and optimise the way they are
deployed and utilised.
Standout Service
There is now a clear opportunity for HSS
to stand out from the competition and
drive market share in our fragmented and
undifferentiated sector. The new technology
we have introduced, together with our
fully integrated industry-leading website
and our highly engaged colleagues, I am
confident that we can deliver significant
differentiation advantage.
Profit Smart
We have made significant progress in
delivering improved margins and enhanced
returns on capital employed. We now have
the foundations in place for improved decision
making across the full product life-cycle and
be even smarter in our day-to-day decision
making so that we eliminate costs that do not
contribute to shareholder value, customer
service or colleague engagement.
Demand Creation
As we continue to trade in a challenging
UK market, it is important that we stimulate
demand in our target segments. Our plans
for Standout Service will allow us to take
market share by increasingly cross-selling the
full range of Group services and tailoring our
proposition to the requirements of different
customer segments. Looking further ahead,
we will be investing in improving salesforce
effectiveness and prioritising our activity with
improved analytics.
Go-to-Market Optimisation
We have made significant progress optimising
our network and removing fixed costs over the
last 24 months. We will explore further potential
to reduce fixed costs, optimise working capital
and become more agile. We are currently
trialling alternative lower cost channels which
are providing encouraging initial results.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 12
Chief Executive Officer’s Strategic Review continued
Excellent progress made against our 2020 Performance Framework which we set out in December 2017(1)
Revenue growth
Rental revenue growth
Adjusted EBITDA margin
Adjusted EBITA margin
Leverage
Return on Capital Employed
2018(2)
6.2%
3.8%
18.6%
6.8%
3.3x
16.7%
2019(2)(3)
2020 Framework
3.9%
1.3%
19.5%
8.1%
2.8x
20.8%
Ahead of market(4)
Ahead of market(4)
>20%
>9%
<2.5x
>20%
(1) Targets were revised to be more challenging in April 2019.
(2) Results for 2018 and 2019 are on a continuing operations basis, after stripping out the disposal of UK Platforms.
(3) 2019 revenue adjusted for loss of Services volume related to a managed service contract.
(4) Note: Market Growth 2019 = 0.4% (source: European Rental Association forecast as at Oct 19).
houses, schools, hospitals, offices, factories,
roads and utilities infrastructure that we all
rely on.
We still believe that there is a significant
opportunity to differentiate from the
competition and become the standout service
provider and ‘fan’s favourite’ in our market.
In addition, our investment in technology
provides the opportunity to create a more
scalable, capital-light, digital-led business
model, which will improve investor returns.
COVID-19
As I note in my opening comments, the global
COVID-19 pandemic is having a major impact
on people’s lives and the economic outlook as
we travel through 2020.
Our primary focus is the safety and security
of our colleagues, customers and suppliers
as well as other stakeholders. We have taken
immediate and decisive action to mitigate
the risks, preserve cash and enact our
business continuity plans to minimise business
disruption. We are absolutely committed to
fulfilling our role as an essential service provider
during these unprecedented times, offering
our full support to keep the countries in which
we operate safe. The improvements made to
our digital offering and the expansion of our
OneCall business mean we are better placed
to do so.
Steve Ashmore
Chief Executive Officer
Strengthen
In my overview of the year, I highlighted
the improvements we have made to our
commercial proposition, in both our digital offer
and our OneCall processes, and the impact
they have had on customer, colleague and
supplier experiences. These are the initial steps
in our journey to become the market-leading,
digital-led brand for equipment services.
We are changing the equipment hire journey
from complicated, opaque and slow, to
simple, transparent and fast. We have done
this by investing in technology and developing
expertise, and now have a platform from
which we can Transform our Tool Hire
business further.
Going forward, we see opportunities to
strengthen our commercial proposition in
three areas:
1. E-channel adoption
2. Unlocking the full potential of Brenda
3. Capital-light Services growth
E-channel adoption
We now have the technology to drive
e-channel adoption and have already seen
significant improvements in online transactions.
We continue to develop our technology
platform, which benefits us in several areas:
on-the-go ordering, stock availability, order
visibility, one-stop fulfilment, and supplier
engagement. Following a successful marketing
trial in the Midlands, we plan to increase
e-channel adoption via a series of initiatives.
Unlocking the full potential of Brenda
Our new technology platform has shortened
the customer journey and provided superior
visibility for all stakeholders. Now we have the
opportunity to really drive conversion rates
by embedding behaviours and surfacing
the technology within our branch network.
Our objectives here remain on speed,
accuracy and ease.
Capital-light Services growth
There is a widespread requirement amongst
large B2B customers with central procurement
teams for a single-platform solution that
provides a one-stop shop sourcing solution.
We have developed a procurement portal to
make it easier for our customers to operate
and are currently trialling this with a number of
organisations. The platform creates a seamless
experience for customers, colleagues and
suppliers alike. It is completely scalable and
provides us with access to new equipment-
related verticals such as building suppliers,
recruitment and inspection services, all with
minimal capital investment.
Our market
Our immediately addressable market for
equipment provided from our own rental fleet
is approximately £1.9bn, extending to c£4bn
once we include the full range of partner
services available via our OneCall proposition.
The overall market for equipment hire in the UK
is estimated to have grown by 0.4% in 2019,
a slow-down from the 1.5% seen in 2018 and
a result of the general market uncertainty.
We expect the market to contract in 2020 due
to the impact of COVID-19.
The market remains highly fragmented with
approximately half the market being served by
small independents, most of which operate
from one location. No single player has more
than 11% market share. We have leading
positions in our primary markets of tool hire,
power generation, powered access, HVAC
(heating, ventilation and air-conditioning)
and training.
Our customer base continues to be large and
diverse, operating across a wide set of end
markets, including residential, commercial,
industrial and infrastructure. Our customers’
activities include new-build, maintenance and
operation of the UK’s built environment, with
an emphasis towards the less cyclical areas of
maintenance and operation. The end product
of our contribution to customers’ activity is the
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 Investment case
A resilient
proposition
Our business benefits from
a combination of strong
external drivers and a unique
set of internal strengths. This,
combined with opportunities
to drive growth in technology-
driven, capital-light areas,
provides resilience that will
help meet the challenges
presented by COVID-19
and makes HSS a robust
investment option.
13
Attractive
market
dynamics
→ Fragmented market, with opportunity to
grow share (currently 8%).
→ Lack of differentiation amongst top five
‘nationals’ provides a significant opportunity
to differentiate and gain customer loyalty.
→ Remaining 50% of market is small
independents, which will struggle to compete
with our advancing digital proposition.
Well-recognised
brand
→ Market-leading brand recognition.
→ Market-leading website traffic.
→ Strong attraction for rehire suppliers and
other partners, who seek association with
our brand, access to our diverse customer
base and to benefit from our technology.
Long-term
structural
growth drivers
→ Ongoing trend to outsource equipment
management, which is typically less than
3% of our customers’ cost base, so that
customers can focus on core activities.
→ Legislation is also driving the outsourcing
trend, as well as increased demand for
safety-related products and training services.
→ Supply chain rationalisation trends are
driving procurement departments to find
partners who can offer a one-stop shop.
Industry-leading
technology
platform
→ Industry-leading fully integrated website and
customer app.
→ Brenda technology ensuring a seamless
rehire experience for customers, colleagues
and suppliers alike.
→ New highly scalable and unique ProService
platform for large B2B customers that
solves a long-standing challenge for central
procurement teams.
Scalable
business model
Fast-growing
capital-light
businesses
→ Capital-light services businesses that
can be scaled quickly without capital
expenditure.
→ New technology platform that provides
access to additional product verticals
beyond the £4bn equipment hire market
(e.g. building supplies, recruitment).
→ Market-leading Training business, with
significant opportunity to cross-sell into
the Group customer base, in addition to
extending its partner network.
→ Recently transformed OneCall rehire
business that delivers superior returns and
has a new platform for growth.
→ Hub-and-spoke logistics network provides
opportunity to find new low-cost sales
channels.
→ Access to new product verticals via our
procurement portal, providing scalable
growth without capital investment in fleet.
Incentivised
and engaged
team
→ Colleague engagement scores significantly
above the UK benchmark.
→ New technology is making colleagues’ jobs
easier and unleashing their potential.
→ An incentivised management team that has
consistently delivered on the market
expectations with record EBITDA for the
second year running.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 14
Strategy at a Glance
Delivering on
our objectives
Our strategy was reset in December 2017 and is now entering its third year.
It continues to steer us towards our vision and informs our business planning
and performance management processes. We also set ourselves a three-year
Performance Framework in 2017 that we are well on the way to delivering.
Strategy
What we achieved
Priorities
Performance Framework
RIsks
Delever
the Group
In 2019 we reduced our leverage from 3.3x to 2.8x. This was achieved
by improving EBITDA and reducing debt. EBITDA growth came from
revenue growth ahead of the market and a relentless focus on cost
control that saw margins improve. Debt was reduced through operating
cash flow generation, selective capital expenditure and the use of
proceeds from the disposal of UK Platforms Ltd.
Transform
the Tool Hire
business
In 2019, by focusing on profitability across three areas – customers,
products and branches – we were able to deliver revenue growth ahead
of the market, significantly improved margins and another record year of
Adjusted EBITDA on a comparable basis. We did this whilst improving
our NPS score from 44 to 45 and improving our colleague engagement
score from 71.6 to 72.4. Both results are industry-leading. And finally, we
are pleased to report a 41% reduction in our RIDDOR rate.
Strengthen
the Group’s
commercial
proposition
We have enhanced our digital offer and transformed our OneCall
processes. Both projects were in response to both customer and
colleague feedback. They have made us easier to work for and easier to
work with. We have developed the market-leading end-to-end customer
app, which is easy to use and fully integrated with our industry-leading
website, allowing quick on and off hires, live order tracking and paperless
online account management. Our new OneCall technology, Brenda, built
on a modern automated modular platform, has significantly shortened
the customer journey and provides superior visibility to customers,
colleagues and suppliers alike. The success of our Services business has
contributed to the significant improvement in ROCE in 2019.
We continue to target leverage reduction to the revised
→ Leverage
target of 2.5x, as set out in our updated performance
framework in April 2019. Our priorities will be a relentless
focus on cost control, tight cash collection processes,
margin enhancement and ongoing growth ahead of
the market. In particular, we have a Profit Smart project
which is focusing on supporting day-to-day decision
making with new data-driven tools, to maximise margins.
→ Adjusted EBITDA
→ Net Debt
There are two primary risks relating to this strategic
priority: EBITDA performance and cash collection.
The COVID-19 pandemic increases these risks
with a potential material reduction in demand due
to Government lockdowns adversely impacting
financial performance, reducing liquidity and possible
breach of finance net debt leverage covenants.
Immediate actions have been taken to address this
risk. Early discussions have taken place with the
Group’s lenders, who have expressed commitment
to the business. Further details of the COVID-19 risk
and mitigating actions can be found on page 26.
As we continue to Transform our Tool Hire business
→ Rental Revenue Growth
We are minimising our risks in this area by operating
we are focusing on five priorities: (1) Continued
Digitisation of our Business that enhances the
customer experience and improves our decision making;
(2) creating Standout Service that differentiates us
from the competition; (3) using our new technology to
enhance decision making and ensure that we are even
more Profit Smart; (4) focusing our salesforce on
Demand Creation in what is otherwise a challenging
market; and (5) exploring ways to deliver Go-to-Market
Optimisation, so that we reduce fixed costs and
improve cash generation.
→ Adjusted EBITDA and
→ Adjusted EBITA and
→ RIDDOR Rate
→ Colleague Engagement
Margin
Margin
Score
a strong performance management framework,
with carefully aligned colleague incentives.
Colleague engagement and retention is a key risk to
this strategic objective, and as such we continue to
harness and act upon colleague observations, ideas
and feedback. We believe that colleague engagement
is the key to unlocking performance and mitigating
risk relating to this strategic priority.
Our focus is now in three areas: (1) driving e-channel
→ Services Revenue
At the outset of this strategic priority, our primary risk
adoption to improve customer loyalty; (2) unlocking
Growth
the full potential of Brenda to drive growth in our
rehire business; and (3) exploiting our new technology
platform to deliver capital-light Services growth.
→ Return on Capital
Employed
→ Net Promoter Score
was the successful development and deployment
of new technology. We have since launched our
new technology platforms and have been very
pleased with their performance. They are modular in
nature, adaptable and scalable, and we believe our
technology partners are best-in-class.
Our strategic enablers
Guided by our values, our strategy is
realised through a focus on our three
strategic enablers:
A strong commercial
management framework
Fully engaged, high-
performing colleagues
Superior technology that
supports decision making and
stakeholder experiences
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 15
“ Our digital transformation is already delivering great
benefits to customers and colleagues alike, and we will
build on this as we go forward.”
Dani Hodges, Managing Director, OneCall
Our purpose
We exist to equip our customers with the
tools, equipment, training and related services
that enable the construction, maintenance
and operation of the UK and Ireland’s
built environment.
Our vision
Our vision is to be the market-leading digital-led
brand for equipment services.
Our values
Strategy
What we achieved
Priorities
Performance Framework
RIsks
Delever
the Group
In 2019 we reduced our leverage from 3.3x to 2.8x. This was achieved
by improving EBITDA and reducing debt. EBITDA growth came from
revenue growth ahead of the market and a relentless focus on cost
control that saw margins improve. Debt was reduced through operating
cash flow generation, selective capital expenditure and the use of
proceeds from the disposal of UK Platforms Ltd.
Transform
the Tool Hire
business
In 2019, by focusing on profitability across three areas – customers,
products and branches – we were able to deliver revenue growth ahead
of the market, significantly improved margins and another record year of
Adjusted EBITDA on a comparable basis. We did this whilst improving
our NPS score from 44 to 45 and improving our colleague engagement
score from 71.6 to 72.4. Both results are industry-leading. And finally, we
are pleased to report a 41% reduction in our RIDDOR rate.
Strengthen
the Group’s
commercial
proposition
We have enhanced our digital offer and transformed our OneCall
processes. Both projects were in response to both customer and
colleague feedback. They have made us easier to work for and easier to
work with. We have developed the market-leading end-to-end customer
app, which is easy to use and fully integrated with our industry-leading
website, allowing quick on and off hires, live order tracking and paperless
online account management. Our new OneCall technology, Brenda, built
on a modern automated modular platform, has significantly shortened
the customer journey and provides superior visibility to customers,
colleagues and suppliers alike. The success of our Services business has
contributed to the significant improvement in ROCE in 2019.
We continue to target leverage reduction to the revised
target of 2.5x, as set out in our updated performance
framework in April 2019. Our priorities will be a relentless
focus on cost control, tight cash collection processes,
margin enhancement and ongoing growth ahead of
the market. In particular, we have a Profit Smart project
which is focusing on supporting day-to-day decision
making with new data-driven tools, to maximise margins.
→ Leverage
→ Adjusted EBITDA
→ Net Debt
There are two primary risks relating to this strategic
priority: EBITDA performance and cash collection.
The COVID-19 pandemic increases these risks
with a potential material reduction in demand due
to Government lockdowns adversely impacting
financial performance, reducing liquidity and possible
breach of finance net debt leverage covenants.
Immediate actions have been taken to address this
risk. Early discussions have taken place with the
Group’s lenders, who have expressed commitment
to the business. Further details of the COVID-19 risk
and mitigating actions can be found on page 26.
As we continue to Transform our Tool Hire business
we are focusing on five priorities: (1) Continued
Digitisation of our Business that enhances the
customer experience and improves our decision making;
(2) creating Standout Service that differentiates us
from the competition; (3) using our new technology to
enhance decision making and ensure that we are even
more Profit Smart; (4) focusing our salesforce on
Demand Creation in what is otherwise a challenging
market; and (5) exploring ways to deliver Go-to-Market
Optimisation, so that we reduce fixed costs and
improve cash generation.
→ Rental Revenue Growth
→ Adjusted EBITDA and
Margin
→ Adjusted EBITA and
Margin
→ RIDDOR Rate
→ Colleague Engagement
Score
We are minimising our risks in this area by operating
a strong performance management framework,
with carefully aligned colleague incentives.
Colleague engagement and retention is a key risk to
this strategic objective, and as such we continue to
harness and act upon colleague observations, ideas
and feedback. We believe that colleague engagement
is the key to unlocking performance and mitigating
risk relating to this strategic priority.
Our focus is now in three areas: (1) driving e-channel
adoption to improve customer loyalty; (2) unlocking
the full potential of Brenda to drive growth in our
rehire business; and (3) exploiting our new technology
platform to deliver capital-light Services growth.
→ Services Revenue
Growth
→ Return on Capital
Employed
→ Net Promoter Score
At the outset of this strategic priority, our primary risk
was the successful development and deployment
of new technology. We have since launched our
new technology platforms and have been very
pleased with their performance. They are modular in
nature, adaptable and scalable, and we believe our
technology partners are best-in-class.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 16
Equipping our Customers with
Technology
Living our values:
At HSS we are always striving to Make it Better, whether it is for our
customers, our colleagues or other stakeholders.
We listened to customers who said they wanted to order on the go, they
wanted it to be quicker and easier, and they wanted to be able to track their
order. We set out to Make it Better, and in April 2019 we launched the HSS
customer app. Our end-to-end app is simple to use and fully integrated with
our industry-leading website. Customers have made 30,000 downloads and
given the app a 4.7 rating in the App Store.
We also listened to our colleagues: drivers and transport managers wanted
better ways of communicating with each other and with customers.
They wanted a better navigation tool and they were fed up with all the
paperwork. In April 2019 we launched the HSS driver app, fully integrated
with the HSS customer app. The HSS driver app provides drivers with their
vehicle safety checks, routing and job information, navigation and automated
customer notifications. It is no surprise that during this period of striving to
Make it Better for drivers, we have seen driver retention improve by 45%.
The technology is also providing earlier resolution of disputes and improved
working capital management.
We launched the HSS
customer and driver apps
app downloads
30,000
4.7
App Store rating
“ Knowing where my delivery driver is in
real time allows me to plan my day.”
K & C Hire and Supply Ltd, Customer
“ The HSS customer app is quick and
easy to use, saving me time every day.”
First In Service, Customer
Download the HSS Hire app today
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 17
To create a better
customer experience
Easily manage
your hires anytime,
anywhere
2-way communication
direct with your
delivery driver
Order your equipment
straight from the app
“ Having the right technology
has made my working day
so much better.”
Gary Ham, Driver
“ The new technology has really made it
easy for me to get up to the minute details
on my drivers and customer”
Damian Oglseby, Transport Manager
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 18
Equipping our Customers with
OneCall
Living our values:
For a long time at HSS we have employed colleagues who like to Make it
Happen, and there’s no place where this is more apparent than at HSS OneCall.
Our OneCall team offers a one-stop shop for customers, providing equipment
that they cannot source themselves, or where they need technical advice, or
sometimes at short notice when they have been let down by other suppliers.
The combination of knowledgeable colleagues and an extensive network of
suppliers enable us to Make it Happen for customers.
However, following feedback from customers, colleagues and suppliers, we
recognised that sometimes the process was slow and the communication can be
poor. So we listened carefully and went away to build a new automated platform
based on a streamlined process that would significantly shorten the customer
journey and provide superior visibility of what is going on. We’ve called this
platform Brenda.
In April 2019, we launched Brenda and rolled it out across our teams.
The customer journey is now significantly shorter, allowing our colleagues to
convert more enquiries every day. We also set out to Make it Better for our
suppliers. Brenda does this by improving visibility and communication.
Transforming the
customer rehire experience
improvement in customer conversion
25%
68%
improvement in productivity
“ The new platform is so much
quicker and easier to use.”
Matt Bond, OneCall Colleague
“ Brenda has most definitely
revolutionised the industry with this
game changing platform and raised
the bar for others to simply watch
in awe.”
Managing Director, Lifting Gear, OneCall Supplier
Download the HSS Hire app today
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 19
To provide our customers
with the right tools
Scalable, capital-light,
technology-driven
business
Powered by a world-
class end-to-end
brokering platform
Superior customer
experience and visibility
“ OneCall takes away a lot of the hassle, creating a
one-stop shop where I can get everything I need.”
Operations Director, ISG (OneCall Customer)
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 20
Equipping our Customers with
Training
Living our values:
The most important value at HSS is to Make it Safe. This is the first
priority day in, day out for all our colleagues. But we do not stop within
HSS. Every year we train thousands of customers’ colleagues in a wide
range of skills that help make them safer and more productive in their
working environment.
Our capital-light, fast-growing HSS Training business is one of the largest
providers of safety training in the industry-recognised courses PASMA, CITB
and the Ladder Association. We also hold the number two position in IPAF.
We offer over 200 courses from 48 training venues, through a combination of
56 dedicated in-house trainers and 58 third party training providers. In 2019
we helped over 55,000 delegates to Make it Safe.
Powered once more by technology, we believe we have the leading online
training management platform and booking system, available from our
website. Customers can view real-time course availability, book their courses
and manage their training records online. In 2019 over 30% of bookings were
transacted online.
Ensuring our customers
are safe and compliant
certified trainers
56
55,000
delegates trained in 2019
“ Our colleagues in HSS branches are
constantly providing great leads, customers
who already hire kit from us but need some
support with training. It’s a great way of
doing more for customers.”
Faye Edwards-Miller, HSS Training Colleague
Download the HSS Hire app today
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 21
To create safer,
more skilled workplaces
Sector-leading online
booking system
Dedicated account
management
Scale to meet the
training requirements of
organisations of all sizes
in all industry sectors
“ HSS Training give me and my team the relevant skills and
knowledge we need to complete our daily tasks and return
home safely at the end of the working day.”
Compliance Manager, Jones FM (HSS Training Customer)
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 22
Our Key Performance Indicators
Measuring
our progress
Strategic Framework
Key Performance Indicator (KPI)
FY19 performance
Importance of KPI
Definition
Performance
Remuneration
linkage
Track record
Group revenue
Rental and
related revenues
Adjusted EBITDA
and margin
Adjusted EBITA
and margin
Leverage
Continuing operations
£328.0m
FY18: £322.8m
Continuing operations
229.0m
FY18: £226.0m
Continuing operations
£63.9m
19.5% margin
Continuing operations
£26.5m
8.1% margin
Total operations
2.8x
FY18: 3.3x
Simplest measure of the ongoing growth of the
Group’s sales from which profits can be generated
and shareholder value created.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Financial Review page 33
Simplest measure of the ongoing growth of the
Core Hire Business’ sales from which profits can be
generated and shareholder value created.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
See Financial Review page 33
Widely recognised measure of profitability. Metric also
used in leverage and covenant calculations.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Financial Review page 34
Measure of profitability before amortisation,
impacts of capital structure (interest and tax) and
exceptional costs.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Financial Review page 34
Measure of financial liquidity.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Financial Review page 35
Revenue from contracts with
third party customers derived
Growth of 1.6%, ahead of
Driver of colleague
ERA estimated growth rate for
incentive plans.
from continuing operations after
UK tool hire.
deducting VAT, rebates and credit
note provision movements.
Revenue including kit and equipment
Growth of 1.3% via targeted
Driver of colleague
sales derived from the direct contact
investment in profitable
with our customers.
products and continued
strong utilisation.
incentive plans
and component
of leadership
incentive plan.
Operating profit before depreciation,
Record level of Adjusted
Driver of colleague
amortisation and exceptional items.
EBITDA driven by
Depreciation includes the net book
improvements in revenue
incentive plans
and component
value of hire stock losses and write-
and increased operational
leadership incentive
offs, and the profit on disposal of
efficiency; margin continues
plan (including as a
other fixed assets.
to grow.
threshold element).
Operating profit before amortisation
20% increase in EBITA and
and exceptional items.
margin improved to 8.1%.
Indirectly, as
numerator in
ROCE calculation.
Net debt is borrowings, including
Significant reduction from
Component
finance leases, less cash expressed
FY18 and continued progress
of leadership
as a multiple of Adjusted EBITDA.
towards strategic framework
incentive plan.
target of 2.5x.
Growth/(decline)
£328.0m
1.6%
£322.8m
6.2%
£304.0m
(1.2)%
£307.6m
10.4%
Growth/(decline)
£229.0m
1.3%
£226.0m
3.8%
£217.7m
(5.7)%
£230.8m
(0.1)%
Margin
£63.9m
19.5%
£60.0m
18.6%
£36.0m
11.8%
£56.0m
18.2%
Margin
£26.5m
8.1%
£22.1m
6.8%
(2.3)%
4.2%
FY17 £(6.9)m
FY16
£12.8m
2.8x
3.3x
3.2x
Change
0.5x
1.5x
0.5x
4.8x
(1.6)x
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY16
FY19
FY18
FY19
FY18
FY17
FY16
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 23
Growth/(decline)
£328.0m
1.6%
£322.8m
6.2%
£304.0m
(1.2)%
£307.6m
10.4%
Growth/(decline)
£229.0m
1.3%
£226.0m
3.8%
£217.7m
(5.7)%
£230.8m
(0.1)%
Margin
£63.9m
19.5%
£60.0m
18.6%
£36.0m
11.8%
£56.0m
18.2%
Key Performance Indicator (KPI)
FY19 performance
Importance of KPI
Definition
Performance
Revenue from contracts with
third party customers derived
from continuing operations after
deducting VAT, rebates and credit
note provision movements.
Growth of 1.6%, ahead of
ERA estimated growth rate for
UK tool hire.
Remuneration
linkage
Driver of colleague
incentive plans.
Revenue including kit and equipment
sales derived from the direct contact
with our customers.
Growth of 1.3% via targeted
investment in profitable
products and continued
strong utilisation.
Driver of colleague
incentive plans
and component
of leadership
incentive plan.
Operating profit before depreciation,
amortisation and exceptional items.
Depreciation includes the net book
value of hire stock losses and write-
offs, and the profit on disposal of
other fixed assets.
Record level of Adjusted
EBITDA driven by
improvements in revenue
and increased operational
efficiency; margin continues
to grow.
Driver of colleague
incentive plans
and component
leadership incentive
plan (including as a
threshold element).
Adjusted EBITA
and margin
Measure of profitability before amortisation,
impacts of capital structure (interest and tax) and
Operating profit before amortisation
and exceptional items.
20% increase in EBITA and
margin improved to 8.1%.
Indirectly, as
numerator in
ROCE calculation.
Track record
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY16
FY19
FY18
Group revenue
Rental and
related revenues
Adjusted EBITDA
and margin
Leverage
Continuing operations
£328.0m
FY18: £322.8m
Continuing operations
229.0m
FY18: £226.0m
Continuing operations
£63.9m
19.5% margin
Continuing operations
£26.5m
8.1% margin
Total operations
2.8x
FY18: 3.3x
Simplest measure of the ongoing growth of the
Group’s sales from which profits can be generated
and shareholder value created.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Financial Review page 33
Simplest measure of the ongoing growth of the
Core Hire Business’ sales from which profits can be
generated and shareholder value created.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
See Financial Review page 33
Widely recognised measure of profitability. Metric also
used in leverage and covenant calculations.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Financial Review page 34
exceptional costs.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Financial Review page 34
Measure of financial liquidity.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Financial Review page 35
Net debt is borrowings, including
finance leases, less cash expressed
as a multiple of Adjusted EBITDA.
Significant reduction from
FY18 and continued progress
towards strategic framework
target of 2.5x.
Component
of leadership
incentive plan.
FY19
FY18
FY17
FY16
2.8x
3.3x
Change
0.5x
1.5x
4.8x
(1.6)x
3.2x
0.5x
Margin
£26.5m
8.1%
£22.1m
6.8%
(2.3)%
4.2%
FY17 £(6.9)m
FY16
£12.8m
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 24
Our Key Performance Indicators continued
Long-Term Measures
KPI
FY19 performance
Importance of KPI
Definition
Performance
Remuneration
linkage
Track record
Return on Capital
Employed
Continuing operations
20.8%
FY18: 16.7%
Adjusted earnings
per share (diluted)
(EPS)
Earnings of
2.31p
per share
FY18: 1.36p per share
Stakeholders
Health and safety
(RIDDORs)
Colleague engagement
Net Promoter Score
(NPS)
Greenhouse
gas emissions
Continuing operations
0.20
FY18: 0.34
Continuing operations
72.4%
FY18: 71.6%
Total operations
45
FY18: 44
49.1
TC02e/£m Rev
FY18: 55.6
Measure of the return-generating ability of the
business over the longer term and key measure for
leadership incentives.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
See Financial Review page 34
Measure of adjusted profitability per share.
Widely recognised measure of shareholder value
(profit) being generated by a business excluding non-
recurring or exceptional items and amortisation and
after charging the prevailing rate of corporation tax.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
See Financial Review page 34
Widely recognised measure of safety in the workplace.
Safety is at the heart of how HSS operates.
Link to Strategy:
→ Transform the Tool Hire business
See Sustainability page 40
A measure of the level of engagement across the
entire population of colleagues.
Link to Strategy:
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Sustainability pages 39 and 40
A measure of how likely our customers are to
recommend HSS and used to benchmark against the
industry generally.
Link to Strategy:
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See CEO’s Strategic Review page 10
A key measure of the impact we have on the
environment relative to our scale and which allows
progress to be tracked.
Link to Strategy:
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Sustainability pages 38 and 39
Adjusted EBITA divided by the
average of capital employed at
Step change in ROCE to
20.8%; already hitting our
Component of
2019 LTIP.
the beginning and end of the year.
2020 framework target
Capital employed is total assets
of 20%.
except intangible assets, derivatives,
and cash less current liabilities
except current debt items.
Earnings are defined as profit
before tax after adding back
exceptional items and amortisation
and then charging the prevailing
rate of tax. Earnings are then
divided by the number of shares
in issue assuming the conversion
of any potentially dilutive equity
derivatives outstanding.
Growth of 69.8% driven by
improvement in EBITA.
Adjusted EPS is
a component of
2019 LTIP.
Change
20.8%
4.1pp
16.7%
21.8pp
FY17 (5.1)%
9.7%
(14.8)pp
(1.5)pp
Change
2.31p
0.95p
1.36p
11.73p
(10.37)p
(13.31)p
2.94p (0.26)p
Number of events that are
41% reduction in rate and
reportable under the Reporting of
only 11 RIDDORs for the
Injuries, Diseases and Dangerous
entire year; evidence of the
Component
of leadership
incentive plan.
Occurrences Regulations
commitment to safety existing
2013 multiplied by 100,000 and
throughout the business.
divided by the hours worked.
0.20
FY19
FY18
FY16
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY19
FY18
FY17
FY16
0.34
Change
41.2%
12.8%
0.39
2.5%
0.40
16.7%
Change
72.4%
0.8pp
71.6%
4.6pp
67.0%
Growth/(decline)
45
(1.1)%
44
(83.6)%
44
2.5%
42
16.7%
Proportion of responses from
colleague engagement survey
Improved score and increased
completion rate of 74%
(carried out by Anthem Engagement)
following implementation of
that either Strongly Agree or Agree to
plans driven by FY18 survey.
positively phrased questions.
The percentage of promoters
less the percentage of detractors
Improved from FY18 and
significantly ahead of the
based on survey and as measured
industry benchmark.
by Kantar.
The total greenhouse gas emissions
Twelve percent reduction
produced by the Group during the
of relative measure and ten
period in tonnes, divided by Group
percent reduction in absolute
Revenue in £m.
emission levels in 2019.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 KPI
FY19 performance
Importance of KPI
Definition
Performance
Adjusted EBITA divided by the
average of capital employed at
the beginning and end of the year.
Capital employed is total assets
except intangible assets, derivatives,
and cash less current liabilities
except current debt items.
Step change in ROCE to
20.8%; already hitting our
2020 framework target
of 20%.
25
Remuneration
linkage
Component of
2019 LTIP.
Track record
FY19
FY18
FY17 (5.1)%
FY16
9.7%
Change
20.8%
4.1pp
16.7%
21.8pp
(14.8)pp
(1.5)pp
Growth of 69.8% driven by
improvement in EBITA.
Adjusted EPS is
a component of
2019 LTIP.
Earnings are defined as profit
before tax after adding back
exceptional items and amortisation
and then charging the prevailing
rate of tax. Earnings are then
divided by the number of shares
in issue assuming the conversion
of any potentially dilutive equity
derivatives outstanding.
Number of events that are
reportable under the Reporting of
Injuries, Diseases and Dangerous
Occurrences Regulations
2013 multiplied by 100,000 and
divided by the hours worked.
41% reduction in rate and
only 11 RIDDORs for the
entire year; evidence of the
commitment to safety existing
throughout the business.
Component
of leadership
incentive plan.
Proportion of responses from
colleague engagement survey
(carried out by Anthem Engagement)
that either Strongly Agree or Agree to
positively phrased questions.
Improved score and increased
completion rate of 74%
following implementation of
plans driven by FY18 survey.
The percentage of promoters
less the percentage of detractors
based on survey and as measured
by Kantar.
Improved from FY18 and
significantly ahead of the
industry benchmark.
The total greenhouse gas emissions
produced by the Group during the
period in tonnes, divided by Group
Revenue in £m.
Twelve percent reduction
of relative measure and ten
percent reduction in absolute
emission levels in 2019.
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY16
Change
2.31p
0.95p
1.36p
11.73p
(10.37)p
(13.31)p
2.94p (0.26)p
0.20
49.1
55.6
0.34
Change
41.2%
12.8%
0.39
2.5%
0.40
16.7%
Change
72.4%
0.8pp
71.6%
4.6pp
67.0%
Growth/(decline)
45
(1.1)%
44
(83.6)%
44
2.5%
42
16.7%
Growth/(decline)
(1.1)%
(83.6)%
91.6
2.5%
[x]
16.7%
Return on Capital
Employed
Continuing operations
20.8%
FY18: 16.7%
Adjusted earnings
per share (diluted)
(EPS)
Earnings of
2.31p
per share
FY18: 1.36p per share
Measure of the return-generating ability of the
business over the longer term and key measure for
leadership incentives.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
See Financial Review page 34
Measure of adjusted profitability per share.
Widely recognised measure of shareholder value
(profit) being generated by a business excluding non-
recurring or exceptional items and amortisation and
after charging the prevailing rate of corporation tax.
Link to Strategy:
→ Delever the Group
→ Transform the Tool Hire business
See Financial Review page 34
Safety is at the heart of how HSS operates.
Link to Strategy:
→ Transform the Tool Hire business
See Sustainability page 40
entire population of colleagues.
Link to Strategy:
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Sustainability pages 39 and 40
A measure of how likely our customers are to
recommend HSS and used to benchmark against the
industry generally.
Link to Strategy:
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See CEO’s Strategic Review page 10
A key measure of the impact we have on the
environment relative to our scale and which allows
progress to be tracked.
Link to Strategy:
→ Transform the Tool Hire business
→ Strengthen the Group’s commercial proposition
See Sustainability pages 38 and 39
Health and safety
(RIDDORs)
Continuing operations
Widely recognised measure of safety in the workplace.
Colleague engagement
Continuing operations
A measure of the level of engagement across the
0.20
FY18: 0.34
72.4%
FY18: 71.6%
45
FY18: 44
49.1
TC02e/£m Rev
FY18: 55.6
Net Promoter Score
Total operations
(NPS)
Greenhouse
gas emissions
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
26
Principal Risks and Uncertainties
Managing risk
The Group has risk management and internal
control processes which identify, assess and
manage the risks likely to affect the achievement
of strategic priorities and performance objectives.
Ownership
The Board sets the strategic priorities
and relevant KPIs for the Group, monitors
performance against these measures and
establishes the risk appetite.
likelihood of the risk occurring, taking into
account the effect of these controls, being the
residual risk. This assessment is compared
with the Group’s risk appetite to determine
whether further mitigating actions are required.
Overall responsibility for the principal risks lies
with the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), with specific
mitigating actions and controls owned by
senior management. The Group risk register
is maintained by the Risk and Assurance
Director and is collectively reviewed in detail
by the Executive Management Team (EMT)
on a quarterly basis with changes to the
risk landscape, assessment and mitigating
actions agreed.
Identification
Risks are identified through a variety of
sources, both external, to ensure that
developing risk themes are considered, and
from within the Group. This process is focused
on those risks which, if they occurred, would
have a material financial or reputational impact
on the Group.
Assessment
Management identifies the controls in place
for each risk and assesses the impact and
Monitoring
A risk-based internal audit programme is
in place to ensure that assurance activity
is targeted at key risk areas. Risk-based
assurance work is then reported to the Audit
Committee on a quarterly basis for review.
In addition, the Risk and Assurance Director
reports to the EMT and the senior management
team on a monthly basis to review the
findings of risk-based assurance activity and
investigation, provided by the internal audit and
Health, Safety, Environment and Quality (HSEQ)
teams.
COVID-19
Since the balance sheet date, the COVID-19
pandemic risk has emerged. The situation
is under close review by management with
immediate actions taken as set out below.
The pandemic has a material impact on the
following risks; Macroeconomic conditions
and Financial.
Description and impact
Mitigation
“ Meeting the Executive Team each
month to discuss risk and assurance,
with quarterly deep dives, has been
hugely beneficial. It has enabled agility
in our response to emerging threats
and opportunities, essential to keep
business performance on track in an
uncertain economic environment.”
Mark Shirley
Risk and Assurance Director
The Three Lines of Defence
The ‘Three Lines of Defence’ model
is a way of explaining the relationship
between the various functions within
HSS in a way to provide the Board and
the EMT with assurance that risk is
appropriately managed. This is achieved
by dividing responsibilities as follows
→ The first line of defence – functions
that own and manage risk.
→ The second line of defence –
functions that oversee or specialise in
risk management, compliance.
→ The third line of defence – functions
that provide independent assurance,
in the HSS case primarily internal
audit (IA).
COVID-19 – impact on demand
The COVID-19 pandemic has a material
adverse impact on demand and therefore
financial performance leading to significantly
reduced liquidity and a breach of the net
debt leverage covenant in place under our
debt facilities.
COVID-19 – impact on supply
COVID-19 leads to disruption in supply for our
customers due to site closures.
Our supply chain is adversely impacted by
restricted access to spares leading to reduced
product availability for our customers.
COVID-19 – impact on safety
COVID-19 has an adverse impact on the health
and safety of our colleagues.
The Group has modelled various downside scenarios and assessed the impact on liquidity
and covenants.
Immediate actions taken include the deferral of capital expenditure, overhead reduction,
taking advantage of tax relief measures and utilising the Government’s job retention scheme.
These scenarios have formed the basis for discussions with the Group’s lenders, who have
expressed commitment to the business and support for the Board’s response.
We continue to work with the lenders to ensure that appropriate liquidity is in place and we
have covenant flexibility.
The Group has strong business continuity plans to ensure continuity of supply.
Colleagues at our head office have been provided with laptops to enable home working
and this was thoroughly tested prior to lockdown, with flexible working patterns put in
place to reduce the risk of an entire function being impacted by the virus at the same time.
Since lockdown head office has been closed.
We continue to work with our suppliers to ensure that appropriate spares are available within
the UK. At this stage there are limited impacts to supply.
Stricter hygiene procedures have been implemented across all of our locations with only a
limited number being operational since lockdown.
Operational processes have been changed including removing the need for customers to sign
on glass for deliveries and a contact free click and collect service.
Support is in place for colleagues who need to self-isolate. Work patterns were changed to
support remote working, especially for those colleagues with underlying health conditions
or dependants.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 27
Risk management framework
Board/Audit Committee
Executive Management Team
1 First line of
defence
2 Second line
of defence
3 Third line
of defence
→ Management controls
→ Financial control
→ Internal audit
→ Internal control process
→ Investigations team
→ Risk management
→ HSEQ team
→ CRSA (Mgt audit)
E
x
t
e
r
n
a
l
A
u
d
i
t
I
n
d
u
s
t
r
y
(
H
A
E
)
a
n
d
I
S
O
A
c
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e
d
i
t
a
t
i
o
n
s
2019 risk management developments
Through 2019 the Group has continued to improve its approach
to the management of risk and assurance, which is a monthly
agenda item for the EMT to review.
→ Control risk self-assessment (CRSA) has improved through the
introduction of an audit for Operations Managers to complete.
→ Reporting has been improved to show more detail and depth
around equipment quality checks, comparing CRSA
performed by Regional Managers against independent checks
by HSEQ and IA with follow up training to improve assessment
consistency.
→ A monthly review of quality audits is chaired by the Managing
Director Operations to help identify any product performance
issues and training enhancements. IA and HSEQ are
represented at these meetings.
→ The Group’s business intelligence tools are being utilised to
improve the analysis of audit results. This will help us to link
findings across assurance areas, drawing in additional data to
supplement audit findings or put them into context.
→ IA and HSEQ attend the monthly MD meetings to discuss
findings and help ensure that the teams are involved in any
discussions related to business change.
Planned improvements to risk management
process
We are working across assurance teams to improve the
automation of reporting and audit findings, to help identify trends
and better prioritise where we should focus activity.
→ Improve the ease of near miss reporting to help reduce
accidents and reinforce the importance of challenging unsafe
behaviour. This will be incorporated into the existing accident
reporting.
→ Launch an improved customer distribution centre audit.
→ Introduce tracking metrics focused on workshop performance
to improve profitability and highlight any anomalies worthy of
investigation.
→ A senior HSEQ adviser has been recruited to head up accident
investigation, bringing improved subject matter expertise.
→ IA engagement in assessing risk and shaping controls for new
processes and systems as part of the ongoing strategy
execution.
→ Increased engagement with specialist third party companies to
provide expertise for emerging risks such as cyber risk.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
28
Principal Risks and Uncertainties continued
Principal risks and strategy
The Board has carried out a robust assessment of the principal
financial and operating risks facing the Group, including those that
would threaten its business model, future performance, solvency or
liquidity, based on its three strategic priorities:
→ Delever the business (control cost)
→ Transform the Tool Hire business (increase profit)
→ Strengthen our commercial proposition (growth)
These risks, how they have changed and how they are mitigated are
shown in the table below.
Risk change
→
Increasing –
due to impact
of COVID-19
→
Increasing –
risk of price
deflation
in market
Key risks
Description and impact
Mitigation
Macroeconomic
conditions
An economic downturn in the UK and Ireland
may adversely affect the Group’s revenue and
operating results by decreasing the demand for its
services and the prices it may charge.
The COVID-19 pandemic leads to significantly
reduced global economic activity including
customers unable to operate due to enforced
lockdowns to slowdown the spread of the virus.
Competitor
challenge
The Group’s industry is highly competitive, and
competition may increase. The equipment rental
industry is highly fragmented, with competitors
ranging from national equipment rental companies
to smaller multi-regional companies and small,
independent businesses operating in a limited
number of locations. Competition in the market
could lead to excess capacity and resultant
pricing pressure.
The Group focuses on the ‘fit-out, maintain and
operate’ markets, which are less cyclical, less
discretionary and have a larger proportion of
recurring spend than the new-build construction
sector. While the Group is not isolated from
the construction sector, it focuses on the non-
construction portion of the market, with specific
exposure in the facilities management, retail,
commercial fit-out, property, utilities and waste,
infrastructure and energy services markets.
The actions already implemented are set out
in the detailed COVID-19 risk table on page
26. Monitoring of the developing situation and
appropriateness of the implemented mitigating
actions is reviewed daily by the EMT.
The Group is ranked second or third in each of
its primary markets and the resulting economies
of scale enable it to be highly competitive, whilst
the fragmented nature of the market may offer
consolidation opportunities.
The Group’s national presence, effective distribution
service model and well-maintained fleet provide
improved customer availability.
Through its Services business, the Group provides
customers with access to a significantly wider range
of products and complementary services such as
training courses.
A key part of the strategy is to Strengthen the
Group’s commercial proposition. Following on
from an extensive customer segmentation review,
focused plans to differentiate further through the
development of the Digital and Services business
offer were designed. Implementation to date has
been in line with planned timescales and the Group’s
governance process.
A central trading team has been set up to monitor
and manage changes in price, providing controls to
ensure effective margin management.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 29
Risk change
_
_
_
Key
_ Unchanged
→ Increased
→ Decreased
Key risks
Description and impact
Mitigation
Strategy
execution
Failure to successfully implement the Group’s
strategic plans could lead to lower than forecast
financial performance in terms of both revenue
growth and cost savings.
Customer service
The reliable supply of safe, good-quality and
well-maintained equipment in a timely and
cost-effective manner is critical for delivery of the
Group’s customer promise.
The provision of the Group’s expected service
levels depends on its ability to efficiently transport
hire fleet across the network to ensure that it
is in the right place, at the right time and of the
appropriate quality.
The Group is dependent on its relationships with
key suppliers to obtain equipment and other
services on acceptable terms.
Any disruption in supply, reduced availability
or unreliable equipment can reduce potential
revenue and drive additional operating costs into
the business. In addition, a decline in the Group’s
customer service levels could result in a loss of
customers and market share.
Enforced closures to slowdown the spread of
the COVID-19 virus impact continuity of supply to
our customers.
A clearly defined and communicated strategic plan
has been established with appropriate performance
metrics and key performance indicators.
Prioritised projects have been identified to
deliver the strategic plan and have been
appropriately resourced.
A clear governance structure has been established,
with accountabilities designed to support delivery on
time, to quality and within budget.
Implementation of projects is monitored by the EMT
with regular updates, including initiative specific deep
dives, to the Board.
The Group has a flexible national distribution model
incorporating CDCs which support the branch
network. This flexibility ensures that supply can
be maintained in the event of a failure at any CDC.
Performance is continually monitored to identify
areas where the efficiency, and therefore cost, of the
network can be improved.
Extensive colleague training is conducted to ensure
that testing and repair quality standards continue to
be maintained.
The Group makes every effort to evaluate its
counterparties prior to entering into significant
procurement contracts and seeks to maintain a
range of suppliers.
A number of business accreditations are maintained,
including ISO, which provides our customers with
confidence in the quality of the services provided.
Following recent Government instruction in response
to COVID-19, the majority of branches have been
temporarily closed. The Group has moved to a
distribution and click and collect model through its
national customer distribution centre network and
OneCall re-hire business.
Third party
service
A significant amount of the Group revenue is
derived from the Services business which is
dependent upon the performance of third party
service providers. If any third parties become
unable or refuse to fulfil their obligations, or violate
laws or regulations, there could be a negative
impact on the Group’s operations leading to an
adverse impact on profitability and publicity.
Outsourcing of services by the Group is subject to
stringent procurement and service criteria and all
contracts are subject to demanding service level
agreements. Performance and quality KPIs are
monitored on an ongoing basis.
The wide and diverse range of OneCall suppliers
provides flexibility to select those who meet the
required service levels.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 30
Principal Risks and Uncertainties continued
Risk change
→
Increased –
due to the
importance
of digital to
our strategy
Key risks
Description and impact
Mitigation
IT infrastructure
The Group requires an agile IT system that
supports the delivery of its strategic plan.
Where this involves third party technology it is
critical that this is effectively integrated into the
Group’s core systems.
All Group systems need to be appropriately
resourced to support the delivery of day-to-day
business operations. Any IT system malfunction
may affect the ability to manage its operations
and distribute its hire equipment and services to
customers, affecting revenue and reputation.
An internal or external security attack could lead
to a potential loss of confidential information and
disruption to the business’ transactions with
customers and suppliers.
The current IT system has been fully reviewed and,
following extensive due diligence, the Group has
engaged with third party technology providers to
develop organisational agile capacity ensuring that
current and future IT systems are optimised to deliver
the strategic plan.
Third party specialists continue to be engaged to
assess the appropriateness of IT controls, including
the risk of malicious or inadvertent security attacks.
This includes penetration testing on a regular basis
to detect weakness in our IT and cyber security.
Any resultant actions are prioritised through the
Group’s governance process. Historically this has
resulted in the implementation of additional software
to identify any attack or attempt to download
personal data in addition to already existing firewalls.
Disaster recovery tests are carried out on a regular
basis and appropriate back-up servers are in place
to manage the risk of primary server failure.
A cross-departmental Data Governance Team is
in place to ensure that business process are, and
continue to be, adequate.
Financial
To deliver its strategic goals the Group must have
access to funding at a reasonable cost.
The impact of COVID-19 could lead to a breach of
financial covenants and requirement for additional
liquidity due to significantly reduced demand and
delays in customers settling their debt.
Some of the Group’s customers may be
unwilling or unable to fulfil the terms of their rental
agreements with the Group. Bad debts and
credit losses can also arise due to service issues
or fraud.
Unauthorised, incorrect or fraudulent payments
could be made, leading to financial loss or delays
in payment which could adversely affect the
relationship with suppliers and lead to a disruption
in supply.
The actions already implemented are set out in
the detailed COVID-19 risk table on page 26.
The monitoring of the developing situation and
appropriateness of the implemented mitigating
actions is reviewed daily by the EMT.
→
Increasing –
due to impact
of COVID-19
Working capital management remains a clear focus
with cash collection targets (which roll up into our
net debt and ROCE KPIs) cascaded throughout
the business. These are reviewed by the EMT on a
regular basis.
The risk of fluctuating interest rates reducing
profitability has been mitigated by entering into an
interest rate cap arrangement.
The Group runs extensive credit checking for its
account customers and maintains strict credit control
over its diversified customer base. Credit insurance
is in place to minimise exposure to larger customer
default risk.
The Group’s investigation team conducts proactive
and reactive work in order to minimise the Group’s
exposure to fraud, and provides ongoing training in
this area.
Payments and amendments authority is defined
by the Group’s authorisation matrix with periodic
IA risk-based audits to ensure that they are being
adhered to.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 31
Risk change
_
Key
_ Unchanged
→ Increased
→ Decreased
Key risks
Description and impact
Mitigation
Inability to attract
and retain
personnel
The Group needs to ensure that the appropriate
people resources are in place to support the
existing and future growth of the business.
Failure to attract and retain the necessary high-
performing colleagues could adversely impact
targeted financial performance.
The Group regularly benchmarks market rates and
seeks to ensure a competitive pay and benefits
package. It also focuses on building the right
working environment for its colleagues. Training for
colleagues is provided at all levels to build capability
and improve compliance. Training is job related and
behaviour focused, all through blended learning.
Colleague engagement surveys are conducted, with
actions taken as a result of the feedback.
Integral to enabling delivery of the Group’s strategic
goals are a series of people-related projects.
These projects are aimed at colleague retention and
engagement including embedding Group values,
targeted management development, expansion of
apprenticeships and increased communications at
all levels. These are managed and monitored through
a clear governance structure.
Safety, legal and
regulatory
requirements
Failure to comply with laws or regulation, such as
the Companies Act 2006, accounting regulations,
health and safety law, the Bribery Act 2010,
Modern Slavery Act 2015, Criminal Finances
Act 2017 or General Data Protection Regulation
(GDPR), leading to material misstatement and
potential legal, financial and reputational liabilities
for non-compliance.
The Group operates in industries where safety
is paramount for colleagues, customers and the
general public. Failure to maintain high safety
standards could lead to the risk of serious injury
or death.
Robust governance is maintained within the Group
including: a strong financial structure; assurance
provision from internal and external audit; and
employment of internal specialist expertise
supported by suitably qualified and experienced
external practitioners.
_
Since the introduction of GDPR, the Group’s Data
Governance Team has continued to meet regularly to
review and monitor progress and developments.
Training and awareness programmes are in
place, focusing on anti-bribery, anti-modern
slavery, anti-facilitation of tax evasion and data
protection legislation.
Colleagues are encouraged to raise concerns
through the policy, either through their line
manager, via any of our three whistleblowing
officers (anonymously, should a colleague so
wish) or via ‘Protect’, an independent charity
specialising in whistleblowing advisory services.
The Audit Committee reviews all whistleblowing
cases, including gaining satisfaction of
appropriate resolution.
The Group operates a clear health and safety policy
with ongoing risk management, monitoring of
accidents and colleague engagement overseen by
the EMT and a Health and Safety Forum comprising
senior managers. Additional assurance and support
is provided by a fully skilled HSEQ team and an
internal Group investigation team.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 32
Financial Review
A year of
strong financial
progress
“ 2019 has been another
year of significant financial
progress with excellent
execution of our strategic
initiatives leading to
continued improvement in
profit margins and returns.”
Financial highlights
Revenue
£328.0m
FY18: £322.8m
Adjusted EBITDA
£63.9m
FY18: £60.0m
Adjusted EBITA
£26.5m
FY18: £22.1m
Paul Quested
Chief Financial Officer
Operating profit
£16.8m
FY18: £11.2m
Reported EPS (basic and diluted):
Loss of
(3.66)p
FY18: loss of (3.76)p
Adjusted EPS (diluted)
2.31p
FY18: 1.36p
Leverage
2.8x
FY18: 3.3x
(total Group – continued and
discontinued operations)
ROCE
20.8%
FY18: 16.7%
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 33
Financial highlights – continuing operations
£m
Rental
Services
Group
Revenue
Contribution(1)
Adjusted EBITDA(2)
Adjusted EBITA(2)
Operating profit(2)
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
£229.0m £226.0m £155.5m £155.4m
£99.0m £96.8m £15.5m
£14.6m
£328.0m £322.8m £171.0m £169.9m £63.9m £60.0m £26.5m
£22.1m £16.8m
£11.2m
(1) Contribution is defined as revenue less cost of sales (excluding depreciation and exceptional items), distribution costs and directly attributable costs (for
each segment).
(2) These measures are not reported on a segmental basis because branch and selling costs, central costs and exceptional items (non-finance) are allocated
centrally rather than to each reportable segment.
Overview
It is pleasing to report that the Group has built
upon last year’s strong financial performance
to deliver the highest ever level of Adjusted
EBITDA on a comparable basis with expansion
in profit margins and a step change in ROCE
as we deploy our insight tools to drive better
investment decisions.
This has been delivered through the continued
execution of our strategic initiatives leading
to higher revenues, against the backdrop of
a broadly flat rental market, and improved
operational efficiency, a combination of
the implementation of larger projects and
increased cost consciousness across the
whole organisation.
Net debt leverage continued to reduce towards
our medium-term targets with a stronger focus
on working capital management and lower
total net debt following partial repayment of
the term facility with the proceeds of the UK
Platforms disposal, completed in January
2019. The Financial Statements for 2019 are
presented on a continuing operations basis
and therefore exclude UK Platforms.
Our focus in 2020 must now shift to face the
clear risks presented by the global COVID-19
pandemic. We are entering a period of
significant uncertainty with reduced economic
activity. Our primary focus is the safety of
our colleagues, customers, suppliers and
other stakeholders. It is critical to preserve
cash and a number of actions have already
been implemented to achieve this goal as
set out later in my review. We are also in
discussions with lenders to support the Group
through this period and these discussions
have been positive with commitment to the
business expressed.
Revenue
Group revenue improved by 1.6% to £328.0m
(FY18: £322.8m) ahead of the forecast UK tool
and equipment hire market growth rate of 0.4%
for 2019 as estimated by the ERA. The main
drivers of improvements were:
→ an increase in Rental revenues, to £229.0m
(2018: £226.0m) through targeted
investment, improved availability following
further changes to our operating model and
various sales initiatives; and
→ another year of strong growth in our
Services revenues, up 13.6% on a
like-for-like basis (excluding the volume loss
associated with a change to one managed
service contract) to £99.0m (2018: £96.8m),
mainly driven by performance in our rehire
business, HSS OneCall, supported by
further growth from our HSS Training
business.
Group revenue and Rental and related
revenues growth are two of our KPIs as,
combined with estimates of market size and
growth rates, they provide us with a measure
of our market share. We performed better than
the UK tool and equipment hire market during
the year for the reasons set out above.
Segmental performance
Rental revenues
Our Rental revenues were up 1.3% year on year
at £229.0m (FY18: £226.0m) and accounted for
69.8% of revenue from continuing operations
(FY18: 70.0%). Targeted investment in more
profitable product ranges and the benefit of
significant changes to our operating model in
2018, returning the testing and maintenance
back into the network, improved availability for
our customers throughout 2019, supporting
revenue growth. Cost initiatives, including
the removal of the cross-dock facility, further
improved profit margins.
Contribution, defined as revenue less cost of
sales (excluding depreciation and exceptional
items), distribution costs and directly
attributable costs, of £155.5m (FY18: £155.4m)
was marginally higher year on year, reflecting
improved revenue and reduction in operating
costs offset by product mix as we drive
more ancillary sales and less, higher margin,
seasonal product.
Services
Services revenues increased on a like-for-like
basis by 13.6% to £99.0m (FY18: £96.8m)
and accounted for 30.2% (FY18: 30.0%) of
Group revenues. This was principally due to
continued growth in HSS OneCall and further
improvements in HSS Training. Our Services
revenues benefited from existing and new key
account contracts where our one-stop shop
offering provides clear market differentiation.
Contribution from Services grew by 6.4%
to £15.5m (FY18: £14.6m), well ahead of
the reported revenue growth rate, reflecting
continued focus on effective margin
management and operational efficiency with
the increased volume managed through a
single central team.
Costs
Our cost analysis set out below is on a reported
basis and therefore includes our one-off costs
associated with streamlining the network
and other exceptional items. Year on year
variances driven by such costs are identified in
the commentary.
Our cost of sales increased by 2.9% from
£145.5m to £149.7m, mainly reflecting the
growth in our Services revenues (principally
HSS OneCall) and the associated third party
supply costs incurred to support this activity.
Distribution costs reduced to £33.2m
(2018: £34.0m) reflecting the benefit of cost
actions taken in the year.
Our administrative expenses decreased by
2.8% from £132.5m to £128.8m as a result
of operational efficiency and the benefit
of previous cost action flowing through.
Included within administrative expenses is
£4.1m of exceptional items (2018: £5.0m) – refer
to the exceptional items section of this review
for more detail.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 34
Financial Review continued
“ The growth in our OneCall and Training businesses
demonstrate our ongoing transformation into a less
capital intensive business, which allows us to offer
a broader range of services to customers while
improving returns for our investors.”
Adjusted EBITDA and Adjusted EBITA
Our Adjusted EBITDA for 2019 was 6.6%
higher at £63.9m (2018: £60.0m) driven by
improved revenue, both Rental and Services,
combined with increased operational efficiency.
As a result, the Group’s Adjusted EBITDA
margin from continuing operations for FY19
was 19.5% (FY18: 18.6%). Adjusted EBITDA
and margin are included in our KPIs.
Our Adjusted EBITA improved to £26.5m
(FY18: £22.1m) largely as a result of improved
revenue, operational and capital efficiency.
Adjusted EBITA margin increased by 19.1%
to 8.1% (FY18: 6.8%).
Adjusted EBITA and margin are included
in our KPIs.
Other operating income
Other operating income of £0.5m (2018: £0.5m)
reflects the income received from the sub-
letting of unutilised space across our network.
We continued to optimise our estate in 2019
and maintain our monitoring of the portfolio
to identify revenue opportunities or to pursue
attractive lease surrender options as and when
they arise.
Operating profit
Our operating profit increased from £11.2m in
2018 to £16.8m in 2019, driven by improved
revenue and operating performance.
Exceptional items
We have incurred exceptional expenditure
in a number of areas of the business as we
seek to make cost reductions in order to take
the business forward in the coming years.
These totalled £6.0m (2018: £6.4m).
During the year the Group consolidated
its head office operations, reducing space
requirements, and closed its Tottenham
CDC to enable greater operational efficiency.
These closures resulted in the recognition of an
exceptional cost of £3.1m relating to onerous
leases and an impairment of £0.4m of property,
plant and equipment at these sites. No other
branches were closed (2018: 12).
20.8%
A step change in ROCE from 16.7% in 2018
A net credit of £0.2m has been recognised
relating to revisions of dark store and onerous
lease provisions.
In addition, and in light of headwinds in the
market, the Group undertook initiatives to
reduce cost. These resulted in closure costs of
a centre used to refurbish hire stock and costs
to exit contracts related to the operation of a
cross-dock facility used to redistribute assets
across the network. Internal restructuring was
also carried out, resulting in £0.8m of total
costs which include £0.6m redundancy costs
(2018 £1.1m of redundancy costs).
Profit on disposal of UK Platforms
The disposal of UK Platforms resulted in a profit
on disposal of £14.8m in 2019. In 2018 the
group recognised £2.1m of costs incurred in
relation to the disposal.
Proceeds were used to partially repay
the senior finance facility resulting in the
accelerated amortisation of related debt
issue costs of £1.9m in 2019. In 2018 there
was a charge of £1.5m associated with the
termination of the previous debt facility earlier
than scheduled following the successful
refinancing of the Group.
Strategic review (2018 only)
Following the appointment of the new Chief
Executive Officer in 2017, a thorough Strategic
Review was carried out by the Group. Non-
recurring third party consultancy costs of
£1.0m were incurred for the period ended
29 December 2018 to support this review.
No further costs were incurred in 2019.
Finance costs
Net finance expense (finance expenses
less finance income) increased to £22.6m
(FY18: £20.4m). This increase is driven by the
interest expense associated to the new Group
facilities following the successful refinancing in
July 2018.
Taxation
The Group has a net tax charge of £0.4m
compared with a credit of £2.7m in FY18.
The Group made an overall loss for tax
purposes in the UK, and the key components
of the current year charge are the release of
the previously recognised deferred tax asset
of £2.5m, partially offset by a reduction in tax
suffered in Ireland (£1.3m) and the release of
deferred tax liabilities held in respect of fixed
assets (£0.9m).
Reported and adjusted earnings
per share
Our basic and diluted reported loss per share
decreased to a loss of 3.66p (FY18: loss of
3.76p) due to the smaller loss generated in
the year.
Our basic adjusted earnings per share, being
profit from continuing operations before
amortisation and exceptional costs less
tax at the prevailing rate of corporation tax
divided by the weighted average number of
shares, moved from 1.51p in FY18 to 2.76p
in FY19. Our diluted adjusted earnings per
share, calculated in the same manner as
basic adjusted earnings per share but with the
weighted average number of shares increased
to reflect Long-Term Incentive Plan (LTIP) and
Sharesave options, was earnings of 2.31p
(FY18: 1.36p). These reflect the significant
improvement in Adjusted EBITA in FY19
compared with FY18. Adjusted EPS (diluted) is
one of our KPIs and is also used to assess the
remuneration of Executive Directors.
Capital expenditure
Additions to intangible assets and property,
plant and equipment in the year were £33.7m
(2018: £31.8m), largely in relation to hire stock
used to support our rental businesses with
other amounts spent on property and software
development. £27.1m (2018: £22.6m) was
spent on hire fleet, with targeted investment on
profitable products supported by the Group’s
new insight tools. The remaining £6.6m was
spent on non-hire additions (software and
property, plant and equipment) (2018: £9.2m),
the increase in investment supporting the digital
and OneCall system initiatives.
Return on capital employed
Our ROCE for 2019 was 20.8% compared
with 16.7% for FY18. ROCE is calculated as
Adjusted EBITA from continuing operations
divided by the total of average total assets
(excluding intangible assets and cash) less
average current liabilities (excluding current
debt items). Adjusted EBITA improved by
£4.4m (2018: £28.9m improvement) whilst
the average capital employed by the Group
decreased by 3.5% from the level calculated
at the end of 2018, reflecting depreciation
and asset disposals being higher than capital
expenditure. ROCE is one of our KPIs and
is also used to assess the remuneration of
Executive Directors.
Provisions
Significant onerous contract provisions were
established during 2017 as part of the changes
made to the operating model and to streamline
operations. Of the onerous contract related
to exiting arrangements with Unipart, £3.6m
was utilised in the year leaving £19.6m as
the closing provision to be utilised over the
remaining six years of the contract.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 35
The Group also has onerous lease provisions
associated with properties that are fully or
partially vacant. £2.6m of the provision was
utilised in the year. The other movements in the
provision have been discussed as part of the
exceptional items section of this review.
The Group’s dilapidations provision has
decreased from £16.8m to £16.2m.
Cash generated from/utilised in
operations
Net cash generated from operating activities
was £22.2m for FY19, an increase of £2.4m,
with £1m of the improvement generated
through improved EBITDA offset by working
capital movements and the balance being
a combination of reduced outflow on hires
equipment purchases offset by higher
interest costs.
Leverage and net debt
Net debt (stated gross of issue costs)
decreased by £56.0m to £179.5m
(FY18: £235.5m).
As at 28 December 2019 the Group had
access to £59.3m (2018: £44.7m) of combined
liquidity from available cash and undrawn
committed borrowing facilities. Our leverage,
calculated as net debt divided by Adjusted
EBITDA, decreased from 3.3x in FY18 to
2.8x at the end of FY19. This was primarily
due to the increase in Adjusted EBITDA
generated in FY19, improved working capital
management and the overall reduction in net
debt following the disposal of UK Platforms.
Leverage or Net Debt Ratio is one of our KPIs
and is also used to assess the remuneration of
Executive Directors.
Prior year adjustment
During the year the Company identified a
historical error related to the understatement of
customer deposits for certain cash customers
when litigation action was taken. The impact
in each financial year is immaterial; however,
the cumulative impact is to reduce reserves
by £1.0m and increase other creditors by the
same amount. Separately, changes made to
processes in 2018 mean that the issue has not
reoccurred in 2018 or 2019. The treatment and
impact on the Financial Statements has been
set out in note 1g.
Use of alternative performance
measures to assess and monitor
performance
In addition to the statutory figures reported
in accordance with IFRS, we use alternative
performance measures (APMs) to assess the
Group’s ongoing performance. The main APMs
we use are adjusted EBITDA, adjusted EBITA,
adjusted profit before tax, adjusted earnings
per share, leverage (or Net Debt Ratio) and
ROCE, which, with the exception of adjusted
profit before tax, are included in our KPIs as set
out on pages 22 to 25.
We believe that Adjusted EBITDA, a widely
used and reported metric amongst listed and
private companies, presents a ‘cleaner’ view
of the Group’s operating profitability in each
year by excluding exceptional costs associated
with non-recurring projects or events,
finance costs, tax charges and non-cash
accounting elements such as depreciation
and amortisation. This metric is used to
calculate any annual bonuses payable to
Executive Directors.
Additionally, analysts and investors assess our
operating profitability using the adjusted EBITA
metric, which treats depreciation charges as
an operating cost to reflect the capital-intensive
nature of the sector in which we operate.
Analysts and investors also assess our
earnings per share using an adjusted earnings
per share measure, calculated by dividing
an adjusted profit after tax by the weighted
average number of shares in issue over the
period. This approach aims to show the
implied underlying earnings of the Group.
The adjusted profit before tax figure comprises
the reported loss before tax of the business
with amortisation and exceptional costs
added back. This amount is then reduced by
an illustrative tax charge at the prevailing rate
of corporation tax (currently 19%) to give an
adjusted profit after tax. Adjusted earnings per
share is used as a performance metric for the
vesting of 2017 market value options and 2019
LTIP awards.
The calculation of Adjusted EBITDA and
Adjusted EBITA can vary between companies,
and a reconciliation of Adjusted EBITDA and
Adjusted EBITA to operating profit/(loss) and
adjusted profit before tax to loss before tax is
provided on the face of the Group’s income
statement. A reconciliation of reported loss
per share to adjusted earnings per share is
provided in note 13 to the Financial Statements.
In accordance with broader market practice
we comment on the amount of net debt in
the business by reference to leverage (or
Net Debt Ratio), which is the multiple of our
Adjusted EBITDA that the net debt represents.
This metric is also used in the calculation of any
annual bonuses payable to Executive Directors.
We use ROCE to assess the return (the
Adjusted EBITA) that we generate on the
average tangible fixed assets and average
working capital employed in each year.
We exclude all elements of net debt from
this calculation. This metric is also used as a
performance metric for the vesting of 2019
LTIP awards.
COVID-19
The COVID-19 pandemic has had a major
impact on the global economic outlook.
The risks to the Group of COVID-19 have been
set out in Principal Risks and Uncertainties
on page 26. In response to the pandemic
a number of immediate actions have been
implemented to preserve cash and respond
to the emerging situation. In anticipation of
reduced economic activity; hire fleet capital
expenditure has been deferred, overheads
have been reduced including temporary
reductions in salaries for a number of
colleagues and advantage has been taken
of available tax relief options. Responding to
recent Government instructions, we have
taken the difficult but necessary decision
to temporarily close the majority of our UK
and Ireland branches, entering the impacted
colleagues into Government job retention
schemes. We initially moved to a delivery
only model serving critical customers from
our Customer Distribution Centres and our
OneCall rehire business. This has now been
supplemented with click and collect capability.
As at 28 December 2019, the Group’s financing
arrangements consisted of a fully drawn
senior finance facility of £182m, overdraft and
undrawn revolving credit facilities of £23.2m
and a finance lease lines to fund hire fleet
capital expenditure, of which £13.5m had not
been utilised. Both the senior finance facility
and revolving credit facility are subject to a net
debt leverage financial covenant test every
quarter. At the financial year end the Group
had 30% headroom against this covenant.
Following year end the Group drew down the
RCF in full and at 23 May, the Group had cash
and liquid facility headroom of £66.7m.
It is difficult to quantify the impact of COVID-19
on the current financial year and we have
therefore modelled a number of downside
scenarios as set out in the Corporate
Governance section on page 51. Some of the
scenarios indicate that the financial covenants
would be breached and additional liquidity
would be required. We have already engaged
with the Group’s lenders, sharing these
downside scenarios, and have been pleased
by their continued commitment and support for
the business and the Board’s response to the
COVID-19 pandemic. Whilst we have no reason
to believe that the lenders would not support
the Group should one of these downside
scenarios materialise and a covenant waiver
or additional liquidity is required, the Board
has recognised the material uncertainty this
creates in adopting the going concern basis for
preparing the 2019 financial statements.
Paul Quested
Chief Financial Officer
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 36
Sustainability
Steve Ashmore
Chief Executive Officer
Ensuring
we have
a positive
impact
Introduction from Steve Ashmore
At HSS we recognise that responsibility
and sustainability are key to our long-term
success. As a business with an operational
and distribution model which stretches across
the UK and Ireland, we are committed to
ensuring that we make a positive impact in the
communities we work in.
At its heart, hire is a sustainable business
model, maximising the usable life of equipment
for multiple customers. This starting point gives
us a great platform to build upon, ensuring that
sustainability considerations are explored and
implemented where possible across our Group,
as well as looking forward to new innovations
and technology.
Our Corporate Social Responsibility (CSR)
agenda is managed through key departments
and teams within our business, and I
am the Board representative. Our CSR
Committee comprises Directors from sales,
operations, procurement, health and safety,
fleet, property, human resources and many
more. This governance structure ensures
that sustainability considerations are the
responsibility of all departments. It also ensures
that sustainability plays a key role in decision
making and strategic projects.
In 2019, to help drive progress in our
CSR agenda, we aligned our activity to
the UN Sustainable Development Goals,
a key framework to guide businesses in
implementing positive changes. The three
goals we have identified will help us align our
internal activity and resources towards making
improvements and driving focus.
Throughout this year we have made positive
steps in a number of key areas, and I am
particularly proud of our colleague engagement
activity. Our HSSers really do give our business
their all, so rewarding and supporting them is
absolutely key. Seeing colleagues completing
their mental health first aid training, allowing
them to support others, has been fantastic.
I am really pleased with the positive progress
we have made this year. These results and
activities represent a lot of hard work, and I
would like to thank all of my colleagues for
making it happen.
Steve Ashmore
Chief Executive Officer
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 37
Colleague engagement
Make it Safe
UN Sustainability goals:
72.4%
engagement score
74%
response rate
25
regional ‘Simply Safety’ forums hosted, giving
our colleagues the opportunity
to tell us what we need to improve.
HSS Group RIDDOR rate
0.48
0.5
0.4
0.3
0.2
0.1
0.40
0.39
0.34
0.20
2015
2016
2017
2018
2019
Our ongoing commitment to safe working
practices saw us reducing our RIDDOR
occurrences from 20 in 2018 to just 11 in 2019.
Aligning our activity to UN Sustainability
Goals 3, 9 and 12 will enable us to drive
focus and concentrate our actions where
they will have the biggest impact.
Goal
ensuring the good health and
wellbeing of our colleagues
through our benefits and
support package
building resilient infrastructure
and fostering innovation
through our market leading
digital tools
focusing on responsible
consumption and production
through our supply chain
How we’ve contributed
to sustainability
Responsible recruitment
Driving digital
22
ex-offenders and ROTL (release on temporary
license) colleagues recruited throughout 2019
“ HSS were kind and welcoming
towards me, and it has driven
me to aspire to be better than
the mistakes I’ve made in my
past. I would recommend HSS
to any other persons looking to
better themselves.
ROTL colleague
1,678
colleagues upskilled with training
on our new digital tools
4,816
e-learning courses completed
Equipping our colleagues with the skills
and knowledge to drive forward our new
digital tools.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
38
Sustainability continued
Economic performance and governance
Generating value is what allows responsible
companies to perform for all stakeholders –
delivering financial returns for shareholders,
ensuring continuity of supply and support
for customers and secure employment and
development for colleagues. In 2019 HSS
generated total revenue of £328.0m which was
shared amongst the various stakeholders in the
business – suppliers, their supply chains, local
communities and the government as well as
those already listed.
We operate with integrity across all Group
businesses, to ensure the highest level of
environmental and social governance. We have
robust management structures in place, and
these are regularly reviewed and assessed to
ensure compliance against our own standards
and those which we are audited against.
Sustainable product lines
Hire is intrinsically a sustainable model for
customers looking to procure equipment, but it
is also important that we operate a responsible
review and in-fleeting process to ensure we
offer environmentally friendly product options.
All equipment we consider for purchase goes
through an intensive technical review process
prior to adding it to our range. This includes full
specification and technical mapping, product
performance trials, COSHH assessment
and colleague training considerations.
This thorough review approach extends to
our third party OneCall suppliers, who are
required to complete extensive compliance and
technical questionnaires through our portal, as
well as HSEQ analysis and site visits with our
teams. These processes ensure that we add
the most robust, sustainable product lines to
our ranges across the business.
Offering our customers alternatives to
traditional, higher-emission products is key
towards shifting their mind set, and proving
that products which benefit the environment
also offer the same or improved levels of
performance. LED lighting is a key example:
we have shifted our range towards these more
sustainable options, with LED products making
up over 60% of our lighting stock. Offering a
61% fuel saving compared with traditional
lighting products, these now make up 75% of
our lighting hires.
All of our kit goes through test and run after
every hire, as well as longer maintenance
procedures as needed. This not only ensures
the highest levels of safety, but also helps
to extend the usable life of kit by keeping it
performing at peak levels.
Environmental credentials
The UN sustainable development goals stress
the importance of building sustainable and
innovative infrastructure, and throughout 2019
we have focused on moving some of our key
operational processes to digital platforms
Whilst we already offer colleagues an electric
vehicle as a company car option, the existing
technology which limits miles travelled makes
them an impractical option for certain job roles
which involve a lot of travel. There are also
limitations regarding commercial vehicles and
the loads they can carry; however, we have
started testing these in central London where
the miles travelled are a lot shorter.
Energy and Environmental Management
Within the HSS Hire Group, we have
maintained a strong and measured approach
to environmental legislation. This has ensured
compliance with key and complex legislation
including the Carbon Reduction Commitment
(CRC), together with Energy Saving
Opportunities Scheme (ESOS) and required
public reporting requirements. A detailed
audit recently undertaken by the Environment
Agency resulted in a highly rated assessment
for our approach to CRC management.
This has further supported our environmental
management credentials and accreditation
under ISO 14001.
Within our Group business, we recognise the
importance of developing and advancing an
‘Eco-System’ strategy which will allow us to
measure our environmental performance and
implement improvements. This year we have
developed a series of stepped changes to allow
us to more effectively measure and reduce the
impact that our business and activities have on
the environment, now, and in the future.
We introduced a new energy, carbon and
water bill account management process which
will provide a platform to identify, measure,
and ultimately manage our key environmental
impacts. We are now establishing baseline
data and introducing performance reporting
for our building energy use, carbon emissions,
business travel and water use. These quarterly
environmental performance reports will be
produced for all sites and business operations,
and will include valuable environmental
key performance indicators. This reporting
functionality will provide a platform for site
management improvement, including reduction
programmes (change management) and
identification of cost-effective energy/carbon
reduction strategy measures.
Greenhouse Gas Emissions
The Group reports on all our emission sources
required under the Large and Medium-sized
Companies and Groups (Accounts and
Reports) Regulations 2008 as amended
in 2013. We deploy the Greenhouse Gas
Protocol Corporate Accounting and Reporting
Standard to fulfil the reporting requirements.
This includes verified CRC Energy Efficiency
scheme data and DEFRA conversion factors
to calculate Greenhouse Gas (GHG) emission
disclosures. The extent of the GHG reporting
which allow us to work more responsibly,
and set us up for further improvements
throughout 2020.
Our new driver app gives our drivers everything
they need for the day ahead in the palm of
their hand. They now complete their vehicle
checks, routing, job selection and customer
signing processes through the app, where they
were previously completed through manual,
paper-based processes. The app uses route
planning software to calculate efficient driver
routes which help to reduce the number of
miles driven each day. We are now working
towards removing paperwork such as delivery
notes, fully digitising these documents to
continue reducing the amount of paper we use
as a business.
Other areas of our Group business are also
looking at ways to reduce environmental
impacts where possible. Our HR team now
sends colleague letters via email where
possible, and HSS Training has replaced its
plastic delegate wallets with paper ones which
are easier to recycle.
All our ordering of internal consumables is now
completed via one supplier through an online
portal. Not only has this allowed us to reduce
paperwork associated with ordering, but our
supply partner, Commercial, consolidates
deliveries where possible, and actively attempts
to use minimal packaging for fulfilment.
Commercial also operates the Commercial
Foundation, which reinvests a percentage of
profits into social value projects. So far this year
our activity with Commercial has resulted in
£23,416 being donated to the Foundation.
Efficient fleet management
Our vehicle fleet represents one of our key
areas of environmental impact, and we are
committed to exploring innovative management
practices to help us reduce this where possible.
During 2019 we removed our centralised
cross-dock function, moving to a regional-
based distribution model. This allows us to
operate a more efficient network with fewer
logistical movements.
We also fully implemented our tyre
management strategy across all vehicles,
including company cars. Ensuring that tyres are
maintained in good condition, and swapped
out where necessary, ensures that our vehicles
are operating efficiently.
This year we also launched a project to explore
the use of electric vehicles across our business.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 39
2019
2018
Consumption
Emissions (TCO2e)
Consumption
Emissions (TCO2e)
445,846 kWh
3,868,393 Litres
108,297 Litres
48,242 Litres
90.0
10,162.0
284.5
73.3
1,363,483 kWh
4,302,377 Litres
117,884 Litres
52,695 Litres
268.0
11,186.9
306.5
79.5
10,928,764 kWh
3,387.0
9,999,331 kWh
3,840.0
7,362,765 Miles
2,104.5
16,101.3
7,701,548 Miles
2,260.9
17,941.8
CSR emissions data
£m
Scope 1 emissions
Fuel combustion
Company vehicles
Leeds bunkered diesel
Fugitive emissions
Scope 2 emissions
Purchased electricity
Scope 3 emissions
Business travel
Total greenhouse gas emissions
How we measure emissions
Emission category
Methodology
Fuel combustions
(gas data for HSS
building portfolio)
Company vehicle
emissions
Bunkered fuel
Fugitive emissions
Based on CRC statements provided by gas suppliers for the period
1st April 2018 to 31st March 2019. Estimated data has a 10% uplift
included on the overall emissions total.
Collated using data from direct purchase records for commercial
vehicles in litres and commercial car mileage. This data has been
converted according to Defra Guidelines.
Collated with the use of internal purchase order records converted
according to Defra Guidelines.
Collated with the use of internal purchase order records converted
according to Defra Guidelines.
Purchased electricity
(for HSS building portfolio)
Based on CRC statements provided by electricity suppliers for the
period 1st April 2018 to 31st March 2019. Estimated data has a
10% uplift included on the overall emissions total.
Business travel
Collated from expensed mileage claims and business mileage and
converted according to Defra Guidelines.
Colleague
engagement activities
e
c
n
e
d
u
A
i
i
e
d
w
-
y
n
a
p
m
o
C
e
n
o
-
o
t
-
e
n
O
Colleague
Engagement
Survey
DM to
colleague
homes
CEO/CFO/
CCO
roadshows
360 Feedback
managers
CEO blogs
Email bulletins
Quarterly
results calls &
webinars
HSS Hiya
internal
magazine
HSS
World Intranet
Sales
conferences
Technical
review
Group
Simply Safety
Conferences
Social media
channels
Whistle-
blowing
Monthly
sales &
ops calls and
briefing pack
Your say
mailbox
England
& Wales
mailbox
Whatsapp
groups
Weekly
trading
calls
HRD
breakfast
sessions
Quarterly 121
Performance
Reviews
Site visits
by Directors
Glassdoor
reviews
Executive
safety
forum
Fortnightly
Trading
roundtable
Monthly
Board report
Monthly MD
performance
reviews
Annual
6 monthly
Quarterly
Daily
Frequency
HSS Roadshow 2019
boundary comprises all building and transport
emissions within the three reporting scopes.
We are pleased to report an 11.7% reduction in
relative Greenhouse Gas Emissions (TCO2e/£m
Turnover), to 49.1 (2018: 55.6).
Waste Management
For the past eight years we have partnered
with Biffa to reduce and responsibly dispose of
waste across our network. Throughout 2019
they collected over 1,400 tonnes of waste
from our locations, and were able to increase
the percentage diverted from landfill to 85%
through recycling and treatment processes.
On our hazardous waste streams we partner
with Slicker, who operate a zero to landfill
policy to recycle and recover waste such as
used batteries, oil and other contaminated
materials. 59% of our hazardous waste is oil,
which goes through a repurposing process
to create Processed Fuel Oil (PFO) which is
an environmentally friendly alternative to virgin
fuel. 20% of our waste is recycled, and the
remaining 21% is converted to energy.
Colleague engagement
Engaging our colleagues is central to our
success, and we strive to ensure that our
colleagues feel supported, safe, developed,
and happy at work.
Our values
Integral to our colleague engagement agenda
in 2019 was the launch of our new Company
values and behaviours. These values help
us drive performance, engagement and a
sense of pride amongst our colleagues, as
well as helping us to attract the right people,
whose values align with ours, to our business.
We have seen a really positive response across
our network, with colleagues taking ownership
and adapting their targets and behaviours to fit.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
40
Sustainability continued
“ The whole training programme from start to finish has been informative
and empowering. It was great to have the opportunity to get together
with others across the business to discuss best practice and share
ideas, as well as developing our skills.
I’ve seen a really positive change in my Transport Managers
as well since they started the programme. They’re dealing with
underperformance head on, and the programme has really built their
confidence, helping them to see how their role impacts the wider
business. The whole team really valued spending that time with our
Managing Director and we all have some great memories from the days.
The programme will be so valuable to new starters joining our business.”
Tom McColgan, Operations Manager
2019: 11
2018: 20
Number of RIDDORs in the year
Safety
Safety is one of our core values, and is at the
forefront of everything we do as a business.
Throughout 2019 we put an increased focus on
safety, and this helped us realise a significant
reduction in the number of RIDDORs, taking
us down to a rate of 0.20 per hundred
thousand hours worked for 2019, versus
0.34 in 2018. This was only 11 RIDDORs for
the entire year, down from 20 in 2018. This is
testament to our colleagues’ Work Safe, Home
Safe commitment.
In 2018 we introduced our Simply Safety
forums, regional sessions which allow our
sales and operations colleagues to feed back
on all areas of health and safety, pay and
benefits, property, work wear, communications
and much more. This year we extended
these, inviting over 340 colleagues to attend
25 regional forums to tell us honestly what
they think we can improve. The feedback is
discussed in sessions attended by heads
of departments, as well as Steve Ashmore,
CEO, and Tom Shorten, Chief Commercial
Officer. This feedback then impacts
initiatives throughout the year to improve
colleague wellbeing.
These sessions are supported by our Health
and Safety forums, held bi-monthly with the
EMT to ensure these activities and initiatives
are led from the top, and that our senior
management team understands the challenges
and suggestions from our colleagues.
We have continued to support our safety
agenda with improved product training
and e-learning, as well as monthly ToolBox
Talks, improving the design and format of
these in response to colleague feedback.
We supplement these with regular safety and
technical bulletins, so when we do have an
accident we take immediate action to ensure
it does not happen again. We also installed
health and safety noticeboards in every branch
location to ensure these initiatives stay front of
mind with our colleagues.
Health and wellbeing
Our colleagues are at the heart of our business,
and in line with UN Sustainable Development
Goal 3, which stresses the importance of good
health and wellbeing, we want to ensure that
we equip our colleagues with the benefits and
support they need to live healthy lives, inside
and outside the workplace.
Our ‘Mind Your Head’ campaign aims to
raise awareness of the support we can offer
colleagues who may be struggling with mental
health issues, or those supporting others. As well
as increasing the focus on these issues through
our communications activity and highlighting our
relevant colleague benefits, we also trained 45
colleagues as Mental Health First Aiders so they
can offer additional support to others across our
network. We equipped them with yellow lanyards
so they are easily distinguishable for those who
need someone to talk to.
Our colleague benefits package is also set
up to offer support with the cost of everyday
healthcare services such as dental, optical,
prescriptions and physiotherapy, to ensure no
one goes without due to affordability pressures.
Professional development
Responding to feedback from our 2018
colleague engagement survey, we wanted to
support our Operations Managers in improving
their management styles and confidence
in managing teams, as well as improving
colleague engagement and retention in
those areas. In January we introduced our
development training for Operations and
Transport Managers. The programme includes
modules designed to improve the skill sets of
managers in key areas relating to managing a
team, such as recruitment processes, driving
performance, effective team communications
and commercial awareness, amongst others.
The programme has been extremely well
received by those attending, and we are
continuing with new modules throughout 2020.
Across the rest of our network, our Learning
& Development team has delivered almost
2,000 classroom courses, as well as 16,400
e-learning courses on a variety of topics
designed to support our colleagues in their
roles, as well as developing their careers and
skill sets. Our new digital tools have allowed
us to upskill over 1,600 colleagues with the
skills to use our new management platforms.
Engagement survey
Our annual colleague engagement survey
gathers feedback on colleagues’ job roles,
management and how they feel about life at
HSS. This year we were able to extend our
reach to more colleagues than ever by utilising
our new digital tools to reach those in offline
roles such as drivers. This helped us achieve a
higher completion rate of 74%, which is 1,875
of our colleagues telling us what they think.
Our engagement index for 2019 was 72.4%,
an increase on 2018. The in-depth results
are shared with all colleagues in December,
with actions implemented throughout the
following year. In 2019 some of the initiatives
implemented as a result of the 2018
feedback included:
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 → improvements to the quality of work wear,
and the ordering process;
→ new colleague development programmes
for operational roles;
→ an improved induction programme for
drivers; and
→ health and safety noticeboards installed in
all locations to drive best practice and
accountability.
Colleague feedback and action plans are key
to our engagement agenda across our Group
business, and we are committed to ensuring
that we have measures in place to continue
this activity. A summary of our efforts to date is
included on pages 42 to 43.
response rate (2018: 67%)
74%
72.4%
-1.0%
engagement index (2018: 71.6%)
gender pay gap (2018: -2.9%)
“ Working for HSS Hire and the
opportunity they have afforded
me has given me a sense of
purpose as well as building my
self-esteem. To be considered
an equal amongst my peers has
helped build my confidence.
HSS were kind and welcoming
towards me and treated me
with decency and patience.
Being part of the team here
has helped me greatly and I
would recommend HSS to any
other persons looking to better
themselves to ensure a more
positive future.”
ROTL colleague
Reward
At HSS we are committed to ensuring that we
reward our colleagues in a way which is fair and
representative of their performance, regardless
of gender.
The hire industry as a whole is typically
male dominated, and our workforce reflects
this trend, currently being made up of
85% male colleagues, and 15% females.
Throughout 2019 we have made efforts to
reduce potential gender bias through our
recruitment processes, ensuring that job
descriptions and interview questions are
worded in a neutral manner, and ensuring that
artwork and photography depicts the broad
range of our roles and colleagues across
the Group.
In 2019, our median gender pay gap shifted
marginally from -2.9% to -1.0%, primarily due
to one senior female colleague leaving the
business. For clarity, a negative gender pay
gap denotes that female colleagues earn more,
on average, than their male counterparts.
We are committed to ensuring that colleagues
are being rewarded fairly based on role and
contribution, as we continue to work towards
gender pay parity.
Inclusive recruitment
As a responsible business we strive to
create a diverse workforce which truly
represents the communities we work in.
Regardless of an individual’s gender, religious
beliefs, background, disabilities, ethnicity or
sexual orientation, we want to attract, engage
and retain the best people for our business.
Our business is made up of 85% male and 15%
female colleagues. The industry is very similar
to others, like construction, where the majority
of roles are typically held by men. We have a
number of processes and initiatives in place to
ensure we are offering opportunities to women,
and creating a culture where they can build
their careers with HSS.
Over the course of this year we focused
on expanding our inclusive approach to
recruitment to begin offering opportunities to
ex-offenders, and those on temporary release
from prison. We have worked with prisons
and support organisations up and down the
41
Winner, Best Use of Recruitment Award 2019
for our work with ex-offenders
UK to encourage applications from those
with criminal convictions who are looking to
get back into work. This activity ensures that
we recruit the best people for each role, with
recruiting managers focusing on the skills and
experience a candidate has to offer, rather than
what they may have done in their past.
Since launching the programme, we have
placed 22 colleagues into roles across
operations, sales and our head office. Not only
does this activity help ex-offenders get back
into work and those working on an ROTL
basis, it also provides value to communities by
reducing re-offending rates.
We were really pleased to be nominated
by Greggs and DHL for the Best Use of
Recruitment Award at the Employers’ Forum
for Reducing Re-offending (EFFRR) in 2019.
We went on to win the award in recognition of
the positive progress we made in this area.
Our training business, HSS Training, has also
started working with Victoria London Prison,
exchanging the use of space to host PASMA
and ladder safety training courses for free
delegate spaces for inmates nearing release.
This equips them with vital training for careers
in construction and related industries.
Charitable support
Supporting charitable causes and projects is
key to our commitment towards positive social
value, and we implement this in a number of
ways. Registered charities can receive at least
a 35% discount on hiring equipment from us,
and our regional teams have supported smaller
community projects throughout the year, such
as donating fencing to an RSPCA shelter in
Wakefield and supplying portable welfare
facilities for a hospice charity walk in Kilbryde.
When we consolidated our office space at
our Manchester head office, we donated the
furniture to local schools and charitable groups.
Our Pennies From Heaven initiative allows
colleagues to donate the change from their
monthly salary to charity, and this year we
donated over £7,000 to Dementia UK, Cancer
Research UK and the British Heart Foundation.
We also donate the 5p charge for our carrier
bags to Dementia UK.
HSS Roadshow 2019
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
42
Engaging with our stakeholders
Summary of key engagement activities during FY19:
Nature of engagement
Conclusions drawn from engagement
Shareholders/investors
1 Investor
meetings
2 Remuneration
The Executive Directors have met with various groups of prospective
investors during FY19 in order to manage and develop the Group’s
external relationships, as well as create interest in the business. Some
of the meetings were facilitated by the Company’s brokers, who also
acted as a conduit for feedback.
The Remuneration Committee Chairman consulted with major
shareholders on the application of the Remuneration Policy for the
year, including around bonus and LTIP targets.
Useful feedback provided and strong support for the Group’s
progress and strategy, particularly around Digital.
Further progress with the Group’s strategic priorities should
increase investor appetite.
Support for the proposals and the direction of the business.
3 Shareholder
interactions
The Chairman and Executive Directors have each attended meetings
and calls with major shareholders to provide general updates and
maintain regular communication.
Very positive comments around business management,
strategy and performance.
Some frustration around lack of liquidity in shares and lack of
movement in share price.
Some frustration around lack of liquidity in shares and lack of
movement in share price.
The outputs largely mirror those in section 3 above.
All shareholders, along with other stakeholders, including the
Company’s auditors, sponsor/broker and lawyers are invited to
the AGM.
The Chairman discusses the results for the reporting year and
gives an outlook on the current year. Questions are invited from
shareholders and answered by the appropriate Director.
We keep our shareholders fully informed of the performance of the
business on a regular basis, through the publication of trading
updates in papers and voice-over presentations which are available
on the HSS corporate website.
We are also pleased to see shareholders attend our presentations
in person, which provides an excellent opportunity for direct
engagement with the Executive Directors.
4 AGM
5 Trading
updates
6 Corporate
website
Colleagues
7 Health, safety
and wellbeing
This has been updated and refreshed in order to make presentations, information and financial data more easily available and
user-friendly for shareholders and potential investors.
The health and safety of our colleagues, as well as that of our
customers and visitors to our sites and offices, is a fundamental
priority.
The following activities have been taking place across the Group to
engage with colleagues on health and safety matters:
→ Various discussion groups at a sales and operational level.
→ Introduction of a Health and Safety Forum involving members of
the senior leadership, operations, sales and health & safety teams.
→ Colleague engagement survey, to include questions on health
and safety.
→ Poster campaigns/new signage and fun/interactive activities to
raise awareness of health and safety.
→ In FY20, the Health and Safety Forum will go ‘on the road’ to our
branch network and will involve local operations and branch
managers who can share initiatives and feedback directly with the
Executive Directors and senior management.
→ Awareness and ownership of health and safety at all
levels of the business has improved.
→ Colleagues appreciate involvement in health and safety
initiatives.
→ As summarised on page 40, we are very pleased to
report a reduction in RIDDORs and an increase in ‘near
miss’ reporting. The Board considers this as good
evidence that colleagues are engaged with the
importance of their own health and safety as well as that
of their colleagues around them and the wider public.
8 Workforce
forum
A forum has been introduced which will be chaired by the Group HR
Director and will involve colleagues at varying levels who will be
encouraged to share views on the Company, its business and culture
and agree what should form the priorities.
The Group HR Director shall share those priorities with the
Board who shall consider as appropriate.
This initiative is a ‘work in progress’ and shall be developed
more during FY20.
9 Internal
communications
We continue to ensure that our colleagues are kept informed of
developments, important issues and Company performance in order
to drive engagement and ownership. These are cascaded throughout
the business through a variety of channels, including the Group’s
intranet, emails and newsletters.
We also invite a broad cross-section of colleagues to listen in on
web-based results presentations from the Executive Directors around
the time of our usual market releases.
Many of our senior management team are also regularly seen on site
visits across our estate.
FY19 saw the second of our ‘Colleague Roadshows’ which involved
the Executive Directors and other members of senior management
attending six venues across the UK and Ireland to present to around
500 HSS colleagues in total across the respective regions.
We also consulted with colleagues on our ‘values’ project in terms of
what really makes an HSSer, what is our culture and what are the
values we want to live by as a business. Those values were agreed on
and rolled out in the business. Further details of the values are
included on page 39.
Visibility around the business of the senior management team
and being approachable to colleagues has resulted in greater
engagement and better retention of colleagues.
Excellent insight and feedback provided by colleagues on the
Company’s strategy, particularly around the digital aspect
where colleagues were able to discuss the benefits and any
issues surrounding the customer app and driver app.
The Board has encouraged the values project to be
colleague led. This has driven engagement, understanding of
our culture and consensus of some basic principles to ingrain
in the business as our values.
Strategic ReportHSS Hire Group plc Annual Report and Financial Statements 2019 Nature of engagement
Conclusions drawn from engagement
43
Colleagues continued
10 Colleague
engagement
survey
During FY19 we undertook our annual colleague engagement survey.
A response rate of 74% showed an improvement on FY18, with some
notable improvements on scores within particular categories of
the survey.
The Board and senior management have discussed the
findings and noted good improvements on scores in the
following areas:
→ I know what I am expected to achieve in my job
→ I care about the Company
→ I am provided with the appropriate safety equipment
to do my job
The following are examples of areas highlighted for greater
focus to ascertain how better scoring could be achieved:
→ I feel my pay is fair
→ I feel that different business divisions work well together
→ There are opportunities for me to develop and progress
In addition, where the findings have identified areas where
improvement in specific departments or business areas
could be made, the relevant department heads and
managers have been tasked with taking that forwards with
their teams.
11 Systems
improvements
We have launched various systems improvements, in particular
our ‘Brenda’ system and our driver and customer apps, as more
particularly detailed in the Strategic Report.
Engaging via these digital channels has made us easier to
work for and with, in particular facilitating our colleagues to
work more efficiently, meaning a more contented workforce.
Customers
12 Customer
satisfaction
survey
Suppliers
Details of our market-leading NPS score are included on page 10. In
addition, our branch sales colleagues and sales colleagues out in the
field are engaging with customers on a daily basis and obtaining
feedback.
The key message we keep hearing from customers is that we
must remain easy to work with. We are focused on that and
expect our Digital project, including the apps, will greatly
assist with this.
13 Systems
improvements
→ Launch of Brenda (see pages 18-19)
→ Clearer onboarding processes for Suppliers
→ New purchase order system
All of these steps have allowed us to engage with our
suppliers more simply and clearly, meaning fewer issues to
resolve and quicker transactions (including payment).
Suppliers are also clear on the terms on which they contract
with HSS and that HSS expects high business and ethical
standards, including around anti-modern slavery, anti-
facilitation of tax evasion, anti-bribery etc.
Lenders/analysts/brokers
14 Lenders
Our Executive Directors meet with the Group’s key lenders at least
quarterly to update on business performance and strategic progress.
The Group’s lenders have been very supportive of the
direction of the business and recent results. The regular
dialogue has been appreciated.
15 Analysts
16 Broker
Our Chief Financial Officer has regular telephone conferences and
meetings with the analyst community.
Improved levels of engagement with the analyst community
have been noted.
The Company’s sponsor and broker is regularly involved with
day-to-day business, including via the Executive Directors, investor
relations team and legal team.
Good levels of engagement and dialogue have been noted,
ensuring the Company adheres to its market obligations.
Going forwards, the Board hopes that the Company’s broker
will be able to assist with greater engagement with new
potential investors.
Local communities & environment
17 Communities
Whilst some activities have taken place during FY19 in this area (summarised on page 41), the Board has identified this as an area to
increase efforts on during FY20 and onwards.
18 Environment
A summary of the Company’s activities on environmental and corporate social responsibility is included on pages 36-41. The Board
regularly discusses and engages with the business on environmental issues, including diesel engine emissions (Stage V emissions
standards) and the impact of, and steps taken by local authorities with regard to, commercial vehicles accessing city centres.
Feedback from all of the above activities has been shared with the full Board, either via the Chairman, the Executive Directors or the Committee
chairmen. Such feedback has proved valuable in informing and supporting the Board’s decisions around business direction and strategy, as well as
actions to work on and consider in the year ahead for the Committee meetings of the Board.
Section 172(1) Companies Act 2006
The 2018 Corporate Governance Code and the Companies
(Miscellaneous Reporting) Regulations 2018 reinforce the importance
of S.172 of the Act, which requires Directors to act in a way that
promotes the success of the Company for the benefit of shareholders
as a whole. The 2018 Code applies to companies with accounting
periods beginning on or after 1 January 2019. Since the FY19
accounting period for the Company began on 30 December 2018 this
year’s report remains under the 2016 Code, however the Company
has already stepped up its stakeholder engagement activities, as
summarised in the table above.
The Strategic Report on pages 1 to 43 was approved by the Board of Directors on 26 May 2020 and is signed on its behalf by:
Steve Ashmore
Director
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
44
Chairman’s Introduction
Reinforcing
our governance
and values
Overview of the year
We highlighted that we would be focusing
on two key areas in 2019:
→ Transparency of reporting
→ Listening to our colleagues
A multitude of activities has taken place over
the course of the year to engage colleagues
in our plans, drive our key messages and
strategies and ensure they feel part of what
we are doing and why. Details of those
activities are set out in the Strategic Report
and referenced in the Committee reports.
The Committees of the Board have had a
busy year, summarised in their respective
reports and included in the following
pages. The Market Disclosure Committee
has not been required to carry out any
specific business during the year which has not
otherwise been covered by the Board, and so
no report is included.
There have been various direct interactions
between Board members and colleagues of
all levels through our Health and Safety forums
and results presentations to colleagues. In the
latter part of the year, our CEO, CFO and CCO
travelled throughout the UK and Ireland to six
roadshows to present to office and branch/
sales staff of all levels and take part in Q&A
sessions to discuss how the year has gone
and the exciting plans we have going forward.
I was encouraged to see the continued
improvement in our colleague engagement
scores; another important aspect in listening
to our colleagues, which we will do by taking
their feedback and turning it into actions for
line managers to implement and monitor
throughout the business.
Alan Peterson OBE
Chairman
“ On behalf of the Board, I am delighted to present
the corporate governance report for the 2019
financial year. We have continued to develop our
governance with a particular focus on our colleagues
and engagement.”
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 45
Board evaluation
I am pleased to report that the findings of our
2019 internal Board and committee evaluation
show that our Board is impressed with the
management and direction of the business.
Board members consider that they are well
informed on the activities of the business and
able to contribute their considerable skills
and experience, both through the Board and
committee meeting setting and through direct
engagement with colleagues during the year.
However, there is more we can do. We have
looked at our actions from last year and we
do still face challenges with diversity in our
industry, particularly around gender. We hope
that our colleague engagement and various
people project activities will attract future
colleagues from all backgrounds to HSS.
Further details are provided in the report on
page 53.
The Nomination Committee is recommending
that all Board Directors are re-elected at our
Annual General Meeting (AGM).
Senior management
We have had good continuity amongst the
senior management team during 2019, with
a combination of long-serving colleagues
with excellent knowledge of our business
and the more recent joiners offering fresh
thinking and innovation. We, as a Board, have
enjoyed presentations and contributions from
many of our senior managers at our Board
and committee meetings over the course of
the year.
The various activities around succession
planning and colleague development/
training over the year are set out in the
Nomination Committee report and the
Sustainability section.
Legislative/regulatory matters
and related training for colleagues
The Directors and senior management are
informed of notable legal and regulatory
changes via a combination of internal
legal and audit professionals and also via
external advisers.
The Group’s Data Governance Team continues
to monitor day-to-day data protection issues as
the GDPR continues to embed in our society
and guidance around best practice continues
to develop.
The Group continues to promote, to both
customers and suppliers, the importance of
doing business in an ethical way. An anti-
slavery and human trafficking statement for
FY18 was published during 2019, with the FY19
statement to follow in 2020.
The committees have received further
guidance around the new 2018 Code, which
we have considered and already taken steps
to implement, particularly around stakeholder
engagement. We report under the 2016 Code
for FY19 before moving over to the 2018 Code
from FY20.
Our gender pay gap statistics are included
on page 41. We continue to be committed to
paying all our colleagues fairly.
The Company’s Code of Ethics (available
at www.hsshiregroup.com) outlines our
commitment to operating in an ethical and
responsible manner, with honesty, integrity,
openness and with respect for human
rights. Our support for these fundamental
principles is reflected in our policies and
actions towards our colleagues, customers,
suppliers and the communities we operate
in. The Code specifically sets out the
Company’s position on modern slavery and
anti-bribery, areas on which we continue to
train our colleagues and reinforce important
messages. The Code and the policies
underpinning it are regularly reviewed by senior
management in light of changing business and
regulatory requirements.
50%
50% of INEDs are female.
1 in 6
of the Board is female
Equality and diversity policy
As reported last year, at HSS we promote
equal opportunities and diversity with a view
to securing sustainable success. Our gender
diversity on the Board is unchanged from 2018.
Looking ahead
The COVID-19 pandemic that has emerged in
2020 creates uncertainly in the outlook for HSS
and the economy as a whole. This uncertainty
makes governance ever more important
and in 2020 we will build on the good work
undertaken in 2019 engaging and supporting
colleagues and other stakeholders to navigate
these uncharted waters.
It is our intention to once again hold our AGM
at the Hilton Garden Inn, Hatton Cross, at
11.00am on 25 June 2020. We continue to
carefully monitor government advice on what
security and other precautions we should take
due to the COVID-19 virus and will include
these in our Notice of Meeting. Any further
special arrangements will be advised via our
corporate website (www.hsshiregroup.com).
We also strongly recommend shareholders
to consider the use of electronic proxy
voting since currently we do not anticipate
shareholders being able to attend in person.
Alan Peterson OBE
Chairman
26 May 2020
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 46
Board of Directors
Our Board
Alan Peterson OBE
Chairman
Steve Ashmore
Chief Executive Officer
Paul Quested
Chief Financial Officer
Amanda Burton
Senior Non-Executive
Director
Doug Robertson
Thomas Sweet-Escott
Daniel Joll
Non-Executive Director
Non-Executive Director
Group General Counsel
& Company Secretary
Tenure on Board
5 years and 2 months
Tenure on Board
2 years and 3 months
Tenure on Board
3 years and 7 months
Tenure on Board
5 years and 3 months
Tenure on Board
5 years and 3 months
Tenure on Board
5 years and 3 months
Tenure on Board
3 years and 3 months
Independent
No
Independent
No
Independent
No
Committee memberships
Committee memberships
Committee memberships
N
M
Independent
Yes, since appointment
in January 2015
Committee memberships
R M A N
Independent
Independent
Yes, since appointment
No
in January 2015
Independent
No
Committee memberships
Committee memberships
Committee memberships
Secretary for all Committees
A R N
External roles
→ Chairman, BBI Diagnostics
Group Holding Limited
→ Chairman, NSPCC Wales
Appeal Board
→ Non-Executive Chair
Veezu Group (from 2020)
→ Honorary Colonel
Army Cadets, Wales
Past roles (include)
→ Executive Chairman,
Enterprise Group Holdings
→ Non-Executive Chairman,
Pattonair Holdings Limited
→ Non-Executive Chairman,
Azelis Holdings SA
→ Managing Director,
Rockware Group
→ Chief Executive Officer,
Meyer International plc
→ 3i’s first Industrialist in
Residence, 2001 to 2005
Skills and experience
→ M&A
→ Digital
→ Strategy
→ International
→ Construction services
→ Supply chain & logistics
→ Manufacturing
→ Sales and marketing
→ Housing
→ Infrastructure
→ Chair/Chief Executive Officer
→ Retail
→ Healthcare
External roles
→ None
External roles
→ None
External roles
→ Non-Executive Director
External roles
External roles
External roles
→ Non-Executive Director and
→ Partner, Exponent Private
→ None
and Chair of Remuneration
Committee, Countryside
Properties plc and
Connells Ltd
→ Non-Executive Director,
Skipton Building Society
→ Chair, Battersea Dogs
and Cats Home
Chair of Audit Committee,
Equity LLP
Mpac Group plc
→ Serves on the Boards
→ Non-Executive Director and
of Photobox Group and
Chair of Audit Committee,
Meadow Foods
Zotefoams plc
Past roles
→ Managing Director,
Brammer UK
→ Managing Director,
Wolseley UK
→ Various senior management
positions, Exel
Past roles
→ Global Strategy Director,
Electrocomponents plc
→ General Manager,
RS Components UK
→ Planning & Performance
Management Director,
European Supply Chain, InBev
→ Trained with Coopers
& Lybrand
Past roles
→ Chief Operating Officer,
Clifford Chance LLP
→ Director, Meyer International plc
→ Senior Independent
Non-Executive Director,
Galliford Try plc and
Monitise plc
→ Non-Executive Director,
Fresca Group Limited
Past roles
Past roles
Past roles
→ Finance Director, SIG plc
→ Co-founded Exponent
→ Finance Director, Umeco plc
Private Equity, 2004
→ Senior Legal Adviser, Sky plc
→ Senior Corporate Lawyer,
→ Finance Director, Seton House
→ Various senior management
Watson, Farley & Williams LLP
Group Limited
positions, 3i Group plc
→ Managing Director, Tesa Group
→ Served on the Boards
→ Various senior financial and
of Trainline plc, V. Group
business positions,
Williams plc
and Lowell
Skills and experience
→ M&A
→ Digital
→ Strategy
→ International
→ Construction services
→ Supply chain & logistics
→ Manufacturing
→ Sales and marketing
→ Housing
→ Infrastructure
Skills and experience
→ M&A
→ Digital
→ Strategy
→ International
→ Supply chain & logistics
→ Manufacturing
→ Sales and marketing
Skills and experience
→ M&A
→ Strategy
→ International
→ Legal
→ Chief Operating Officer
→ Governance
→ Construction services
→ Housing
Skills and experience
Skills and experience
Skills and experience
→ M&A
→ Strategy
→ International
→ Chief Financial Officer
→ Construction services
→ Supply chain & logistics
→ Manufacturing
→ M&A
→ Digital
→ Strategy
→ International
→ Corporate Law
→ Commercial Law
→ M&A
→ Public Companies
and Capital Markets
→ Governance
→ International
→ Dispute Resolution
→ Insurance
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 47
Committee membership
N Nomination Committee
A Audit Committee
R Remuneration Committee
M Market Disclosure
Committee
Committee Chair
Alan Peterson OBE
Steve Ashmore
Paul Quested
Chairman
Chief Executive Officer
Chief Financial Officer
Amanda Burton
Senior Non-Executive
Director
Doug Robertson
Non-Executive Director
Thomas Sweet-Escott
Non-Executive Director
Daniel Joll
Group General Counsel
& Company Secretary
Tenure on Board
5 years and 2 months
Tenure on Board
2 years and 3 months
Tenure on Board
3 years and 7 months
Tenure on Board
5 years and 3 months
Tenure on Board
5 years and 3 months
Tenure on Board
5 years and 3 months
Tenure on Board
3 years and 3 months
Independent
Independent
Independent
No
Independent
Yes, since appointment
in January 2015
Committee memberships
Committee memberships
Committee memberships
Committee memberships
No
N
No
M
External roles
External roles
→ Chairman, BBI Diagnostics
→ None
External roles
→ None
R M A N
External roles
→ Non-Executive Director
and Chair of Remuneration
Committee, Countryside
Properties plc and
Connells Ltd
→ Non-Executive Director,
Skipton Building Society
→ Chair, Battersea Dogs
and Cats Home
Independent
Yes, since appointment
in January 2015
Committee memberships
A R N
External roles
→ Non-Executive Director and
Chair of Audit Committee,
Mpac Group plc
→ Non-Executive Director and
Chair of Audit Committee,
Zotefoams plc
Independent
No
Independent
No
Committee memberships
Committee memberships
Secretary for all Committees
External roles
→ Partner, Exponent Private
External roles
→ None
Equity LLP
→ Serves on the Boards
of Photobox Group and
Meadow Foods
Past roles (include)
→ Executive Chairman,
Past roles
Past roles
Past roles
→ Managing Director,
→ Global Strategy Director,
→ Chief Operating Officer,
Enterprise Group Holdings
Brammer UK
Electrocomponents plc
Clifford Chance LLP
→ Non-Executive Chairman,
→ Managing Director,
Pattonair Holdings Limited
Wolseley UK
→ General Manager,
RS Components UK
→ Non-Executive Chairman,
→ Various senior management
→ Planning & Performance
positions, Exel
Management Director,
→ Director, Meyer International plc
→ Senior Independent
Non-Executive Director,
Galliford Try plc and
European Supply Chain, InBev
Monitise plc
→ Trained with Coopers
→ Non-Executive Director,
& Lybrand
Fresca Group Limited
Past roles
→ Finance Director, SIG plc
→ Finance Director, Umeco plc
→ Finance Director, Seton House
Group Limited
→ Managing Director, Tesa Group
→ Various senior financial and
business positions,
Williams plc
Past roles
→ Co-founded Exponent
Private Equity, 2004
Past roles
→ Senior Legal Adviser, Sky plc
→ Senior Corporate Lawyer,
→ Various senior management
Watson, Farley & Williams LLP
positions, 3i Group plc
→ Served on the Boards
of Trainline plc, V. Group
and Lowell
Skills and experience
Skills and experience
Skills and experience
Skills and experience
→ M&A
→ Digital
→ Strategy
→ International
→ Construction services
→ Supply chain & logistics
→ Manufacturing
→ Sales and marketing
→ Housing
→ Infrastructure
→ M&A
→ Digital
→ Strategy
→ International
→ Manufacturing
→ Sales and marketing
→ M&A
→ Strategy
→ International
→ Legal
→ Governance
→ Construction services
→ Housing
→ Supply chain & logistics
→ Chief Operating Officer
Skills and experience
→ M&A
→ Strategy
→ International
→ Chief Financial Officer
→ Construction services
→ Supply chain & logistics
→ Manufacturing
Skills and experience
→ M&A
→ Digital
→ Strategy
→ International
Skills and experience
→ Corporate Law
→ Commercial Law
→ M&A
→ Public Companies
and Capital Markets
→ Governance
→ International
→ Dispute Resolution
→ Insurance
Group Holding Limited
→ Chairman, NSPCC Wales
Appeal Board
→ Non-Executive Chair
Veezu Group (from 2020)
→ Honorary Colonel
Army Cadets, Wales
Azelis Holdings SA
→ Managing Director,
Rockware Group
→ Chief Executive Officer,
Meyer International plc
→ 3i’s first Industrialist in
Residence, 2001 to 2005
→ M&A
→ Digital
→ Strategy
→ International
→ Construction services
→ Supply chain & logistics
→ Manufacturing
→ Sales and marketing
→ Housing
→ Infrastructure
→ Retail
→ Healthcare
→ Chair/Chief Executive Officer
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 48
Corporate Governance
Compliance with the Corporate Governance Code
The 2018 Code applies to companies with accounting periods beginning
on or after 1 January 2019. The FY19 accounting period for the
Company began on 30 December 2018 and therefore this year’s report
remains under the 2016 Code. The 2016 Code can be found here:
Thomas Sweet-Escott, a Non-Executive Director, is not considered
to be independent for the purposes of the Code as he represents
Exponent Private Equity (Exponent) and related investors (the Exponent
Shareholders), who currently control 50.3% of the Company’s
issued shares.
https://www.frc.org.uk/directors/corporate-governance-and-
stewardship/uk-corporate-governance-code
The Board is committed to high standards of corporate governance and
as such has complied with the 2016 Code during the FY19 reporting
year, noting the following:
The Code recommends that at least half the Board of Directors of a UK-
listed company, excluding the Chairman, should comprise Independent
Non-Executive Directors. Independence is determined by ensuring that,
apart from receiving their fees for acting as Directors, Non-Executive
Directors do not have any other material relationship or transactions with
the Group, its promoters, its management or its subsidiaries, which in the
judgement of the Board may affect their independence of judgement.
Code Provision B.1.2 provides that a smaller company should have at
least two Independent Non-Executive Directors. A smaller company is
one that is below the FTSE 350 throughout the year immediately prior
to the reporting year, which is the case in respect of the Company.
Therefore, as at 28 December 2019, the Company is compliant with the
requirements of the Code in this respect.
On 22 January 2015, the Company, Exponent and the Exponent
Shareholders entered into a Relationship Agreement which regulates
the ongoing relationship between them. The principal purpose of this
agreement is to ensure that the Company and its subsidiaries are
capable of carrying on their business independently of Exponent and
the Exponent Shareholders and that any transactions and relationships
between them are at arm’s length and on normal commercial terms.
Leadership
Key roles and responsibilities
Chairman
Alan Peterson OBE
Responsible for:
→ ensuring that the conduct of the Group is in accordance with high standards of integrity and probity;
→ the leadership and overall effectiveness in directing the Company, including demonstrating objective
judgement and promoting a culture of openness and debate;
→ ensuring a clear structure for the operation of the Board and its committees;
→ setting the Board agenda in conjunction with the Company Secretary, Chief Executive Officer and Chief
Financial Officer;
→ ensuring that the Board receives accurate, relevant and timely information about the Group’s affairs; and
→ ensuring regular engagement with major shareholders.
Chief Executive Officer
Steve Ashmore
Responsible for:
→ developing the Group’s strategy for consideration and approval by the Board;
Senior Independent
Non-Executive Director
Amanda Burton
→ implementing the agreed strategy;
→ day-to-day management of the Group’s operations; and
→ being accountable to, and reporting to, the Board on the performance of the business.
Responsible for:
→ being an alternative contact for shareholders at Board level other than the Chairman;
→ acting as a sounding board for the Chairman;
→ if required, being an intermediary for Non-Executive Directors’ concerns; and
→ reviewing the Chairman’s performance.
The Senior Independent Non-Executive Director carries out the duties of a Senior Independent Director for the
purposes of compliance with the 2016 Code.
Board and committee structure
The Board focuses on:
→ leadership;
→ risk assessment and management;
→ strategy;
→ performance; and
→ monitoring safety, values and standards.
In addition, there is a formal schedule of matters reserved for the Board.
The committees each have full terms of reference which can be found on the Company’s website at
www.hsshiregroup.com/investor-relations/corporate-governance.
Non-Executive Directors
The number of Non-Executive Directors and their range of skills and experience is kept under review and was
formally reviewed as part of the Board evaluation (see page 53).
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 49
Governance framework
Alan Peterson OBE
Chairman
Role:
→ Ensure effectiveness of the Board.
→ Ensure corporate governance compliance.
→ Ensure effective Board Committee structure.
→ Ensure effective communications.
The Board
Comprises six Directors, of whom
four are Non-Executive, two of whom,
Amanda Burton and Doug Robertson,
are considered independent. The Board
is supported by the Company Secretary.
Executive management
Chief Executive Officer, Chief Financial
Officer, Chief Commercial Officer, Group HR
Director, Managing Director of England and
Wales, Managing Director of Ireland, Group
Strategy Director, Group General Counsel &
Company Secretary.
Company Secretary
Daniel Joll
Role:
→ Lead the Group.
Role:
→ Implement Group strategy.
→ Oversee risk management and
→ Operational management of the Group.
internal controls.
→ Oversee strategy.
→ Oversee the executive management.
→ Monitor performance.
→ Set values and standards.
Role:
→ Support and advise the Board and
Committees (in a dual legal and
company secretarial function).
Audit & Risk Committee
Comprises Independent
Non-Executive Directors,
chaired by Doug Robertson,
supported by the Company
Secretary.
Remuneration Committee
Comprises Independent
Non-Executive Directors,
chaired by Amanda Burton,
supported by the Company
Secretary.
Role:
→ Monitor financial reporting
→ Monitor audit
→ Monitor effectiveness of
risk management and
internal controls
Role:
→ Determine and review
appropriate Board and
senior executive
remuneration policies
and structures.
→ Determine appropriate
remuneration packages
for Board and senior
executives.
→ Review workforce
remuneration and related
policies, and the alignment
of incentives and rewards
with culture.
Nomination Committee
Comprises Non-Executive
Directors, including two
Independent Non-Executive
Directors, chaired by
Alan Peterson OBE, supported
by the Company Secretary.
Role:
→ Advise the Board on
composition, membership
and succession planning.
→ Advise the Board on Board
and senior appointments
(taking into account skills,
knowledge, experience,
independence and
diversity).
Market Disclosure
Committee
Chaired by Amanda Burton,
plus the Chief Executive
Officer, supported by the
Company Secretary.
Role:
→ Ensure compliance with
the disclosure requirements
of the Financial Conduct
Authority’s Disclosure Rules
and Transparency Rules.
→ Review any announcement
proposed to be made by
the Company other than
any announcement of a
routine nature or to be
considered by the Board.
→ Ensure that procedures
are in place for employees
with access to inside
information.
Find out more Audit
Committee Report on
page 54
Find out more in the
Directors’ Remuneration
Report on page 58
Find out more in the
Nomination Committee
Report on page 53
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 50
Corporate Governance continued
Attendance at Board and committee meetings of which each Director
is a member held between 30 December 2018 and 28 December 2019
Director
Executive Directors
Steve Ashmore
Paul Quested
Non-Executive Directors
Alan Peterson OBE
Amanda Burton
Doug Robertson
Thomas Sweet-Escott
Board
(of 11)
Audit
Committee
(of 7)
Remuneration
Committee
(of 4)
Nomination
Committee
(of 2)
11
11
11
10
11
11
–
–
–
7
7
–
–
–
–
4
4
–
–
–
2
2
2
–
All the individuals who were Directors as at 28 December 2019 offer themselves for re-election at the next AGM of HSS Hire Group plc to be held at 11.00am on 25 June 2020.
The biographical details of each of the Directors, including details of their other directorships and relevant skills and experience, are on pages 46 and 47 of this Annual Report and are
also set out in the Notice of AGM.
The Board recommends that shareholders approve the resolutions to be proposed at the AGM relating to the re-election of all of the Directors.
Terms and conditions and time commitments
The Chairman and Non-Executive Directors are all appointed pursuant
to formal letters of appointment which outline, amongst other details, the
remuneration and terms of appointment for each Director.
The Chairman and the Non-Executive Directors devote such time to the
affairs of the Company as required, including attendance at meetings as
reflected in the above table.
In order to facilitate proper debate and consideration, all Directors are
expected to attend Board meetings and such Committee meetings to
which they are invited in person.
The Executive Directors of the Company may attend certain meetings of
the committees at the invitation of the Chair of the respective committee.
These attendances are not recorded in the table set out above.
Conflicts of interest
Exponent and the Exponent Shareholders currently control 50.3% of the
Company’s issued shares.
Thomas Sweet-Escott is a partner at Exponent and Alan Peterson OBE
has a long-standing business relationship with Exponent and is chairman
and/or a director of BBI Group Holding Limited (and certain of its group
companies), EAGLE SPV 2 Limited and EAGLE SPV 3 Limited, all of
which are Exponent portfolio companies. The Group trades on an arm’s
length basis with certain Exponent portfolio companies.
In the event that HSS’s relationship with any customers or other
companies where any of the Directors are also appointed as directors
becomes material by virtue of their trade with the Group or another
business reason, the relevant Director would be expected to declare
their connection to the customer/company and the Board would assess
whether a conflict of interest arises and the appropriate action to be
taken. There are no current or potential conflicts of interest between any
duties owed by the Directors or senior management to the Company and
their private interests or other duties.
Any Director’s conflicts of interest are declared to the Board and
recorded by the Company Secretary.
Effectiveness
Board composition
The Board and committees are considered to have an appropriate range
of experience, skills and knowledge to fulfil their duties. Profiles of each of
the members of the Board are provided on pages 46 and 47.
The four Non-Executive Directors, Alan Peterson OBE, Amanda Burton,
Doug Robertson and Thomas Sweet-Escott, represent a majority of
Board members and provide a broad range of skills and experience.
The two Executive Directors, Steve Ashmore and Paul Quested, bring
a variety of sector experience to the Board. Amanda Burton and
Doug Robertson are considered independent. They are members of
the Audit, Remuneration and Nomination Committees of the Board.
The Market Disclosure and Remuneration Committees are chaired by
an Independent Non-Executive Director, Amanda Burton. The Audit
Committee is chaired by an Independent Non-Executive Director,
Doug Robertson.
Appointments to the Board
The Nomination Committee, which is composed entirely of Non-
Executive Directors, is responsible for any future appointments to the
Board. The Nomination Committee is chaired by the Chairman of the
Board, Alan Peterson OBE. By virtue of the fact that the majority of its
members are Independent Non-Executive Directors, the Nomination
Committee is considered independent.
Overview of Board’s work during 2019
The Board met 11 times during 2019, the majority being physical
meetings and the remainder being telephone conference calls.
Regular agenda items for the Board included, and will include in 2020:
→ health and safety;
→ operational and financial performance;
→ risk management and the risk register;
→ reviewing, setting and approving strategy;
→ colleague/stakeholder/shareholder engagement and Company
values;
→ finance and banking arrangements;
→ major capital expenditure; and
→ evaluation of acquisition/disposal opportunities (as applicable).
The Board delegates authority to the following Committees:
→ Audit Committee;
→ Remuneration Committee;
→ Nomination Committee; and
→ Market Disclosure Committee.
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 51
Board evaluation
Internal evaluation of the Board and of our sub-committees was carried
out as detailed on page 53.
Board training
As part of induction, any new Directors receive training from the
Company’s sponsors/brokers in relation to their responsibilities as a
Director of a listed company. The Board also receives regular updates on
legal and regulatory developments through the course of a financial year
as reflected in the Chairman’s Introduction on page 44.
Access to information and support
The Board is provided with an agenda and supporting papers and
documentation ahead of each Board and/or Committee meeting to
allow them time to read, review and consider the information and
analysis presented. The Board also receives ad hoc updates on matters
if required outside of the formal Board meeting timetable. The Board
has access to the Company Secretary and can request independent
advice at the Company’s expense where it believes it is appropriate and
valuable to do so. Senior management is frequently invited to present
at Board meetings as deemed appropriate, and the Board can access
such colleagues at any time.
Accountability
Financial and business reporting
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations
and, as set out in the Directors’ Responsibility Statement (see page 69),
the Board considers that the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess HSS’s position and performance,
business model and strategy.
Risk management and internal control
The Board has overall responsibility for determining the nature and extent
of the principal risks it is willing to take to achieve its strategic objectives
and for establishing and maintaining a sound system of risk management
and internal control, and then reviewing its effectiveness.
The principal risks and uncertainties facing the Company and how these
are being managed/mitigated are detailed on pages 26 to 31.
The Group’s risk management and internal control system is designed to
manage the risks facing the Group and safeguard its assets. No system
of internal control can provide absolute assurance against material
misstatement or loss. The Group’s system is designed to provide the
Directors with reasonable assurance that issues are identified on a timely
basis and are dealt with appropriately.
The Audit Committee (whose composition, remit and report are set
out on page 49 and pages 54 to 56) assists the Board in reviewing the
effectiveness of the Group’s risk management and internal controls,
including financial, operational and compliance controls and risk
management systems. This is carried out with the assistance of the Chief
Financial Officer and the Risk and Assurance Director and supported by
the findings of specific projects/investigations completed by the internal
audit team, which are presented to the Audit Committee during the
financial year.
Whistleblowing
The Company has a formal whistleblowing process, whereby any
colleague may, in complete anonymity, contact certain nominated
members of senior management to raise any concerns. These concerns
are then investigated independently and the results shared with the
whistleblower for further discussion if appropriate/possible. This process
is communicated to all colleagues at least annually and the policy and
relevant details are also made available to colleagues on a dedicated
section of the Group intranet, HSS World.
Whistleblowing notifications are reviewed at least annually by the
Audit Committee.
Modern Slavery Act 2015
The Group published its Modern Slavery Act statement for the financial
year ended 29 December 2018 on its website during the first six months
of 2019, in accordance with guidelines.
Going concern and long-term viability statement
Note 1(e) to the Financial Statements sets out the basis on which the
Directors continue to adopt the going concern basis in preparing the
Annual Report and Accounts.
In summary, taking into account the adequacy of the Group’s debt
facilities, current and future developments and the principal risks and
uncertainties (see pages 26 to 31), including considering the uncertainty
as to the future impact of the COVID-19 pandemic, the Directors
have a reasonable expectation that the Group and Parent Company
have adequate resources to continue in operational existence for at
least 12 months from the approval date of the Consolidated Financial
Statements. Accordingly they continue to adopt the going concern
basis in preparing the Financial Statements included within this Annual
Report, however the existence of a material uncertainty which may cast
significant doubt on the Group’s ability to continue as a going concern is
indicated as set out below.
In accordance with Provision C.2.2 of the 2016 Code, the Directors have
assessed the prospects of the Group over a three-year period, taking
into account the Group’s current position and principal risks. Based on
this assessment, and all other matters considered and reviewed at Board
level during the year, the Directors confirm that they have a reasonable
expectation that the Group will be able to continue in operation and meet
its liabilities as they fall due over the period to December 2022.
Whilst the Directors have no reason to believe the Group is not viable
over a longer period, they have determined that three years is the
appropriate time over which to provide the viability statement because:
→ it reflects a period over which the Directors can have a reasonable
view of the future in the context of the market environment in which
the Group operates; and
→ it is consistent with the time covered by the Group’s current strategic
plans and model.
The Group’s annual budgeting and forecasting process involves the
preparation of an annual budget, and a rolling three-year strategic
model that also includes planned strategic actions and other specific
assumptions regarding revenue growth, cost trends and capital
expenditure across the Group.
Where appropriate, sensitivity analysis is undertaken to test the resilience
of the Group to various scenarios. Whilst all of the principal risks and
uncertainties were considered, the impact of COVID-19 was considered
in greater detail.
The principal effects assessed, together with their impact on the Group’s
Financial Statements, were therefore:
→ reductions in revenue with the assumptions as set out in the going
concern statement and the associated impacts on the Group’s
variable cost base;
→ reductions in revenue from April 2021 to December 2022 of 10%
below the Group’s current strategic plan; and
→ delays in trade debtor receipts due to customers experiencing liquidity
challenges, including non-recovery of £10m of current trade receivables.
These downside scenarios were mitigated by the following assumptions:
→ reduced capital expenditure in both 2020 and 2021;
→ overhead reduction;
→ rent payment holidays,
→ extension of payment terms with a number of the Group’s
stakeholders; and
→ utilisation of tax relief and Government measures as they become
available.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 52
Corporate Governance continued
As noted in the Going Concern statement, there are certain forecast
scenarios which indicate that financial covenants would be breached
and other scenarios which indicate a breach in covenants together with
a need for additional liquidity thus indicating the existence of a material
uncertainty. Based on the support evidenced by the Group’s lenders,
the Directors reiterate their confirmation that they have a reasonable
expectation that the Group will be able to continue its operation and
meet its liabilities over the three year period.
Statement on disclosure of information to the auditor
The Directors who held office as at 26 May 2020 each confirm that:
→ so far as the Director is aware, there is no relevant audit information of
which the Company’s auditor is unaware; and
→ he/she has taken all the steps that he/she ought to have taken as a
Director in order to make himself/herself aware of any relevant audit
information and to establish that the Company’s auditor is aware of
that information.
This confirmation is given and should be interpreted in accordance with
the provisions of Section 418 of the Companies Act 2006.
Remuneration
The Remuneration and Audit Committees are composed exclusively
of Independent Non-Executive Directors, able to judge and achieve an
appropriate balance between incentivising Executive Directors and the
potential impact on the Company’s risk profile.
The Remuneration Committee (whose composition, remit and report are
set out on page 49 and pages 58 to 65) sets the policy for and terms of
executive remuneration.
Relations with shareholders and other capital providers
Shareholder engagement
The Board remains committed to communicating with shareholders and
stakeholders in a clear and open manner, and seeks to ensure effective
engagement through the Company’s website, its public announcements,
the AGM and other investor relations activities.
In addition to its ongoing reporting obligations, the Company undertakes
a programme of meetings with existing and/or potential institutional
investors and equity analysts, led by the Chief Executive Officer and
Chief Financial Officer.
These meetings, together with investor feedback collected via our
brokers, enable the Company to assess prevailing analyst and investor
sentiment and to obtain external feedback on how the Group’s
performance and strategy are perceived and considered.
A summary report on investor interaction and feedback is provided to
each Board meeting through the year to keep the wider Board informed
of these activities and findings.
During 2019 there have been over 25 such meetings/presentations,
including quarterly results presentations and Strategy updates.
As well as such meetings and announcements, teleconference calls are
held with institutional investors and analysts throughout the year; copies
of relevant presentation materials are made available on the Company’s
website to the extent they differ from the latest publicly released
results presentations.
All Directors are expected to attend the AGM providing shareholders
with the opportunity to question them about issues relating to the Group,
either during the meeting or informally afterwards. The Non-Executive
Directors are available for discussion with shareholders on matters under
their areas of responsibility either in person at the AGM or at any other
time via the Company Secretary. Attendance in person at the 2020 AGM
by shareholders and directors shall be subject to any restrictions around
COVID-19, details of which shall be included in the Notice of Meeting
with any further updates to be provided via our corporate website at
hsshiregroup.com.
The Company reports its financial results to shareholders twice a year,
with the publication of its Annual and Half-Year Financial Reports.
Shorter, less detailed trading updates are also provided to the
market periodically.
All of the above mentioned reports are made available for download to
shareholders in the investor relations section of the Company’s website,
www.hsshiregroup.com/investor-relations.
Annual General Meeting
The Company’s AGM is planned to be held at 11.00am on 25 June
2020. Details of the resolutions proposed and being voted on are
provided in the Notice of AGM provided to shareholders and also
available for download on the Group’s website, www.hsshiregroup.com.
Shareholders should refer to the Notice of Meeting and any further
updates provided in the ‘News & Resources’ section at hsshiregroup.
com regarding the 2020 AGM in light of the COVID-19 pandemic, noting
that it may not be possible for shareholders to attend this year due to
government restrictions.
Significant shareholders
Based on TR-1 notifications received, the parties who hold 3% or more of the issued share capital of the Company as at 29 April 2020 are as follows:
Name
Exponent1
Toscafund Asset Management LLP2
Aberdeen Standard Investments
Number of
ordinary shares
of 1p
85,681,708
45,812,070
13,958,980
%
holding
50.34%
26.92%
8.20%
1 Comprises shareholdings held by Exponent Private Equity Partners GP II, LP (UK) and Exponent Havana Co-Investment GP Limited Partners (UK).
2 Comprises shareholdings held by the Tosca Mid-Cap fund, the Tosca Opportunity fund and the Micro-Cap Units fund.
Details of Directors’ interests in the Company’s ordinary share capital are provided in the Directors’ Remuneration Report on page 62.
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 Nomination Committee Report
53
activity has increased significantly with over 100 colleagues (from senior
management through to front-line leaders) participating in tailored
development programs. Also noted was the increasing profile of
women at senior levels, with the appointment of Ailsa Webb as Sales
Director for Scotland and the growth and transformation in rehire being
led by Dani Hodges, Managing Director, OneCall. The Committee
noted that the Company continues to face challenges with diversity,
particularly around gender. Whilst this is seen to be a hire industry issue
generally, the Committee resolved that through colleague engagement
and people project activities, the focus will continue to be on attracting
future colleagues from all backgrounds to the Company.
→ Skills and expertise – the Committee agreed that the Company
was taking positive steps in identifying where further development or
additional expertise was required within the business. The Committee
and the Board have previously noted the need for expertise in the
Digital field given the significant focus and growth in this area as part
of the Company’s strategy. FY19 has also seen increased activity in
training colleagues (as referred to above) as well as the scoring and
monitoring of colleague performance as part of the development and
succession planning process. FY20 will see the continuation of these
activities, as well as exploring additional external resources for
development and management assessment/training.
→ Colleague engagement – the Committee acknowledged the
improving colleague engagement scores (see page 40 in the
Sustainability report for more details) and that a wide range of
measures had been implemented to drive increased communication
and engagement, in particular with interaction between senior
management and colleagues. The Committee noted the importance of
continuing to build on this progress in FY20, as well as engaging all
relevant stakeholders.
Board evaluation
The FY19 Board evaluation comprised an internal evaluation of the
Board using feedback collated from Board members’ responses
to an evaluation questionnaire. The questionnaire addressed the
key requirements of the 2016 Code in relation to the Board and its
sub-committees, including each Committee’s terms of reference,
composition and frequency of meetings. Additional questions focused
on leadership, diversity, the relationship between the Executive
and Non-Executive Directors, the role of the Chairman, workforce
engagement, issues of material importance concerning the Group and
information on the Group’s risk management systems. The responses
to the questionnaire were summarised and shared with the Board and
discussed as appropriate.
Looking ahead
In 2020, the Committee has scheduled meetings in January and
November, and any additional meetings will be arranged as required.
Having considered feedback from the Board and colleagues,
progress made against previous objectives and the introduction
of the 2018 Code and the Companies (Miscellaneous Reporting)
Regulations 2018, the Committee considered it appropriate to focus
on the following action areas during 2020:
Alan Peterson OBE
Committee Chairman
Dear shareholder
On behalf of the Nomination Committee (the Committee), I am pleased to
present our report for the 2019 financial year.
Roles and responsibilities
The Committee’s full terms of reference can be found on the Company’s
website at www.hsshiregroup.com/investor-relations/corporate-
governance. A summary of its key responsibilities include:
→ leading a formal, rigorous and transparent process for Board
appointments and making recommendations to the Board;
→ reviewing the structure, size and composition of the Board, including
its skills, knowledge, independence and diversity (including of gender,
social and ethnic backgrounds, and cognitive and personal strengths)
and making recommendations to the Board;
→ succession planning, including overseeing the development of a
diverse pipeline for succession;
→ strategic issues and commercial changes affecting the Group and the
market in which it operates; and
→ Board and sub-committee performance evaluation.
Our approach
The Committee’s primary purpose is to ensure that the Group has
the best possible leadership and clear plans for Director and senior
management succession. Its primary focus is therefore to concentrate
upon the strength of the Board and the selection of the best candidates
for posts, based on objective criteria.
Policy on diversity
In performing its activities through the year, the Committee has applied
the Group’s equality and diversity policy, which it believes is appropriate
for application at all levels of the business, including Board and senior
management appointments and succession planning. Further detail on
the Group’s equality and diversity policy is provided on page 66.
Activities
The Committee had two scheduled meetings in 2019.
At the meeting held in January 2019, the findings of the internal Board
evaluation in respect of FY18 were considered and the resulting actions,
as reported in the 2018 Annual Report, were agreed. Talent development
and succession planning were also discussed.
→ Specialist expertise – investigate whether deeper specialist
knowledge and skills are required (either via external consultants
and meetings/networking sessions or new recruits), particularly in
the digital landscape.
At the meeting held in September 2019, people and workforce
engagement were discussed.
The actions for 2019 agreed by the Committee have been reviewed by
the Committee and also by the Board, noting in particular as follows:
→ Succession planning – the Committee considered that good
progress had been made during the year on building, maintaining and
developing the senior management team, via both external hires and
developing existing talent. It was encouraging to see that promotions
accounted for 47% of non-entry-level vacancies filled. With the aim of
developing current and future leaders, management development
→ Succession planning – continue to evaluate the progression
and development of colleagues at all levels and the ability of
colleagues to progress up to senior management levels.
→ Colleague and stakeholder engagement – continue to roll out
innovative methods of engaging with colleagues and stakeholders
at all levels across the HSS business, including colleagues at
below Board level presenting to the Board as well as direct and
less formal interaction.
Alan Peterson OBE
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 54
Audit Committee Report
Core activities
The Committee met seven times in 2019. All members attended
these meetings.
The Committee’s core activities during 2019 included, and will include
in 2020:
→ reviewing and enhancing disclosure in areas of judgement and
estimates within the notes to the Financial Statements;
→ establishing that the Annual Report, taken as a whole, is fair,
balanced and understandable via review of the document and
gaining an understanding as to how it was completed;
→ reviewing internal control systems and policies;
→ regular review of the work and findings of the internal audit function;
→ considering risk management systems;
→ reviewing the risk register; and
→ meeting with the external auditor, agreeing its audit plan and
assessing its findings.
Ad hoc activities
Specific additional work streams undertaken by the Committee during
the year included:
→ assessing the risk and monitoring the implementation of new policies
and processes related to cyber risk;
→ reviewing the accounting treatment of the disposal by the Group of
the UK Platforms business in January 2019 (refer to note 28); and
→ monitoring the implementation of key changes to the processes and
systems that account for fixed assets and leases.
Prior year adjustment
Following the year end, the Committee reviewed the work performed
by management on a historical issue related to the treatment of cash
customer deposits that has resulted in a prior year error (refer to note
1(g)) to ensure that treatment is in line with IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors and to satisfy itself that the
process changes implemented separately will prevent a recurrence.
External financial reporting
The Committee is responsible for monitoring and reviewing the Financial
Statements and reviewing compliance with legal, regulatory and
statutory requirements, giving due consideration to the provisions of the
2016 Code.
The Committee reviewed the annual and interim Financial Statements
along with trading and market updates released during the year with
particular focus on the following significant areas:
→ hire stock existence and valuation;
→ carrying value of goodwill and other intangible and tangible assets;
→ revenue recognition – cut-off, sales rebates and credit note
provisions;
→ onerous lease provisions;
Doug Robertson
Committee Chairman
Dear shareholder
On behalf of the Audit Committee (the Committee), I am pleased to
present our report for the 2019 financial year.
The Committee has reviewed the contents of the 2019 Annual Report
and Accounts and advised the Board that it considers the Report to
be fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
Roles and responsibilities
The Committee has responsibility for overseeing the financial
reporting and internal financial and risk management controls of the
Company, as well as maintaining an appropriate relationship with the
external auditor and reporting its findings and recommendations to
the Board.
The Committee’s full terms of reference can be found on the
Company’s website at www.hsshiregroup.com/investor-relations/
corporate-governance. Its key responsibilities include:
→ receiving and reviewing the Annual Report and Accounts and
half-year Financial Statements and all related public financial
announcements, and advising the Board on whether the Annual
Report and Accounts are fair, balanced and understandable;
→ receiving and reviewing reports from the external auditor;
→ monitoring the external auditor’s effectiveness and independence
and approving its appointment and its terms of engagement;
→ monitoring the effectiveness of the Group’s risk management
system;
→ reviewing the effectiveness of the Group’s system of internal
financial controls and internal control and compliance systems, in
relation to the financial reporting process (see pages 54 and 56)
and advising the Board as appropriate; and
→ overseeing the Group’s procedures for detecting fraud and
→ management assessment of going concern and long-term viability;
whistleblowing arrangements.
→ exceptional items;
→ new accounting standards; and
→ FRC thematic review of companies’ disclosures relating to the
impairment of non-financial assets.
These areas are identified as significant due to their complexity, size,
level of judgement required and/or potential impact on the Financial
Statements and our strategy.
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 55
An overview of each of these areas is set out below:
Hire stock existence and valuation
Rental income earned on materials and equipment held for hire which
is owned by the Group (hire stock) is a large component of the Group’s
revenues. As such, the existence of hire stock is important to the ongoing
ability of the Group to generate revenue from its assets. Certain of the
Group’s funding arrangements are also linked to specific assets or asset
classes. The Committee has therefore given careful consideration to
the controls in place to verify the physical existence and appropriate
valuation of hire stock together with the processes for verifying the
reliability of the accounting systems and records, and has concluded that
appropriate systems are in place.
Carrying value of goodwill and other intangible
and tangible assets
The carrying value of goodwill, intangible and tangible assets was
reviewed at the year end. A consistent methodology is applied to each
of the individual cash generating units, taking account of market outlook,
risk-adjusted discounted future cash flows, sensitivities and other factors
which may have a bearing on impairment considerations. As a result of
this work, the Committee has concluded that no impairment provisions
are required to goodwill or intangibles and that the impairment provisions
made related to tangible assets are appropriate. Since the balance sheet
date, COVID-19 has emerged as a risk, and, as stated in Note 14 to the
Financial Statements, would adversely impact the headroom on the
analysis carried out during 2019.
Revenue recognition – cut-off, sales rebates
and credit note provisions
The Committee examined the procedures and controls in place to
ensure that the reporting and recognition of revenue, especially for
open hires over the year end, and also the recognition of any revenue-
related rebate accruals or credit note provisions, is appropriate and
complete. The Committee also considered the requirements of IFRS 15
Revenue from contracts with customers as part of its review of revenue
recognition and the approach to provisioning as part of its assessment of
the FY19 results. Following these reviews, the Committee has concluded
that the procedures and controls are adequate.
Onerous lease provisions
The Committee reviewed with management the basis of property-related
provisions for properties that the Group no longer utilises (being dark
stores and certain other operational and office locations), including
the estimates and judgements applied by management in assessing
the existence and level of provision. The Committee assesses that the
approach adopted is reasonable.
Going concern
As at 28 December 2019, the Group’s financing arrangements include a
fully drawn senior finance facility of £182.0m and an undrawn revolving
credit facility of £23.2m which, when combined with cash, resulted
in liquidity headroom of £45.9m. Both the senior finance facility and
revolving credit facility are subject to a net debt financial covenant test
every quarter. At the financial year end the Group had 30% headroom
against this covenant.
The Committee had reviewed the Group’s cash flow forecasts, taking
into account strategic initiatives, and sensitivity analysis based on
reasonably possible changes in trading performance. The COVID-19
pandemic means these original forecasts will not be met. Whilst it
is difficult to fully quantify the impact on financial performance, the
Committee has reviewed the downside scenarios modelled as set out on
page 80 and the immediate mitigating actions implemented.
Under these downside scenarios there are risks that financial covenants
could be breached unless a waiver agreement is reached with the senior
finance facility and revolving credit facility lenders within the next twelve
months, and that additional liquidity could be required, thus indicating the
existence of a material uncertainty that may cast significant doubt on the
Group’s ability to continue as a going concern.
The Committee has noted the commitment to the business expressed by
the Group’s lenders, and the Government measures being put in place to
support industry through these uncertain times. These reinforce that it is
appropriate to adopt the going concern assumption in the preparation of
the accounts.
Exceptional items
The Committee reviewed with management the expenses classified as
exceptional during the year. Exceptional items included costs related
to cost reduction projects, an increase overall in the provision for
onerous leases, accelerated amortisation on debt issue costs following
repayment of debt, and the impairment by the Group of tangible assets
in locations which have been closed. The Committee assessed that the
approach adopted in respect of exceptional items is appropriate.
New accounting standards
IFRS 16 Leases is mandatory for periods beginning on or after 1 January
2019. During the year, the Committee reviewed the Group’s work with
third party specialists to develop IFRS 16 policies, along with processes
and systems to manage their implementation, and agreed that the Group
would not adopt IFRS 16 Leases early for the year ended 28 December
2019 as had been planned and was noted in the Annual Report and
Accounts 2018. The date of initial application will now be for the financial
year commencing on 29 December 2019. The Committee’s view was
that taking the time allowed by the standard would give management
the opportunity to perform a full review of its lease portfolio and more
accurately assess the impact of IFRS 16 and the required disclosure.
IFRS 16 will have a significant impact on reported results when
implemented in the 2020 financial year. HSS will adopt the modified
retrospective approach which means the initial asset being reported at
the start of the 2020 financial year being restated to equal the liability
calculated under the standard. Further disclosure of the impact is given
in note 3 to the Financial Statements. This will be a material change as
the previous operating lease rentals included in reported EBITDA for the
2019 and prior years are replaced by depreciation and interest on the
liability that are reported outside of EBITDA.
FRC thematic review of companies’ disclosures relating
to the impairment of non-financial assets
The Committee was pleased to note that the Group received from the
FRC a letter setting out its intent to use certain disclosure examples from
the 2018 Annual Report and Accounts as examples of good practice in
its thematic review of companies’ disclosures relating to the impairment
of non-financial assets.
External auditor
The Committee oversees the Group’s relationship with the external
auditor (BDO) and formally reviews the relationship, policies and
procedures to ensure its independence. BDO also reports to the
Committee on the steps it has taken through the year to safeguard
its independence and to comply with the relevant professional and
regulatory requirements. Following the Committee’s involvement in the
selection of a new partner in charge of the audit, Sophia Michael took on
this role for the 2019 audit. Sophia replaced Kieran Storan, who had held
the role for five years, the maximum term for which a partner in charge
can perform the role.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 56
Audit Committee Report continued
BDO has been auditor to certain companies within the Group for 16
years since its appointment in respect of the 2004 year end, with the
lead audit partner being rotated on a regular basis, most recently in 2019
as noted above. The last tender for the audit of HSS Hire Service Group
Limited and its subsidiaries occurred in 2005.
BDO has been auditor to the Public Interest Entity, HSS Hire Group plc,
for five years, following its incorporation in January 2015. It is the Group’s
intention to put the audit of the Public Interest Entity out to tender at
least once every ten years. The Company has therefore complied with
the relevant provisions of the Competition and Markets Authority Final
Order on the statutory audit market and the Statutory Auditors and Third
Country Auditors Regulations 2016 (SI 2016/649) and the transitional
arrangements therein for the year ended 28 December 2019.
During the year, the Committee has reviewed and agreed the scope
of BDO’s work, its audit fees and terms of engagement for the half-
year interim results review and full-year FY19 audit. The fees for both
audit and non-audit services paid to BDO are set out in note 9 to the
Financial Statements.
The Committee also reviewed the effectiveness of the external
audit process during the year. This assessment was based on the
Committee’s interaction with BDO at Committee meetings, during
separate meetings between the Audit Committee Chair and Audit
Partner and through feedback from the Group Finance team on its
interaction with BDO. As a result of this exercise, the Committee has
satisfied itself that BDO continues to provide an effective external audit
service to the Company and its subsidiaries and the Committee has
made a recommendation to the Board that a resolution for the re-
appointment of BDO be proposed at the AGM.
Non-audit work and independence
The Committee maintains a policy for non-audit services provided by
the Group’s external auditor which segregates services into Permitted
Engagements, Excluded Engagements and Potential Engagements.
The policy is available on the Group’s website at www.hsshiregroup.com/
investor-relations/corporate-governance. The policy is designed to
ensure that in the event the Group’s external auditor is engaged to
provide non-audit services the provision of those services does not
impair, nor can it be seen to impair, the external auditor’s independence
and objectivity.
During 2019, BDO provided non-audit-related services to the Group;
principally these relate to the review of historic tax returns, provided
to the Group’s Irish branch. Notwithstanding this, the Committee
concluded that the independence of the external auditor has not been
compromised in any way.
Risk management and internal controls
An overview of the Company’s approach to risk, risk management and
internal controls through 2019, together with a summary of the principal
risks facing the Group, is provided on pages 26 to 31.
During 2019, the Committee reviewed the overall risk management
and internal control framework, the work and role of the internal audit
team and the underlying process for capturing and reporting risk and
control data. This assessment was assisted through the provision of
various documents through the year by the Chief Financial Officer, Risk
and Assurance Director and other senior personnel in the head office
functions. These documents include but were not limited to: quarterly
risk management summary documents, which assess any changes in
risk profiles, descriptions and ratings through the year; and quarterly
summaries of work completed and work planned by the internal audit
team, assessing both areas of risk and the existing controls in place.
In addition, as it does periodically, the Committee has initiated a review of
the internal audit function to ensure that it continues to operate effectively
as the HSS business and wider environment continues to develop.
There was specific focus in the year on two risks; cyber risk and Brexit.
A review of the internal audit and IT work assessing cyber risk and
the Group’s approach to managing this (which included reviewing
assessments by third party specialists) was undertaken. In addition,
the Committee built on the work carried out during 2018 to review
the Group’s ongoing assessment of the risk associated with Brexit
and the resultant mitigating actions. It remains an ongoing agenda
item to monitor the evolution of this risk and the implementation of
management’s actions.
As a result of this review, and the work streams undertaken through the
year, the Committee has satisfied itself that the Group has an appropriate
risk management and internal control framework in place. This work will
continue in 2020.
Financial reporting and preparation of accounts
The main features of the Group’s risk management and internal controls
in respect of financial reporting and the preparation of accounts are:
→ a comprehensive annual business planning and budgeting process,
subject to Board approval, through which risks are identified and
considered;
→ a single financial reporting system within which actual and forecast
results are compared with approved budgets on a monthly basis and
reviewed by the Board;
→ Group accounting policies, which are regularly reviewed and reported
against at Audit Committee; and
→ an investment evaluation process to ensure capital expenditure is
properly approved.
Whistleblowing
The Committee believes that appropriate arrangements and policies
are in place to facilitate the proportionate and independent investigation
of, and implementation of, appropriate follow-up action in relation to
confidential concerns raised by staff via the whistleblowing process
(see page 51). The Committee reviewed the steps taken to heighten
awareness of the policy and process across the business and conducted
a review of the Group’s whistleblowing register.
Meeting schedule
The Committee meets at least three times a year at appropriate times
in the financial reporting and audit cycle. Additional meetings can be
scheduled where deemed necessary by the Chairman. The external
auditor, Chief Financial Officer and Risk and Assurance Director are
normally invited to attend a number of these meetings. Other members
of the senior management team attend as invited and as appropriate to
the content matter being discussed.
Doug Robertson
Committee Chairman
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 Remuneration at a Glance
57
Remuneration at a glance
We provide market competitive remuneration which is aligned with the Company’s purpose, values and culture, and is simple and transparent.
Summary of our current Policy and remuneration structure
Group performance in FY19
See Strategic Report for further details
Component
Key features
Base salary
and benefits
→ Attract and retain Executives of a suitable
calibre
The Group delivered another year of significant progress against a
broad range of KPIs that are linked to remuneration:
→ Record performance in terms of Adjusted EBITDA at £63.9m
Read more on page 60
(2018: £60.0m)
Annual bonus
→ Maximum opportunity of 100% of salary
10%
20%
→ Linked to key financial and strategic KPIs
→ Any bonus earned in excess of 50% of
maximum is deferred into shares over a
two-year period
50%
20%
Read more on page 60
• Adjusted EBITDA
• Core Hire Rental
Revenue
• Net Leverage Ratio
• Reduction in RIDDORs
LTIP
→ Maximum opportunity of 125% of salary (set
Shareholding
guidelines
at 100% of salary for FY19)
→ Focus on long-term profitability and growth
and ongoing drive for capital and
operational efficiency
→ Five-year life span (three-year performance
period plus two-year holding period)
Read more on page 61
→ Chief Executive: 200% of salary guideline
(actual holding of 34% of salary as at 28
December 2019)
→ Chief Financial Officer: 125% of salary
guideline (actual holding of 7% of salary as
at 28 December 2019)
→ Post-employment: unvested DBP awards
ordinarily vest at the normal vesting date
(following vesting period) and unvested/
vested LTIP awards ordinarily released at the
normal release date (following holding period)
Read more on page 62
→ Strong link between performance and reward
→ Supports long-term stewardship
→ Takes into account risk management
Strong Policy support from shareholders
→ Rental and related revenues grew by 1.3% to £229.0m
(2018: £226.0M)
→ Significant reduction in leverage (total operations) at 2.8x
(2018: 3.3x)
→ RIDDORs reduced by 45% to 11 occurrences (2018: 20)
→ 70% growth in Adjusted diluted EPS – earnings of 2.31p per share
(2018: earnings of 1.36p per share)
→ Step-change in ROCE to 20.8% from 16.7% in 2018
Reward linked to performance
Annual bonus earned by Executive Directors
Measure
Weighting
Target
Actual
Bonus
earned
(% salary)
Adjusted EBITDA
50%
£67m
£63.9m
13%
Core Hire Rental
Revenue
Net Leverage Ratio
Reduction in RIDDORs
Total
20% £172.9m £168.5m
20%
10%
100%
2.90x
2.81x
18
11
0%
13%
10%
36%
No LTIP award was capable of vesting in respect of FY19.
Wider colleague considerations
The Committee considers pay policies and practices for colleagues
across the Group when making remuneration decisions for
Executive Directors.
→ 2.2% average increase to base salaries across the Group effective
from 1 July 2019 (Executive Directors elected not to receive an
increase)
→ Shareholders voted 99.98% in favour of our current Policy at the
→ 52% of colleagues received a bonus in respect of FY20
2019 AGM
→ Our current Policy can be reviewed in the FY18 Annual Report
available at www.hsshiregroup.com/investor-relations/ financial-
results
→ Amendments are proposed to our current Policy as set out in this
report (see LTIP)
→ The Sharesave Scheme came to an end on 31st December 2019
and there are currently no plans to replace
→ Chief Executive Pay ratio of 27:1 (against median colleague pay)
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
58
Directors’ Remuneration Report
How we link executive remuneration to our strategy
We take a disciplined approach to executive remuneration, ensuring
that we incentivise and reward the right behaviours to support
the overall strategy of the Group. Our executive remuneration
arrangements are designed to support the Company’s strategic
priorities and have been developed based on the following
key principles:
→ Aligned to the Company’s purpose, values and culture, and
clearly linked to the Company’s long-term strategy.
→ Simple and transparent for key stakeholders and take into
account remuneration and related policies for the wider workforce.
→ Predictability on the potential values that may be earned
through the remuneration arrangements in the Policy.
→ Stewardship to encourage long-term shareholding by Executive
Directors that promotes sustainable success. Executive Directors
are subject to within-employment and post-employment
shareholding requirements.
→ Risk management to promote long-term sustainable
performance through sufficiently stretching performance targets,
while ensuring that the incentive framework does not encourage
Executive Directors to operate outside of the Company’s risk
appetite. Malus and clawback provisions apply to annual bonus
and LTIP awards and the Committee has the means to apply
discretion and judgement to vesting outcomes.
→ Proportionality and fairness of total remuneration delivered
should fairly reflect Company and individual performance.
We believe that colleague engagement is key to our success and we
have continued to build on our colleague voice and feedback channels
to ensure wider workforce remuneration is considered when determining
executive pay. The colleague engagement framework is outlined on
page 39. We have a variety of colleague feedback channels including
regular regional Simply Safety forums that shine a light on any issues,
including pay and benefits, and capture potential areas for improvement.
In addition, we conduct an annual colleague engagement survey and
hold benefits roadshows, with colleague feedback having informed
a significant increase to our benefits offering. This has resulted in an
improved uptake from colleagues in many areas. All such developments
are captured in a colleague dashboard that provides key information on
workforce demographics and wider workforce pay and reward and is
reviewed by the Committee at least twice yearly.
Amanda Burton
Chair of the Remuneration Committee
“ FY19 saw continued profit and
returns progression, however
COVID-19 means reward has been
reconsidered in early 2020.”
Dear shareholder
I am pleased to present, on behalf of the Board, our Directors’
Remuneration Report in respect of the year ended 28 December 2019.
The Group’s Directors’ Remuneration Policy (the ‘Policy’) was approved
at the 2019 AGM with a vote in favour of 99.98% and can be reviewed
in the FY18 Annual Report available at www.hsshiregroup.com/investor-
relations/financial-results.
As noted below, shareholder approval will be sought at the 2020 AGM for
an amendment to the Policy (and associated amendment to the rules of
the Company’s LTIP) to permit the grant of Restricted Stock awards.
The Annual Report on Remuneration, which provides details of the
remuneration earned by Directors in FY19 and how we intend to apply
the Policy in FY20, is available on page 60. At the 2020 AGM, to be held
on 25 June 2020, the Annual Report on Remuneration will be subject to
an advisory vote, and separate shareholder approval will be sought for
the amendment to the Policy and LTIP rules in connection with the award
of Restricted Stock.
The Committee’s terms of reference can be found on the Company’s
website at www.hsshiregroup.com/investor-relations/corporate-
governance.
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 59
LTIP
Given the current impact of COVID-19 on the economy and markets, the
Committee delayed the grant of LTIP awards. To remove the challenge
of setting long term targets in an uncertain and volatile market the
Committee has decided to award Restricted Stock instead of LTIPs
in 2020. This recognises the need to reward long term value creation
through and beyond this very challenging period requiring significant
leadership and resilience. Accordingly we are proposing an amendment
to our LTIP rules and Remuneration Policy at the 2020 AGM to facilitate
the grant of Restricted Stock. In line with investor guidelines, the
maximum Restricted Stock award will not exceed half the LTIP quantum
that would otherwise have been granted. The Restricted Stock awards
will continue to be subject to a three year vesting period and a two year
holding period for Executive Directors.
Under the annual bonus plan and LTIP, the Committee has discretion
to amend the pay-out should the amount vesting not reflect the
Committee’s assessment of overall business performance over the
performance or vesting period.
Conclusion
The Committee and I believe that ongoing dialogue with our major
shareholders is of key importance. Should you have any queries in
relation to this Report, please contact me or the Company Secretary.
I trust that you will support the resolutions to be proposed at the 2020
AGM in relation to the Directors’ Remuneration Report and the proposed
amendments to the Remuneration Policy and LTIP rules.
Amanda Burton
Chair of the Remuneration Committee
26 May 2020
Chief Executive pay ratio
Although we are not required to disclose the ratio of our Chief Executive’s
pay to that of the wider workforce in respect of FY19, we have done
so voluntarily in the interests of transparency and best practice; the
information is included on page 64.
FY19 performance and variable pay outcome
The FY19 annual bonus was subject to Adjusted EBITDA (50% of
the overall opportunity), core hire rental revenue growth (20% of the
overall opportunity), Net Leverage Ratio (Net Debt/Adjusted EBITDA)
performance (20% of the overall opportunity) and a reduction in
RIDDORs (10% of the overall opportunity). Reflecting the performance
against the measures, as discussed on page 61, the Executive Directors
earned bonuses of 36% of salary for FY19. The Committee reviewed
performance against these performance measures, considered the
underlying performance of the Group during the performance period and
concluded the overall bonus outcomes to be appropriate. The payment
of bonuses has been delayed to support the Group’s cash-flow position
over the near future in light of COVID-19.
There were no long-term incentive awards which were capable of vesting
in respect of performance ending during FY19.
The Executive Directors elected not to receive a salary increase during
FY19. The average salary increase awarded to colleagues across the
Group was 2.2%.
Reward for FY20
A summary of the application of the Policy in FY20 is set out below and
more information is provided on page 64.
Executive Director salaries
Given the impact that COVID-19 is having on the business, in FY20 there
will be no pay increases in the year and the Board has agreed to forego
salaries and fees for three months.
Annual bonus
No changes are proposed to the maximum opportunity or structure
of the annual bonus. The overall bonus opportunity will remain at
100% of salary. The annual bonus will be subject to Adjusted EBITDA
performance (50% of overall opportunity), core hire rental revenue
growth (20% of the overall opportunity), Net Leverage Ratio (20% of the
overall opportunity), and a reduction in RIDDORs (10% of the overall
opportunity). The Committee considers that these measures are aligned
with the key areas of focus for the senior team over the next 12 months.
Any annual bonus award earned in excess of 50% of the maximum
award will ordinarily be deferred into shares over a two-year period.
Deferred shares are not subject to any additional performance measures.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 60
Directors’ Remuneration Report continued
Annual Report on Remuneration
The following section provides detail in respect of remuneration paid to Directors during the year in line with the Policy approved by shareholders at
the FY19 AGM.
Single figure table
The following table sets out total remuneration for each Director in respect of FY19 and FY18:
Salary and fees
£000
Benefits
£000
Annual bonus
£000
LTIP2
£000
Pension
£000
Total remuneration
£000
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
Executive Directors
Steve Ashmore
Paul Quested
Non-Executive Directors
Alan Peterson OBE
Amanda Burton
Douglas Robertson
Thomas Sweet-Escott1
Total (Executive and
Non-Executive Directors)
368
265
363
262
150
150
50
50
40
50
50
40
20
17
–
–
–
–
20
17
–
–
–
–
132
95
263
190
–
–
–
–
–
–
–
–
923
915
37
37
227
453
–
–
–
–
–
–
–
1
1
–
–
–
–
2
31
24
–
–
–
–
31
24
–
–
–
–
551
401
678
494
150
150
50
50
40
50
50
40
55
55
1,242
1,462
1 Thomas Sweet-Escott’s fee is paid directly to Exponent.
2 No LTIP award was capable of vesting in respect of the performance period ending during FY19.
The figures in the table above are derived from the following:
Salary and fees
The amount of salary/fees received in the year.
Benefits
The taxable value of benefits received in the year. These are principally medical insurance, company car or car allowance.
Annual bonus
The annual bonus is the cash value of bonus earned in respect of the year and includes amounts deferred into shares.
LTIP
Pension
The LTIP values represent amounts earned in respect of the year, i.e. schemes that have vested during the year.
The pension figure represents the Company’s contributions to the defined contribution scheme and any cash payment in
lieu of pension contributions made in the year.
Additional disclosures in respect of the single figure table
Base salary
Details of annual base salaries for Executive Directors for FY19 and FY18 are set out below.
Executive Directors
Steve Ashmore
Paul Quested
Base salary at
28 December
2019
£000
Base salary at
29 December
2018
£000
367.5
265.0
367.5
265.0
FY19 annual bonus
The maximum annual bonus opportunity for FY19 was maintained at 100% of salary. The bonus was set subject to stretching performance
measures based on Adjusted EBITDA performance (50% of the overall opportunity), core hire rental revenue growth (20% of the overall opportunity),
Net Leverage Ratio (Net Debt/Adjusted EBITDA) (20% of the overall opportunity) and a reduction in RIDDORs (10% of the overall opportunity).
These bonus measures reflect the KPIs of the business and support the strategy of growth, profit improvement and balance sheet strength.
Any annual bonus award earned in excess of 50% of the maximum opportunity is deferred into shares over a two-year period. Deferred shares are
not subject to any additional performance measures.
The following table sets out the bonuses earned by the Executive Directors for FY19 and how this reflects performance for the year.
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 61
Performance measure
Adjusted EBITDA
Core hire rental revenue growth
Net Leverage Ratio (Net Debt/Adjusted EBITDA)
Reduction in RIDDORs
Total
Proportion paid in cash
Proportion to be deferred into shares over a two-year period
Proportion
of bonus
determined
by measure
50%
20%
20%
10%
100%
Threshold
performance
(payout £133k)
Target
performance
(payout £265k)
Maximum
performance
(payout £530k)
Actual
performance
Bonus earned
(% of salary)
£63.9m
£176.8m
3.0x
19
£67.0m
£172.9m
2.90x
18
£70.0m
£176.9m
2.63x
17
£63.9m
£168.5m
2.81x
11
13%
0%
13%
10%
36%
100%
0%
The Committee reviewed performance against these performance measures and considered the underlying performance of the Group during the
performance period and concluded the overall bonus outcomes to be appropriate.
The payment of bonuses has been delayed to support the Group’s cash-flow position over the near future in light of COVID-19.
Long-term incentives granted during FY19
Details of the awards granted to Executive Directors on 4 June 2019 are set out below.
Steve Ashmore
Paul Quested
Type of award
Number
of shares
Face value
at grant1
% of award
vesting at
threshold
Performance
period
LTIP
1,020,833
£367,500
25% FY19 to FY21
100% of salary
LTIP
736,111
£265,000
25% FY19 to FY21
100% of salary
1 The face value of the award is calculated by multiplying the number of shares over which the award was granted by 36p, the average closing share price for each
of the five business days prior to the date of grant.
A summary of the performance conditions for these awards is set out below.
Each award is subject to a performance condition based on the Company’s earnings per share as at the end of FY21 (as regards 75% of the award)
and subject to a return on capital employed performance condition (as regards 25% of the award).
Adjusted EPS element (75% of award)
ROCE element (25% of award)1
Threshold
Target
Maximum
Vesting
percentage
4.0 pence
5.4 pence
9.0 pence
25.0%
50.0%
Threshold
Target
100.0%
Maximum
Vesting
percentage
25.0%
50.0%
100.0%
20.0%
22.5%
25.0%
Straight-line vesting between points
Straight-line vesting between points
1 The ROCE targets were provisionally disclosed within the FY19 Directors’ Remuneration Report as 20%, 22.4% and 24% for threshold, target and maximum
performance respectively. Prior to grant, the Committee agreed to increase the targets to 22.5% and 25% for target and maximum performance respectively.
The Committee has discretion to amend the pay-out should any formulaic output not reflect the Committee’s assessment of overall business
performance over the performance period.
Deferred Bonus Plan (DBP) incentives granted during FY19
On 16 April 2019, nil-cost options were awarded to Executive Directors in accordance with the Company’s 2015 DBP and relating to the 2018 annual
bonus. Details of the awards are set out below.
Steve Ashmore
Paul Quested
Type
of award
Number
of shares
Face value
at grant1
DBP
203,708
£79,650
22% of salary
DBP
147,007
£57,480
22% of salary
1 The face value of the award is calculated by multiplying the number of shares over which the award was granted by 39.1p, the average closing share price for each
of the five business days prior to the date of grant.
Deferred shares are not subject to any additional performance measures after the application of the performance measures, which determined the
amount of the annual bonus award earned. Awards will vest two years from the date of grant.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 62
Directors’ Remuneration Report continued
Payments made to former Directors and payments for loss of office during the year
There were no payments made to former Directors and no payments made for loss of office during the year.
Directors’ share interests
The Committee has adopted a shareholding guideline for Executive Directors in accordance with which the Chief Executive is required to build up
and maintain a shareholding in the Company equivalent in value to at least 200% of annual salary, and other Executive Directors are required to build
up and maintain a shareholding in the Company equivalent in value to at least 125% of annual salary. Since joining the Group in May 2017, the Chief
Executive has built his shareholding in the Company from 0% to 34% of annual salary and under the guidelines has until 31 May 2022 to build his
shareholding to 125% of his annual salary (and to 200% of his annual salary as soon as possible following 31 May 2022). Since joining the Group in
August 2016, the Chief Financial Officer has built his shareholding in the Company from 0% to 7% of annual salary and under the guidelines has until
21 August 2021 to build his shareholding to 125% of his annual salary.
The interests of the Directors and their connected persons in the Company’s ordinary shares as at 28 December 2019 were as follows:
Executive Directors
Steve Ashmore
Type
Shares
FY17 LTIP (market value share options)1 4
FY18 LTIP (market value share options)2 4
FY18 CSOP options3 4
FY19 DBP (nil-cost share options)5
FY19 LTIP (nil-cost share options)5
–
–
–
–
–
Paul Quested
Shares
47,000
–
FY17 LTIP (market value share options)1 4
FY18 LTIP (market value share options)2 4
FY18 CSOP options3 4
FY19 DBP (nil-cost share options)5
FY19 LTIP (nil-cost share options)6
Non-Executive Directors
Alan Peterson OBE
Amanda Burton
Douglas Robertson
Shares
Shares
Shares
–
–
–
–
–
937,217
35,714
9,523
Unvested and
subject to
performance
conditions
Unvested and
not subject to
performance
conditions
Total as at
28 December
2019
Owned
outright
313,479
–
–
203,708
2,849,708
5,415,255
84,745
1,020,833
1,404,094
3,165,255
84,745
–
147,007
736,111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
313,479
2,849,708
5,415,255
84,745
203,708
1,020,833
47,000
1,404,094
3,165,255
84,745
147,007
736,111
937,217
35,714
9,523
1 FY17 LTIP awards granted at an exercise price of 57p will vest subject to an EPS performance measure over a four-year period ending with FY20.
2 FY18 LTIP awards granted at an exercise price of 30p will vest subject to a share price performance measure as set out above.
3 FY18 CSOP options granted at an exercise price of 35.4p per share will vest subject to a share price performance measure as set out above.
4 As discussed on page 64 of the FY18 Directors’ Remuneration Report, the FY18 LTIP and FY18 CSOP awards may only be exercised if the FY17 LTIP awards have
lapsed in full or have been irrevocably released prior to their exercise. The FY18 LTIP and FY18 CSOP awards will lapse in full should the FY17 LTIP awards vest.
5 FY19 DBP awards granted during the year are discussed on page 61.
6 The performance conditions applying the FY19 LTIP awards are set out on page 61.
As at 26 May 2020, the Company has not been advised of any changes to the interests of the Directors and their connected persons as set out in
this table.
Thomas Sweet-Escott holds no direct interest in the Company’s ordinary shares. However, he has an indirect interest in the Company’s ordinary
shares as a result of his interest in Exponent.
The disclosures on Directors’ remuneration set out on pages 58 to 62 have been audited as required by the Companies Act 2006.
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 63
Performance graph and historical Chief Executive remuneration outcomes
The graph below shows the total shareholder return (TSR) performance for the Company’s shares in comparison with the FTSE SmallCap Index
for the period from 9 February 2015 to 28 December 2019. The Company has historically been a constituent of this Index and as such it has been
selected as an appropriate comparator group. For the purposes of the graph, TSR has been calculated as the percentage change during the period
in the market price of the shares, assuming that dividends are reinvested. The graph shows the value, by 28 December 2019, of £100 invested in the
Group over the period compared with £100 invested in the FTSE SmallCap Index.
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120
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Feb 15
HSS
Jun 15
Oct 15
Feb 16
Jun 16
Oct 16
Feb 17
Jun 17
Oct 17
Feb 18
Jun 18
Oct 18
Feb 19
Jun 19
Oct 19
FTSE SmallCap
The table below shows details of the total remuneration, annual bonus and LTIP vesting (as a percentage of the maximum opportunity) for the Chief
Executive for FY15 to FY19.
Chief Executive
FY15/Chris Davies2
FY15/John Gill3
FY16/John Gill3
FY17/John Gill3
FY17/Steve Ashmore4
FY18/Steve Ashmore4
FY19/Steve Ashmore4
Total
remuneration
£000
Annual bonus
as a %
of maximum
opportunity
LTIP
as a %
of maximum
opportunity1
297
90
381
148
240
678
551
–
7.1%
–
–
–
71.9%
36%
N/A
N/A
N/A
N/A
N/A
0%
N/A
1 There were no LTIPs capable of vesting in respect of performance periods ended in FY15, FY16, FY17 and FY19.
2 The table shows the remuneration for Chris Davies in the period from the start of FY15 until he resigned as a Director with effect from 25 September 2015.
3 The table shows the remuneration for John Gill in the period from the date of his appointment as Chief Executive with effect from 25 September 2015 until he
resigned as a Director with effect from 23 May 2017.
4 The table shows the remuneration for Steve Ashmore in the period from the date of his appointment as Chief Executive with effect from 1 June 2017 until the end
of FY19.
Change in Chief Executive element of pay in relation to all employees
The table below sets out, in relation to salary, taxable benefits and annual bonus, the percentage change in pay for Steve Ashmore and the average
percentage change for the wider workforce. For these purposes, the wider workforce includes all Group employees who were continuously employed
by the Group during FY19 and FY18 but excludes Executive and Non-Executive Directors.
Chief Executive element of pay in relation to all employees’ pay
Salary
Benefits2
Annual bonus
Chief Executive
0%
0%
-50%
Wider
workforce
2.2%1
0%
0%
1 The wider workforce received a 2.2% pay increase in addition to increases implemented where team members were promoted, took on additional responsibilities
or received a rise in line with National Minimum Wage legislation.
2 Taxable value of benefits received in the year comprising medical insurance and company car or car allowance.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
64
Directors’ Remuneration Report continued
Chief Executive pay in relation to all employees
The Group is required to disclose its Chief Executive pay ratio from FY20. However, in line with best practice, the Committee has decided to also
disclose the Group’s Chief Executive pay ratio for FY19.
The table below sets out the Chief Executive’s total remuneration as a ratio against the full-time equivalent remuneration of the 25th, 50th and 75th
percentile UK employees.
Year
FY19
Method
Option B
25th percentile
pay ratio
50th percentile
pay ratio
75th percentile
pay ratio
28: 1
27: 1
20: 1
Option B methodology (i.e. using the hourly rate data from the most recent gender pay gap reporting) was selected on the basis that it is an
efficient and robust approach, given the complexity of our payrolls. The calculations for the relevant representative employees were performed
as at 28 December 2019. Sensitivity analysis was performed around the 25th, 50th and 75th percentile employees to ensure that they were
reasonably representative.
A substantial proportion of the Chief Executive’s total remuneration is performance-related and delivered in shares. The ratios will therefore depend
significantly on the Chief Executive’s annual bonus and long term incentive outcomes, and may fluctuate year on year.
The Board believes that the median pay ratio is consistent with the pay, reward and progression policies for the UK employee population.
Total pay and benefits used to calculate the ratios
The table below shows the UK employee percentile pay and benefits used to determine the above pay ratios and the salary component for each
figure. The Chief Executive remuneration is the single total figure remuneration for the year ended 28 December 2019 as disclosed on page 60.
£
Total pay and benefits
Salary component
Chief Executive
25th percentile
Median
75th percentile
550,863
367,500
19,673
19,287
20,444
20,043
28,000
28,000
The total full-time equivalent pay and benefits for the relevant employees has been calculated based on the amount paid or receivable in respect
of the financial year. The UK employee percentile pay and benefits has been calculated on the same basis as required for the Chief Executive’s
remuneration for single total figure purposes. For pension-related benefits, employer pension costs have been estimated using the employer
contribution rates applicable to the member’s pension scheme.
Spend on pay and distributions to shareholders
The following table sets out the overall expenditure on pay (as a whole across the organisation) and the amount of distributions to shareholders in the
form of dividends and share buybacks in respect of FY18 and FY19.
£000
Dividends and share buy backs
Overall total expenditure on pay
Year ended
28 December
2019
Year ended
29 December
2018
(nil)
(nil)
88,998
94,358
Percentage
change
N/A
(5.7)%
Implementation of the Policy for FY20
Information on how the Company intends to implement the Policy for FY20 is set out below.
Salary/fees and benefits
Given the impact that COVID-19 is having on the business, in FY20 there will be no pay increases in the year and the Board has agreed to forego
salaries and fees for three months.
Annual bonus
The maximum annual bonus opportunity for FY20 will remain at 100% of salary. The FY19 bonus structure will largely be maintained and the bonus
will be subject to stretching performance measures based on Adjusted EBITDA performance (50% of the overall opportunity), core hire rental revenue
growth (20% of the overall opportunity), Net Leverage Ratio (Net Debt/Adjusted EBITDA) (20% of the overall opportunity) and a reduction in RIDDORs
(10% of the overall opportunity).
The Committee considers that the performance targets should remain confidential to the Company as they give our competitors an insight into our
plans and expectations. However, each of the targets (which have been set by reference to the FY20 budget and require outperformance of the
budget for the maximum bonus to be earned) will be fully disclosed in the FY20 Directors’ Remuneration Report on the same basis as the FY19
disclosure set out on page 61.
The Committee has discretion to amend the pay-out should any formulaic output not reflect the Committee’s assessment of overall business
performance over the performance period.
Any annual bonus award earned in excess of 50% of the maximum opportunity will ordinarily be deferred into shares over a two-year period.
Deferred shares are not subject to any additional performance measures.
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 65
LTIP
Given the current impact of COVID-19 on the economy and markets, the Committee delayed the grant of LTIP awards. As set out in the Committee
Chair statement on page 59, we are proposing an amendment to our LTIP rules and Remuneration Policy at the 2020 AGM to facilitate the grant of
Restricted Stock. The maximum Restricted Stock award for FY20 will not exceed 62.5% of salary for each of the Executive Directors. The Restricted
Share awards will be subject to a three year vesting period and a two year holding period. The Committee has discretion to amend the pay-out should
the amount vesting not reflect the Committee’s assessment of overall business performance over the vesting period.
Statement of voting at last AGM and general meeting
The following table sets out actual voting in respect of the resolutions to approve the Policy and Annual Report on Remuneration at the Company’s
FY19 AGM.
Resolution
Policy (FY19 AGM)
Annual Report on Remuneration (FY19 AGM)
Amendments to the LTIP and DBP
Votes for
% of vote
Votes against
% of vote
Votes withheld
132,930,615
132,930,615
132,928,165
99.98
99.98
99.98
21,900
21,900
23,039
0.02
0.02
0.02
3,498
3,498
4,809
Service contracts
Executive Directors’ service contracts are on a rolling basis and may be terminated on 12 months’ notice by the Company or the Executive.
Service contracts for new Executive Directors will not exceed 12 months’ notice by the Company.
All Non-Executive Directors have initial fixed-term agreements with the Company of no more than three years.
Details of the Directors’ service contracts and notice periods are set out below:
Name
Steve Ashmore
Paul Quested
Alan Peterson OBE
Amanda Burton
Douglas Robertson
Thomas Sweet-Escott
Commencement
Notice period
Unexpired term remaining
1 June 2017
22 August 2016
9 February 2015
9 January 2015
9 January 2015
9 January 2015
12 months1
12 months1
N/A2
N/A2
N/A2
N/A3
N/A1
N/A1
1.04 years4
1.04 years4
1.04 years4
1.04 years3 4
1 Executive Directors’ service contracts are on a rolling basis and have no defined expiry date.
2
Initial letter of appointment expired on 9 January 2018. A new letter of appointment was executed on 28 March 2018 for a further three year term, subject to re-
election at the AGM.
3 Under the Relationship Agreement, Exponent is able to appoint a Non-Executive Director to the Board for so long as the Exponent shareholders are entitled
to exercise or to control the exercise of 10% or more of the votes able to be cast on all or substantially all matters at general meetings of the Company.
Thomas Sweet-Escott is Exponent’s current appointee. His contract commenced on 9 January 2015 and expired on 9 January 2018. A new three-year letter of
appointment was executed on 28 March 2018 to have effect from 9 January 2018 on a continuing basis subject to re-election at the AGM, or, if earlier, termination.
so long as the Exponent shareholders are entitled to exercise or to control the exercise of less than 10% of the votes able to be cast.
4 Calculated from 28 December 2019 to the expiry date of each letter of appointment, being 9 January 2021.
Consideration by the Directors of matters relating to Directors’ remuneration
The Remuneration Committee is composed of the Company’s Independent Non-Executive Directors, Amanda Burton (Chair) and Douglas Robertson.
The Remuneration Committee meets as often as is deemed necessary, but in any event at least three times a year. The Committee’s key
responsibilities include:
→ reviewing the appropriateness of the Policy;
→ considering all elements of individual remuneration for the executive management group, including base salary, bonuses and performance-related
pay, discretionary payments, pension contributions, benefits in kind and share options or their equivalents;
→ formulating performance criteria in relation to performance-related pay;
→ reviewing terms and conditions and ensuring clawback or other provisions are in place so as not to reward failure;
→ administering Company share schemes as required; and
→ ensuring compliance with the 2016 Code and disclosure requirements.
Advisers to the Remuneration Committee
During FY19, the Committee received independent advice from Deloitte LLP in relation to the Committee’s consideration of matters relating
to Directors’ remuneration. Deloitte’s fees, including VAT, for this advice during the year were £23,040 (FY18: £31,620), charged on a time and
disbursements basis or fixed fee depending on the nature of the project. Deloitte also provided advice to the Company during the year in relation to
share plans. Deloitte is a founder member of the Remuneration Consultants Group and as such voluntarily operates under its Code of Conduct in
relation to executive remuneration in the UK. The Remuneration Committee is satisfied that all advice received was objective and independent.
Approval
This Report was approved by the Board on 26 May 2020 and signed on its behalf by:
Amanda Burton
Chair of the Remuneration Committee
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 66
Other Statutory Disclosures
The table below details where certain other information, which forms
part of the Directors’ Report, can be found within this Annual Report:
Information
Annual Report
Dividends
Location within
Chairman’s Statement (page 7)
Directors’ powers
Directors’ indemnities
Page 66
Page 66
Statement on disclosure
of information to the auditor
Corporate Governance (page 52)
Greenhouse gas emissions
Corporate Responsibility (page 39)
Political donations and
expenditure
Financial instruments
Events and developments
impacting the Company
Acquisition of own shares
Equality and diversity
Employee involvement
Impact of change of control/
takeover bid
Directors’ interests
Share capital
Page 66
Page 66
Page 66
Page 66
Page 66
Page 67
Page 67
Directors’ Remuneration Report
(page 62)
Note 20 to the Financial
Statements (page 108)
Restrictions on share transfers
Page 67
Significant shareholders
Relations with shareholders (page
52)
Shares related to employee
share schemes
Page 67
Voting rights and restrictions
Page 68
Agreements between holders
of securities
Appointment and replacement
of Directors
Page 68
Page 68
Amendments to the Company’s
Articles of Association
Page 68
Directors’ powers
At the AGM to be held on 25 June 2020, shareholders will be asked to
renew the Directors’ power to allot shares, grant rights to subscribe for or
convert any security into shares or buy back shares in the Company and
to renew the disapplication of pre-emption rights.
Directors’ indemnities
In addition to the indemnity provisions in their Articles of Association,
the Company and other Group companies have entered into a direct
indemnity agreement with each of the Directors and certain other
officers or senior employees of the Group. These indemnities constitute
qualifying indemnities for the purposes of the Companies Act 2006 (the
Act) and remain in force at the date of approval of this Report without
any payment having been made under them. The Company maintains
Directors’ and officers’ liability insurance which gives appropriate cover
for legal action brought against its Directors.
Political donations and expenditure
At the AGM held on 20 June 2019, the Company and its subsidiaries
were authorised to make certain political donations or incur political
expenditure. No political expenditure was made by the Company or its
subsidiaries during the FY19 year (FY18: £nil).
Financial instruments
Information on the Group’s financial risk management objectives and
policies and the exposure of the Group to market risk, credit risk, liquidity
risk and cash flow risk is provided in note 25 of the Financial Statements
on pages 110 and 111.
Events and developments impacting the Company
The likely future developments of the Company and Group are referred to
in the Chief Executive Officer’s Review on page 8 in the Strategic Report.
Acquisition of own shares
At the AGM held on 20 June 2019, the Company was authorised to
make market purchases of up to 17,020,714 of its ordinary shares.
The Company has made no purchases of its own ordinary shares
pursuant to this authority. This authority expires at the close of the
2020 AGM. A special resolution will be proposed at this year’s AGM to
authorise the Company to make market purchases of up to 17,020,714
ordinary shares.
Equality and diversity
The Group is committed to attracting, engaging and developing a
diverse workforce with a view to reflecting the communities it serves.
Promoting an understanding and awareness of diversity and having
respect for all is a foundation in its training and development material.
We encourage colleagues to reach their full potential through open
dialogue to calibrate performance and agree development needs.
Training is based on colleagues’ individual development needs and
the requirements of the role. We seek always to ensure that part-time
colleagues have equal access to training and development opportunities.
The Group’s policy is to recruit and promote based on an individual’s
skills, qualifications and experience. No candidate, whether internal or
external, will be discriminated against in respect of age, gender, sexual
orientation, disability, race, religion, or beliefs, or on any other criteria
unrelated to an individual’s ability to perform in a role.
If an employee becomes disabled during employment, the Group
makes every effort to enable them to continue in employment by making
reasonable adjustments in the workplace and where necessary providing
retraining for alternative work.
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 67
The Group is committed to ensuring that the abilities of all of
its colleagues are recognised and valued at all levels of the
organisation through:
→ focusing on what people can do rather than on what they cannot;
→ challenging stereotypes about people with disabilities; and
→ making appropriate adjustments in the workplace to support
colleagues with disabilities to achieve their full career potential.
The Group will not include any discriminatory or subjective criteria in job
descriptions or job advertisements. All recruitment will be made solely on
the basis of competence, experience and skill. Where an applicant has a
disability, consideration will be given as to whether any adjustments can
be made to accommodate individual requirements.
Employee engagement
The Company is committed to communicating and engaging with
colleagues and uses a variety of channels to do so including the
intranet (HSS World) that is regularly updated and available on PCs at
all locations and via job-related mobile devices; its internal newsletter
(HIYA!) that reports on recent news, developments, initiatives and events
in the business which is circulated a minimum of four times annually and
delivered to all locations; and a weekly email ‘bulletin’ supplementing
this with operational and functional information, that is required to be
printed and displayed on all notice boards where colleagues may not
have immediate access to email. Conferences, senior management
roadshows, meetings and conference calls also form a regular
communication channel across the Group along with frequent director
site visits and director/colleague breakfasts. We keep our approach
to internal communications under review to ensure that the methods
used for disseminating information to colleagues are both effective and
take into account any confidentiality requirements. We also encourage
two-way dialogue in all that we do, to promote an open culture where
giving and receiving feedback is the norm and where we know how
messages land. The Company also sends certain correspondence of
high importance by mail to colleagues’ home addresses.
The Company’s financial results and performance are regularly
communicated via a number of mechanisms, for example the update
and provision of information to senior colleagues on the same day that
announcements are made to investors at the half-year and full-year with
summary information being cascaded to all colleagues and supplements
in the Company newsletter HIYA!. At the senior colleague conference
calls, there is an opportunity to ask questions of the executive.
Blogs and announcements are also made Company-wide from our
CEO via email providing the top-level results and factors contributing to
our performance.
We conduct colleague engagement surveys and follow up with localised
focus groups, to gain more detailed colleague feedback, and support
a ‘You Said We Did’ approach for targeted change that progresses our
commitment to make HSS a great place to work. We have a strong track
record of making improvements based on colleagues’ feedback and
believe this is the key to staying connected and continuing to improve
levels of colleague engagement and performance.
Further details on our stakeholder engagement activities are included in
the Strategic report, pages 42 to 43.
Impact of change of control/takeover bid
There are no agreements between the Company and its Directors or
employees providing for compensation for loss of office or employment
(whether through resignation, purported redundancy or otherwise) that
occurs because of a change of control/takeover bid.
A number of the Group’s funding agreements contain change of control
provisions. These are summarised in the table below:
Funding agreement
Summary of change of control provision
Term facility
Following a change of control the Group would be
required to offer to repay the outstanding sums
including an amount to cover accrued and unpaid
interest and a make whole premium which would
be dependent on the remaining term.
Revolving Credit
Facility
Following a change of control all outstanding
amounts, together with accrued interest, would
become immediately due and payable.
Finance leases
(from various
finance providers)
Certain of the Group’s finance leases have
conditions where a change of control could lead
to early repayment.
In addition, there are a number of commercial agreements which either
the Company or a subsidiary of the Company is party to which are
terminable upon a change in control of the Company or the Group
following a takeover. None of these are deemed to be significant in terms
of their potential impact on the business of the Group as a whole. On a
change of control, options and awards granted to senior managers
under the Company’s share plans may vest and become exercisable,
subject to the extent to which any applicable performance conditions
have been met at that time.
Restrictions on share transfers
Certificated shares
The Board may, in its absolute discretion, refuse to register the transfer
of a certificated share which is not a fully paid share, provided that
the refusal does not prevent dealings in shares in the Company from
taking place on an open and proper basis. The Board may also refuse
to register the transfer of a certificated share unless the instrument of
transfer is (i) lodged, duly stamped (if stampable), at the office or at
another place appointed by the Board accompanied by the certificate
for the share to which it relates and such other evidence as the Board
may reasonably require to show the right of the transferor to make the
transfer; (ii) is in respect of one class of share only; and (iii) is in favour of
not more than four transferees.
Uncertificated shares
Subject to the provisions of the Uncertificated Securities Regulations
2001, the Board may permit the holding of shares in any class of shares
in uncertificated form and the transfer of title to shares in that class by
means of a relevant system and may determine that any class of shares
shall cease to be a participating security.
Shares related to employee share schemes
No shares have been issued in relation to employee share schemes,
although options have been issued under the senior management long-
term incentive schemes (as detailed earlier).
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 68
Other Statutory Disclosures continued
Voting rights and restrictions
Subject to the rights or restrictions set out below or detailed in the Notice
of AGM, on a show of hands every member who is present in person
shall have one vote and on a poll every member present in person or by
proxy shall have one vote for every share of which he is the holder.
No member shall be entitled to vote at any general meeting in respect
of a share unless all monies presently payable by him in respect of that
share have been paid.
If at any time the Board is satisfied that any member, or any other person
appearing to be interested in shares held by such member, has been
duly served with a notice under Section 793 of the Act and is in default
for the prescribed period in supplying to the Company the information
thereby required, or, in purported compliance with such a notice, has
made a statement which is false or inadequate in a material respect,
then the Board may, in its absolute discretion at any time thereafter by
notice to such member, direct that, in respect of the shares in relation to
which the default occurred, the member shall not be entitled to attend or
vote either personally or by proxy at a general meeting or at a separate
meeting of the holders of that class of shares or on a poll.
The Notice of AGM specifies deadlines for exercising voting rights and
appointing a proxy or proxies to vote in relation to resolutions to be
passed at the AGM. All proxy votes are counted and the numbers for,
against or withheld in relation to each resolution are announced at the
AGM and published on the Company’s website after the meeting.
Under the Financial Conduct Authority (FCA) rules, the election or re-
election by the shareholders of an Independent Non-Executive Director
must be approved by an ordinary resolution of the shareholders and
separately approved by those shareholders who are not controlling
shareholders (the independent shareholders).
As a result, by virtue of Exponent’s 50.34% shareholding in the
Company, any votes by Exponent on any resolutions relating to the
election or re-election of Independent Non-Executive Director(s) will not
be counted for the purposes of approving those resolutions.
Agreements between holders of securities
The Company is not aware of any agreements between holders of
securities that may result in restrictions on the transfer of securities or on
voting rights.
Appointment and replacement of Directors
Unless otherwise determined by ordinary resolution, the number of
Directors shall be not less than two but shall not be subject to any
maximum in number. Directors may be appointed by ordinary resolution
of shareholders or by the Board.
Under the Relationship Agreement, Exponent is able to appoint a
Non-Executive Director to the Board for so long as the Exponent
Shareholders are entitled to exercise or to control the exercise of 10%
or more of the votes able to be cast on all or substantially all matters
at general meetings of the Company. Mr Sweet-Escott is the current
appointee. In addition, in accordance with the Relationship Agreement,
Exponent has appointed an observer to attend Board meetings.
At every AGM all Directors at the date of the Notice of AGM shall retire
from office and resolutions for the re-appointment of those Directors who
wish to be re-appointed shall be put to the meeting. All appointments
are subject to the Company’s Articles of Association and the annual re-
election by shareholders.
The Company may remove any Director from office, and appoint
another person in place of a Director removed from office, both by
ordinary resolution.
A person ceases to be a Director as soon as:
→ he/she ceases to be a Director by virtue of any provision of the Act or
is prohibited from being a Director by law;
→ he/she is subject to a bankruptcy order or compounds with his/her
creditors generally;
→ he/she becomes physically or mentally incapable of acting as a
Director and may remain so for more than three months;
→ he/she resigns or retires;
→ he/she is absent for more than six consecutive months without
permission of the Board from meetings of the Board held during that
period and the Board resolves that his/her office be vacated; or
→ he/she receives notice signed by not less than three-quarters of the
other Directors stating that that person should cease to be a Director.
Amendments to the Company’s Articles of Association
The Company’s Articles of Association may only be amended by the
passing of a special resolution at a general meeting of shareholders.
Daniel Joll
Company Secretary
26 May 2020
Disclosures required by Listing Rule 9.8
Listing Rule 9.8 requires that certain information is disclosed within the
Annual Report. The table below sets out the required information and its
location within this document, where applicable.
Listing Rule
Information
Location
LR 9.8.4(R)(4)
Long-term incentive
schemes
Remuneration Directors’
Report (pages 58 to 65)
LR 9.8.4(R)(14)
Agreement with
controlling shareholders
Page 68 (see below)
No further LR 9.8.4 disclosures are required.
As required by LR 9.2.2ADR the Company has entered into a
Relationship Agreement with Exponent (see page 42 for further details
on this agreement). The Board of Directors confirms that:
→ the Company has complied with the independence provisions
included in this Relationship Agreement;
→ so far as the Company is aware, Exponent and its associates have
complied with the independence provisions included within the
Relationship Agreement; and
→ so far as the Company is aware, Exponent has complied with the
procurement obligation included within the Relationship Agreement.
This Statement in respect of LR 9.8.4R(14) was approved by the Board of
Directors on 26 May 2020 and is signed on its behalf by:
Steve Ashmore
Director
Corporate GovernanceHSS Hire Group plc Annual Report and Financial Statements 2019 Directors’ Responsibility Statement
69
Directors’ responsibilities pursuant to Disclosure and
Transparency Rule around Periodic Financial Reporting (DTR4)
Each of the Directors, whose names and functions are detailed on pages
46 and 47, confirms that to the best of his or her knowledge:
→ the Group Financial Statements have been prepared in accordance
with IFRSs as adopted by the European Union and Article 4 of the IAS
Regulation and give a true and fair view of the assets, liabilities,
financial position and profit and loss of the Group; and
→ the Annual Report includes a fair review of the development and
performance of the business and the financial position of the Group
and the parent Company, together with a description or the principal
risks and uncertainties that they face.
This Responsibility Statement was approved by the Board of Directors
on 26 May 2020 and is signed on its behalf by:
Steve Ashmore
Director
26 May 2020
Approval of the Directors’ Report
The Directors’ Report on pages 48 to 69 was approved by the Board of
Directors on 26 May 2020 and is signed on its behalf by:
Steve Ashmore
Director
26 May 2020
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements
for each financial year. Under that law the Directors are required to
prepare the Group Financial Statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the EU and Article
4 of the International Accounting Standards (IAS) Regulation and have
elected to prepare the Company Financial Statements in accordance
with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting standards and applicable law). 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 Company and of the profit or loss for the Group for
that period.
In preparing the Financial Statements, the Directors are required to:
→ select suitable accounting policies and then apply them consistently;
→ make judgements and accounting estimates that are reasonable and
prudent;
→ state whether IFRSs as adopted by the EU have been followed,
subject to any material departures disclosed and explained in the
Financial Statements;
→ prepare the Financial Statements on the going concern basis unless it
is inappropriate to presume that the Group or parent Company will
continue in business; and
→ prepare a Directors’ Report, a Strategic Report and a Directors’
Remuneration Report which comply with the requirements of the
Companies Act 2006.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of
the Company and enable them to ensure that the Financial Statements
comply with the Companies Act 2006 and, as regards the Group
Financial Statements, Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for ensuring the Annual Report
and the Financial Statements are made available on a website.
Financial Statements are published on the Company’s website in
accordance with legislation in the UK governing the preparation and
dissemination of Financial Statements, which may vary from legislation
in other jurisdictions. The maintenance and integrity of the Company’s
website is the responsibility of the Directors. The Directors’ responsibility
also extends to the ongoing integrity of the Financial Statements
contained therein.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 70
Independent Auditor’s Report
to the members of HSS Hire Group plc
Opinion
We have audited the financial statements of HSS Hire Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended
28 December 2019 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated
and Company statement of financial position, the Consolidated and Company statement of changes in equity, the Consolidated statement of cash
flows and notes to the Consolidated 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 Financial Reporting Standards (IFRSs)
as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company financial
statements is applicable law and UK Accounting Standards including Financial Reporting Standard 101 Reduced Disclosure Framework (United
Kingdom Generally Accepted Accounting Practice).
In our opinion:
→ the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 28 December 2019 and of
the Group’s profit for the year then ended;
→ the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
→ the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
→ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of
the Group 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 public interest entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to note 1e in the financial statements, which indicates that the Group and Parent Company may breach their bank covenants and
may require further liquidity due to the possible effects of the ongoing COVID-19 pandemic. As stated in note 1e, these events or conditions, along
with other matters as set out in note 1e, indicate that a material uncertainty exists that may cast significant doubt on the Group and Parent Company’s
ability to continue as a going concern. Our opinion is not modified in respect of this matter.
The directors’ assessment of going concern involves a number of subjective judgements, which have been materially amplified by the current
COVID-19 pandemic. We have therefore spent significant audit effort in assessing the appropriateness of the assumptions involved, and as such this
has been identified as a Key Audit Matter.
We highlighted going concern as a key audit matter as a result of the uncertainty created by the Coronavirus pandemic and resulting potential impact
of the risk and the effect on our audit strategy.
Our audit procedures in response to this key audit matter included the following:
→ Review of the internal forecasting process to confirm the projections are prepared by appropriate personnel that are aware of the detailed figures in
the forecast but also have a high level understanding of the entity’s market, strategy and profile in the customer base, and the potential impact that
COVID-19 might have on these projections. Obtaining an understanding of the financing facilities, including the nature of facilities, repayment terms
and financial covenants. We reviewed management’s financial covenant compliance calculations through to December 2021 and assessed the
consistency of such calculations with the ratios stated in the relevant lender agreements.
→ Review of the forecasts prepared by management and challenge of the key assumptions against prior year and our knowledge of the business.
As referred to in in Note 1e, management have modelled reasonably possible downside scenarios to incorporate the expected impact of the
COVID-19 pandemic. We have considered the appropriateness of the downside scenarios in respect of the impact of COVID-19 and challenged
management to confirm that they have suitably addressed the inputs, which are most susceptible to change, including those in respect of revenue,
margins and cost savings.
→ We challenged management’s assessment of reasonably possible scenarios on the impact of trading against actual trading results subsequent to
the Government’s lockdown instruction.
→ We challenged management on the suitability of the mitigating actions identified by management in their assessment and the quantum and period
ascribed to these mitigating actions.
→ Scenarios modelled by management include a reverse stress test to analyse the levels of revenue reduction that could be sustained without
breaching banking covenants. We challenged the assumptions used and mitigating actions included within this scenario and reviewed the reverse
stress test calculations.
→ Considered the adequacy of the disclosures in the financial statements against the requirements of the accounting standards and consistency of
the disclosure against the forecasts and stress test scenario.
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 71
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you
whether we have anything material to add or draw attention to:
→ the disclosures in the annual report set out on pages 28 to 31 that describe the principal risks and explain how they are being managed or
mitigated;
→ the Directors’ confirmation set out on page 28 in the annual report that they have carried out a robust assessment of the principal risks , including
those that would threaten its business model, future performance, solvency or liquidity;
→ the directors’ statement set out on page 51 in the financial statements about whether the directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the Group and
the Parent Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
→ whether the directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit; or
→ the directors’ explanation set out on page 51 in the annual report as to how they have assessed the prospects of the Group, over what period they
have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
Apart from the impact of the matters disclosed in the material uncertainty related to going concern referred to in this report, we confirm that we have
nothing material to add or draw attention to in respect of these requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, 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 statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key audit matter
How we addressed the matter in our audit
Hire stock and renovation work
Hire stock represents over 1 million items which have a high
frequency of movement in individual assets through asset
purchases, hires, disposals and transfers around the branch
network. As such there is inherent difficulty in maintaining
accurate fixed asset registers.
Judgement is required in ensuring that depreciation charges are
accurately calculated, having regard to economic useful lives and
residual values, together with the impact of renovation work
undertaken on specific classes of assets.
Therefore we consider hire stock and renovation costs to be a key
audit matter.
Refer to page 55 (Audit Committee Report), pages 85 and 86
(accounting policy) and pages 101 and 102 (financial disclosures).
We sample tested the operating effectiveness of key controls in respect of the
existence and value of hire stock, including the authorisation of additions, the
use of unique asset identification numbers for certain assets, and the
reconciliation of the fixed asset registers to the accounting records.
We attended a sample of the hire stock asset counts to test the effectiveness of
controls and performed test counts ourselves in order to ensure the accuracy of
the counting performed, and therefore the existence of assets. We also tested
that the records from the counts had been used to update both the fixed asset
register and the accounting ledgers.
We further agreed the existence of a sample of assets with reference to their
continuing hire.
We selected a sample of assets acquired in the year and agreed the amounts
recorded on the fixed asset registers to invoices.
For a sample of items we recalculated the depreciation, additions and disposals
in the fixed asset registers for the current year, and reconciled this to the charge
included in the accounting ledgers.
We reviewed for the principal asset classes the useful economic lives and
residual values applied by management by reference to historic data, historic
disposal values and the group’s industry peers.
We agreed, on a sample basis, the capitalisation of the renovation work
undertaken to supporting documentation and tested on sample basis that the
capitalisation was appropriate with reference to the underlying asset.
We evaluated the adequacy of the Group’s disclosures of the judgements and
estimates utilised in assessing the valuation.
Key observations
We noted no material exceptions thorough performing these procedures.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 72
Independent Auditor’s Report
to the members of HSS Hire Group plc continued
Key audit matter
How we addressed the matter in our audit
Carrying value of goodwill and other intangible assets
Management performs an annual impairment review of goodwill,
which also covers the carrying value of other intangible assets
and property plant and equipment.
The annual impairment review relies on significant estimation and
judgement in selection of the key inputs which can have a
significant impact of the calculated net present value for each
Cash Generating Unit (CGU).
There is a risk that the estimates and judgements used in the
impairment review for each CGU, which include areas such as
forecast cash flows, discount rates, and growth rates are
inappropriate and that an impairment charge may be required.
The effect of the COVID-19 pandemic is considered to be a
non-adjusting post balance sheet event and does not therefore
impact the carrying value of goodwill.
Refer to page 55 (Audit Committee Report), pages 85 and 86
(accounting policy) and pages 99 and 100 (financial disclosures).
Revenue recognition
There is a risk that revenue is incorrectly calculated or recorded in
the wrong period.
Revenue is accrued in the financial statements for hire equipment
out on hire over the year end. There is a risk that accrued revenue
may be incorrectly calculated.
There is also a risk that rebates payable to customers may be
omitted or incorrectly calculated, and that credit note provisions
may be incorrectly calculated.
In view of the potential for error or for management override of
controls we consider this to be an area in which there is a
significant risk of material misstatement in the financial
statements.
Therefore we consider revenue to be a key audit matter.
Refer to page 55 (Audit Committee Report), page 84 (accounting
policies) and pages 90 to 92 (financial disclosures).
Onerous lease provisions
The Group has a significant number of property related provisions
relating to the ongoing lease obligations of properties that the
Group either no longer utilises in the business or where the
trading performance of those sites is not sufficient to meet the
unavoidable operating costs.
The completeness and accuracy of the provisions involve
management judgement and estimates in assessing mitigating
future lease costs as a result of the economic benefits expected
to be received under the contracts through trading or sub-letting
of the properties. Additional management judgement and
estimates relate to determining break clauses, other unavoidable
costs and the appropriateness of the discount rate used.
Therefore we consider onerous lease provisions to be a key
audit matter.
Refer to page 55 (Audit Committee Report), page 87 (accounting
policy) and pages 105 and 106 (financial disclosures).
For each of the key inputs to the impairment model we reviewed management’s
assumptions by reference to Board approved budgets, historical trends, and
reviewed the sensitivity analysis performed.
We obtained explanations and, where appropriate, support from management
on their forecasts for revenue, costs and EBITDA in the impairment model. In
addition, we performed our own additional sensitivity analysis in respect of the
key assumptions of short term and long term trading performance and discount
rate used which included assessing by how much each assumption would need
to change for an impairment to arise.
We utilised our own valuation specialists, particularly around the mechanics of
the modelling and appropriateness of the discount rates used by the directors,
comparing this against the cost of capital for the Group and other comparable
companies in the industry.
We evaluated the adequacy of the Group’s disclosures in respect of the
impairment testing, the inputs used and the sensitivity of the outcomes of the
assessment to changes in key assumptions to validate that these adequately
reflected the inherent risks in the valuations.
Key observations
Based on the evidence obtained we did not identify any indications that the fair
value assessments made by management were inappropriate.
Our audit work in respect of this area included the identification and testing of
the operating effectiveness of key controls over revenue recognition. In respect
of the front of house system we performed a reconciliation of revenue between
that system and the accounting records.
We obtained the calculations of accrued revenue at the year end and the
underlying data, and we recalculated a sample included in accrued revenue.
For a sample of items we checked that there was a subsequent invoice to a
third party and that the revenue recognition criteria used are in accordance
with the stated accounting policy.
We tested the calculation of rebates payable for a sample of customers by
reference to sales data and the underlying agreements, compared rebates by
customer against those payable in previous years and investigated the reasons
for significant variances.
We have tested the calculation of the credit note provision and associated
assumptions. Management’s calculations were re-performed in order to assess
the accuracy of the figures derived. Exclusions from the calculation and margin
assumptions were tested to assess their appropriateness. A review of post year
end credit notes was performed in order to assess the adequacy of the provision.
Key observations
We noted no material exceptions through performing these procedures.
Our audit work involved checking a sample of the movements in provisions
against prior years and obtaining and verifying explanations for material
movements.
For any newly created onerous lease provisions we reviewed and considered
with management the basis of the provisions made, including a review of the
lease terms in place.
We considered management’s evaluation of future expected trading income and
costs with reference to current year performance. We challenged assumptions
used for break clauses and subletting with reference to underlying agreements.
The basis of the discount rate applied was considered against third party
support.
We evaluated the adequacy of the Group’s disclosures in relation to the
judgements and estimates used in the estimation of the onerous lease provision.
Key observations
We noted no material exceptions through performing these procedures.
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 73
Key audit matters remain consistent with those in the prior year with the exception of going concern. Going concern has been included in the
current year as a result of the material uncertainty and therefore increased significance in the audit of the financial statements for the year ended
28 December 2019.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality
to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the
basis of the financial statements.
We determined materiality for the Group as a whole to be maintained at £1,000,000 (2018: £1,000,000). Given similar levels of trading activities in
2017, 2018 and 2019 and the volatility of the Group’s profit/ loss, materiality has been calculated with regard to a normalised Group profit/loss over the
past three years excluding certain exceptional items in respect of the Group’s network reconfiguration in 2017.
Materiality represents 3.66% of the normalised Group profit/loss before tax. Materiality in 2018 was determined with reference to a benchmark of the
Group loss and represented 4.54% of the normalised Group loss before tax.
Materiality for the parent company was set at £900,000, being 90% (2018: £900,000 based on 90%) of group materiality.
Performance materiality was set at 60% (2018: 60%) of materiality for the Group audit, and 60% (2018: 60%) for the parent company. In setting the
level of performance materiality we considered a number of factors including the expected total value of known and likely misstatements (based on
past experience and other factors) and management’s attitude towards proposed adjustments.
We set materiality for each component of the Group based on a percentage of between 18% and 90% (2018: 17% and 90%) of Group materiality
dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £184,000 to
£900,000 (2018: £170,000 to £900,000).
In the audit of each component, we further applied performance materiality levels of between 60% and 75% (2018: 60% and 75%) of the component
materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
We agreed with the Audit Committee that we would report to the Committee all individual audit differences in excess of £40,000 (2018: £50,000).
We also agreed to report differences below these thresholds that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
The Group’s accounting process is structured around a group finance function at its office in Heathrow, and at its head office in Manchester, which
also act as a shared service finance centre for all of its UK companies. The Group also maintains local finance teams for its Ireland operation and for
part of one of its UK operations.
The Group’s operating companies vary significantly in size. We identified twelve reporting units at the year-end which had non-trivial external
transactions. We identified six reporting units which, in our view required an audit of their complete financial information due to their size or risk
characteristics and were therefore considered to be significant components. These six units comprise over 90% of Group turnover and over 90% of
Group gross assets.
All audit work on the six units was performed by us, the Group audit team. Our work on the other units comprised analytical procedures and certain
tests of detail. This gave us the evidence we needed for our opinion on the Group Financial Statements.
How the audit was considered capable of detecting irregularities, including fraud
We also gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered
the risk of acts by the Group that were contrary to applicable laws and regulations, including fraud. We designed audit procedures at Group and
significant component level to respond to the risk, 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 or intentional misrepresentations,
or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the financial statements, including, but
not limited to, the Companies Act 2006, the UK Listing Rules and UK tax legislation. Our tests included agreeing the financial statement disclosures
to underlying supporting documentation, enquiries with management and enquiries of legal counsel. There are inherent limitations in the audit
procedures described above 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 would become aware of it. We did not identify any key audit matters relating to irregularities, including fraud.
As in all of our audits, we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there
was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual report and financial
statements 2019, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to
report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
→ Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial statements taken
as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position,
performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 74
Independent Auditor’s Report
to the members of HSS Hire Group plc continued
→ Audit committee reporting – the section describing the work of the audit committee does not appropriately address matters communicated by
us to the audit committee is materially inconsistent with our knowledge obtained in the audit; or
→ Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’ statement required under the
Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor
in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
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.
Matters on which we are required to report by exception
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.
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 and the part of the directors’ remuneration report to be audited 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 directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and 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.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were appointed by the Board of Directors to audit the financial statements for the year
ending 30 December 2015 and subsequent financial periods. In respect of the financial year ended 28 December 2019, we were reappointed by
resolution of the members of the company at the annual general meeting held on 20 June 2019. The period of total uninterrupted engagement is five
years, covering the years ending 31 December 2015 to 28 December 2019 for the Company.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain independent
of the Group and the Parent Company in conducting our audit.
Our audit opinion is consistent with the additional report to the audit committee.
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.
Sophia Michael (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
UK
26 May 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 Consolidated Income Statement
For the year ended 28 December 2019
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Adjusted EBITDA
Less: Depreciation
Adjusted EBITA
Less: Exceptional items (non-finance)
Less: Amortisation
Operating profit
Finance expense
Adjusted profit before tax
Less: Exceptional items (non-finance)
Less: Exceptional items (finance)
Less: Amortisation
(Loss) before tax
Income tax (charge)/credit
(Loss) from continuing operations
Profit on disposal of discontinued operations
Profit from discontinued operations, net of tax
Profit/(loss) for the financial year
Profit/(loss) per share (pence)
Continuing operations
Basic and diluted loss per share
Adjusted basic earnings per share(1)
Adjusted diluted earnings per share(1)
Continuing and discontinued operations
Basic and diluted earnings/(loss) per share
Adjusted basic earnings per share(1)
Adjusted diluted earnings per share(1)
75
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
328,005
(149,706)
322,767
(145,549)
Note
5
178,299
177,218
(33,190)
(128,830)
542
(33,980)
(132,514)
494
63,929
(37,396)
26,533
(4,094)
(5,618)
59,967
(37,883)
22,084
(4,965)
(5,901)
16,821
11,218
6
5, 32
15
32
7
14
8
(22,609)
(20,374)
5,806
(4,094)
(1,882)
(5,618)
(5,788)
(436)
(6,224)
14,770
162
8,708
(3.66)
2.76
2.31
5.12
2.84
2.38
7
7
14
12
28
28
13
13
13
13
13
13
3,170
(4,965)
(1,460)
(5,901)
(9,156)
2,749
(6,407)
(2,080)
4,067
(4,420)
(3.76)
1.51
1.36
(2.60)
3.81
3.45
(1) Adjusted earnings per share is defined as profit before tax with amortisation and exceptional costs added back less tax at the prevailing rate of corporation tax
divided by the weighted average number of ordinary shares.
The notes on pages 80 to 115 form part of these financial statements.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
76
Consolidated Statement of Comprehensive Income
For the year ended 28 December 2019
Profit/(loss) for the financial year
Items that may be reclassified to profit or loss:
Foreign currency translation differences arising on consolidation of foreign operations
Losses arising on cash flow hedges
Other comprehensive loss for the year, net of tax
Total comprehensive income for the year
Attributable to owners of the Company
The notes on pages 80 to 115 form part of these financial statements.
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
8,708
(4,420)
(782)
(144)
(926)
(245)
(162)
(407)
7,782
(4,827)
7,782
(4,827)
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019
Consolidated Statement of Financial Position
For the year ended 28 December 2019
77
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Derivative financial instruments
Current assets
Inventories
Trade and other receivables
Cash
Assets classified as held for sale
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings and finance lease liabilities
Provisions
Current tax liabilities
Liabilities associated classified as held for sale
Non-current liabilities
Borrowings and finance lease liabilities
Provisions
Deferred tax liabilities
Total liabilities
Net assets
EQUITY
Share capital
Warrant reserves
Merger reserve
Foreign exchange translation reserve
Cash flow hedging reserve
Retained deficit
Total equity
Year ended
28 December
2019
£000s
Note
Year ended
29 December
2018
(restated)
£000s
14
15
21
25
16
17
27
18
19
20
27
19
20
21
22
23
160,378
101,851
–
14
163,657
109,129
2,500
405
262,243
275,691
3,735
88,396
22,658
–
4,333
93,981
17,832
46,716
114,789
162,862
377,032
438,553
(66,031)
(5,355)
(8,145)
–
–
(72,008)
(19,304)
(10,284)
(101)
(13,544)
(79,531)
(115,241)
(185,729)
(32,470)
(341)
(217,630)
(34,048)
(1,168)
(218,540)
(252,846)
(298,071)
(368,087)
78,961
70,466
1,702
2,694
97,780
(602)
(306)
(22,307)
78,961
1,702
2,694
97,780
180
(162)
(31,728)
70,466
The notes on pages 80 to 115 form part of these financial statements.
The financial statements were approved and authorised for issue by the board of directors on 26 May 2020 and were signed on its behalf by:
P Quested
Director
26 May 2020
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
78
Consolidated Statement of Changes in Equity
For the year ended 28 December 2019
Share
capital
£000s
Warrant
reserve
£000s
Merger
reserve
£000s
Foreign
exchange
translation
reserve
£000s
Cash flow
hedging
reserve
£000s
Retained
earnings/
(deficit)
£000s
Total
equity
£000s
At 30 December 2018 as restated
1,702
2,694
97,780
180
(162)
(31,728)
70,466
Total comprehensive income for the year
Profit for the year
Foreign currency translation differences arising
on consolidation of foreign operations
Hedging of financial instruments
Total comprehensive income for the year
Transactions with owners recorded directly in equity
Share-based payment charge
At 28 December 2019
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(782)
–
(782)
–
–
(144)
(144)
8,708
8,708
–
–
(782)
(144)
8,708
7,782
–
–
713
713
1,702
2,694
97,780
(602)
(306)
(22,307)
78,961
At 31 December 2017 – as previously presented
Prior year adjustment
At 31 December 2017 – as restated
Total comprehensive loss for the year
(Loss) for the year
Foreign currency translation differences arising
on consolidation of foreign operations
Hedging of financial instruments
Total comprehensive loss for the year
Transactions with owners recorded directly in equity
Share-based payment charge
Warrants issued (note 23)
Share
capital
£000s
1,702
–
1,702
–
–
–
–
–
–
At 29 December 2018 – as previously presented
At 29 December 2018 – as restated
1,702
1,702
The notes on pages 80 to 115 form part of these financial statements.
Warrant
reserve
£000s
–
–
–
–
–
–
–
–
2,694
2,694
2,694
Merger
reserve
£000s
97,780
–
97,780
–
–
–
–
–
–
97,780
97,780
Foreign
exchange
translation
reserve
£000s
Cash flow
hedging
reserve
£000s
425
–
425
–
(245)
–
(245)
–
–
180
180
–
–
–
–
(162)
(162)
–
(162)
(162)
Retained
earnings
£000s
Total equity
£000s
(26,335)
73,572
(997)
(997)
(27,332)
72,575
(4,420)
(4,420)
–
–
(245)
(162)
(4,420)
(4,827)
24
–
24
2,694
(30,731)
71,463
(31,728)
70,466
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 Consolidated Statement of Cash Flows
For the year ended 28 December 2019
Cash flows from operating activities
Profit/(loss) after income tax
Adjustments for:
– Tax
– Profit on disposal of discontinued operations
– Amortisation
– Depreciation
– Accelerated depreciation relating to hire stock customer losses and hire stock write offs
– Impairment of property, plant and equipment
– Disposal of intangible assets
– Impairment of intangible assets
– Loss on disposal of property, plant and equipment
– Share-based payment charge
– Foreign exchange gains on operating activities
– Finance expense
Changes in working capital (excluding the effects of disposals and exchange differences on consolidation):
– Inventories
– Trade and other receivables
– Trade and other payables
– Provisions
Net cash flows from operating activities before changes in hire equipment
Purchase of hire equipment
Cash generated from operating activities
Net interest paid
Income tax repaid/(paid)
Net cash generated from operating activities
Cash flows from investing activities
Proceeds on disposal of businesses, net of cash disposed of
Disposal of assets held for sale
Purchases of non-hire property, plant, equipment and software
Net cash flows generated from/(used in) investing activities
Cash flows from financing activities
Bank arrangement fee
Proceeds from borrowings (third parties)
Repayment of borrowings
Capital element of finance lease payments
Acquisition of derivative financial instruments
Net cash (paid)/received from financing activities
Net increase in cash
Cash at the start of the year – total
Cash at the end of the year – total
Cash at the end of the year – continuing operations
The notes on pages 80 to 115 form part of these financial statements.
79
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
Note
8,708
(4,420)
28
14
15
15
15
14
14
15
24
8
15
14, 15
436
(14,770)
5,525
28,750
8,257
363
96
–
576
714
(474)
22,609
589
5,863
(4,362)
(3,718)
59,162
(18,972)
40,190
(18,498)
490
22,182
45,618
–
(6,670)
38,948
–
–
(51,018)
(7,361)
–
(58,379)
(2,172)
2,080
5,946
31,509
11,455
533
–
60
455
24
(360)
20,814
828
(2,548)
(54)
(8,302)
55,848
(18,544)
37,304
(17,265)
(231)
19,808
–
1,500
(7,238)
(5,738)
(11,237)
233,000
(205,000)
(12,510)
(567)
3,686
2,751
17,756
19,907
22,658
22,658
2,151
19,907
17,832
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
80
Notes to the Consolidated Financial Statements
For the year ended 28 December 2019
1. Basis of preparation
a) Reporting entity
The Company is a public limited company which is listed on the London Stock Exchange and is incorporated under the Companies Act and
domiciled in the United Kingdom. The address of its registered office is Oakland House 76 Talbot Road, Manchester M16 0PQ. These Consolidated
Financial Statements comprise the Company and its subsidiaries (the ‘Group’).
b) Statement of compliance
The Group Financial Statements of HSS Hire Group plc have been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRS) and the Companies Act 2006.
The Directors have taken advantage of the option within section 390 of the Companies Act 2006 to prepare their Financial Statements up to a
date seven days either side of the Company’s accounting reference date of 31 December, and these accounts cover the 52 week period from
30 December 2018 to 28 December 2019 (2018: 31 December 2017 to 29 December 2018).
c) Functional and presentational currency
These Financial Statements are presented in pounds sterling (£), which is the Group’s presentational currency. The functional currency of the parent
and subsidiaries is pounds sterling, except for those that are incorporated in the Republic of Ireland, which have the euro as their functional currency.
All amounts have been rounded to the nearest thousand, unless otherwise indicated.
d) Basis of preparation
These Financial Statements have been prepared on a historical cost basis with the exception of derivative financial instruments, which are measured
at fair value on each reporting date. The accounting policies set out below have been applied consistently to all periods presented in these
Financial Statements.
e) Going concern
At 28 December 2019, the Group’s financing arrangements consisted of a fully drawn senior finance facility of £182.0m, undrawn overdraft and
revolving credit facilities of £23.2m and finance lease lines to fund hire fleet capital expenditure, of which £13.4m had not been utilised. Both the senior
finance facility and revolving credit facility are subject to a net debt leverage financial covenant test every quarter. At the financial year end the Group
had 30% headroom against this covenant. Subsequent to year end the Group drew down the remaining £17.2m from the RCF.
The Group’s forecasts and projections (prior to COVID-19), taking into account strategic initiatives and reasonably possible changes in trading
performance, show that the business will be able to operate within the level of its facilities for at least 12 months from the approval date of these
Consolidated Financial Statements.
The uncertainty as to the future impact of the COVID-19 pandemic has been considered as part of the Group’s adoption of the going concern basis.
In the first 12 weeks of FY20 COVID-19 did not have a material impact on the Group’s performance. However, the first signs of a trading slowdown
were detected in week 13, following the Government’s lockdown instruction. In response to this instruction, the Group temporarily closed the majority
of its UK branches and moved to a delivery-only operation through its national network of Customer Distribution Centres (CDCs) and its OneCall re-
hire business, providing essential equipment to critical customers. Since this date, and after establishing additional safe working practices, the Group
has added click and collect capability at each CDC.
Whilst it is difficult to quantify the impact of COVID-19 on the Group’s financial results, the Directors have considered a number of downside scenarios.
In preparing these, key revenue assumptions have been applied for the period from April 2020 to April 2021; namely material reductions in revenue
of between 35% and 55% against the Group’s original forecasts for Q2 FY20 followed by varying degrees of recovery through the remainder of the
period. All scenarios assume being 10% below previous revenue expectations from April 2021 to December 2022. Further assumptions have been
made on the recoverability of trade receivables being delays in receiving £20m to £30m and £10m not being recovered.
These downsides have been mitigated by the expected impact of immediate actions taken including: the deferral of capital expenditure, overhead
reduction of £2.5m per month as colleagues are entered into the Government’s job retention scheme and management take salary reductions for
a period of three months from April 2020, rent payment holiday negotiations with landlords, advantage taken of available tax relief and extending
payment terms with a number of the Group’s stakeholders.
Taking a view in which not all expected benefits of mitigating actions are achieved and the £10m of trade receivables referenced above are not
recovered, the Group could sustain the following loss of revenue against the original forecasts referenced above without breaching the financial
covenants or requiring additional liquidity: Q2 FY20 39%, Q3 FY20 13%, Q4 FY20 6%, Q1 FY21 5%, Q2 FY21 5%.
There are certain forecast scenarios which indicate that financial covenants would be breached and other scenarios which indicate a breach in
covenants together with a need for additional liquidity would arise. Should a breach occur, the Group would seek to obtain a waiver agreement with
the senior finance facility and revolving credit facility lenders, including accessing government-backed schemes. Should further liquidity be required,
the Group would seek to agree additional short-term facilities with lenders and deferral of capital and interest payments. Given the lack of certainty on
reaching agreement with the lenders on a waiver in the event of a breach of covenant, and on securing the additional liquidity required, the existence
of a material uncertainty which may cast significant doubt on the Group’s and Parent Company’s ability to continue as a going concern is indicated.
The Directors have noted that preliminary discussions with the Group’s lenders have resulted in an ongoing commitment being expressed to the
business and support for the Board’s response to the COVID-19 pandemic. Accordingly, the Group continues to adopt the going concern basis in
preparing its Consolidated Financial Statements.
The financial statements do not include the adjustments that would be required should the going concern basis of preparation no longer
be appropriate.
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 81
1. Basis of preparation continued
f) Basis of consolidation
Subsidiaries are all entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred.
Unless merger accounting has been adopted in specific circumstances, the Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to former
owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is
re-measured to fair value at the acquisition date with any gains or losses arising from such re-measurement are recognised in the profit or loss.
Any contingent consideration is measured at fair value at the acquisition date. If the contingent consideration is classified as equity then it is not re-
measured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of contingent consideration are recognised
in profit or loss.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
g) Prior year adjustment
During the year the Group identified a historical error related to the understatement of customer deposits for certain cash customers. The issue goes
back a number of years and although immaterial in each financial year has the cumulative impact of reducing reserves by £997k and increasing
creditors by the same amount. Separately, changes made to process mean that the issue has not reoccurred in 2018 or 2019. A full balance sheet
as at 30 December 2017 has not been presented in accordance with IAS 1 given the limited number of line items affected. The adjustment has no
impact on reported EPS. The effect of the adjustment posted to correct this historical error has been included in the table below.
Other creditors
Retained (deficit)
Other creditors
Retained (deficit)
2018
As previously
presented
£000s
2018
Effect of
adjustment
£000s
368
(30,731)
997
(997)
2017
As previously
presented
£000s
2017
Effect of
adjustment
£000s
916
(26,335)
997
(997)
2018
As restated
£000s
1,365
(31,728)
2017
As restated
£000s
1,913
(27,322)
2. Critical accounting estimates and judgements
In preparing these Financial Statements, management has made judgements, estimates and assumptions that affect the application of the
Group’s accounting policies and the reported amount of assets, liabilities, income, expenses and other disclosures. The estimates and underlying
assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The estimates
and underlying assumptions are reviewed on an ongoing basis.
Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new
or further information. Such changes are recognised in the year in which the estimate is revised.
Key assumptions about the future and key sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying value
of assets and liabilities over the next year are set out below.
Estimates
Useful economic life and residual value of assets
No sensitivity analysis has been given in relation to the useful economic life and residual value of assets held for hire due to the volume of the items
involved and the complexities of the current system used by the Group to record property, plant and equipment. Instead, the Directors regularly
review useful economic lives and residual values to ensure that the depreciation charge is appropriate. Improvements have been made during the
financial year with the implementation of a new asset management system which is in use for the 2020 financial year by the core UK hire business.
The Directors expect to make further improvements to the recording and management of property, plant and equipment across the group.
Impairment of goodwill, intangible assets and property, plant and equipment
To assess if any impairment exists, estimates are made of the future cash flows expected to result from the use of the asset and its eventual disposal.
Actual outcomes could vary from such estimates of discounted future cash flows. Such calculations require assumptions related to the appropriate
discount rate, the long term growth rate and also short term performance and cash flows. The Directors consider historic performance as well as
referencing to external information to arrive at these assumptions. Further details of the impairment reviews undertaken, assumptions and sensitivities
are given in note 14.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
82
2. Critical accounting estimates and judgements continued
Estimates continued
Onerous lease provision
Provisions have been made for onerous leases on loss-making and non-trading stores, distribution centres and unused office space within the
Group’s property portfolio. The assessment of whether a site is onerous is based on forecast trading performance and sub-let income over the length
of the lease. The carrying amount of the onerous lease provision will be affected by changes in the discount rate, lease disposal, changes in trading
performance and sub-let income and its timing. Further details of the assumptions and sensitivities are given in note 20.
Dilapidations provisions
A corresponding amount equivalent to the provision for dilapidation is recognised as part of the cost of the related property. The timing and amounts
of future cash flows related to lease dilapidations are subject to uncertainty. The provision recognised is based on management’s experience and
understanding of the commercial retail property market and third party surveyors reports commissioned for specific properties in order to best
estimate the future outflow of funds, requiring the exercise of judgement applied to existing facts and circumstances, which can be subject to change.
The amount recognised is the estimated cost of dilapidations, discounted to its net present value, and since the cash outflow can take place many
years in the future, the carrying amount of the provision is reviewed regularly and adjusted to take account of changing facts and circumstances,
including the age and condition of the property, experience of actual spending, third party surveyors’ reports commissioned for specific properties,
the Group’s specific lease obligations, market practice generally and any agreements specifically reached with landlords in respect of any given
property. Changes in the estimated timing of dilapidations or dilapidations cost estimates are dealt with prospectively by recording an adjustment
to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the dilapidations provision is
included as a finance expense. Further details of the assumptions and sensitivities are given in note 20.
Recoverability of trade receivables
Judgements are required in assessing the recoverability of overdue trade receivables and determining whether a provision against those receivables
is required. The Group monitors the risk profile of debtors and makes provisions for amounts that may not be recoverable based on past default
experience and on the Directors’ assessment of the economic environment. The recoverability of overdue receivables is considered together with
the sales credit note provision. The Group makes provision for credit notes raised and expected to be raised after the end of the reporting period that
relate to customer income recognised before the end of the period. The Group’s bad debt and credit note provisions are disclosed in note 17.
Judgements
Determining whether an arrangement constitutes a lease
Any arrangement that is dependent on the use of a specific asset or assets should be accounted for as a lease. The Directors have concluded that
none of the Group’s contracts with customers are dependent on the use of a specific asset or group of specific assets as the Group can swap hire
stock as required to provide tool and equipment hire services to them, and therefore are not leases.
Exceptional items
Exceptional items are disclosed separately in the income statement where it is necessary to do so to provide further understanding of the underlying
financial performance of the Group. Exceptional items are items of income or expense that have been shown separately due to the significance of
their nature or amount. During the year ended 28 December 2019 these include the accelerated amortisation of debt issue costs, the cost of onerous
leases (net of sub-let rental income), the cost reduction programme, and business divesture.
These are more fully discussed in note 7 and in the Financial Review.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 83
New accounting standards, accounting standards not yet effective and changes in accounting policy
3.
Standards effective for the first time in the year
There were no new IFRSs or IFRICs that had to be implemented during the year that materially affect these financial statements.
Standards effective in future periods
IFRS16 Leases Implementation
IFRS 16 Leases is mandatory for periods beginning on or after 1 January 2019. The Group has worked with third party specialists to develop IFRS 16
policies along with processes and systems to manage their successful implementation. This work was ongoing through 2019, as such the decision
was taken not to adopt IFRS16 early for the financial year 30 December 2018 to 28 December 2019 as had been planned and noted in the Annual
Report and Financial Statements 2018. The date of initial application (DIA) will now be for the financial year starting 29th December 2019. Taking the
time allowed by the standard gives management the opportunity to perform a full review of its lease portfolio and accurately assess the impact of
IFRS 16 and the required disclosure. The Group is in the process of finalising the detailed reconciliations required prior to full implementation of its new
lease management system which will drive the IFRS16 accounting.
Capitalisation of lease contracts
Under IFRS 16, the Group will capitalise the right of use of all its property leases, vehicle leases, hire and other equipment leases previously held under
operating leases, other than leases ending within twelve months or where the asset is of low value. The lease term will correspond to the duration of
the contracts signed except in cases where the Group is reasonably certain that it will exercise contractual termination or extension options.
The Group will apply the cumulative catch-up (‘modified’) transition method. Under this option the Group will apply the option that calculates the right-
of-use asset as equal to the lease liability for leases previously accounted for as operating leases. The comparative information will not be restated and
will continue be reported under IAS 17 and IFRIC 4. The Group will recognise a right of use (ROU) asset representing its right to use the underlying
asset and a corresponding lease liability representing its obligation to make lease payments. The ROU asset is adjusted for any prepaid or accrued
lease payments relating to that lease that were recognised in the statement of financial position immediately before the DIA. The company has taken
the practical expedient available to rely on its assessment of whether a lease is onerous by applying IAS 37 immediately before the date of initial
application, reducing the carrying value of its ROU asset at the DIA.
Operating lease expenses will be replaced by a depreciation of right of use assets expense and an interest expense as the interest rate implicit in the
Group’s lease liabilities unwinds.
Discount rates
The Group has assessed that the interest rate implicit in the lease is not readily determinable for any of its leases and will therefore be using an
incremental borrowing rate for all leases, with a single rate applied to leases of similar characteristics. The discount rate selected for non-property
leases is the rate at which the Group expects to finance assets of a similar class. For property, rates are those at which the Group might expect to
borrow at if acquiring an interest in property, over five and ten year tenures. These rates are adjusted upwards for properties considered to be higher
risk because of geographic region or age.
Lessor accounting
The Group acts as intermediate lessor on vacant properties it sublets to assist in covering costs until the lease term ends or a break clause can
be triggered. The Group will assess whether the sub-lease is a finance or operating lease in the context of the ROU asset being leased, not the
underlying asset. When the sublet is identified as a finance lease, a net investment in the sublease will be created and included in Trade and other
receivables and the corresponding ROU asset will be accounted for as a disposal.
Sale and leaseback transactions
Under IFRS 16 the Group will continue to account for its various sale and leaseback transactions entered into for large hire equipment prior to
28 December 2019 as a sale and leaseback transaction. The Group will recognises a lease liability and ROU asset on 29 December 2019 measured
in the same way as other finance leases on this date.
Expected impact
Subject to the finalisation of the new system, related policy and specific judgements in determining the lease terms on adoption of IFRS 16, the Group
expects to recognise circa £85m of additional lease liabilities and around £84m ROU assets related to existing operating leases. The reduction in
the ROU asset versus lease liability is the result of transfers from onerous lease provisions, rent accruals and prepayments on the balance sheet.
Annual operating lease expenses, which would have been recognised under the previous accounting standard, will be replaced by depreciation and
interest expense. The interest expense is weighted towards the earlier years of the leases and as such there would be a reduction in profit before
tax for the year ending 26 December 2020 which is expected to be less than £2m, assuming no change to the lease portfolio. The standard will not
impact the Group’s underlying cash flows. The standard will also impact a number of other statutory measures such as operating profit and cash
generated from operations and alternative non-IFRS financial performance measures used by the Group.
Other standards
The Company is currently assessing the impact of the following accounting standards and amendments:
IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23), which comes into effect for accounting periods starting on or after 1 January 2019;
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment – Definition of
Material); which comes into effect for accounting periods starting on or after 1 January 2020;
IFRS 3 Business Combinations (Amendment – Definition of Business), which comes into effect for accounting periods starting on or after
1 January 2020;
Revised Conceptual Framework for Financial Reporting.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 84
4. Accounting policies
a) Revenue recognition
The Group’s activities consist of supplying hire and equipment services within the UK and the Republic of Ireland. Revenue is measured based on the
consideration specified in a contract with a customer and excludes value added taxes. The Group recognises revenue when it transfers control over
a good or service to a customer.
The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers,
including significant payment terms, and the related revenue recognition policies:
Type of product or
service
Nature and timing of satisfaction of performance
obligations, including significant payment terms
Approach to revenue recognition
Hire and
rehire activities
Equipment on hire to customers is available
for use by the customer from the point of
collection or delivery until its return or
notification that it is available for collection.
Cash customers pay a deposit to secure the
hire for which the charges are settled on
return of the equipment. Account customers
pay 30 days from the end of the month
of invoice or to such terms as have been
specifically negotiated up to a maximum of
90 days from the end of the month of invoice.
Resale and
ancillary revenue
to hire including
fuel and
consumables
Customers obtain control of the goods at the
point of collection or delivery and settle as
above.
Revenue is recognised over time as the hire period progresses. The stand-alone
selling price is determined based on the contracted prices at which the Group
hires out the equipment under the specific contract with the customer and
commences when the equipment is collected or has been delivered to a
customer’s premises and has been accepted by the customer. Revenue is
recognised to the extent that it is highly probable that a significant reversal in the
amount of cumulative revenue recognised will not occur. Therefore, the amount
of revenue recognised is adjusted for expected returns, contract corrections and
any negotiated rebate, which are estimated based on historical data. For
expected returns and contract corrections an estimate of the impact is treated
as a correction to the asset’s carrying value by deducting this from the amount
recognised as a trade receivable. Rebates are recognised as a separate liability
and included as a component of other creditors (see note 18). The Group
reviews its estimate of all these items at each reporting date and updates the
amounts of the reduction in the asset or the liability accordingly.
Revenue is recognised when the goods are collected or have been delivered to
a customer’s premises and have been accepted by customers. Revenue is
recognised to the extent that it is highly probable that a significant reversal in the
amount of cumulative revenue recognised will not occur. Therefore, the amount
of revenue recognised is adjusted for expected returns, contract corrections and
any negotiated rebate, which are estimated based on historical data. For
expected returns and contract corrections an estimate of the impact is treated
as a correction to the asset’s carrying value and deducted from the amount
recognised as a trade receivable. Rebates are recognised as a separate liability
and included as a component of other creditors (see note 18). The Group
reviews its estimate of all these items at each reporting date and updates the
amounts of the reduction in the asset or the liability accordingly.
When the loss or damage is identified and quantified.
In circumstances where a customer loses or
damages the equipment they have on hire,
the Group is entitled to reclaim the costs of
repair or the replacement cost in case of loss.
Settlement is at the point the cost is finalised
for cash customers and under normal
settlement terms for account customers.
Damaged/
lost hire stock
compensation
Ex-hire fleet
asset sales
Training
course income
Customers obtain control of the goods at the
point of collection or delivery and settle as
above.
Revenue is recognised when the goods are collected; or have been delivered to
a customer’s premises and have been accepted by the customer; or have
otherwise been accepted by the customer. Payment is on or before collection.
Customers obtain the benefit of the service at
the point of delivery. Training courses are
paid for in advance or for account customers,
in arrears in accordance with their normal
settlement terms.
Revenue is recognised when the training course or support service is provided
to the customer.
b) Contract costs
Costs associated with the award of significant contracts by customers are deferred in the balance sheet and amortised to the income statement over
the life of the contract where such costs are incremental and are expected to be covered by the profits generated on the contract.
c) Cost of sales, distribution costs and administrative expenses
Cost of sales includes direct costs associated with the Group’s principal business of equipment hire. Such costs include hire stock rehire, cost of
reselling plant and equipment, maintenance, depreciation, amortisation and asset write-off and disposals. Distribution expenses comprise vehicle
costs and transportation staff wages. Administrative expenses comprise principally staff and property costs and costs of acquisitions.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 85
4. Accounting policies continued
d) Segment reporting
IFRS 8 Operating Segments requires operating segments to be reported in a manner consistent with the internal reporting provided to the chief
operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the management team, including the Chief Executive Officer, Chief Financial Officer and Chief Commercial
Officer. Details of the Group’s segments are given in note 5.
e) Foreign currency translation
Foreign currency transactions are translated into an entity’s functional currency using the exchange rates prevailing at the dates of the transactions.
Foreign currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates
of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign currency translation gains and
losses that relate to borrowings and cash and cash equivalents are presented in the income statement within finance income or finance expense.
All other foreign currency translation gains and losses are presented in the income statement within administrative expenses.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s
presentational currency, sterling, at foreign currency exchange rates ruling at the reporting date.
The revenues and expenses of foreign operations are translated at an average rate for the year, which approximates the foreign currency
exchange rates ruling at the dates of the transactions. Exchange differences arising from the translation of foreign operations are reported in other
comprehensive income.
f) Property, plant and equipment
Useful economic life and residual value of assets
The Group’s policy for applying useful economic lives and residual values of assets has been determined through applying historical experience and
taking into consideration the nature of assets and their intended use, and achieved values on sale when disposed.
Land and buildings comprise leasehold and freehold branches, workshops and offices, and are stated at cost, less depreciation or provision for
impairment where appropriate. Land is not depreciated and depreciation on other assets is calculated using the straight-line method to allocate their
cost or revalued amounts to their residual values over their estimated useful lives, as follows:
Material and equipment held for hire:
Tools and general equipment
Powered access
Power generation
Climate control
Non-hire assets:
Two to ten years
Five to ten years
Five to ten years
Two to ten years
Leasehold properties with less than fifty years unexpired
Over unexpired period of lease
Freehold buildings and long leasehold properties
Plant and machinery
Over fifty years
Two to ten years
The Group reviews its depreciation policy annually and has made no changes in 2019 to the depreciation rates applied.
Materials and equipment held for hire purposes are stated at cost, less depreciation or provision for impairment where appropriate. Materials and
equipment are written off over their useful economic life to the asset’s residual value which is estimated at between 20% of cost and nil.
Residual values are only applied to powered access and power generation assets. Profits or losses arising when customers are invoiced for loss of
equipment held for hire purposes are calculated by reference to average written down values and net proceeds.
Profit or loss on disposal
Gains and losses on disposals of materials and equipment held for hire are calculated as the difference between the proceeds received and the
carrying amount of the asset and are recognised in profit or loss.
Intangible assets
g)
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the difference between the fair value of the consideration transferred and the fair
value of the acquired assets, liabilities and contingent liabilities.
Intangible assets acquired in a business combination
When an acquisition is completed intangible assets are separately identified from goodwill and measured at fair value. Brands are valued using the
relief from royalty method. Customer relationships are valued using the excess of earnings method.
The HSS brand was first established in the late 1950s, and therefore given its longevity, the Directors consider this to have an indefinite life and it is not
amortised, but instead subjected to annual impairment testing.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 86
Intangible assets continued
4. Accounting policies continued
g)
All other brands and customer relationships are amortised on a straight-line basis over their useful economic life. The Directors have assessed the
brands of ABird and Apex and estimated that they have useful economic lives of 20 years. The Directors have estimated the customer relationship
intangible assets recognised on the acquisition of Hero Acquisitions Limited and Apex Generators Limited as having useful economic lives of ten
years. Amortisation is charged to administrative expenses.
Software development costs
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly
attributable to the design, test and build of identifiable and unique software products controlled by the Group are recognised as intangible assets
when the following criteria are met:
→ it is technically feasible to complete the software product so that it will be available for use;
→ management intends to complete the software product and use or sell it;
→ there is an ability to use or sell the software product;
→ it can be demonstrated how the software product will generate probable future economic benefits;
→ adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and
→ the expenditure attributable to the software product during its development can be reliably measured.
Computer software development costs recognised as assets are amortised over their estimated useful lives, which do not exceed four years.
Other intangible assets
Other intangible assets that are acquired by the Group that have finite useful lives are measured at cost less accumulated amortisation and any
accumulated impairment losses. Other intangible assets are amortised over their useful economic life, and the amortisation charge is included within
administrative expenses.
Impairment of intangible assets and property, plant and equipment
h)
These assets are reviewed annually or more frequently if there is an indication of impairment to ensure that they are not carried above their estimated
recoverable amounts. Impairment reviews are undertaken whenever events or changes in circumstances indicate the carrying value of these assets
may not be recoverable. Other than for goodwill, where an impairment loss subsequently reverses, the carrying amount is increased to the revised
estimate, but restricted so that the increased amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognised in prior years. Any impairment losses or reversals are recognised immediately in the income statement.
Testing for impairment
For the purpose of impairment testing, all assets, including goodwill, acquired in a business combination are allocated to one or more of the cash
generating units (CGUs) that are expected to benefit from the synergies of the combination. A CGU is the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash flows of other assets or CGUs.
The carrying value of a CGU is compared to its recoverable amount, which is the higher of its value in use and the fair value less costs of disposal.
i) Derivative financial instruments
The Group uses derivative financial instruments to manage its exposure to interest rate risk. Derivatives are initially recognised at fair value on the
date a derivative contract is entered into and are subsequently re-measured at their fair value at each reporting date. Where hedge accounting is not
applied, the resulting gain or loss is recognised in profit or loss immediately. Derivatives are carried as financial assets when their fair value is positive
and as financial liabilities when their fair value is negative.
A derivative is presented as a non-current asset or non-current liability if the remaining maturity of the instrument is more than one year and the
derivative is not expected to be realised or settled within one year. Where this is not the case, derivatives are presented as current assets or
current liabilities.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other
comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as part of other gains and losses.
Amounts recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item
is recognised in profit or loss in the same line of the statement of profit or loss and other comprehensive income as the recognised hedged item.
However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses
previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
Hedge accounting is discontinued when the group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or
exercised, or no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at that time remains in equity and when the forecast
transaction is ultimately recognised in profit or loss, such gains and losses are recognised in profit or loss, or transferred from equity and included
in the initial measurement of the cost of the asset or liability as described above. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was accumulated in equity is recognised immediately in profit or loss.
Inventories
j)
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business,
less applicable variable selling expenses. Provision is made for those inventory items where the net realisable value is estimated to be lower than cost.
Net realisable value is based on both historical experience and assumptions regarding estimated future sales value.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 87
4. Accounting policies continued
k) Trade receivables
Recoverability of trade receivables
Trade and other receivables are recognised initially at fair value, which is deemed to be the transaction price. Subsequently, trade and other
receivables are measured at amortised cost using the effective interest method, less any provision for impairment.
The provision for impairment of trade receivables consists of a bad debt and a credit note provision (see note 2). The Group applies the IFRS 9
simplified approach of using a lifetime expected credit loss provision for trade receivables based upon past default experience. Trade receivables and
contract assets are grouped based on similar credit risk and aging.
The estimated credit loss rates are based on historical loss rates and then adjusted for current and forward-looking macroeconomic factors affecting
the Group’s operating environment. The Group has identified expected GDP growth, inflation and unemployment rates as key in this regard.
Receivables over two years past their due date are expensed in their entirety and written back to income if subsequently recovered.
The creation and release of bad debt provision are charged or credited to administrative expenses in the income statement and movements in the
credit note provision are charged or credited to revenue.
l) Cash
In the statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid
investments with maturities of three months or less and bank overdrafts. In the statement of financial position, bank overdrafts are shown within
borrowings in current liabilities.
m) Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables
are recognised initially at fair value and subsequently measured at amortised cost. Trade payables are classified as current liabilities if payment is due
within one year or less, otherwise they are presented as non-current liabilities.
n) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the
borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the
facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some
or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which
it relates.
o) Provisions
Onerous leases
The need for provisions for onerous leases against loss-making or non-trading stores and distribution centres as well as unused office space
measured at the value of the future unavoidable lease costs, net of expected rental income, is assessed when the leased space becomes loss-
making or vacant and no longer used in the operations of the Group. These provisions are recognised on a lease by lease basis. The determination of
the onerous lease provision requires management, in conjunction with its third party property advisers, to make estimates about the future profitability
of the site and ultimate cost to the Group, including the nature, timings and cost of exiting a lease, any additional unavoidable costs, and the level of
sublease income, if applicable.
The actual costs and timing of cash flows are dependent on future events and market conditions. Any difference between management estimates
and actual costs is accounted for in the period when such determination is made.
Dilapidations provisions
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 recognised as depreciation of leasehold improvements 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. Provisions for dilapidations are estimated based on surveyors’ reports, where available
and remaining properties are covered by estimates based on gross internal area. Provisions for dilapidations are recognised in full when the related
facilities are installed.
Restructuring provisions
Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating
losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the obligation.
Onerous contract provisions
Contracts are considered to be onerous when cash is paid to a third party but the Group derives no economic benefit.
Provisions for onerous leases, restructuring costs and legal claims are recognised when:
→ the Group has a present legal or constructive obligation as a result of past events;
→ it is probable that an outflow of resources will be required to settle the obligation; and
→ the amount has been reliably estimated.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 88
4. Accounting policies continued
p) Share capital and reserves
Ordinary shares
The Group’s ordinary shares are classified as equity instruments. Incremental costs directly attributable to the issue of ordinary shares are recognised
as a deduction from equity, net of any tax effects.
Retained earnings/accumulated deficit
The retained earnings/accumulated deficit represents the accumulated profits, losses and distributions of the Group.
Foreign exchange reserve
The foreign exchange reserve represents cumulative exchange differences arising from the translation of foreign operations and reported in other
comprehensive income (note 4e).
Merger reserve
The merger reserve is the amount arising on the difference between the nominal value of shares issued on a merger and the carrying value of the
interest in the subsidiary. The merger reserve arose in 2015 when the Group underwent a capital reconstruction in advance of its initial public offering
on 9 February 2015, and increased during 2016 via acquisition of a ‘cash box’ company.
Warrant reserve
The warrant reserve represents the issue-date fair value of warrants that will be settled by a future issue of shares in the Group.
Cash flow hedging reserve
The cash flow hedging reserve represents the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges and recognised in other comprehensive income (note 4i).
q) Finance income and expense
Finance income comprises interest receivable on cash balances.
Finance expense comprises interest payable on borrowings, interest payable on finance leases, amortisation and write-off of debt issuance costs
and the unwinding of the discount on non-current provisions. Interest is recognised in profit or loss as it accrues, using the effective interest rate.
Interest payable on borrowings includes a charge in respect of attributable transaction costs, which are recognised in profit or loss over the period of
the borrowings on an effective interest basis. The interest expense component of finance lease payments is recognised in the income statement using
the lease’s implicit interest rate.
r) Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates
to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or
directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the
statement of financial position. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time
of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been
enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, except for deferred income tax
liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the extent that it is
probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can
be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same
taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 89
4. Accounting policies continued
s) Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the
Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be
estimated reliably.
Pension obligations
The Group operates employee-optional stakeholder retirement and death benefit schemes; these are defined contribution schemes. Both employees
and employers are required to make contributions, with the employer’s contributions for each employee determined by the level of contribution made
by the employee and the employees’ length of service within the Group or subsidiary company. The employer’s contributions are charged to profit
and loss in the year in which the contributions are due.
Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts
voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the
Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring and involves the payment of
termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number
of employees expected to accept the offer. Benefits falling due more than one year after the end of the reporting period are discounted to their
present value.
Share-based payments
Share-based payment transactions in which the Group receives goods or services as consideration for its own equity instruments are accounted for
as equity-settled share-based payments. The grant date fair value of the share based payment granted to employees is recognised as an employee
expense, with a corresponding increase in equity, over the period that the employee becomes unconditionally entitled to the awards. The fair value of
the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted,
and is charged to the income statement on a straight-line basis over the vesting period of the award.
The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting
conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet
the related service and non-market performance conditions at the vesting date.
Leases
t)
Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have transferred to the
Group, and hire purchase contracts are capitalised in the balance sheet and are depreciated over the shorter of useful life and lease term with any
impairment being recognised in accumulated depreciation. Leased assets are recorded at an amount equal to the lower of their fair value and the
present value of the minimum lease payments at the inception of the related finance leases. The capital elements of future obligations under leases
and hire purchase contracts are included in liabilities in the statement of financial position and analysed between current and non-current amounts.
The interest elements of the obligations are charged to the income statement over the periods of the leases and hire purchase contracts so as to
produce a constant periodic rate of interest on the remaining balance of the liability.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Operating lease rentals are
charged to the income statement on a straight-line basis over the lease term.
Lease incentives are recorded as a liability and then recognised over the lease term on a straight-line basis in the income statement as a reduction
of rental expense.
u) Fair value measurement
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and
liabilities. Set out below is an analysis of the valuation method of the Group’s financial instruments:
The different levels in the fair value hierarchy have been defined as follows:
→ Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
→ Level 2: 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).
→ Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Fair values have been determined for measurement purposes based on the following methods:
Derivative instruments (level 2)
The fair values of interest rate swaps are calculated as the present value of the estimated future cash flows based on the terms and maturity of
each contract and using market interest rates as applicable for a similar instrument at the measurement date. Fair values reflect the credit risk of the
instrument and include adjustments to take account of the credit risk of the Group entity and counterparty where appropriate.
The fair values of interest rate swap contracts are calculated by management based on external valuations received from the Group’s bankers and are
based on anticipated future interest yields.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 90
4. Accounting policies continued
v) Exceptional items
The Group has classified a number of income statement items as exceptional during the year because of their size or nature or because they are non-
recurring.
w) Dividends
Dividends on ordinary share capital are recognised as a liability in the Group’s Financial Statements in the period in which they are declared by the
Company. In the case of interim dividends, these are considered to be declared when they are paid and in the case of final dividends, these are
declared when authorised by the shareholders.
5. Segment reporting
The Group’s operations are segmented into the following reportable segments:
→ Rental and related revenue; and
→ Services.
Rental and related revenue comprises the rental income earned from owned tools and equipment, including small tools, powered access, power
generation and, in the previous year, cleaning and HVAC assets, together with directly related revenue such as resale (fuel and other consumables),
transport and other ancillary revenues.
Services comprise the Group’s rehire business known as HSS OneCall, and HSS Training. HSS OneCall provides customers with a single point of
contact for the hire of products that are not available within the HSS fleet and are obtained from approved third party partners. HSS Training provides
customers with specialist safety training across a wide range of products and sectors.
Contribution is defined as segment operating profit before branch and selling costs, central costs, depreciation, amortisation and exceptional items.
All segment revenue, operating profit, assets and liabilities are attributable to the principal activity of the Group being the provision of tool and
equipment hire and related services in, and to customers in, the United Kingdom and the Republic of Ireland. The Group has one customer which
accounts for more than 10% of Group turnover (2018: one).
Year ended 28 December 2019
Rental
(and related
revenue)
£000s
Services
£000s
Central
£000s
Total revenue from external customers from continuing operations
228,973
99,032
Contribution
Branch and selling costs
Central costs
Adjusted EBITDA
Less: Exceptional items
155,490
15,518
Less: Depreciation and amortisation
(32,817)
(217)
Operating profit
Net finance expenses
(Loss) before tax from continuing operations
Income tax
Profit on disposal of discontinued operations
Profit for the year from discontinued operations
Profit after tax and discontinued operations
Total
£000s
328,005
171,008
–
–
(83,974)
(23,105)
(83,974)
(23,105)
(4,094)
(9,980)
63,929
(4,094)
(43,014)
16,821
(22,609)
(5,788)
(436)
14,770
162
8,708
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 91
Year ended 28 December 2019
Rental
(and related
revenue)
£000s
27,097
–
76,794
155,624
Services
£000s
Central
£000s
Total
£000s
29
878
187
785
4,277
1,461
31,403
2,339
24,870
3,969
101,851
160,378
14
14
114,789
(79,531)
114,789
(79,531)
(218,540)
(218,540)
5. Segment reporting continued
Additions to non-current assets
Property, plant and equipment
Intangibles
Non-current assets net book value
Property, plant and equipment
Intangibles
Unallocated corporate assets
Financial instruments
Current assets
Current liabilities
Non-current liabilities
Year ended 29 December 2018
Rental
(and related
revenue)
£000s
Services
£000s
Central
£000s
Total revenue from external customers from continuing operations
225,992
96,775
Contribution
Branch and selling costs
Central costs
Adjusted EBITDA
Less: Exceptional items
155,357
14,586
Less: Depreciation and amortisation
(31,551)
(171)
Operating profit
Net finance expenses
(Loss) before tax from continuing operations
Income tax
Profit for the year from discontinued operations
(Loss) after tax and discontinued operations
78,961
Total
£000s
322,767
169,943
–
–
(84,217)
(25,759)
(84,217)
(25,759)
(4,965)
(12,062)
59,967
(4,965)
(43,784)
11,218
(20,374)
(9,156)
2,749
1,987
(4,420)
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019
92
5. Segment reporting continued
Additions to non-current assets
Property, plant and equipment
Intangibles
Non-current assets net book value
Property, plant and equipment
Intangibles
Unallocated corporate assets
Financial instruments
Other non-current deferred tax assets
Assets held for sale (net)
Current assets
Current liabilities
Non-current liabilities
6. Other operating income
Other operating income
Year ended 29 December 2018 (restated)
Rental
(and related
revenue)
£000s
22,578
–
79,707
158,420
Services
£000s
Central
£000s
Total
£000s
60
140
377
324
7,344
1,704
29,982
1,844
29,045
4,913
109,129
163,657
405
405
2,500
2,500
33,172
33,172
116,146
(101,697)
(252,846)
116,146
(101,697)
(252,846)
70,466
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
542
494
Other operating income relates to sub-let rental income received on vacant properties which are not onerous.
7. Exceptional items
Items of income or expense have been shown as exceptional either because of their size or nature or because they are non-recurring. As a result,
during the year ended 28 December 2019 the Group has recognised exceptional items as follows:
Included in
cost of sales
£000s
Included in
distribution
costs
£000s
Included in
administrative
expenses
£000s
Included
in other
operating
income
£000s
Included in
finance
expense
£000s
Included in
profit on
disposal
£000s
Year ended
28 December
2019
£000s
Costs related to onerous properties
Cost reduction programme
Impairment of property, plant and equipment
Exceptional items (non-finance)
Accelerated amortisation of debt issue costs
Exceptional items – continuing operations
Business divesture – discontinued operations
Total
–
17
–
17
–
17
–
17
9
308
–
317
–
317
–
317
2,924
519
363
3,806
–
3,806
–
3,806
(46)
–
–
(46)
–
(46)
–
(46)
–
–
–
–
1,882
1,882
–
–
–
–
–
–
2,887
844
363
4,094
1,882
5,976
–
(14,770)
(14,770)
1,882
(14,770)
(8,794)
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 93
7. Exceptional items continued
During the year ended 29 December 2018, the Group recognised exceptional costs analysed as follows:
Included in
cost of sales
£000s
Included in
distribution
costs
£000s
Included in
administrative
expenses
£000s
Included
in other
operating
income
£000s
Included in
finance
expense
£000s
Included in
profit on
disposal
£000s
Year ended
29 December
2018
£000s
Onerous leases
Cost reduction programme
Strategic review
Impairment of property, plant and equipment
Business divesture
Sub-let rental income on onerous leases
Exceptional items (non-finance)
Costs expensed on refinancing
Exceptional items – continuing operations
Exceptional items – discontinued operations
Business divesture – discontinued operations
Exceptional items – total
–
2
–
–
–
–
2
–
2
–
–
2
–
34
–
–
–
–
34
–
34
–
–
34
2,620
1,111
955
513
197
–
5,396
–
5,396
173
–
5,569
–
–
–
–
–
(467)
(467)
–
–
–
–
–
–
–
–
–
–
–
1,460
1,460
–
–
(467)
1,460
–
–
–
–
–
–
–
–
–
–
2,080
2,080
2,620
1,147
955
513
197
(467)
4,965
1,460
6,425
173
2,080
8,678
Exceptional items incurred in 2019 and 2018
Costs related to onerous properties: branch and office closures
In 2017 and 2018 the number of branches was reduced to remove less profitable locations with activity centralised into remaining locations.
During the year, a distribution centre was closed with operations transferred to nearby centres resulting in an onerous lease provision of £2.1m.
No other branches were closed (2018: 12), however the decision to cease using one of the floors at the Manchester registered office resulted
in an additional onerous lease provision of £1.0m. The remaining reduction of £(0.2)m relates to the reassessment of existing dark store and onerous
lease provisions.
Provisions are created net of expected sub-let income. During the year, sub-let income of £0.7m was received and recognised as negative
provision utilisation.
Cost reduction programme
In light of headwinds that emerged in the market during the year, the Group has undertaken initiatives to reduce costs. These include the closure
costs of a centre used to refurbish hire stock and costs to exit contracts related to the operation of a cross-dock facility used to redistribute assets
across the network. Internal restructuring was also carried out, resulting in £0.8m of total costs which include £0.6m redundancy costs.
In 2018 costs of £1.1m were recognised, largely relating to redundancy, when the Group carried out restructuring as it implemented plans to reduce
central overhead.
Accelerated amortisation of debt issue costs
During 2019 an element of proceeds from the UK Platforms disposal was used to repay debt. The early repayment resulted in accelerated
amortisation of debt issue costs of £1.9m.
Business divesture
On 19 July 2018 the Group announced the agreement to sell UK Platforms Limited, HSS’s powered access business, to Loxam (see note 28 for
further details). The transaction completed in 2019 and has been treated as a discontinued operation (note 27). The clearance of this transaction
was secured from the Competitions and Markets Authority in December 2018, thereby completing the last major hurdle in the agreement to sell the
business. The costs of the transaction were expensed in 2018. See note 28 for details of the profit on disposal recognised during the year.
In 2017 the Group sold the Reintec branded fleet of cleaning machines, and the associated Tecserv equipment maintenance business, which were
not considered core to the strategy. In 2018 £0.2m was recognised as exceptional, being a revision to the consideration received on disposal.
Impairment of closed branch property, plant and equipment
Following the branch closures management conducted an impairment review of property, plant and equipment in closed branches to determine
what can be reused across the network. During the year ended 28 December 2019, an impairment of £0.4m (2018: £0.5m) to property, plant and
equipment was recognised in the closed distribution centre and Manchester registered office referenced above.
Exceptional items incurred in 2018 only
Strategic review
Following the appointment of the new Chief Executive Officer in 2017, a thorough Strategic Review was carried out by the Group. Non-recurring third
party consultancy costs of £1.0m were incurred during the year ended 29 December 2018 to complete this review.
Costs expensed on refinancing
The Group refinanced in July 2018, terminating the previous finance facility earlier than scheduled. The £1.5m expensed in 2018 largely relate to a
write-off of debt issue costs related to that facility.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 94
8. Finance income and expense
Bank loans and overdrafts
Interest on financial instruments
Term facility
Senior secured notes
Finance leases
Interest unwind on discounted provisions
Debt issue costs
Exceptional accelerated amortisation of debt issue costs
Exceptional finance cost on refinancing the business
9. Operating profit
Operating profit is stated after charging/(crediting):
Amortisation of intangible assets
Depreciation of property, plant and equipment
Accelerated depreciation relating to hire stock customer losses, hire stock write offs and other asset disposals
Loss on disposal of tangible assets
Impairment of tangible assets
Loss on disposal of intangible assets
Operating lease rentals:
– land and buildings
– motor vehicles
– hire stock
Sublease rental income
Foreign currency translation gains
Auditors' remuneration
– audit of Group and Company financial statements
– audit of subsidiary financial statements
– other audit related assurance services
– corporate finance services
– taxation compliance services
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
325
247
16,552
–
721
414
2,468
1,882
–
22,609
1,620
–
9,440
4,822
774
169
2,089
–
1,460
20,374
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
5,522
28,601
8,257
576
363
96
17,117
10,272
919
(542)
(14)
5,901
26,823
9,776
751
533
–
14,950
10,323
1,948
(494)
(234)
£000s
£000s
248
218
28
–
3
497
63
288
82
150
12
595
Operating lease rentals of land and buildings includes £2.8m (2018: £1.4m) of exceptional costs relating to onerous leases.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 10. Employees
The average number of people employed by the Group (including Directors) during the year was as follows:
Distribution
Hire stock and inventory maintenance
Sales and administration
Discontinued operations
Continuing operations
The aggregate remuneration costs of these employees were as follows:
Wages and salaries
Social security costs
Pension costs
Share-based payment expense
Discontinued operations
Continuing operations
95
Year ended
28 December
2019
Number
Year ended
29 December
2018
Number
518
294
1,803
2,615
(10)
2,605
528
375
1,883
2,786
(116)
2,670
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
78,669
84,963
7,754
1,843
714
7,680
1,691
24
88,980
94,358
(165)
88,815
(4,348)
90,010
IAS 24 Related party disclosures (IAS 24) requires the Group to disclose all transactions and outstanding balances with the Group’s key management
personnel. IAS 24 defines key management personnel as those persons having authority and responsibility for planning, directing and controlling the
activities of the entity, directly or indirectly, including any Director (whether executive or otherwise) of that entity.
The key management personnel of the Group comprise the Executive Directors along with senior managers from central support services and
divisional and regional operations.
The aggregate remuneration costs of key management personnel were as follows:
Wages and salaries
Employer's national insurance contributions and similar taxes
Other pension costs
Share-based payment expense
Discontinued operations
Continuing operations
At 28 December 2019 £0.7m was payable to key management personnel (2018: £0.5m).
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
3,706
444
146
413
4,709
–
4,709
3,548
336
98
24
4,006
(718)
3,288
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 96
11. Directors’ remuneration
The remuneration costs of the Company’s Directors were:
Aggregate emoluments
Bonus
Pension costs
Directors' emoluments
Share-based payment expense
Total emoluments
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
960
227
55
1,242
185
1,427
952
453
55
1,460
2
1,462
There is no compensation for loss of office payable as at 28 December 2019 (29 December 2018: £nil). Included above is the fee of £40,000
(2018: £40,000) for one director (2018: one) that is paid to Exponent Private Equity LLP (note 29).
The remuneration of the highest paid Director was:
Aggregate emoluments
Bonus
Pension costs
Directors' emoluments
Share-based payment expense
Total emoluments
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
388
132
31
551
114
665
383
263
31
677
1
678
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 12. Income tax charge
(a) Analysis of tax charge in the year
Current tax (credit)/charge
UK corporation tax on the result for the year
Adjustments in respect of prior years
Total current tax charge/(credit) – continuing operations
Deferred tax charge/(credit) for the year
Deferred tax charge/(credit) for the year
Deferred tax charge impact of change in tax rate
Adjustments in respect of prior years
Total deferred tax charge/(credit) (see note 19)
97
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
58
(1,295)
(1,237)
266
(39)
227
1,643
(2,956)
175
(145)
436
–
(20)
(2,749)
The Group received refunds of tax in Ireland related to prior years totalling £1.3m.
(b) Factors affecting the income tax charge/(credit) in the year
The tax assessed on the loss for the year differs from the standard UK corporation rate of tax. The differences are explained below:
(Loss) before tax – continuing operations
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
(5,788)
(9,156)
(Loss) before tax multiplied by the effective standard rate of corporation tax of 19% (2018: 19%)
(1,100)
(1,739)
Effects of:
Utilisation of tax losses brought forward
Unprovided deferred tax movements on short term temporary differences and capital allowance timing differences
Adjustments in respect of prior years
Expenses not deductible for tax purposes
Losses carried forward
Difference in foreign tax rate
Deferred tax write-back
Impact of change in tax rate
Income tax charge/(credit)
(3)
(609)
(1,513)
677
452
58
2,237
237
436
(2,512)
(1,001)
(58)
1,456
839
266
–
–
(2,749)
The majority of the deferred tax asset recognised for the year ended 29 December 2018 was not realised due to lower profit before tax and higher
capital allowances than had been forecast.
(c) Factors that may affect future tax charge
The standard rate of corporation tax in the UK is 19% and it is also the rate applied to the Group’s profit for the year ended 28 December 2019.
The Group has an unrecognised deferred tax asset relating to temporary timing differences on plant and equipment, intangible assets and provisions
of £9.6m (2018: £17.0m) and relating to losses of £10.4m (2018: £8.1m – restated).
These potential deferred tax assets have not been recognised on the basis that it is not sufficiently certain when taxable profits that can be utilised to
absorb the reversal of the temporary difference will be made in the future.
In the March 2020 Budget the Government announced that the 2020 Finance Bill will contain provisions for the standard rate of UK corporation tax to
remain at 19%, meaning that legislation previously enacted for a reduction to 17% from 1 April 2020 will be reversed. The previously enacted rate of
17% has however been used to calculate the above deferred tax disclosures as the 2020 Finance Bill is not yet substantively enacted.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 98
13. Earnings per share
Year ended 28 December 2019
Year ended 29 December 2018
Loss after tax
from
continuing
operations
£000s
(6,224)
(6,407)
Weighted
average
number
of shares
£000s
170,207
170,207
Loss after tax
from
continuing
operations
per share
pence
(3.66)
(3.76)
Basic loss per share is calculated by dividing the result attributable to equity holders by the weighted average number of ordinary shares in issue for
that year.
Diluted loss per share is calculated using the loss for the year divided by the weighted average number of shares outstanding assuming the
conversion of its potentially dilutive equity derivatives outstanding, being nil cost share options (LTIP shares), market value options, Sharesave Scheme
share options and warrants, as disclosed in notes 23 and 24.
For the years ended 28 December 2019 and 29 December 2018, all of the Group’s potentially dilutive equity derivative securities were anti-dilutive for
the purpose of diluted basic loss per share and dilutive for the purpose of diluted adjusted earnings per share, with the exception of the 2017 options
which were anti-dilutive.
The following is a reconciliation between the basic loss per share and the adjusted basic earnings per share:
Basic (loss) per share
Add back:
Exceptional items per share(1)
Amortisation per share(2)
Income tax (charge)/credit per share
Charge:
Tax (charge) at prevailing rate
Adjusted basic earnings per share
Year ended
28 December
2019
pence
Year ended
29 December
2018
pence
(3.66)
(3.76)
3.51
3.30
0.26
(0.65)
2.76
3.77
3.47
(1.62)
(0.35)
1.51
(1) Exceptional items per share is calculated as total exceptional items divided by the weighted average number of shares in issue through the year.
(2) Amortisation per share is calculated as the amortisation charge divided by the weighted average number of shares in issue through the year.
The following is a reconciliation between the basic and diluted loss per share and the adjusted diluted earnings per share:
Basic and diluted (loss) per share
Add back:
Adjustment to basic loss per share for the impact of dilutive securities(1)
Exceptional items per share(2)
Amortisation per share(3)
Income tax (charge)/credit per share
Charge:
Tax (charge) at prevailing rate
Adjusted diluted earnings per share
Year ended
28 December
2019
pence
Year ended
29 December
2018
pence
(3.66)
(3.76)
0.59
2.94
2.77
0.21
(0.54)
2.31
0.36
3.41
3.13
(1.46)
(0.32)
1.36
(1) The warrants, LTIP, market value options and Sharesave share options were dilutive in the year ended 28 December 2019 and 29 December 2018 for the purpose
of calculating adjusted diluted earnings per share.
(2) Exceptional items per share is calculated as total finance and non-finance exceptional items divided by the diluted weighted average number of shares in issue
through the year.
(3) Amortisation per share is calculated as the amortisation charge divided by the diluted weighted average number of shares in issue through the year.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 99
13. Earnings per share continued
The weighted average number of shares for the purposes of calculating the adjusted diluted earnings per share are as follows:
Basic
Market value options (note 24)
Warrants (note 23)
LTIP share options (note 24)
CSOP options (note 24)
Sharesave scheme options (note 24)
Directors' bonus shares
Diluted
14. Intangible assets
Cost
At 30 December 2018
Additions
Disposals
At 28 December 2019
Amortisation
At 30 December 2018
Charge for the year
Disposals
At 28 December 2019
Net book value
At 28 December 2019
Cost
At 31 December 2017
Additions
Cost transferred to assets held for sale
At 29 December 2018
Amortisation
At 31 December 2017
Charge for the year
Accumulated depreciation transferred to assets held for sale
At 29 December 2018
Net book value
At 29 December 2018
Year ended
28 December 2019
Weighted average
number of shares
000s
Year ended
29 December 2018
Weighted average
number of shares
000s
170,207
14,915
8,510
7,576
585
972
247
170,207
10,292
4,501
1,240
940
1,373
–
203,012
188,553
Goodwill
£000s
Customer
relationships
£000s
Brands
£000s
Software
£000s
Total
£000s
124,877
26,744
23,222
22,228
197,071
–
–
–
–
–
–
2,339
(158)
2,339
(158)
124,877
26,744
23,222
24,409
199,252
–
–
–
–
15,996
2,698
–
18,694
427
98
–
525
16,991
2,726
(62)
33,414
5,522
(62)
19,655
38,874
124,877
8,050
22,697
4,754
160,378
Goodwill
£000s
Customer
relationships
£000s
Brands
£000s
Software
£000s
Total
£000s
128,991
26,744
24,102
–
(4,114)
–
–
–
(880)
20,481
1,844
(97)
200,318
1,844
(5,091)
124,877
26,744
23,222
22,228
197,071
–
–
–
–
13,346
2,650
–
15,996
526
100
(199)
427
13,937
3,151
(97)
16,991
27,809
5,901
(296)
33,414
124,877
10,748
22,795
5,237
163,657
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 100
14. Intangible assets continued
Analysis of goodwill, indefinite life brands, other brands and customer relationships by cash generating units
Allocated to
HSS Core
Climate control
Power generation
At 28 December 2019
Allocated to
HSS Core
Climate control
Power generation
At 29 December 2018
Goodwill
£000s
Indefinite life
brands
£000s
Other
brands
£000s
Customer
relationships
£000s
Total
£000s
111,497
21,900
7,327
6,053
–
–
124,877
21,900
256
336
205
797
6,849
140,502
820
381
8,483
6,639
8,050
155,624
Goodwill
£000s
Indefinite life
brands
£000s
Other
brands
£000s
Customer
relationships
£000s
Total
£000s
111,497
21,900
7,327
6,053
–
–
124,877
21,900
276
399
220
895
9,345
143,018
932
471
8,658
6,744
10,748
158,420
The remaining life of intangible assets other than goodwill and indefinite life brands is between one and fifteen years (2018: two and sixteen years).
The Group tests property, plant and equipment, goodwill and indefinite life brands for impairment annually or more frequently if there are indicators
that impairment may have occurred. The recoverable amounts of the goodwill and indefinite life brands, which are allocated to CGUs, are estimated
from value in use (VIU) calculations which model pre-tax cash flows for the next five years (2018: five years) together with a terminal value using a long-
term growth rate. The key assumptions underpinning the recoverable amounts of the CGUs tested for impairment are those regarding the discount
rate, forecast revenue, EBITDA and capital expenditure.
The key variables applied to the VIU calculations were determined as follows:
→ Cash flows were derived based on the budget for 2020 and model of the business for the following two years (to the end of 2022).
→ Operational activity then had the long-term growth rate applied to it while capital expenditure was specifically adjusted to reflect expectations of
spend in the following years giving a model of five years in total after which a terminal value was calculated. The long-term growth factor used was
1.4% for each of the CGUs (2018: 1.8%).
→ A pre-tax discount rate of 9.1% (2018: 9.7%), calculated by reference to a weighted average cost of capital (WACC) based on an industry peer
group of quoted companies.
An impairment may be identified if changes to any of the factors mentioned above become significant, including underperformance of the Group
against forecast, negative changes in the UK tool hire market or a deterioration in the UK economy, which would cause the Directors to reconsider
their assumptions and revise their cash flow projections.
Based on this VIU modelling and impairment testing, the Directors do not consider an impairment charge to be required in respect of any of the
property, plant and equipment, goodwill and indefinite life brands assets carried in the balance sheet at 28 December 2019 for any of the CGUs.
For the CGU groupings listed in the table above in respect of goodwill and brands, the Directors’ sensitivity analysis does not result in an impairment
charge. In addition, the Directors assessed a variety of individual scenarios covering individual issues related to factors such as lowered revenue
growth, capital expenditure plans, general cost inflation and the extension of the time taken to collect cash from customers. The Directors also
assessed combined outcomes utilised as part of the going concern and long-term viability assessments, particularly in light of the potential impact
of a hard Brexit. Given the level of headroom in VIU these calculations show, the Directors did not envisage reasonably possible changes, either
individually or in combination, to the key assumptions that would be sufficient to cause an impairment charge at the balance sheet date.
In respect of HSS Core, at 28 December 2019, the headroom between VIU and carrying value of the related assets was £192.7m (2018: £122.0m).
The Directors’ sensitivity analysis with regard to HSS Core shows that an increase in the discount rate to 26.7% (2018: 13.4%) or a reduction in the
long-term growth rate to a decline of 4.2% (2018: decline of 2.5%) would eliminate the headroom shown. In addition, the Directors have assessed the
combined impact of the long-term growth rate falling to zero (2018: zero) and an increase in the discount rate to 10.15% (2018: 10.89%). This shows
that the headroom drops to £131.3m (2018: £23.0m) for HSS Core. Each of these rates is viewed as unlikely to occur in the near term and as such no
impairment charge was required.
Since the balance sheet date the COVID-19 pandemic has emerged as a threat and means that the Directors’ assessment of economic risk has
changed. As detailed in note 1e, forecasts prepared since the balance sheet date show a large drop in profits in the short-term which could reduce or
eliminate entirely the headroom identified in the reviews carried out during 2019. A reasonable estimate of the financial effects in this regard cannot yet
be made.
For the purpose of calculating adjusted EBITDA and adjusted EBITA, amortisation, as disclosed on the face of the income statement, is calculated as
the total of the amortisation charge for the year and the loss on disposal of intangible assets.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 101
Land &
buildings
£000s
Plant &
machinery
£000s
Materials &
equipment
held for hire
£000s
Total
£000s
73,293
62,685
195,384
331,362
–
(95)
(840)
(935)
2,415
(2,131)
(72)
1,891
(1,482)
(1,074)
27,097
31,403
(37,988)
(41,601)
1,146
–
73,505
61,925
184,799
320,229
51,431
55,125
115,677
222,233
–
4,316
209
(1,568)
49
(79)
2,521
154
(1,469)
(316)
(546)
21,764
–
(625)
28,601
363
(29,157)
(32,194)
267
–
54,437
55,936
108,005
218,378
19,068
5,989
76,794
101,851
Land &
buildings
£000s
Plant &
machinery
£000s
Materials &
equipment held
for hire
£000s
Total
£000s
71,778
61,033
271,134
403,945
–
4,983
(2,304)
(1,164)
–
2,421
(649)
(120)
115
22,578
(69,907)
(28,536)
115
29,982
(72,860)
(29,820)
73,293
62,685
195,384
331,362
46,918
6,090
–
(1,159)
(418)
53,556
152,556
2,241
–
(557)
(115)
18,492
533
(37,144)
(18,760)
253,030
26,823
533
(38,860)
(19,293)
51,431
55,125
115,677
222,233
21,862
7,560
79,707
109,129
15. Property, plant and equipment
Cost
At 30 December 2018
Foreign exchange differences
Additions
Disposals
Transfers
At 28 December 2019
Accumulated depreciation
At 30 December 2018
Foreign exchange differences
Charge for the year
Impairment
Disposals
Transfers
At 28 December 2019
Net book value
At 28 December 2019
Cost
At 31 December 20171
Foreign exchange differences
Additions
Transferred to assets held for resale
Disposals
At 29 December 2018
Accumulated depreciation
At 31 December 20171
Charge for the year
Impairment loss
Transferred to assets held for resale
Disposals
At 29 December 2018
Net book value
At 29 December 2018
1 Although assets acquired through historic business combinations were correctly recognised as additions at their fair value, in line with the carrying value in the
subsidiary financial statements, on disposal, the gross cost and accumulated depreciation was disposed of. An adjustment has been recognised to the Group cost
and accumulated depreciation as at 31 December 2017, reversing entries previously made in this regard. These adjustments had no impact on the net book value.
The net book value of materials and equipment held for hire includes an amount of £24.9m (2018: £24.4m) in respect of assets held under finance
leases. The depreciation charge for assets held under finance leases in the year ended 28 December 2019 was £5.4m (2018: £4.7m).
The results of the impairment review for property, plant and equipment are included in note 14.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 102
15. Property, plant and equipment continued
For the purpose of calculating adjusted EBITDA and adjusted EBITA, depreciation, as disclosed on the face of the income statement, is calculated
as the total of the depreciation charge for the year, the accelerated depreciation relating to hire stock customer losses, hire stock write offs and other
asset disposals and the loss on disposal of other tangible assets.
16. Inventories
Inventories
Inventory spares
Total inventories
Provision for impairment
Inventories
Provision for impairment of inventories
Balance at the beginning of the year
Increase/(decrease) in impairment provision during the year
Balance at the end of the year
The cost of inventories recognised as an expense and included in cost of sales is £27.1m (2018: £25.2m).
17. Trade and other receivables
Gross trade receivables
Less provision for impairment
Net trade receivables
Other debtors
Prepayments
Accrued income
Total trade and other receivables
28 December
2019
£000s
29 December
2018
£000s
2,503
1,576
4,079
(344)
3,735
2,594
2,009
4,603
(270)
4,333
28 December
2019
£000s
29 December
2018
£000s
270
74
344
396
(126)
270
28 December
2019
£000s
29 December
2018
£000s
72,056
(3,745)
68,311
2,762
10,499
6,824
88,396
78,026
(3,819)
74,207
3,477
6,997
9,300
93,981
The bad debt provision is estimated using the simplified approach to expected credit loss techniques and is based upon past default experience and
the Directors’ assessment of the current economic environment for each of the Group’s ageing categories.
The total amount expensed was £3.6m (2018: £4.4m); unless the counter-party is in liquidation, these amounts are still subject to enforcement
action. The Group considers current and forward-looking information on macroeconomic factors affecting the Group’s operating environment when
considering adjustments to the loss experience. At the balance sheet date, the Group had considered economic uncertainty around Brexit, and
expected GDP growth, inflation and unemployment rates in determining the level of adjustment required.
Provisions are made for credit notes expected to be raised after year end for income recognised during the year (see note 2).
The overall provisions for bad debt and credit notes amount to 5.2% of trade receivables at 28 December 2019 (2018: 4.9%). A 0.5% increase in the
rate of provision required would give rise to an increased provision of £0.4m (2018: £0.4m).
The Group implemented a new system to manage the OneCall rehire business in April 2019. The new system invoices all sales at the end of each
period, this is main driver of the reduction in accrued income.
Since the balance sheet date the COVID-19 pandemic has emerged as a threat and means that the Directors’ assessment of economic risk has
changed. In forecasts prepared since the balance sheet date the Directors have considered scenarios where £20m-£30m of trade receivables are
recovered late and £10m are not recovered.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019
17. Trade and other receivables continued
The following table details the movements in the provision for impairment of trade receivables:
Balance at the beginning of the year
Movement in provision
Balance related to discontinued operations
Balance at the end of the year
The provision for impairment of trade receivables is comprised as follows:
Bad debt provision
Credit note provision
103
28 December
2019
£000s
29 December
2018
£000s
(3,819)
(4,429)
74
–
324
286
(3,745)
(3,819)
28 December
2019
£000s
29 December
2018
£000s
(1,568)
(2,177)
(3,745)
(1,885)
(1,934)
(3,819)
The bad debt provision based on expected credit losses and applied to trade receivables, all of which are current, is as follows:
28 December 2019
Contract assets, £000s
Expected loss rate
Provision for impairment charge, £000s
29 December 2018
Contract assets, £000s
Expected loss rate
Provision for impairment charge, £000s
Contract assets consist of trade receivables and accrued income.
18. Trade and other payables
Current
Trade payables
Other taxes and social security costs
Other creditors
Accrued interest on borrowings
Accruals
Deferred income
Current
63,633
1.0%
633
Current
69,215
0.0%
8
0-60 days
past due
61-365 days
past due
1-2 years
past due
7,500
3.0%
228
6,631
8.3%
552
1,116
13.9%
155
0-60 days
past due
61-365 days
past due
1-2 years
past due
9,342
0.9%
84
7,330
21.0%
1,540
1,439
17.6%
253
Total
78,880
2.0%
1,568
Total
87,326
2.4%
1,885
28 December
2019
£000s
29 December
2018
(restated)
£000s
33,841
43,139
6,856
1,565
3,608
20,058
103
66,031
4,104
1,365
4,557
18,623
220
72,008
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 104
19. Borrowings
Current
Obligations under finance leases
Revolving credit facility
Non-current
Obligations under finance leases
Senior finance facility
The nominal value of the Group’s loans at each reporting date is as follows:
Senior finance facility
Revolving credit facility
28 December
2019
£000s
29 December
2018
£000s
5,355
–
5,355
6,304
13,000
19,304
11,228
174,501
9,468
208,162
185,729
217,630
28 December
2019
£000s
29 December
2018
£000s
181,982
220,000
–
13,000
181,982
233,000
The Group’s senior finance facility and revolving credit facility (RCF) expire on 10 July 2023 and 10 January 2023 respectively. £15.0m of the senior
finance facility is to be repaid not later than 10 January 2021.
The senior finance facility is secured over the assets of a group company, Hero Acquisitions Limited, and all of its subsidiaries. These subsidiaries
comprise all of the trading activities of the Group. The RCF is guaranteed in a similar way to the senior finance facility, save the lenders under the RCF
rank above those under the senior finance facility.
After the disposal of the UK Platforms business on 11 January 2019, the Group made a repayment of the senior finance facility amounting to £38.0m
(see note 28).
The interest rates on the Group’s borrowings are as follows:
Finance leases
Revolving credit facility
Senior finance facility
Floating
Floating
Floating
%age above LIBOR
%age above LIBOR
%age above LIBOR
The weighted average interest rates on the Group’s borrowings are as follows:
Weighted average interest rate on borrowings
Weighted average interest rate on leases
28 December
2019
29 December
2018
3.10%
3.00%
8.00%
3.10%
3.00%
8.00%
28 December
2019
29 December
2018
10.4%
4.8%
7.0%
5.7%
Amounts under the RCF are typically drawn for a one to three-month borrowing period, with the interest set for each borrowing based upon LIBOR
and a fixed margin.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 105
28 December 2019
29 December 2018
Finance
leases
£000s
6,306
11,615
17,921
Borrowings
£000s
–
237,228
237,228
Finance
leases
£000s
6,927
9,993
Borrowings
£000s
13,000
306,158
16,920
319,158
–
(55,246)
–
(86,158)
(1,338)
–
(1,148)
–
16,583
181,982
15,772
233,000
19. Borrowings continued
The Group’s leases and borrowings have the following maturity profile:
Less than one year
Two to five years
Less interest cash flows:
Senior finance facility
Finance leases
Total principal cash flows
The repayment of £38.0m of the senior finance facility in January 2019 reduced the facilities available by the same amount. The two to five years
category in the table above reduced from £286.5m to £248.5m at that time. In addition, the £13.0m drawn under the RCF was repaid in February
2019 and a new £6.0m overdraft facility was put in place with one of the Group’s bankers. This overdraft facility forms part of the overall £25.0m
RCF as does a £1.8m guarantee arrangement put in place in October 2018 to secure the Group’s card-acquiring services provided by a third party
(see note 26).
The Group had undrawn committed borrowing facilities of £36.6m at 28 December 2019 (2018: £27.1m). Including net cash balances, the Group
had access to £59.3m of combined liquidity from available cash and undrawn committed borrowing facilities at 28 December 2019 (2018: £44.7m).
This includes the ability to borrow up to £30m (outstanding at any time) under its finance lease facilities. Subsequent to year end, the Group drew
down the remaining RCF of £17.2m.
The maturity profile, excluding interest cash flows, of the Group’s finance leases is as follows:
Less than one year
Two to five years
Finance leases principally relate to hire fleet assets.
20. Provisions
At 30 December 2018
Additions
Utilised during the year
Unwind of provision
Released
Foreign exchange
At 28 December 2019
Of which:
Current
Non-current
28 December
2019
£000s
29 December
2018
£000s
5,355
11,228
16,583
6,304
9,468
15,772
Onerous
leases
£000s
Dilapidations
£000s
Onerous
contracts
£000s
4,745
4,942
(2,570)
20
(2,304)
–
16,779
22,808
555
(790)
49
(360)
(24)
–
(3,580)
345
–
–
Total
£000s
44,332
5,497
(6,940)
414
(2,664)
(24)
4,833
16,209
19,573
40,615
2,043
2,790
4,833
2,990
13,219
16,209
3,112
16,461
19,573
8,145
32,470
40,615
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 106
20. Provisions continued
At 31 December 2017
Assets held for sale
Additions
Utilised during the year
Unwind of provision
Released, including disposal on sale of business
At 29 December 2018
Of which:
Current
Non-current
Onerous
leases
£000s
Dilapidations
£000s
Onerous
contracts
£000s
6,607
13,975
32,612
–
2,054
(3,254)
11
(673)
4,745
3,234
1,511
4,745
(573)
5,841
(1,312)
44
(1,196)
–
–
(9,918)
114
–
16,779
22,808
3,488
13,291
16,779
3,562
19,246
22,808
Total
£000s
53,194
(573)
7,895
(14,484)
169
(1,869)
44,332
10,284
34,048
44,332
Onerous leases
Provisions for onerous leases relate to the current value of contractual liabilities for future rent and rates payments and other unavoidable costs on
leasehold properties the Group no longer uses or where a site is partially in use and the lease as a whole is loss-making. These liabilities, assessed on
a lease-by-lease basis, are expected to arise over a period of up to 8 years (2018: 9 years) with the weighted average being 3.9 years (2018: 2.5 years).
They are stated net of expected sub-let income based on existing sub-let agreements. The onerous lease provision has been discounted at a rate of
0.9% (2018: 0.9%). A 1% increase in the discount rate at 28 December 2019 would reduce the onerous lease provision by £0.1m (2018: £0.1m).
The assessment of whether a site is onerous is based on the current year profit or loss being projected forward to the end of the lease. In considering
profitabilty, expected sub-let income for unused space is considered. The amount of expected sub-let income leases included in the onerous lease
provision amounted to £0.9m at 28 December 2019 (2018: £0.5m). Variations in the actual timings or amounts of sub-let income or to the underlying
trading and profitability of the site will lead to a commensurate increase or decrease in the amount of provision required in the future.
Since the balance sheet date the COVID-19 pandemic has emerged as a threat and means that the Directors’ assessment of economic risk has
changed. As detailed in note 1e, forecasts prepared since the balance sheet date show a large drop in profits in the short-term which could result in
additional leases becoming onerous. Forecasts have not been prepared at a site level and so this has not been quantified.
Dilapidations
The dilapidations provision represents dilapidation costs in respect of the Group’s leasehold properties and will therefore arise over the lease
lives of the Group’s properties, and comprises specific amounts based on surveyors’ reports on a property-by-property basis, where available.
The remaining properties are covered by an estimate based on gross internal area, adjusted for location, size and age of the property. The weighted
average dilapidations provision at 28 December 2019 was £8.68 per square foot (psf) (2018: £8.34 psf). The small change in psf amount is the result
of changes in the property portfolio and updates based on survey or landlord negotiations. Estimates for future dilapidations costs are regularly
reviewed as and when new information is available. A £0.50 psf increase in the dilapidations provision would lead to an increase in the provision at
28 December 2019 of £0.9m (2018: £1.2m).
The dilapidations provision has been discounted at a rate of 1.26% (2018: 1.26%) at 28 December 2019 based on 10 year UK gilt yields. A 1% increase
in the discount rate at 28 December 2019 would decrease both the dilapidations provision and associated fixed asset by £0.8m (2018: £0.6m).
Onerous contract
The onerous contract represents amounts payable in respect of the agreement reached between the Group and Unipart to terminate the contract to
operate the NDEC. Under the terms of the agreement at 28 December 2019 £20.3m is payable over the period to 2026 (2018: £24.2m) and £3.6m
has been paid during the year (2018: £9.6m). The provision has been discounted at a rate of 1.19% (2018: 1.19%). A 1% increase in the discount rate
at 28 December 2019 would decrease the provision by £0.6m (2018: £0.9m).
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 21. Deferred tax
Deferred tax is provided in full on taxable temporary differences under the liability method using applicable tax rates.
At 30 December 2018 – continuing operations
(Charge)/credit to the income statement
At 28 December 2019
The Group has no recognised deferred tax assets at 28 December 2019.
At 30 December 2017
Less: transferred to assets held for sale
Credit to the income statement – continuing operations
(Charge) to the income statement – discontinued operations
Credit to the income statement – total
Deferred tax assets/(liability) – group
Deferred tax assets/(liability) – discontinued operations
Deferred tax assets/(liability) – total
Deferred tax assets
Deferred tax liabilities
At 29 December 2018
Property,
plant and
equipment
and other
items
£000s
(841)
841
–
Acquired
intangible
assets
£000s
(327)
(14)
(341)
Property, plant
and equipment
and other items
£000s
Acquired
intangible
assets
£000s
(2,282)
1,030
(1,252)
411
(246)
165
(841)
(1,276)
(2,117)
–
(841)
(841)
(518)
126
(392)
65
–
65
(327)
(126)
(453)
–
(327)
(327)
Tax
losses
£000s
2,500
(2,500)
–
Tax
losses
£000s
358
(358)
–
2,500
(331)
2,169
2,500
27
2,527
2,500
–
2,500
107
Total
£000s
1,332
(1,673)
(341)
Total
£000s
(2,442)
798
(1,644)
2,976
(577)
2,399
1,332
(1,375)
(43)
2,500
(1,168)
1,332
Deferred tax assets are recognised in respect of certain tax losses that are expected to be utilised within the next 12 months against future suitable
taxable profits.
At 28 December 2019 £0.3m (2018: £1.2m) of the deferred tax liability is expected to crystallise after more than one year.
At 28 December 2019 the Group had an unrecognised deferred tax asset relating to trading losses of £10.4m (2018: £8.1m – restated). The gross
balance at 28 December 2019 was £61.2m (2018: £42.6m – restated).
The Group also has an unrecognised deferred tax asset relating to temporary differences on plant and equipment, intangible assets and provisions
of £9.6m (2018: £17.0m). The gross balance at 28 December 2019 was £56.5m (2018: £89.4m).
These potential deferred tax assets have not been recognised on the basis that it is not sufficiently certain when taxable profits that can be utilised
to absorb the reversal of the temporary difference will occur in the future. Deferred tax assets have been recognised to the extent that they will be
supported by next year’s expected profits.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 108
22. Share capital
Number and nominal value of fully paid up ordinary shares of 1p each
At 28 December 2019 and 29 December 2018
Share capital
Ordinary
Number
Share capital
Ordinary
£000s
170,207,142
1,702
23. Warrant reserve
On 11 July 2018, the Group issued 8,510,300 warrants to the holders of its debt under the senior finance facility. A Black-Scholes model was used
to calculate the fair value of those warrants leading to an amount of £2.7m being recognised. The warrants are exercisable at a subscription price
of 1p on repayment of the senior finance facility, a change in control or the end of the facility term.
At 28 December 2019 and 29 December 2018
The key assumptions that underpin this model are:
→ no dividends paid throughout the period to 31 December 2021;
Number
Nominal
value
£000
8,510,300
2,694
→ performance dates are between 31 December 2020 and 2021 giving a performance period of 3.1 years; and
→ volatility in the returns to shareholders as measured by the total shareholder return of 54.5% to 57.2%.
24. Share-based payments
The Group operates a number of share-based payment schemes as part of its reward and retention strategies. The key points of each of the Group’s
share schemes for grants up to 28 December 2019 are summarised below. All schemes are equity-settled. All disclosure relates to both the Group
and the Company.
Long Term Incentive Plan
On 4 June 2019 share awards under the Long Term Incentive Plan (“LTIP”) were issued to eligible colleagues in the form of nil-cost options over
ordinary shares. The LTIP options will vest subject to performance conditions based on earnings per share and return on capital employed measured
over the three-year period ending with the group’s 2021 financial year. To the extent it vests, each award will, ordinarily, be released to the participant
at the end of a further two-year holding period. The awards were valued as the grant-date share price, adjusted for anticipated dividends payable.
During 2018, share awards under the LTIP were issued to eligible colleagues in the form of nil-cost options over ordinary shares. The LTIP options will
vest subject to share price performance measured over the three-month period ending with the Company’s 2021 financial year.
On the same dates as the LTIP awards, tax-qualifying share options were granted as part of the LTIP awards (CSOP options) via a Company Share
Option Plan approved by HMRC. Each CSOP is subject to the same performance targets as apply to the nil-cost options part of the LTIP and will vest
and be released at the same time as the nil-cost options. If a CSOP option is exercised as a gain, the number of shares that may be delivered under
the associated LTIP award will be reduced at exercise by the same value to ensure that the total pre-tax value of the original LTIP award delivered to
the participant is not increased by the grant of the CSOP option.
As such, the LTIP comprises a bundled HMRC-approved option in respect of the first £30,000 worth of an award, and an unapproved LTIP award for
amounts in excess of this HMRC limit. Therefore, the fair value of the award in aggregate is determined by reference to the market value of the original
LTIP share awards at the date of grant.
Market value options
During 2018, share awards (the 2018 Awards) were granted to eligible colleagues in the form of market value options over ordinary shares.
The market value options will vest subject to performance conditions based on HSS’s share price measured over the three-month period ending with
31 December 2021. The award will lapse if the award made in 2017 (see below) vests.
During 2017, share awards (the 2017 Awards) were granted to eligible colleagues in the form of market value options over ordinary shares. The market
value options will vest subject to performance conditions based on earnings per share and return on capital employed measured over the period
ending with the Company’s 2020 financial year.
To the extent it vests, each of the 2018 and 2017 Awards will, ordinarily, be released to the participant at the end of a further one-year holding period.
On the same dates for the 2018 and 2017 Awards, tax-qualifying share options were granted as part of the market value option awards (CSOP
options) via a Company Share Option Plan approved by HM Revenue & Customs (HMRC). Each CSOP is subject to the same performance targets as
are applied to the market value options and they will vest and be released at the same time as them.
As such the total award to each individual comprises a bundled HMRC-approved option in respect of the first £30,000 worth of an award, and an
unapproved market value option award for amounts in excess of this HMRC limit.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 109
24. Share-based payments continued
Deferred Bonus Plan
On 16 April 2019 shares were issued to Directors under the Group’s Deferred Bonus Plan (“DBP”). The awards are not subject to any performance
conditions and will ordinarily vest after a two-year holding period. The awards were valued as the grant-date share price, adjusted for anticipated
dividends payable.
2016 3-year Sharesave Scheme (SAYE Plan)
During 2016, the Group offered all colleagues the opportunity to participate in the 2016 Sharesave Scheme, a SAYE plan. The Sharesave Scheme
enables participating employees to save anything from £5 to £250 per month over three years. At the end of the three years, the employee may use
the amount saved to purchase HSS Hire Group plc shares at a discounted price (compared with the price on the date of issue) of 57.7p per share.
Alternatively, the employee may, at their request, withdraw their savings and leave the SAYE Plan at any time. Participants will be eligible to exercise
their awards during the 6 month period from 1 January 2020.
No awards have been made under the SAYE Plan since 2016.
The table below reconciles the options outstanding during the year ended 28 December 2019:
Outstanding at 30 December 2018
21,477,547
4,762,622
1,967,025
–
1,102,474
MVO
Number
LTIP
Number
CSOP
Number
DBP
Number
SAYE
Number
Granted
Lapsed
Cancelled
415,388
6,570,227
242,808
350,715
–
–
(1,239,622)
–
–
–
–
–
–
–
(260,580)
Outstanding at 28 December 2019
21,892,935
10,093,227
2,209,833
350,715
841,894
Exercisable at end of year, number
Weighted average exercise price, pence
Weighted average remaining contractual life, years
Weighted average fair value of options granted, pence
–
38.4
8.3
7.5
–
–
9.2
25.6
–
24.3
8.5
5.1
–
–
1.3
37.3
–
57.7
0.5
23.0
The table below reconciles the options outstanding during the year ended 29 December 2018:
Outstanding at 31 December 2017
Granted
Cancelled
Outstanding at 29 December 2018
Exercisable at end of year, number
Weighted average exercise price, pence
Weighted average remaining contractual life, years
Weighted average fair value of options granted, pence
MVO
Number
LTIP
Number
CSOP
Number
DBP
Number
SAYE
Number
7,076,202
1,239,622
666,660
14,500,000
3,523,000
1,355,920
(98,655)
–
(55,555)
21,477,547
4,762,622
1,967,025
–
40.4
3.9
9.2
–
–
3.4
5.2
–
42.6
3.9
9.0
–
–
–
–
–
–
–
–
1,660,893
–
(558,419)
1,102,474
–
57.7
1.3
23.0
The total charge for the year relating to employee share-based payment plans during the year ended 28 December 2019 was £713,000
(2018: £24,000), all of which related to equity-settled share-based payment transactions.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 110
25. Financial instruments
Financial risk management
The Group holds and uses financial instruments to finance its operations and to manage its interest rate and liquidity risks. The Group primarily
finances its operations using share capital, revenue and borrowings.
The Group’s activities expose it to a variety of financial risks. Risk management is carried out under policies approved by the Board of Directors.
Financial risk management is carried out by the Chief Financial Officer under a policy approved by the Board. The Board approves written principles
for overall risk management, as well as written policies covering specific areas, such as interest rate risk, credit risk and liquidity risk, and receives
regular reports on such matters. The Group does not engage in trading or speculative activities using derivative financial instruments.
Market risk
Market risk is the risk of a change in market prices, such as foreign exchange rates and interest rates. They will affect the Group’s income or the value
of its holdings of financial instruments.
Interest rate risk
Interest rate risk is the risk of a change in the Group’s cash flows due to a change in interest rates.
The Group enters into finance leases in respect of hire stock assets and these carry a fixed rate of interest set at lease inception. The Group is only
exposed to interest rate risk on its variable interest borrowings, such as the senior finance facility, RCF and other short-term borrowings. To mitigate
the risks associated with this, the Group has entered into an interest rate cap that limits the interest that the Group will pay on £150m of its borrowings
under the senior finance facility. The Directors continue to monitor developments in market interest rates on a regular basis. The effect of a 1%
increase in interest rates on the Group’s variable loans would lead to an increase in the interest charge of £2.1m (2018: £1.0m).
Interest rate sensitivity
The table below demonstrates the sensitivity to reasonably possible changes in interest rates, taking into account the Group’s hedging arrangements,
on income and equity for the year when this movement is applied to the carrying value of financial assets and liabilities:
Effect of:
100 basis points increase
200 basis points increase
Profit Before Tax
Equity
28 December
2019
£m
29 December
2018
£m
28 December
2019
£m
29 December
2018
£m
1.8
3.7
1.1
2.3
1.8
3.7
1.1
2.3
Refinancing risk
The Group manages its refinancing risk by not letting its borrowings run to their maturity. There is a risk that market conditions might preclude a
refinancing if this is not done. At the balance sheet date, the Board was satisfied that sufficient cash was forecast to repay the £15.0m of the senior
finance facility that is to be repaid not later than 10 January 2021, however the risk has increased as a result of COVID-19 as detailed later in this note.
The remainder of the Group’s senior finance facility and RCF expire on 10 July 2023 and 10 January 2023 respectively.
Foreign exchange risk
Foreign exchange risk is the risk of a change in the Group’s cash flows due to a change in foreign currency exchange rate. The Group is exposed to
foreign currency exchange rate risk on the cash flows and carrying values of its Republic of Ireland subsidiaries. Given the relatively small size of the
Republic of Ireland operations compared to the Group, the Directors do not consider this to be a significant risk to the Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counter-party to a financial instrument fails to meet its contractual obligations and
arises principally from the Group’s receivables from customers.
The Directors consider the Group’s credit risk from cash, cash equivalents and deposits to be low as the Group only enters transactions with banks or
financial institutions with a credit rating of A or above. The carrying amount of each financial asset represents the maximum exposure to credit loss.
The Group has policies in place to manage potential credit risk from trade receivables. Customer credit terms are determined using independent
ratings agency data and regularly updated to reflect any changes in customer circumstances or trading conditions. If no independent rating is
available an internal assessment is made of the credit quality of the customer, taking into account their financial position and past trading history with
the Group. The Directors do not expect any significant losses of receivables that have not been provided for as shown in note 17.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group finance department regularly
monitors forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient
headroom on its undrawn committed borrowing facilities (note 19) at all times so that borrowing limits or covenants on borrowing facilities are
not breached.
The financial covenant in place on the Group’s senior finance and revolving credit facilities at 28 December 2019 is to maintain leverage (calculated as
net debt divided by Adjusted EBITDA as calculated each month on a cumulative last twelve month basis) at less than 4.0 times (2018: 4.5 times).
Asset risk
Asset risk is the risk of loss or damage to an asset adding to financial loss to the Group. Customers may damage hire equipment if they do not have
the appropriate skills to use the equipment or lack a duty of care while using it. The cost of repairing or replacing the equipment can be substantial
depending on the type of asset and in turn can lead to a loss of revenue until the asset is again available to be hired.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 111
25. Financial instruments continued
Capital management
The Group relies on capital for organic and acquisitive growth, the purchase of rental equipment to replace equipment that has reached the end of its
useful economic life, and to secure and establish new rental locations and branches.
The Group defines capital as equity, as shown in the statement of financial position, plus net debt (total borrowings less cash) and seeks to achieve an
acceptable return on gross capital.
The Group manages its capital structure using a number of measures and taking into account its future strategic plans. Such measures include
ensuring the Group maintains sufficient liquidity and compliance with a bank covenant. In addition to the cash that the Group has generated from
its operations, over recent years it has renegotiated its debt structure including the issue of a fixed interest rate bond, fixed-term loan notes, a senior
finance facility and secured shorter-term bank borrowing through a revolving credit facility.
Fair value
Financial assets at the balance sheet date are comprised of derivative financial assets, trade and other receivables, cash and cash equivalents.
The derivative financial assets are classified as fair value through other comprehensive income as the interest rate swap is in a designated hedge
relationship. All other financial assets are classified as financial assets at amortised cost.
All financial liabilities which comprise trade and other payables, obligations under finance leases and borrowings are classified as financial liabilities at
amortised cost.
The following table shows the fair value of financial assets and financial liabilities within the Group, including their level in the fair value hierarchy.
It does not include fair value information for financial assets or financial liabilities not measured at fair value if the carrying amount is a reasonable
approximation of fair value.
Financial assets
Derivative financial instruments – fair value hedge
Position in
fair value
heirarchy
28 December
2019
£000s
29 December
2018
£000s
Level 2
14
405
COVID-19
Since the balance sheet date the COVID-19 pandemic has emerged as a threat and means that the Directors’ assessment of financial risk
has changed.
As detailed in note 1e, forecasts prepared since the balance sheet date show a large drop in profits in the short-term. Certain forecast downside
scenarios would result in breach of covenants and require additional liquidity, thereby impacting Group’s ability to repay the £15m of the term facility
due no later than the 10 January 2021 – increasing liquidity and capital management risks. Credit risk has also increased due to COVID-19’s impact
on the Group’s customers and in the scenarios considered the Directors have assumed that between £20m and £30m of trade receivables are
recovered late and £10m are not recovered at all.
26. Commitments and contingencies
The Group’s commitments under non-cancellable operating leases are set out below:
Land and buildings
Within one year
Between two and five years
After five years
Other
Within one year
Between two and five years
After five years
The land and buildings commitments for 2018 have been restated following a review of lease break dates.
28 December
2019
£000s
29 December
2018
£000s
10,104
30,072
10,693
50,869
8,437
15,537
–
23,974
10,001
31,678
11,711
53,390
8,454
12,835
187
21,476
74,843
74,866
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 112
26. Commitments and contingencies continued
Other operating leases predominantly comprise hire stock assets and motor vehicles.
The Group’s future minimum sub-lease rental income expected to be received under non-cancellable operating leases is as follows:
Sub-lease rental income
Within one year
Between two and five years
After five years
28 December
2019
£000s
29 December
2018
£000s
551
1,134
595
2,280
499
1,017
161
1,677
The Group has issued a guarantee for £1.8m (2018: £1.8m) under the RCF (see note 19) to secure its card-acquiring arrangements.
The Group has contracted to purchase items of property, plant and equipment that it has not received at the reporting date to the value of £3.4m
(2018: £2.2m).
27. Assets and liabilities classified as held for sale
On 19 July 2018, the Group announced the agreement to sell UK Platforms Limited, HSS’s powered access business, to Nationwide Platforms
Limited. The clearance of this transaction was secured from the Competition and Markets Authority in December 2018, thereby completing the
last major hurdle in the agreement to sell this business. As UK Platforms Limited formed the entirety of the powered access CGU, the assets and
liabilities of the CGU were classified as held for sale in the consolidated statement of financial position in 2018. The Group completed the disposal
on 11 January 2019 (note 28) and the results of this business until that date have been classified as a discontinued operation. At 29 December 2018,
the balance sheet of this business was:
Intangible assets
Property, plant and equipment
Deferred tax assets
Inventories
Trade and other receivables
Cash
Assets held for sale
Debt – finance leases
Trade and other payables
Provisions
Deferred tax liabilities
Liabilities held for sale
Net assets of disposal group
The following table shows a summary of the cash flows for UK Platforms Limited:
Operating cash inflow
Cash outflow from investing activities
Cash outflow from financing activities
29 December
2018
£000s
4,752
30,612
27
358
8,892
2,075
46,716
(5,300)
(6,281)
(561)
(1,402)
(13,544)
33,172
28 December
2019
£000s
29 December
2018
£000s
607
(262)
(47)
4,286
(225)
(4,197)
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 113
28. Business disposal
Disposal of UK Platforms Limited – discontinued operation
On 11 January 2019, the Group completed the disposal of UK Platforms Limited to Nationwide Platforms Limited, a wholly-owned subsidiary of the
Loxam Group, in order to pay down debt and generate cash flow for the expansion of the Group’s other businesses. After completion of the sale,
£38.0m of the net proceeds was used to pay down Group debt, reducing the senior finance facility from £220.0m outstanding to £182.0m. The table
below shows the assets and liabilities disposed of:
Description of assets and liabilities:
Intangible assets (including goodwill)
Property, plant and equipment
Current assets, excluding cash
Cash
Debt – finance leases
Current liabilities, excluding debt
Deferred tax liabilities
Net assets disposed of
Proceeds of disposal less transaction costs
Total profit from disposal of UK Platforms Limited
Costs incurred on disposal of discontinued operations in 2018
Profit on disposal of discontinued operations in 2019
Total profit from disposal of UK Platforms Limited
The table below shows the result of discontinued operations:
Result of discontinued operations
Revenue
Expenses other than finance costs, amortisation and depreciation
Amortisation
Depreciation
Finance costs
Income tax charge
Profit from discontinued operations, net of tax
Profit on disposal of discontinued operations
Costs incurred on disposal of discontinued operations
Profit for the year
£000s
4,749
30,725
6,454
2,373
(5,253)
(2,943)
(1,375)
34,730
47,420
12,690
(2,080)
14,770
12,690
28 December
2019
£000s
29 December
2018
£000s
1,115
(801)
(3)
(149)
–
–
162
14,770
–
14,932
29,722
(18,524)
(45)
(6,069)
(440)
(577)
4,067
–
(2,080)
1,987
29. Related party transactions
Ultimate parent entity
By virtue of its majority shareholding the Group’s immediate and ultimate parent entity is Exponent Private Equity LLP. During the year entities
managed by Exponent Private Equity LLP charged the Group fees of £44,292 (2018: £42,803) and £nil was outstanding at 28 December 2019
(2018: £nil). Additionally Exponent Private Equity invests in businesses whom the Group trade with. All transactions are carried out on an arm’s length
basis and are immaterial to both parties.
Key management personnel
Related party transactions with key management personnel are disclosed in Note 10.
30. Dividends
The Directors do not recommend the payment of dividend for the year ended 28 December 2019 (2018: nil).
No interim dividends were paid or proposed during the year (2018: nil).
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 114
31. Note supporting statement of cash flows
Cash
Current borrowings
Non-current borrowings(1)
Finance lease liabilities
Total
Accrued interest on borrowings
Debt issue costs(1)
Net debt(2)
Cash
Current borrowings
Non-current borrowings(1)
Finance lease liabilities
Total
Accrued interest on borrowings
Debt issue costs(1)
Net debt(2)
At
30 December
2018
£000s
17,832
(13,000)
(208,162)
(15,772)
4,826
13,000
38,018
7,361
(219,102)
63,205
(4,557)
(11,838)
18,498
–
Cash
flows
£000s
Discontinued
operations
£000s
Other
non-cash
movements
£000s
At
28 December
2019
£000s
–
–
–
(47)
(47)
–
–
–
–
(4,357)
(8,126)
22,658
–
(174,501)
(16,583)
(12,483)
(168,426)
(17,549)
4,357
(3,608)
(7,481)
(235,497)
81,703
(47)
(25,675)
(179,515)
At
31 December
2017
£000s
Cash
flows
£000s
Discontinued
operations
£000s
Other
non-cash
movements
£000s
At
29 December
2018
£000s
2,151
(69,000)
(134,242)
(25,997)
(227,088)
(3,904)
(1,758)
(232,750)
17,625
56,000
(72,763)
12,510
13,372
17,265
(11,237)
19,400
(1,944)
–
–
5,301
3,357
–
–
17,832
(13,000)
(1,157)
(208,162)
(7,586)
(8,743)
(15,772)
(219,102)
–
–
(17,918)
1,157
(4,557)
(11,838)
3,357
(25,504)
(235,497)
(1) Non-current borrowings are stated net of debt issue costs.
(2) HSS calculation of net debt includes accrued interest on borrowings and excludes deduction for debt issue costs.
Notes to the Consolidated Financial Statements continuedFor the year ended 28 December 2019Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 115
32. Adjusted EBITDA and Adjusted EBITA
Non-IFRS financial measures
Earnings before interest, taxation, depreciation and amortisation (EBITDA) and Adjusted EBITDA, earnings before interest,
tax and amortisation (EBITA) and Adjusted EBITA
EBITDA, Adjusted EBITDA, EBITA and Adjusted EBITA are non-IFRS and non-Generally Accepted Accounting Practice (GAAP) performance
measures used by the Directors and management to assess the operating performance of the Group.
→ EBITDA is defined as operating profit before depreciation and amortisation. For this purpose depreciation includes the net book value of hire stock
losses and write-offs, and the net book value of other fixed asset disposals less the proceeds on those disposals. Exceptional items are excluded
from EBITDA to calculate Adjusted EBITDA.
→ EBITA is defined by the Group as operating profit before amortisation. Exceptional items are excluded from EBITA to calculate Adjusted EBITA.
The Group discloses Adjusted EBITDA and Adjusted EBITA as supplemental non-IFRS financial performance measures because the Directors
believe they are useful metrics by which to compare the performance of the business from period to period and such measures similar to Adjusted
EBITDA and Adjusted EBITA are broadly used by analysts, rating agencies and investors in assessing the performance of the Group. Accordingly, the
Directors believe that the presentation of Adjusted EBITDA and Adjusted EBITA provides useful information to users of the Financial Statements.
As these are non-IFRS measures, Adjusted EBITDA and adjusted operating profit measures used by other entities may not be calculated in the same
way and are hence not directly comparable.
Adjusted EBITDA is calculated as follows:
Operating profit
Add: Depreciation of property, plant and equipment
Add: Accelerated depreciation relating to hire stock customer losses,
hire stock write offs and other asset disposals
Add: Amortisation of intangible assets
Add: Loss on disposal of intangible assets
EBITDA
Add: Exceptional items
Adjusted EBITDA
Adjusted EBITA is calculated as follows:
Operating profit
Add: Amortisation of intangible assets
Add: Loss on disposal of intangible assets
EBITA
Add: Exceptional items
Adjusted EBITA
Continuing operations
Total
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
16,821
28,601
8,795
5,522
96
59,835
4,094
63,929
11,218
25,973
11,910
5,901
–
55,002
4,965
59,967
16,982
28,750
8,795
5,525
96
60,148
4,095
64,243
16,302
32,042
11,910
5,946
–
66,200
5,138
71,338
Continuing operations
Total
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
Year ended
28 December
2019
£000s
Year ended
29 December
2018
£000s
16,821
5,522
96
22,439
4,094
26,533
11,218
5,901
–
17,119
4,965
22,084
16,982
5,525
96
22,603
4,095
26,698
16,302
5,946
–
22,248
5,138
27,386
33. Post Balance Sheet Event
The emergence of COVID-19 as a threat
Since the balance sheet date, a new virus, COVID-19, has resulted in a pandemic which is impacting the Group’s performance. This represents a non-
adjusting post-balance sheet event. Information on the Group’s response to COVID-19 can be found in note 1e (going concern). It is expected that
there will be a material adverse impact on profit in 2020 and that credit risk will increase due to the Group’s customers facing a drop-off in sales and
reductions in liquidity headroom.
The potential impact of COVID-19 on the Group’s impairment review, expected credit losses and onerous lease provisions are detailed in notes 14, 17
and 20 respectively.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 116
Company Statement of Financial Position
At 28 December 2019
ASSETS
Non-current assets
Investments
Other receivables
Current assets
Other receivables
Cash
Total assets
LIABILITIES
Current liabilities
Other payables
Total liabilities
Net assets
EQUITY
Share capital
Warrant reserve
Merger reserve
Retained surplus
Total surplus attributable to owners of the Company
28 December
2019
£000s
29 December
2018
£000s
Note
2
3
3
4
5
5
89,906
166,839
256,745
89,193
136,924
226,117
–
17
17
15,405
19
15,424
256,762
241,541
(11,489)
(11,160)
(11,489)
(11,160)
245,273
230,381
1,702
2,694
97,716
143,161
245,273
1,702
2,694
97,716
128,269
230,381
As permitted by Section 408(3) of the Companies Act 2006, the Company’s income statement and statement of comprehensive income and related
notes have not been presented.
The Company made a post-tax profit for the year of £14,179,000 (2018: £12,933,000).
The notes on pages 118 to 120 form part of these financial statements.
The financial statements were approved and authorised for issue by the board of directors on 26 May 2020 and were signed on its behalf by:
P Quested
Director
26 May 2020
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 Company Statement of Changes in Equity
For the year ended 28 December 2019
117
At 30 December 2018
Profit for the year
Share-based payments
At 28 December 2019
At 31 December 2017
Warrants issued
Profit for the year
At 29 December 2018
The notes on pages 118 to 120 form part of these financial statements.
Share
capital
£000s
Warrant
reserve
£000s
Merger
reserve
£000s
Retained
earnings
£000s
Total
equity
£000s
1,702
2,694
97,716
128,269
230,381
–
–
–
–
–
–
14,179
713
14,179
713
1,702
2,694
97,716
143,161
245,273
Share
capital
£000s
1,702
–
–
Warrant
reserve
£000s
Merger
reserve
£000s
Retained
earnings
£000s
Total
equity
£000s
–
97,716
115,336
214,754
2,694
–
–
–
–
12,933
2,694
12,933
1,702
2,694
97,716
128,269
230,381
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 118
Notes to the Company Financial Statements
For the year ended 28 December 2019
1. Accounting policies
HSS Hire Group Plc (the “Company”) is a company incorporated and domiciled in the United Kingdom. The Company’s registered office is Oakland
House, 76 Talbot Road, Old Trafford, Manchester, M16 0PQ.
a) Reporting entity
HSS Hire Group Limited was incorporated on 7 January 2015 as a private company limited by shares in the United Kingdom and re-registered
as a public limited company on 19 January 2015. The Company listed its shares on the London Stock Exchange on 9 February 2015.
The Company’s principal activity is to act as ultimate holding company for a group of companies whose principal activities are the supply and hire
of equipment and associated services.
b) Statement of compliance
The Company financial statements have been prepared in accordance with Financial Reporting Standard 100 Application of Financial Reporting
Requirements (“FRS 100”) and Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”) and the Companies Act 2006.
Disclosure exemptions adopted
In preparing these financial statements the company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore these
financial statements do not include:
→ certain comparative information as otherwise required by EU endorsed IFRS
→ certain disclosures regarding the company’s capital
→ a statement of cash flows
→ the effect of future accounting standards not yet adopted
→ the disclosure of the remuneration of key management personnel
→ disclosure of related party transactions with other wholly owned members of the HSS Hire Group Plc group of companies.
In addition, and in accordance with FRS 101, further disclosure exemptions have been adopted because equivalent disclosures are included
in the company’s consolidated financial statements. These financial statements do not include certain disclosures in respect of:
→ Share based payments;
→ Financial instruments (other than certain disclosures required as a result of recording financial Instruments at fair value); or
→ Fair value measurement other than certain disclosures required as a result of recording financial instruments at fair value).
The directors have taken advantage of the option within section 390 of the Companies Act 2006 to prepare their financial statements up to a
date seven days either side of the Company’s accounting reference date of 31 December, and these accounts therefore cover the period from
30 December 2018 to 28 December 2019 (2018: 31 December 2017 to 29 December 2018).
The Company complies with the accounting policies defined in Notes 1 to 4 to the Group consolidated statements on pages 80 to 90 except as
noted below.
c) Merger reserve
The merger reserve is the amount arising on the difference between the nominal value of the shares issued on acquisition of the subsidiary companies
and the Company value of the interest in subsidiaries. The merger reserve arises where more than 90% of the shares in a subsidiary are acquired and
the consideration includes the issue of new shares by the Company, and therefore the Company adopts merger relief under the Companies Act 2006.
Investments
d)
Investments in subsidiaries are included in the statement of financial position at cost less amounts written-off, representing impairment in value.
Impairment charges are recorded if events or changes in circumstances indicate that the carrying value may not be recoverable.
As the investment in subsidiaries arose from a reorganisation of the group structure that satisfies the criteria set out in IAS 27 ‘Separate Financial
Statements’, the cost of investment has been measured as the carrying amount of its share of the equity items shown in the separate financial
statements of the original parent at the date of reorganisation.
e) Recoverability of intercompany receivables
Intercompany receivables are term loans with interest accruing at a rate considered to be the market rate of interest at the date of inception. As these
are term loans with expiry within twelve months, expected credit losses have been determined based on lifetime expected credit loss. These loans
are expected to be rolled over into future periods as they mature and as such management judgements are required in determining appropriate
alternative settlement scenarios.
Having taken into account a number of different settlement scenarios, no material expected credit loss has been identified. Changes in certain
assumptions regarding the recovery amounts under alternative settlement scenarios could result in a material expected credit loss impairment.
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 2. Investments
At 30 December 2018
Additions
At 28 December 2019
119
£000s
89,193
713
89,906
Additions comprise equity-settled share-based payment awards offered to employees in subsidiary companies.
At 28 December 2019 the Company’s subsidiaries, including those held indirectly through direct subsidiaries, are:
Company
Hampshire Topco Limited
Hampshire Midco Limited
Hampshire Bidco Limited
Hero Acquisitions Limited
HSS Hire Service Holdings Limited
HSS Hire Service Finance Limited
Bannagroe Limited
ABird Superior Limited
HSS Hire Service Group Limited
A1 Hire & Sales Limited
Laois Hire Services Limited
ABird Limited
Apex Generators Limited
HSS Financing plc
HSS Training Limited
1st Collection Services Limited
All Seasons Hire Limited
HSS Hire Limited
HSS Hire Trading Limited
Holding
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Country of
incorporation
Principal activity
Ordinary shares held
United Kingdom
Intermediate holding company
United Kingdom
Intermediate holding company
United Kingdom
Intermediate holding company
United Kingdom
Intermediate holding company
United Kingdom
Intermediate holding company
United Kingdom
Intermediate holding company
Republic of Ireland
Intermediate holding company
United Kingdom
Intermediate holding company
United Kingdom
United Kingdom
Hire and equipment services
Hire and equipment services
Republic of Ireland
Hire and equipment services
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Hire and equipment services
Hire and equipment services
Financing
Training services
United Kingdom
Administration of group debtors
United Kingdom
Hire and equipment services
United Kingdom
Intermediate holding company
United Kingdom
Dormant
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The registered office of the subsidiaries listed above is Oakland House, 76 Talbot Road, Old Trafford, Manchester, M16 0PQ, except for the following:
→ Apex Generators Ltd,125 West Regent Street, Glasgow, G2 2SA
→ Laois Hire Services Limited, Abbeyleix Road, Portlaoise, Co. Laois, Eire
→ Bannagroe Limited, Clonminam Industrial Estate, Portlaoise, Co. Laois, Eire
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 120
Notes to the Company Financial Statements continued
For the year ended 28 December 2019
3. Other receivables
Non-current
Amounts due from group undertakings
Current
Amounts due from group undertakings
Prepayments
4. Other payables: amounts falling due within one year
Amounts owed to group undertakings
Accruals and deferred income
Other creditors
28 December
2019
£000s
29 December
2018
£000s
166,839
136,924
28 December
2019
£000s
29 December
2018
£000s
–
–
–
15,383
22
15,405
28 December
2019
£000s
29 December
2018
£000s
11,120
10,987
369
–
172
1
11,489
11,160
5. Share capital
The details of the Company’s share capital are set out in note 22 to the consolidated financial statements.
6. Profit and loss account
As permitted by section 408 of the Companies Act 2006 the company has elected not to present its own profit and loss account for the year.
The auditors’ remuneration for audit and other services is disclosed in note 9 to the consolidated financial statements.
7. Related party transactions
The Company’s related party transactions are set out in note 29 to the consolidated financial statements.
8. Financial instruments
Details of the Group’s financial instruments policies are set out in note 25 to the consolidated financial statements.
9. Employee and Director costs
The Directors are the only employees of the Company. Their costs are borne by a subsidiary company HSS Hire Service Group Limited.
Details of the Director’s remuneration are set out in note 11 to the consolidated financial statements.
Financial StatementsHSS Hire Group plc Annual Report and Financial Statements 2019 Five Year Summary
For the year ended 28 December 2019
Income Statement
Revenue
Operating profit/(loss)
Net finance costs
(Loss) before tax
Tax charge/(credit)
(Loss) after tax from continuing operations
Adjusted EBITDA
Adjusted depreciation
Adjusted EBITA
Amortisation
Operating profit/(loss) excluding exceptional items
Exceptional items
Operating profit/(loss)
Assets employed
Non-current assets
Assets held for resale (net)
Inventories
Trade and other receivables
Cash
Current borrowings
Other current liabilities
Non-current borrowings
Other non-current liabilities
Net assets
Net debt
121
Year ended
28 December
2019
£000s
Year ended
29 December
2018
(restated*)
£000s
Year ended
30 December
2017
(restated*)
£000s
Year ended
31 December
2016
(restated*)
£000s
Year ended
26 December
2015
(restated*)
£000s
328,005
16,821
(22,609)
(5,788)
(436)
(6,224)
63,929
(37,396)
26,533
(5,618)
20,915
(4,094)
16,821
322,767
303,935
307,580
278,440
11,218
(20,374)
(9,156)
2,749
(6,407)
59,967
(37,883)
22,084
(5,901)
16,183
(4,965)
11,218
(79,936)
(13,152)
(93,088)
6,692
(86,396)
35,943
(42,827)
(6,884)
(6,592)
(13,476)
(66,460)
(79,936)
(10,257)
(13,678)
(23,935)
1,183
(22,752)
56,042
(43,267)
12,775
(6,190)
6,585
(16,842)
(10,257)
(542)
(19,722)
(20,264)
86
(20,178)
55,362
(42,577)
12,785
(4,927)
7,858
(8,400)
(542)
262,243
275,691
323,782
358,008
365,355
–
3,735
88,396
22,658
33,172
4,333
93,981
17,832
1,500
5,519
96,503
2,151
–
7,898
103,744
15,211
377,032
425,009
429,455
484,861
(5,355)
(74,176)
297,501
(185,729)
(32,811)
(19,304)
(82,393)
323,312
(217,630)
(35,216)
(80,892)
(88,331)
260,232
(148,347)
(39,310)
(77,448)
(85,546)
321,867
(150,478)
(18,915)
–
9,095
97,585
1,812
473,847
(58,585)
(83,334)
331,928
(153,772)
(20,693)
78,961
70,466
72,575
152,474
157,463
(179,515)
(187,975)
(223,383)
(207,616)
(204,101)
Net deverage ratio (net debt/adjusted EBITDA)
2.8x
3.1x
6.2x
3.7x
3.7x
Capital expenditure
31,403
30,040
34,513
38,185
72,047
Average number of employees
2,605
2,670
2,947
3,123
3,210
Weighted average number of ordinary shares
170,207
170,207
170,207
154,887
144,534
Per ordinary 1p share
Basic earnings, pence
Adjusted earnings, pence
* Restated due to a prior year adjustment (note 1g)
(3.66)
2.76
(3.76)
1.51
(50.76)
(10.42)
(14.69)
(0.48)
(13.96)
(0.45)
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 Forward-looking statements
This document contains certain forward-looking statements concerning
the Group’s business, financial condition, results of operations and
certain of the Group’s plans, objectives, assumptions, projections,
expectations or beliefs with respect to these items. Forward-looking
statements are sometimes, but not always, identified by their use of a
date in the future or such words as ‘anticipates’, ‘aims’, ‘due’, ‘could’,
‘may’, ‘will’, ‘should’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘potential’,
‘targets’, ‘goal’ or ‘estimates’.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the Group’s actual
financial condition, performance and results to differ materially from
the plans, goals, objectives and expectations set out in the forward-
looking statements included in this document. Accordingly, readers are
cautioned not to place undue reliance on forward-looking statements.
By their nature, forward-looking statements relate to events and
depend on circumstances that will occur in the future and are inherently
unpredictable. Such forward-looking statements should, therefore, be
considered in light of various important factors that could cause actual
results and developments to differ materially from those expressed or
implied by these forward-looking statements. These factors include,
among other things: changes in the economies and markets within which
the Group operates; changes in the regulatory regime within which the
Group operates; changes in interest and, to a lesser extent, exchange
rates; the impact of competitor pricing behaviour; the occurrence of
major operational problems; the loss of major customers; contingent
liabilities; and the impact of legal or other proceedings against, or which
otherwise affect, the Group.
No assurance can be given that the forward-looking statements in this
document will be realised; actual events or results may differ materially
as a result of risks and uncertainties facing the Group. Subject to
compliance with applicable law and regulation, the Company does not
intend to update the forward-looking statements in this document to
reflect events or circumstances after the date of this document, and
does not undertake any obligation to do so.
Financial Calendar
Annual General Meeting
11.00am, 25 June 2020
122
Shareholder Information
Annual General Meeting
The Company’s Annual General Meeting will be held at 11.00am
on 25 June 2020 at Hilton Garden Inn, Hatton Cross, TW6 2SQ.
Details of the Resolutions proposed and being voted on are provided
in the Notice of AGM provided to shareholders and available for
download at the Group website, www.hsshiregroup.com. Attendance in
person at the 2020 AGM by shareholders and directors shall be subject
to any restrictions around COVID-19, details of which shall be included
in the Notice of Meeting with any further updates to be provided via the
‘News & Resources’ section at hsshiregroup.com.
Share fraud and boiler room scams
Many companies have become aware that their shareholders have
received unsolicited phone calls or correspondence concerning
investment matters. Share scams are often run from ‘boiler rooms’
where fraudsters cold-call investors offering them worthless, overpriced
or even non-existent shares.
These operations are commonly known as ‘boiler room fraud’.
The ‘brokers’ (callers) can be very persistent and extremely persuasive.
They often have websites to support their activities, their advice and the
companies they purport to represent. It is not just novice investors that
have been duped in this way; many of the victims have been successfully
investing for several years.
Shareholders are cautioned to be very wary of any unsolicited advice,
offers to buy shares at a discount, sell your shares at a premium or offers
of free company reports.
If you are offered unsolicited investment advice, discounted shares, a
premium price for shares you own, or free company or research reports,
you should take these steps before handing over any money:
→ Record the name of the person and organisation contacting you.
→ Check the Financial Conduct Authority (FCA) Register at www.fca.
org.uk/register to ensure they are properly authorised.
→ Use the details on the FCA Register to contact the firm.
→ Call the FCA Consumer Helpline on 0800 111 6768 if there are no
contact details on the Register or you are told they are out of date.
→ If you receive telephone calls, emails, letters purporting to be
from HSS Hire Group plc or from companies endorsed by
HSS Hire Group plc and you are unsure if they are legitimate,
please contact our shareholder helpline for clarification
(0371 384 2030 or +44 (0)121 415 7047 (overseas)).
→ If the caller persists, hang up.
Please note that should you use an unauthorised firm to buy or sell
shares or other investments, you will not have access to the Financial
Ombudsman Service or Financial Services Compensation Scheme
(FSCS) if things go wrong.
If you are approached about a share scam you should tell the FCA using
the online share fraud reporting form at www.fca.org.uk/consumers/
report-scam-unauthorised-firm where you can find out about the latest
investment scams. You can also call the FCA Consumer Helpline on
0800 111 6768.
If you have already paid money to share fraudsters you should contact
Action Fraud on 0300 123 2040 or online at: www.actionfraud.police.uk
Further information on this or similar activity can be found at
www.cityoflondon.police.uk/citypolice within the Economic
Crime section.
Additional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 123
Company Information
Registered Office
HSS Hire Group plc
Oakland House
76 Talbot Road
Manchester M16 0PQ
Email: investors@hss.com
Website: www.hsshiregroup.com
Registered number: England and Wales, No. 9378067
Company Secretary
Daniel Joll
Financial Advisers and Stockbrokers
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Legal Advisers
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
Independent Auditors
BDO LLP
55 Baker St
London W1U 7EU
Bankers
HSBC Bank plc
8 Canada Square
London E14 5HQ
National Westminster Bank plc
250 Bishopsgate
London EC2M 4AA
Financial Public Relations
Teneo
5th Floor
6 More London Place
London SE1 2DA
Registrars
Equiniti Limited
Aspect House
Spencer House
Lancing
West Sussex BN99 6DA
Contact Centre:
UK: 0371 384 2030
Intl: +44 (0)121 415 7047
Insurance Brokers
Marsh Limited
1 Tower Place West
Tower Place
London EC3R 5BU
Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 124
Definitions and Glossary
The following is a list of commonly used terms in the industry or the Annual Report and Accounts.
‘2016 Code’
‘2018 Code’
‘ABird’ or ‘ABird
Power Solutions’
the Corporate Governance Code 2016
the Corporate Governance Code 2018
ABird Superior Limited and its wholly owned subsidiary, ABird Limited
‘Act’
the Companies Act 2006, as amended
‘Activ’ Shield Bar’
a safety feature developed in conjunction with manufacturer Haulotte on the Group’s platform access fleet
‘Adjusted EBITA’
EBITA adjusted to add back exceptional items
‘Adjusted EBITDA’
EBITDA adjusted to add back exceptional items
‘Adjusted EPS’
‘Admission’
measure of adjusted profitability per share. Widely recognised measure of shareholder value (profit) being generated by a business
excluding non-recurring or exceptional items and amortisation and after charging the prevailing rate of corporation tax
the admission of the shares to the premium listing segment of the Official List and to trading on the London Stock Exchange’s
main market for listed securities
‘All Seasons Hire’
All Seasons Hire Limited
‘Apex’
‘Articles’
Apex Generators Limited
the Articles of Association of the Company
‘Average revenue per
account customer’
calculated by dividing the total revenue from account customers only in a year by the simple average of the opening and closing
number of trading accounts
‘B2B’
‘bn’
‘bps’
‘BSI’
business-to-business
a billion or billions when used with a number or numbers and a currency unit e.g. £5.7bn denotes £5.7 billion pounds sterling
Basis points are a unit of measure used to describe the percentage change in the value or rate of a financial instrument.
One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form
British Standards Institute is the national standards body of the United Kingdom. BSI produces technical standards on a wide
range of products and services, and also supplies certification and standards-related services to businesses.
‘Carbon emissions
in our built
environment’
calculated as the total CO2 emissions from fuel combustion (a scope 1 emission) and purchased electricity (scope 2 emissions)
of the Group in kg CO2 divided by the total m2 of the Group’s freehold and leasehold portfolio. Calculated for the period 1 April
to 31 March in each period in accordance with the reporting timeframe required for annual CRC submissions
‘CITB’
‘colleague’
‘Company’
the Construction Industry Training Board works with industry and government in the UK to promote the development and training
of construction industry employees. CITB accredited training courses are the recognised standard in UK safety training
Directors and employees of HSS
HSS Hire Group plc
‘Core Hire Rental
Revenue’
Revenue associated only with the rental of owned assets in the core HSS business. This excludes revenues from specialist
hire businesses (Abird, Apex, All Seasons and Laois), and sales ancillary to the rental such as transport, resale etc.
‘COSHH’
Control of Substances Hazardous to Health
‘CRC Energy
Efficiency Scheme’
or ‘CRC’
a mandatory carbon emissions reduction scheme in the UK that applies to large non-energy-intensive organisations in the public
and private sectors
‘CSOP’
Company Share Option Plan
‘Customer
Distribution Centres’
or ‘CDCs’
locations across the UK from which we deliver items of our core hire equipment direct to customer sites, manage the collection
of equipment from customer sites at the end of the hire period and undertake testing and repair of larger non-specialist equipment
‘EBITA’
‘EBITDA’
‘EMT’
earnings before interest, tax and amortisation
earnings before interest, tax, depreciation and amortisation
executive management team
‘ERP system’
enterprise resource planning software used to manage the business and automate certain day-to-day processes
‘EU’
‘Exponent’
European Union
the investment funds managed by Exponent Private Equity LLP or, when otherwise indicated or where the context otherwise
requires, Exponent Private Equity LLP in its own right
‘Exponent
Shareholders’
Exponent Private Equity Partners GP II LP, Exponent Havana Co-Investment Partners GP Limited and Exponent Private Equity
Founder Partner GP II Limited
‘Group’
‘HSS’
together, HSS Hire Group plc and its direct and indirect subsidiaries
the group of companies within the HSS Hire Group
‘HSS Hire Group plc’ HSS Hire Group plc (company number 9378067) whose registered office is at Oakland House, Talbot Road, Manchester M16 0PQ
‘IFRS’
International Financial Reporting Standards, as adopted by the European Union
Additional InformationHSS Hire Group plc Annual Report and Financial Statements 2019 i
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HSS Hire Group plc Annual Report and Financial Statements 2019
125
‘initial public
offering’ or ‘IPO’
the initial public offering and admission of the ordinary share capital of HSS Hire Group plc to the premium listing segment of the
Official List of the UK Listing Authority and to trading on London Stock Exchange’s main market for listed securities under the ticker
‘HSS’ on 9 February 2015
‘Ireland’
‘IPAF’
the Republic of Ireland
International Powered Access Federation. Promotes the safe and effective use of powered access worldwide. IPAF-accredited
training courses are the recognised standard in powered mobile access
‘live account’
a customer that has transacted with the Group in the prior 12 months
‘LED’
‘LTIP’
‘LTM utilisation
– core’
‘LTM utilisation
– specialist’
‘m’
‘MEWP’
‘MTS’
light emitting diode, in this context referring to a type of lighting product which uses less energy than traditional lighting options
on the market
long-term incentive plan. A reward system designed to reward colleagues’ long-term performance either by the grant of
awards which are subject to defined performance conditions, which include Adjusted EPS and ROCE, or by the grant of
Restricted Stock
core businesses utilisation is calculated as average value of the fleet on hire divided by the total fleet value in a reporting month,
averaged over the relevant 52-week period (referred to as the last 12 months or ‘LTM’) for HSS Hire Service Group Ltd
specialist businesses utilisation is calculated as average value of the fleet on hire divided by the total fleet value in a reporting month,
averaged over the relevant 52-week period (referred to as the last 12 months or ‘LTM’) for Abird and Apex. This calculation does not
currently include data for All Seasons Hire as full LTM utilisation data is not available
a million or millions when used with a number and a currency unit e.g. £70m denotes £70 million pounds sterling
Mobile Elevating Work Platform
Mobile Traffic Solutions
‘National Distribution
and Engineering
Centre’ or ‘NDEC’
Operation opened in Cowley, Oxfordshire in March 2016 to centralise and industrialise the testing, maintenance and repair of our
fast-moving core hire fleet upon return from customer use. Once deemed fit-for-hire, equipment is moved back into the local branch
and CDC network. Activity terminated in April 2018 with the move back to branch-led processes
‘Net debt’
‘Notes’
‘NPS’
the total indebtedness of the Group including senior finance facility, Revolving Credit Facility, senior secured notes (excluding debt
issue costs), finance leases, drawings on the Revolving Credit Facility, any accrued interest on these items and any overdraft net
of any cash in the Group
6.75% senior secured notes due 2019 issued by HSS Financing plc in February 2014, fully redeemed in 2018
Net Promoter Score, a measure of willingness of customers to recommend a Company’s products or services to others
‘Official List’
the Official List of the FCA
‘PASMA’
Prefabricated Access Suppliers’ and Manufacturers’ Association Ltd. The international not-for-profit organisation for the mobile
access industry which oversees the industry standard training scheme. PASMA-accredited training courses are the recognised
standard in non-powered mobile access
‘return on assets’
or ‘ROA’
calculated as Adjusted EBITA divided by the total of average total assets (excluding intangible assets) subtracted by average
current liabilities
‘return on capital
employed’ or ‘ROCE’
calculated as Adjusted EBITA divided by average capital employed. Capital employed is total assets except intangible assets,
derivatives, and cash less current liabilities except current debt items’
‘Restricted Stock’
conditional awards of shares under the LTIP which vest subject to continued employment and the Remuneration
Committee’s assessment of overall business performance over the vesting period
‘Revolving Credit
Facility’ or ‘RCF’
Revolving credit facilities made available pursuant to either the Revolving Credit Facility Agreement (£25.0m) dated 20 June 2018
that was concluded on 11 July 2018 and which expires in 2023 or the Revolving Credit Facility Agreement (£80.0m) dated
January 2014 that was repaid on 11 July 2018
‘RIDDOR(s)’
the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995. Within our KPIs we report our RIDDOR rate,
which is calculated as: the number of RIDDOR incidents x 100,000, divided by the number of hours worked
‘ROTL’
‘RMI’
‘SHEQ’
‘TecServ’
Release on Temporary Licence, a scheme that allows those serving prison sentences and near release to leave prison during
the day to go to work
services provided in the repair, maintain and improve markets, typically to the built environment
safety, health, environment and quality
TecServ Cleaning Equipment Services Limited (formerly Premiere FCM Limited)
‘Term facility’
Senior finance facilities made available pursuant to the Senior Finance Facility Agreement entered into on 20 June 2018 that
expires in 2023
‘Trading account’
a customer account which has been active in the last 12 months
‘Training days
per colleague’
calculated as the total training days completed by Group colleagues within the year, divided by the average number of colleagues
in the Group
‘UK’
the United Kingdom of Great Britain and Northern Ireland
‘UK Platforms’
UK Platforms Limited
‘Unipart Group’
Unipart Group Limited
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Registered office
Oakland House
76 Talbot Road
Old Trafford
Manchester
M16 0PQ
www.hsshiregroup.com