Marlowe plc Annual Report and Financial Statements
for the year ended 31 March 2017
Contents
Highlights
Overview
Company timeline
Strategic Report
Chairman’s statement
Business model
Chief Executive on strategy
Investment focus
Business and market overview
Chief Executive's operational and
financial review
Investor proposition
Corporate Governance
Board of Directors
Directors’ report
Corporate governance statement
Directors’ remuneration report
Statement of Directors' responsibilities
Independent Auditor’s report
Financial Statements
Consolidated statement of comprehensive
income
Consolidated statement of changes
in equity
Consolidated statement of financial position
Consolidated statement of cash flows
Notes to the Group financial statements
Company statement of changes in equity
Company statement of financial position
Company accounting policies
Notes to the Company financial statements
Trading record, financial
calendar and further information
Officers and advisers
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Share price performance (%)
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-50
Marlowe is an AIM-listed company formed to
create sustainable shareholder value through
the acquisition and
development of
businesses in targeted
outsourced service
sectors across the UK.
Charles
Skinner
Director's
remuneration
report
36-37
Alex Dacre
Chief Executive
on Strategy
8-9
Derek O'Neill
Chairman's statement
4-5
Marlowe
AIM 100
AIM All Share
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MAM
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2015
2016
2017
It has been a very successful maiden year for Marlowe in which we have
refined a clear model and strategy to create significant shareholder
value through the acquisition and development of market-leading
service businesses. Whilst our story is still in its infancy, on the back of
nine acquisitions it is now well progressed which is evident in our strong
financial performance.
Since we launched our venture in May 2015, our market capitalisation
has grown from £3 million to over £120 million.
Key statistics
• 8 acquisitions completed in year,
1 further acquisition post year-end
• 2 operating divisions
• 800 employees
• 10,000+ customers
• 500,000+ service visits each year
• 10,000,000+ assets serviced each year
• We provide at least one service to 6% of
the UK’s 1.8m non-residential buildings
• Top 5 position in each of our sectors
Revenue
£46.8m
to 31 March 2017
Adjusted EBITDA
£4.0m
to 31 March 2017
Net Cash
£3.0m
at 31 March 2017
1
Marlowe plc
Annual Report 2017
Company timeline
A fast-emerging track record in value creation
Our model for value-creating M&A revolves around
disciplined analysis of targets, carefully planned
integration programmes and close governance of
businesses once part of our group
MAY
2015
The board came
together to form
Marlowe Holdings
Funds of £8.3m
raised to commence
acquisition search
Strategy developed
to focus on
businesses providing
critical asset
maintenance services
across the UK
Placing to raise £3m
New debt facilities
with Lloyds bank
Readmitted to AIM
as Marlowe plc
Acquisition of
Swift Fire &
Security
(see case study p.11)
Q1
2017
Marlowe plc was
incorporated on
14 January 2016.
On 30 March 2016 it
merged with Marlowe
Holdings Limited and was
admitted to trading on the
AIM Market of the London
Stock Exchange.
2
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Q2
2017
Q4
2017
Acquisition of
WCS Environmental
in April to form our Water Treatment
division: WCS was a provider of
Acquisition of
H2O Chemicals
doubling the size of our Water
Treatment division making us
Acquisition of
BBC Fire Protection
significantly expanding the scale of
the Group's Fire division, offering
integrated water treatment, hygiene,
the fifth largest provider in
synergy benefits and providing
testing and engineering services
headquartered in Gloucestershire
with around 90 employees. The
company was founded in 1987
and has a long-standing base of
customers across the UK in both
the private and public sectors,
including leisure, retail, defence and
engineering, local authorities and
NHS trusts. With the acquisitions
of Swift and WCS, we established a
presence in our initial target markets
of fire protection, security systems
and water treatment.
Acquisition of
FAFS Fire Systems
FAFS is a provider of fire protection
services based in Chessington,
Greater London. The company was
founded in 1990 and installs and
maintains fire protection systems
under contract for a broad range of
business customers in and around
the London area. FAFS benefits
from a strong base of recurring
revenues and fits well alongside Swift
in providing us with an excellent
platform for growth in the London
market.
Placing to raise £10m
the UK.
(see case study p.13)
Acquisition of
Hentland
extending our Fire Protection
activities into the South West
and developing our national
accounts business.
Acquisition of
Titan Fire and
Security
providing further critical mass in
London and the South East
Placing to raise £10m
Q3
2017
additional route density in attractive
geographical regions whilst
extending Marlowe's market position
to become one of the four largest
providers of fire protection
services in the UK.
Acquisition of
Alpha Peerless
who provide a portfolio of fire
protection services in the Greater
London area, including the
installation, service and maintenance
of fire detection and fire suppression
systems.
Q1
2018
Acquisition of
Advance Environmental
further developing our Water
division’s scale and capabilities.
3
Marlowe plc
Annual Report 2017
Chairman’s statement
For the period ended 31 March 2017
Chairman's summary of the
company's maiden year
I am pleased to report a strong maiden year for Marlowe
in 2017. The company has made significant progress
in implementing its strategy of organic and acquisitive
growth focused on regulated service markets
Financial performance
The fire & security and water treatment markets that
we entered during the year have seen robust trading
conditions, and alongside our rapid growth in these
markets we have made good progress rationalising and
improving our operational structure. The markets we
occupy are fragmented, and offer significant scope for
continued organic and acquisitive growth. We are well-
placed to continue to take advantage of this opportunity
through the model that we have developed following the
successful acquisition and integration of eight businesses
during 2017 and a further acquisition since the start of the
new financial year.
For the year to 31 March 2017, adjusted earnings before
interest, tax, depreciation, amortisation, share-based
payment charges, and acquisition and restructuring costs
were ahead of expectations at £4.0 million. Turnover was
£46.8 million. Earnings per share on an adjusted basis were
ahead of expectations at 10.4 pence.
The Company has two operating divisions, Fire & Security
and Water Treatment, both of which are focused on
providing critical asset maintenance services across
the UK built environment. Performance across both
divisions, which underwent considerable post-acquisition
reorganisation during the year, was strong. As a
consequence of completing acquisitions at different stages
during the year our results do not reflect a full year of
trading for all the entities within our current group. Our Fire
& Security division’s turnover, which includes the results
for partial ownership of six businesses that were acquired
at different stages throughout the year, was £37.8m with
an adjusted operating profit of £3.4m. Water Treatment’s
turnover, which includes the part-year results for two
acquisitions conducted at different stages during the year,
was £9.0m and adjusted operating profit was £0.8m.
Corporate transactions
The Group made eight acquisitions during the year funded
through a combination of debt, equity fundraisings and
equity issued to vendors of businesses that have since
joined the Group.
•
•
Fire & Security, Water Treatment: In April 2016, we
acquired Swift Fire and Security (“Swift”) for £13m and
WCS Environmental (“WCS”) for £1.9m in conjunction
with the admission of Marlowe to AIM
Fire & Security: In May, we acquired FAFS Fire
(“FAFS”) for £2.5m
• Water Treatment: In September, we acquired H2O
•
•
•
Chemicals (“H2O”) for £2.5m
Fire & Security: In October, we acquired Hentland
Group (“Hentland”) for £4.7m
Fire & Security: In November, we acquired Titan Fire
& Security (“Titan”) for £0.8m
Fire & Security: In February 2017 we acquired BBC
Fire Protection (“BBC”) for £8.3m and Alpha Peerless
("Alpha") for £0.6m
Since the year-end, we have made one further acquisition:
• Water Treatment: In June we acquired Advance
Environmental for £2.7m.
4
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Derek O’Neill
Chairman
Funding
Net cash at the year-end was £3.0 million.
In April we increased our current debt facility with Lloyds
Bank by an additional £5 million to £18.0 million. The
increased debt facility will provide further resources to
support the Company's acquisition-led growth strategy.
In the past year we have benefited from significant support
from existing shareholders and new institutional investors
and have raised £23m through equity placings during the
year. We have significant resources available for further
acquisitions and we feel confident in our ability to continue
to attract further funding and investment to execute our
growth strategy.
Board
Nigel Jackson, one of the founders and Managing Director
of Swift Fire and Security, joined the Board as an Executive
Director following its acquisition in April 2016.
of change when new people have joined the Group, has
been impressive. The businesses that are in the Group
deliver services that are provided by people. As we strive
to build our businesses into market leaders we are relying
on these people to continue to demonstrate the drive,
expertise and passion that has been evident over the past
financial year. I thank all our people for their contribution to
our first year of strong performance.
Outlook
The integration of our nine acquisitions is proceeding to
plan and we have identified a well-developed pipeline of
attractive opportunities to add further scale to Marlowe
as we continue to implement our strategy of building a
leading UK support services group in complementary areas
of critical asset maintenance. The current year's trading has
started in line with our expectations and we look forward to
making further progress during the year.
People
Since the first acquisition in April 2016 the Group has
rapidly developed in scale, geography and technical
breadth. We now employ over 800 people, over half
of whom are highly skilled engineers. The continued
dedication of all the teams across Marlowe, during periods
Derek O’Neill
Chairman
28 June 2017
5
Marlowe plc
Annual Report 2017
Business model
Marlowe’s model for creating shareholder value
The combination of fast-paced acquisition activity
and our organic investment enables us to deliver
impressive growth which outpaces that of our
competitors and the market
"We generate organic growth by increasing levels
of investment in people, improved operational
practices supported by technology and through
taking advantage of our complementary customer
bases across the Group to cross-sell services.
Organic growth, the raising of equity from
shareholders along with the conservative use of
leverage, generates the resources we need to fund
acquisitions to accelerate our growth and to enter
adjacent service sectors." Alex Dacre, Chief Executive
ACQUIRE
ENHANCE
in strategically complementary
service sectors
through investment and
improvement
ACCELERATE
through organic investment
and bolt-on acquisitions
INTEGRATE
to bring about efficiencies and
build a national infrastructure
COLLABORATE
to realise strategic synergies
across the Marlowe Group
6
6
DEEP INDUSTRY
KNOWLEDGE
Identify fragmented
target sectors which
fit with the Marlowe
investment criteria
We identify good sectors with
long-term growth drivers where
businesses provide services which
are largely non-discretionary,
essential and regulated – services
we refer to as critical. These growth
drivers ensure that the need for our
services is perpetual and sustained
throughout economic cycles. We
select sectors in which the margins
are attractive and sustainable – and
can be enhanced through scale and
operational efficiency.
We select markets which are
fragmented and in which we
recognise growing barriers to
entry which lay the foundations for
consolidation. We select service
markets which are made up of
businesses that are well suited to
support growth, over and above the
long-term organic revenue growth
rate, through acquisition and
subsequent integration.
The sectors of focus are areas in
which the Marlowe Directors have
a significant amount of quoted
company experience and possess
records of generating significant
returns for their shareholders
through acquisition-led growth.
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
EXPERTISE IN
MARKET
CONSOLIDATION
Our M&A team then scrutinise
the leading private businesses
within these sectors, along with
a large number of smaller bolt-
on opportunities. This process
not only tests and qualifies our
assumptions about the sector's
characteristics but also enables
us to develops a deep pipeline of
potential acquisition opportunities
which we are well prepared to
execute at a fast pace.
AGILE DECISION
MAKING AND
ENTREPENEURIAL
AUTONOMY
When we have decided to enter a
market, we conduct an acquisition
of a platform business, with a
strong market share, run by an
entrepeneurial management team
in which we perceive the potential
for significant growth as part of
Marlowe. We usually include equity
in these types of transactions
which aligns the interests of our
management teams closely with
our shareholders and locks-in our
key leaders. In a similar vein, all the
founders and Directors of Marlowe
have invested in a significant
shareholding in the company.
Our decentralised organisational
structure gives our businesses
considerable management
autonomy within a well-defined
strategic and control framework.
Our model seeks to retain the
agility of entrepeneurial private
businesses whilst unlocking their
potential and stewarding their rapid
growth as part of Marlowe, ensuring
that all the key stakeholders are
focused on value creation.
OPERATIONAL
AND FINANCIAL
IMPROVEMENTS
Whilst we fundamentally believe
in empowering our management
teams, Marlowe is not a passive
investor in the businesses it
acquires. The Marlowe team have
a very close relationship with each
acquired business and work closely
together to develop long-term
strategic plans, as well as having
regular input on restructuring
decisions, capital expenditure and
working capital management.
Once part of Marlowe, we work
with management teams to make
operational improvements to
their businesses and to change
strategic focus. We invest in
people, operational systems and
technological improvements
all with the aim of improving
standards of service, which
in turn generates increased
organic growth. We aim to take
advantage of scale and operational
improvements to enhance margins.
We implement high standards of
governance and financial systems
and controls with the aim of
improving visibility, identifying
and nurturing our most profitable
workstreams and improving
operating cash generation.
ACQUISITION-LED
GROWTH
We then create further value
through using our resources to
accelerate the growth of acquired
businesses through targeted bolt-
on acquisitions, often to develop
further geographical reach and
critical mass. Potential acquisition
targets include the type of
businesses which might be below
the radar of both large corporations
and private equity houses. We
are experts in quickly identifying,
negotiating and executing
these types of deals. Through
adding further scale we create
opportunities for our integration
teams to realise the synergies
between acquired businesses and
to implement further operational
improvements.
COLLABORATION
WITHIN OUR GROUP
We favour entering sectors
which share a similar channel to
market. This creates competitive
advantages because businesses
in our group share a similar
customer base within which all
of our services are sometimes
procured by the same person, we
are able to accelerate our organic
growth rate through ensuring
that customer relationships are
shared across different Marlowe
businesses, enabling cross-selling
of services across the Group.
Entering markets which share
a similar route to the customer
also ensures that we develop
a close understanding of our
customers needs and equips us
well to deliver services to address
those needs.
We favour sectors which have,
or might benefit from, similar
operational methodologies. This
enables us to apply many of the
same improvement techniques
that we have employed in other
areas of our Group to drive
organic growth.
BUILD BUSINESS
INTO A TOP-3
PLAYER IN ITS
MARKET
We only enter markets if
we can see a clear path to
developing a market leading
position within that market in
the UK.
7
Marlowe plc
Annual Report 2017
Chief Executive on strategy
For the period ended 31 March 2017
Building a strong platform for
sustainable growth
In our first year of trading as Marlowe plc we are pleased
to report a strong financial performance and a year
of significant strategic progress in establishing and
developing the scale and breadth of the Group’s activities
The company made very good progress during the year
delivering a strong trading performance, significant M&A
activity and investment in operational improvements. We
have executed our strategy at a fast pace throughout the
year, more than doubling our run rate revenues and profits
since our first acquisition.
We formed Marlowe in May 2015 as a platform to
create shareholder value through the acquisition and
development of businesses in targeted outsourced
service sectors across the UK. Attracted to the increasing
barriers to entry that we perceived, and the regulation that
drives its growth, we decided, initially, to enter the Fire
& Security market. We acquired Swift Fire & Security in
April 2016. Since then, we have begun to implement our
strategy of building a leading UK support services group
in complementary areas of critical asset maintenance. We
completed seven further acquisitions during 2017 and
completed a further deal following the year-end. We have
established two operating divisions: Fire & Security and
Water Treatment and are quickly becoming a part of the UK
business-to-business service landscape. Our decentralised
structure allows each division operational autonomy. Each
has its own management team and operational expertise,
within a clearly delineated strategic framework.
The service sectors that we occupy are complementary to
one another and all the businesses in our Group provide
services which safeguard people and assets, maintain
systems at optimised efficiency and ensure compliance
with regulation (and all are at least partially necessitated
by mandatory regulation). Additionally, all the services
that we provide as a group share a similar channel to
market, customer base and route-based operational
methodologies.
Our model is based on identifying areas for the Group to
operate in which demonstrate certain investment criteria,
acquiring a platform business within that area, enhancing
and improving the operations of that platform and then
accelerating its growth through further, targeted, bolt-on
acquisitions to build and integrate a national infrastructure.
Finally, we look to take advantage of opportunities for the
businesses within our group to realise strategic synergies
through collaboration with one another.
As a Group, we only enter a market if we can see a path to
becoming a top-three player in that market and during the
year we have built a top-five market position in both Fire &
Security and Water Treatment. In line with our strategy, we
have developed true national coverage of mainland Britain
in each of our sectors which, along with our specific focus
on the UK market (in sectors in which our large competitors
tend to be divisions of US multinationals) and our ability to
provide a range of technical and regulated services through
the same channel, we perceive as a significant competitive
advantage in winning business against our regional, single-
service competitors.
Each of the service sectors that we currently occupy share
operational characteristics which are complementary. Our
services are primarily route-based and technical. Each
8
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Alex Dacre
Chief Executive
of our operating divisions now benefit from a lower-cost
shared support function providing efficient administration
with regional service, sales and scheduling hubs
throughout the UK. Our engineers are typically field-based
and live close to the areas that they service. Operating in
sectors which can benefit from complementary operational
methods allows us to apply similar improvement
techniques across the Group. Our continued focus on the
reduction of overheads and investment in operational
efficiency offers the potential for significant margin
enhancement.
As a Group we are developing a track record of sourcing,
acquiring, integrating and developing businesses providing
critical asset maintenance services across the UK and our
strategy is now focused on three main areas:
•
continuing to build the scale of our activities in Fire
& Security and Water Treatment through continued
investment in organic growth, cross-selling across
the customer bases of the two divisions and through
further fast-paced acquisition activity;
•
•
enhancing and improving the operations of each of
our route-based operating divisions: during the year,
our base of fee-earning engineers and technicians
has grown rapidly and operational efficiencies,
reorganisation and the synergies between acquired
businesses have led to our ratio of fee-earners to
sales and support staff improving from approximately
52% to approximately 61%. We expect this key
ratio to continue to improve as we benefit from the
investments the Group is making in operational
efficiency and shared support functions and as we
conduct further acquisitions. We are focused on
margin enhancement which can be influenced through
engineer utilisation and productivity and is directly
influenced by route density such that increased scale,
when employed appropriately, results in more rapid
response-times and service and improved profitability;
broadening the Group’s activities through further
targeted strategic acquisitions in complementary
sectors to which we can then apply the Marlowe
acquisition-based growth model.
Marlowe’s defensive market qualities, organic growth
momentum and potential to acquire new businesses strongly
position us to continue to create shareholder value
9
Marlowe plc
Annual Report 2017
Investment focus
We decide to enter markets based on specific investment
criteria that we have developed:
!
CRITICAL
SERVICES
Sectors we focus on are made up of businesses providing services which
are essential or mandatory and in which demand is at least partially driven
by regulation or legislation – we refer to these as Critical Services.
RECURRING
REVENUES
We focus on businesses that demonstrate annuity-type recurring revenues
which allows for attractive forward earnings visibility.
OPERATIONAL
COMPLEXITY
We focus on businesses which provide services which are operationally
complex to deliver, are technically specialist and could benefit from
investment in areas such as technology to enhance the provision of those
services.
STRATEGIC
FIT
We focus on sectors which fit well together as part of our group and those
in which businesses share a channel to market along with complementary
operational methodologies to our existing businesses.
NATIONAL
COVERAGE
We favour services which lend themselves to both scale, in the form of
route densities, and those in which national coverage can be a competitive
advantage in winning business.
LONG
RELATIONSHIPS
We focus on businesses that provide services to longstanding customers
who rarely change providers because it is either impractical to do so or
because the services provided are so critical, that the switching costs can
be considerable.
TREND
TOWARDS
OUTSOURCING
We like services in which customers invariably prefer to outsource rather
than conduct in-house because of their specialist and technical nature, the
levels of regulatory compliance which govern them, the need for service
providers to adhere to stringent industry standards and the efficiency which
can result from outsourcing.
FRAGMENTED
MARKETS
We focus purely on markets which are fragmented in which we see the
potential for a quickly executed industry consolidation.
10
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Acquisition case study
Swift Fire & Security
!
One of the UK’s leading national fire protection and
security systems service providers
• The deal was funded through a combination of
existing resources, new equity raised through
an oversubscribed placing and £3.5m of equity
issued to the vendor
• Swift offers an integrated solution for fire and
security systems and the business is categorised
into three main divisions:
Service: recurring planned and preventative
maintenance of fire and security systems,
associated remedial and small installation work
and non-scheduled call out maintenance work;
the business enjoys long-standing relationships
with blue-chip customers which include national
high street retailers, universities, banks, well-
known hotel chains, local authorities, large NHS
hospitals and facilities management companies;
Systems: installation of a broad range of fire and
security systems; and
Monitoring: contracted fire, security and
CCTV monitoring services and remote systems
diagnostics.
• Approximately 57 per cent of Swift's revenues
are derived from recurring service or monitoring
contracts.
11
• We acquired Swift for approximately £13m in
April 2016.
• One of the UK's leading national fire protection
and security systems service providers with
revenues of approximately £21m and adjusted
EBITDA of approximately £1.8m in the year prior
to our acquisition.
Marlowe plc
Annual Report 2017
Business and market overview
Marlowe Critical Services
The businesses in our Group provide services which safe-
guard people and assets, maintain systems at optimised
efficiency and ensure compliance with regulation
Marlowe’s portfolio of businesses provide critical asset
maintenance services in the UK. Our businesses deliver
mandatory maintenance, installation and engineering
services to assets and systems within a customer’s place of
business which are essential to their ability to operate in
a manner which keeps their employees and members of
the public safe and enables both business continuity and
systems efficiency. Pertinently, these services also ensure
that customers are compliant with regulation and the law.
Our services are provided to commercial properties across
the UK. Commercial property includes office blocks, shops
and other high street businesses, leisure facilities, industrial
buildings, warehouses, factories, airports, and other types
of building, such as cinemas, gyms, hotels, car parks and
the like.
We are currently focused on fire protection, security
systems and water treatment services - which are essential
to our customers' operations and invariably governed by
regulation, and where customers require a single specialist
outsourced provider with nationwide coverage.
The critical services that we provide, and those that the
group might consider providing in future, benefit from
resilient growth drivers. These growth drivers include
increasing health and safety regulation and standards,
insurance requirements, increasing concern surrounding
reputational risk, population growth, urbanisation and the
requirement that complex systems at customers sites have
for ongoing maintenance and improvement.
The areas in which we operate are complementary: Fire
Protection & Fire Safety Compliance, Security Systems
and Water Treatment are all services which are governed
by strict regulation and tend to be procured by the same
person or department within an organisation.
In many cases, the systems we maintain are designed
to keep people safe from very real threats and their
maintenance isn’t only critical, but is also mandatory. Our
customers have a steady demand for our services, largely
unrelated to the economic cycle.
All Marlowe’s businesses operate nationally and are
represented by around 500 highly trained field based
service engineers and technicians in nearly every post-
code across the UK and a team of 280 support, sales and
account management staff.
~£50m
Revenues
Acquisition
Pipeline
FIRE
DIVISION
POTENTIAL
NEW SECTOR
WATER
DIVISION
~£14m
Revenues
Acquisition
Pipeline
6
Acquisitions
550
Employees
230
Employees
3
Acquisitions
12
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Case study
Acquisition of H2O Chemicals
Delivering shareholder value and building market share
through targeted strategic acquisitions
We acquired H2O in September 2016. Founded
in 1992 and headquartered in Leeds, the business
was a provider of water treatment and hygiene
services employing 84 staff from 3 offices across
the UK.
The business operated nationally with a strong
presence in the Midlands and Yorkshire and a
base of more than 600 customers in a range
of sectors including industrial, leisure, food
production, higher education and healthcare
delivering a portfolio of services complementary
to those offered by WCS, which Marlowe
acquired in April 2016.
The acquisition doubled the size of the Water
Division, offered synergy benefits and significantly
accelerated progress towards our key strategic
objective of providing national coverage in each
of our sectors. The location of WCS and H2O’s
engineers (see map) was highly complementary.
Integration with WCS is now complete and the
merged businesses have rebranded to become
WCS Group.
H2O Chemicals key strengths
Top 20 customers
<50%
of revenue
Largest customer
6.2%
of revenue
Long customer relationships – 9 year average
relationship across top 10 customers
H2O
WCS
13
Marlowe plc
Annual Report 2017
Business and market overview continued
Route density - a mass of customers in close proximity -
is a significant advantage for us as we grow and benefit
from our scale. It results in improved standards and speed
of service for our large, geographically spread customers
which smaller competitors struggle to compete with
Day and night our engineers are at
customer’s sites maintaining systems that
keep buildings functioning efficiently and
safely. We develop and equip our people
with the best skills and tools to offer
excellent service. We possess the technical
expertise to install complex Fire, Security
and Water systems and to ensure that those
systems are always working as they are
intended to, are complying with legislation
and are functioning at optimum efficiency.
Our services are business-critical and our
responsibility, in many cases, is not just
to keep our customers systems, and their
businesses, operating effectively but also
to keep them safe from very real health and
safety threats.
Fire protection market focus
The UK fire protection market is worth an estimated
£1.8 billion. The market is fragmented with over
800 operators. The diminishing role of public
authorities in UK public services has resulted in fire
safety increasingly becoming the responsibility of
the private sector. As such, laws and regulations
continue to be tightened. The Regulatory Reform
(Fire Safety) Order 2005 (‘‘FSO’’) came into effect
in October 2006 and replaced over 70 sets of fire
safety regulations. The FSO applies to all non-
domestic premises in England and Wales and
places the responsibility on individuals within an
organisation to carry out risk assessments and
maintenance regimes to identify, manage and
reduce the risk of fire. The potential exists for
prosecution for individuals and companies failing to
comply. Regulatory and legislative requirements
of this nature, for essential periodic
maintenance, lead to recurring revenues
which provide an attractive level of
earnings visibility.
14 14 14
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Our businesses, which operate nationally with a strong
regional presence, are distinct from one another and
our management teams have the freedom to operate
and to innovate in response to customer feedback
Fire &
security
75%of total
revenue
Water
25%of total
revenue
Ever-increasing health
and safety awareness
helps drive our growth.
Growing concern
around safety results
in stricter legislation
and places more onus
on organisations to
ensure the safety of
their employees and
customers
Swift Fire and Security
WCS Group
2
1
2
BBC Fire Protection
3
1
2
1
FAFS Fire Systems
2
1
2
5
4
Hentland Group
Marlowe plc
15
15
15
Marlowe plc
Annual Report 2017
Business and market overview - Marlowe Critical Services continued
Fire protection
Security systems
Water treatment
16
What we do
Our fire safety activities revolve around the service and
maintenance of a very wide variety of systems that protect
people from the threat of fire. We provide maintenance
and installation services to over 8,000 customers across
the UK. Each engineer will typically service 4 complex
fire & security systems every day. We also provide fire risk
assessments and install, remediate or upgrade a diverse
range of fire protection measures including fire alarms,
fire sprinklers and suppression systems. The majority of
our revenues derive from long term or repeat customer
contracts.
What we do
Our security activities centre on the provision of service
and maintenance for security systems including intruder
alarms, closed circuit television cameras, complex access
control systems and remote monitoring. We provide CCTV
and alarm monitoring and a remote systems diagnostics
capability from our own purpose built alarm receiving
and monitoring centre which operates round the clock
in Warrington.
A typical security service contract will run for three years
with a two-year extension providing the business with good
earnings visibility although a relationship can last much
longer. The service contract entitles our businesses to the
What we do
Every day we help manufacturers, commercial businesses,
public organisations, institutions, facilities management
and maintenance firms look for better ways to perform
strategic, non-core processes managing water, hygiene and
compliance. We deliver bespoke solutions that are safe,
maintain clean environments, optimise water and energy
use and improve operational efficiency.
We help customers more effectively manage water systems
(heating and cooling), procure and manage chemicals and
to clean and maintain critical plant and equipment. We
ensure clean, safe water, fresh air and exacting hygiene. Our
services extend the life of assets. We enhance operational
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Key services:
Fire protection: fire alarms, fire extinguishers, fire risk
assessments, fire suppression and emergency lighting.
The regulation:
Current national building regulations require that fire
detection and fire alarm systems are installed in many
buildings at the time of construction. In addition, legislation
requires that, where necessary to safeguard relevant
persons in case of fire, existing premises are equipped with
appropriate fire detection and fire alarm systems. These
systems require ongoing recurring periodic maintenance.
Failure to demonstrate that compliant and regular testing
and maintenance of fire protection equipment has been
conducted by a competent person can lead to enforcement
and potentially prosecution. Each year over 40,000 fires
occur in non-domestic buildings and over 69,000 fires in
dwelling premises resulting in over 600 deaths each year as
a result of fire. Insurance claims related to fires are in excess
of £1.1 billion each year.
exclusive right to provide maintenance services and
sets out the scheduled maintenance programme for the
duration of the contract term.
Our ability to provide customers with fire, security and
monitoring services gives us a significant competitive
advantage in developing new business relationships with
customers who prefer to source services from a single
provider.
Services:
Security systems: CCTV, intruder alarms, gates, barriers,
access control.
Off-site monitoring: intruder alarm and CCTV monitoring,
remote diagnostics and keyholding.
The regulation:
In the security systems market, The National Police Chiefs’
Council (‘‘NPCC’’) of England, Wales and Northern Ireland
dictate that the police will only respond to a remotely
monitored security system in cases where businesses
are compliant with the NPCC Requirements for Security
Systems. Businesses must comply with the NPCC Policy
on Police Response to Security Systems in addition to
a recognised standard or code of practice controlling
manufacture, installation, maintenance and operation (any
systems installed after June 2012 must conform to PD6662:
201 and BS 8243).
efficiency. We help customers manage Legionella risk,
conserve energy, reduce water use and maximise safety
responsibly and predictably with measurable results.
Services:
• Design, build, monitor and maintain water systems
• Audit and test systems
• Chemical management services
• Operational improvement engineering
• Training and ACOP L8 compliance
• Engineering support for planned and major scheduled
maintenance and improvement for critical systems and
water treatment
The regulation:
We ensure exacting BS 2486, BG 50, HSG 274 part 1
and ACoP L8 compliance and control improvements
for customers in aerospace and defence, energy, food,
healthcare, hospitality, industrial markets and the public
sector – managing and logging performance for over
80,000 assets each year.
Health & Safety Act 1974, LS (ACOP) 2001, Control of
Substances Hazardous to Health Regulations 2002 and
Water Supply Regulations 1999 ensure that organisations
have a legal duty to prepare and manage a scheme for
maintaining safe water quality (and provide a framework of
actions designed to assess, prevent or control the risk from
bacteria such as Legionella and take suitable precautions).
17
Marlowe plc
Annual Report 2017
Chief Executive's operational and financial review
Our model for value-creating M&A revolves around
disciplined analysis of targets, carefully planned
integration programmes and close governance of
businesses once part of our group
Key performance figures
Revenue
2017
Revenue
2016
Adjusted*
Operating
Profit
2017
Adjusted*
Operating
Profit
2016
Fire & Security
£37.8m
Water Treatment
£9.0m
Head Office costs
-
Total
£46.8m
-
-
-
-
£3.4m
£0.8m
(£0.7m)
£3.5m
-
-
-
-
* Before amortisation of intangible assets, share based payments, and
acquisition and restructuring costs.
These are the key results from the ongoing businesses
which are included in the fuller statement set out under
'Profit Before Tax' below.
Fire & Security division
Our Fire & Security division comprises three main activities
focused on the maintenance of fire and security systems:
installation and recurring maintenance of systems designed
to detect fire and to protect people from the threat of
fire; the provision of services related to installing and
maintaining electronic security systems; 24/7 monitoring
and remote-diagnostic services for alarms and CCTV from a
purpose-built Alarm Receiving Centre (‘ARC’).
The bulk of our revenues are derived from contracted
maintenance, with planned service visits, which are typically
arranged months in advance alongside reactive repairs.
The installation work that we conduct is, for the most part,
carried out for existing service customers, or with the view
to converting a systems installation into a long-term service
relationship.
During the year we conducted six earnings enhancing
acquisitions in Fire & Security and have established a
top-four market position, operating nationally from seven
sites across the UK. The business employs about 550
people, 60% of whom are technically skilled technicians
and engineers. We provide services to a very broad range
of customers, ranging from the Royal Estates, for which
we hold the Royal Warrant, and the Bank of England, to
national retailers, universities, local authorities, leisure
facilities and industry throughout the UK. During a year we
carry out about 390,000 scheduled service visits, many of
which will result in necessary additional work at the time
of service, or on a return visit. Operational efficiency and
high standards of service are closely linked in the provision
of fire & security services: Through ensuring that engineers
have the appropriate training and the correct stock we
focus closely on our ability to remediate faults at the first
service visit rather than making return visits to customer
sites. This results in improved productivity, profitability
and service levels which helps us to retain customers who
value the critical services we provide. As a business, if our
engineers are spending more productive time at customers
sites completing more service work, standards of service
and compliance at our customers sites will improve. The
most efficient means of generating organic growth in our
specialist service markets comes through delivering best-in
class service levels which lead to customer referrals. We try
to allow our engineers the autonomy to spend sufficient
time at each service visit to provide - and in some cases to
upsell - all the required services alongside ensuring that
our routes are planned in such a way that an engineer can
spend more time at customers sites improving standards of
compliance and less unprofitable time travelling between
service visits.
Trading and operations
Trading in Fire & Security was strong with adjusted
operating profits of £3.4 million and revenues of
£37.8 million.
Our base of recurring service revenues, which mainly
comprise contracted planned preventative maintenance
visits to customer sites, grew strongly with the addition
of some key national accounts comfortably outweighing
customer attrition. A key component of our growth strategy
in Fire & Security is to use our now well-established national
coverage to grow our national accounts portfolio whilst
taking advantage of our proximity to regional customers,
through our regional presence, to maintain the growth of
our SME customers – the rate of which was strong during
the year. Our scale now ensures that our Group possesses
the appropriate technical capabilities, supplier relationships
and accreditations to service our customers’ requirements –
some of whom will only procure from service providers who
meet very high quality standards or have relationships with
specific suppliers.
18
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
1
Marl-X
The businesses in our Group offer
a complementary range of services
and the majority of our customers
will have a need for more than one of
the services that the Group provides.
We have developed a customer
relationship management portal to
identify additional services to sell
to our existing customers which the
whole Group has access to.
Houses of Parliament
2
We protect our country’s politicians
from water borne threats and keep
their water systems operating
efficiently.
3
One-Stop Stores
Our 8 year long partnership with
Tesco’s 850 One-Stop Convenience
stores has seen us develop ‘the store
of the future’ incorporating Fire
Protection, CCTV, Intruder Alarms,
off-site monitoring, Smoke Cloak and
asset protection innovations.
4
Bourne Leisure
Bourne Leisure is one of the largest
providers of holidays homes in the
UK. They (Haven, Butlins and Warner
Leisure Hotels) operate leisure
assets on 6,500 acres and over 4
million families stay at one of their
parks, resorts or hotels every year.
We protect all of Bourne Leisure’s
property assets and their visitors
from the threat of fire.
Insight
5
To improve compliance at customers
sites and to enable real-time visibility
of data we have developed a client
portal to give customers instant
access to their compliance data
across large and diverse property
portfolios.
6
Legionella Control
Every day we test hundreds of
samples of water at some of the
UK’s leading hospitals for traces of
legionella, pseudomonas or other
potentially life-threatening bacteria.
Our hospitals trust us to the extent
that we often sit on their Water
Safety boards to provide expert
advice.
19
Marlowe plc
Annual Report 2017
Chief Executive's operational and financial review continued
Over the last year our main focus has been on the
integration of the six acquisitions that were completed
in the year. The integrations are well-progressed and the
business is now operating as four main brands, each under
the Marlowe Critical Services banner.
A new Fire & Security division Finance Director joined
the business during the year, in line with our strategy
to implement improved financial systems and controls
following each acquisition.
We have completed the reorganisation of the Swift and
Hentland businesses resulting in cost-savings in line with
expectations at the time of each acquisition. Following the
Alpha Peerless and Titan acquisitions we closed two offices
and were able to reduce back office headcount in line with
expectations. The operations of these businesses were
transferred into our London hub which was formed through
the FAFS acquisition. All the businesses within the division
now operate from the same improved operating systems
which is resulting in improved efficiency and visibility.
The rate at which we successfully resolve an issue during
the first service visit and the number of service visits that
an engineer carries out per day are rising, as is, crucially,
the average revenue that each engineer is generating per
day. Utilisation, which is a measure of the time an engineer
spends at customers sites as a percentage of their total
working hours, has improved during the year.
Our Alarm Receiving Centre (ARC), which became
operational at the start of the year, improved its profitability
as the year has progressed and the number of monitored
alarms increases as we transition connections from the
outsourced partners who were previously fulfilling this
service and as the centre benefits from its increasing scale
and growth. The cost base of the ARC is largely fixed such
that further scale is anticipated to enhance profitability.
Our operating margin across the division was 9.0%.
Between January and April of 2017, our ratio of fee
earners to sales and support staff rose from 52% to
approximately 61%
We expect this key ratio to continue to improve as
we conduct more acquisitions and benefit from the
investments the group is making in operational efficiency
20
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Engineers
Evolution of engineers with each acquisition
Our engineers schedules allow them adequate time to
spend at customers sites to ensure compliance.
We aim to remediate faults on the first service visit.
This keeps systems operational and compliant whilst
improving engineer productivity
The maps below
demonstrate how with each
acquisition we make, and as the Group
continues to grow organically, the number
of engineers in the Group grows too.
As a result, we grow closer in proximity to our customers.
We can improve service levels and become more efficient.
Swift and WCS
Hentland, H2O, FAFS & Titan
Alpha Peerless, BBC and
Advance Environmental
21
Marlowe plc
Annual Report 2017
Chief Executive's operational and financial review continued
Our pipeline of M&A opportunities going into the new
financial year is particularly strong
Water Treatment division
Our Water Treatment division delivers services mainly
related to maintaining and optimising water systems to:
manage safety from the risk of water borne diseases;
improve operational efficiency and conserve energy;
provide engineering and installation services to water
systems, with a focus on converting these projects into
long-term recurring service relationships.
During the year we conducted two earnings enhancing
acquisitions in Water Treatment, with a further deal
completed post year-end, and have established a top-five
market position operating nationally from six sites across
the UK. The business employs about 220 people, 62% of
whom are technically skilled technicians and engineers.
Like our Fire & Security activities we provide services to a
diverse base of 970 customers, ranging from the Houses
of Parliament to large manufacturing sites, chains of
hotels, hospitals, care facilities, universities and leisure
facilities. During a year we carry out about 237,000 service
visits, some of which will lead to further opportunities
to engineer and upgrade water systems. Much like our
Fire & Security activities, critical mass and route density
can lead to increased efficiency in the provision of water
services. The market remains highly fragmented, but the
advantages of route density on a national scale, along with
the increasing need to adhere to very high standards of
quality and possess appropriate accreditations continues
to put pressure on the smaller independent players and
we view this as representing a significant opportunity for
the Group to continue to consolidate this market through
further acquisitions.
Trading and operations
Water Treatment traded well, turnover was £9.0 million and
adjusted operating profit was £0.8 million.
Our base of recurring service revenues demonstrated
good organic growth with key successes in developing
our portfolio of large healthcare customers. During the
year we have implemented a proprietary system, called
Marl-X, which enables each business within the Group to
have access to each other’s customer relationships in order
to identify cross-selling opportunities. Water Treatment
experienced good growth during the year as a result of
cross-selling from Fire & Security customers.
The integration of the two acquisitions conducted during
the year is nearly complete and the businesses now
operate as WCS Group under the Marlowe Critical Services
banner. Cost savings as a result of the merger have been
in line with our expectations at the time of acquisition.
Following the H2O acquisition three offices were vacated
and the merged businesses within the division now operate
from newly implemented operational systems leading
to significantly enhanced efficiency levels. As in Fire &
Security, a new Finance Director joined the division towards
the end of the year with a close focus on cost-control.
Post year-end we completed the acquisition of Advance
Environmental in June. Integration of the business into our
national infrastructure has commenced, which we expect to
generate further operational benefits.
Our operating margin across the division was 9.3%.
Head office costs
Head office costs, excluding amortisation, share based
payments and restructuring and acquisition costs were
£0.7 million.
Profit before tax
Adjusted profit before tax for the year ended 31 March
2017 was £3.3 million.
Acquisition and other costs of £2.6 million (2016:
£0.1 million) include £1.1 million (2016: £0.1 million) of
restructuring and redundancy costs. During the year, most of
the costs relating to the rationalisation of Swift, WCS, FAFS,
H2O Chemicals, Hentland, Titan and Alpha Peerless were
incurred. This primarily consisted of redundancy payments,
double-running costs of roles which were scheduled for
redundancy and double-running costs of properties prior
to rationalisation. The majority of these costs are incurred
in the 12 months following an acquisition. Typically, the
restructuring and redundancy costs incurred equate to
approximately the anticipated annualised cost saving.
Amortisation of intangible assets for the year was
£0.6 million (2016: £Nil) with the increase attributable to the
higher carrying value of intangible assets.
Due to the one-off nature of acquisition and other costs
and the non-cash element of certain charges, the Directors
believe that an adjusted measure of profit before tax and
earnings per share provides shareholders with a more
appropriate representation of the underlying earnings
derived from the Group's business.
22
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
To arrive at adjusted profit before tax the following
adjustments have been made:
Continuing operations
Restructuring and redundancy costs have increased to
£1.1 million in 2016. As noted above these primarily relate
to the acquisitions conducted during the year and include:
Profit before tax
Share based payments charge
Acquisition costs
Amortisation of intangible assets
Restructuring costs
Adjusted profit before tax -
continuing operations
2017
£’m
0.7
0.3
0.6
0.6
1.1
3.3
2016
£’m
(0.1)
-
-
-
0.1
-
•
•
•
•
The cost of duplicated staff roles during the integration
and restructuring period.
The redundancy cost of implementing the post
completion staff structures.
IT costs associated with the wind down of duplicated.
IT systems and the transfer across to the destination
systems.
Property costs associated with sites which are
identified at the point of acquisition as being
superfluous to ongoing requirements and where
a credible exit strategy is clear to management.
Reconciliation of Adjusted Operating Profit and
Adjusted EBITDA
Adjusted Operating profit
Depreciation
Adjusted EBITDA
Earnings Per Share (EPS)
Basic adjusted earnings per share
Basic earnings per share
2017
£’m
2016
£’m
3.5
0.5
4.0
-
-
-
2017
pence
10.4
1.1
2016
pence
-
-
Basic adjusted earnings per share are calculated as
adjusted profit for the year less standard tax charge divided
by the weighted average number of shares in issue in the
year. Basic earnings per share reflect the actual tax charge.
Acquisition and Other Costs
Acquisition costs
Amortisation of intangible assets
Restructuring costs
Share based payments charge
Total
2017
£’m
2016
£’m
0.6
0.6
1.1
0.3
2.6
-
-
0.1
-
0.1
As mentioned above, the integration of acquisitions remains
the key component of acquisition and other costs. In the
year, the Group undertook the bulk of the restructuring on
Swift, WCS, FAFS, H2O, Hentland, Titan and Alpha Peerless.
Transaction costs include stamp duty costs in addition to
the cost of legal and professional fees incurred as part of
the acquisitions.
Interest
Net finance costs amounted to £0.2 million (2016: £Nil)
which reflects the increased average levels of debt as a
result of acquisitions.
Taxation
UK Corporation Tax is calculated at 20% (2016: 20%) of
the estimated assessable profit/(loss) for the year. The UK
Corporation Tax rate remained at 20% throughout the year.
The rate will reduce to 19% on 1 April 2017 falling further
to 17% on 1 April 2020; accordingly, these rate reductions
have been reflected in the deferred tax balance which
forms part of the statement of financial position.
Statement of financial position
Net assets increased to £35.0 million (2016: £7.5 million)
primarily due to the eight acquisitions and the placing of
shares. Goodwill and intangibles at 31 March 2017 were
£26.6 million (2016: £Nil).
Property, plant and equipment totalled £2.6 million
(2016: £Nil), comprising the freehold property in Norwich
and Newcastle, operational equipment, vehicles and
computer systems.
Cash flow
The net cash inflow from operating activities increased
to £1.4 million (2016: £Nil).
Net working capital usage in the year was £0.8 million
which included, working capital requirements for Swift
and Hentland acquisitions. The structure of both these
transactions was such that the consideration paid was
reduced by the estimated amount of working capital
required post completion.
Capital expenditure totalled £0.4 million (2016: £Nil)
following the investment in our IT systems across the
business and in the mobilisation of our Alarm
Receiving Centre.
23
Marlowe plc
Annual Report 2017
Chief Executive's operational and financial review continued
Synergies can be achieved, post-acquisition, through
effective integration, the benefits of scale, increased
geographical footprint, cost-control and effectively
managed cross-selling structures and systems
Net cash
Net cash at the end of the year was £3.0 million
(2016: £10.6 million). Facilities at the end of the period
totalled £12.5 million, comprising £10 million of term
loans and a £2.5 million revolving credit facility. Scheduled
repayments total £3.30 million against the term loans
before a final settlement payment of £1.50 million in 2019.
The Group has sufficient headroom on its facilities at the
end of the period to continue to fund acquisitions as part
of its strategy should it choose to do so with debt.
Liquidity
The Group is likely to require additional funds in future
to finance its operations and the acquisition of other
businesses. Debt financing secured by the Group in the
future could involve restrictive covenants relating to its
capital raising activities and other financial and operational
matters, which may make it more difficult to obtain
additional capital and to pursue business opportunities.
The Group closely monitors the funding it has available to
it and is conservative in its use of debt.
On the 27 April 2017 the Company increased its term loan
facility by an additional £5.0 million.
Key Performance Indicators (‘KPIs’)
The Group uses many different KPI’s at an operational level
which are specific to the business and provide information
to management. At an executive level, a selection of
operational KPIs, which allow a relevant and robust
review of operational performance, are considered with
operational management on a monthly basis. The
board also relies on KPIs that focus on the financial
performance of the Group such as revenue, gross profit
and operating profit.
The non-financial indicators that are regularly monitored
are customer satisfaction and retention as well as staff
turnover ratios, especially the turnover of skilled engineers.
Customer attrition rates are low, as the business has strong
and long-term relationships. The Group has a strong team
of experienced and dedicated staff and staff turnover rates
are low.
Risks specific to the Group, its business and
the industry in which it operates
Dependence on key personnel
Attracting, training, retaining and motivating technical and
managerial personnel is important to the Group. Retention
measures are in place to attract, retain and incentivise
personnel to mitigate such a risk.
Loss of key customers
The Group has relationships with over 5,000 customers of
which about 100 are significant relationships. The loss of
relationships with customers could have a negative effect
on performance. Attrition rates in the Group are low and
relationships are strong. Our largest customers represent
a relatively low percentage of our revenues.
24
Compliance with regulations and changes in legislation
The markets in which the Group operates are subject to
a range of environmental, health and safety laws. The
Group is very aware of the regulatory requirements and
certifications needed to operate and this is given the
highest importance within the organisation.
Failure of information systems
The Group’s ability to maintain financial controls and
provide a high quality service to its customers depends,
in part, on the efficient and uninterrupted operation of its
management information systems, including its computer
systems. All our systems are backed up off site and we have
robust disaster recovery measures in place.
Reputational damage from failure of fire installation and
security services
Failure of any of the Group’s fire or security systems or
maintenance services could expose the Company to
reputational damage, should any of its clients experience
fire or security related incidences. We mitigate this risk
through auditing the standard of the service we deliver on
a daily basis.
The strategic report on pages 4 to 29 has been approved
by the Board and signed on its behalf by
Derek O’Neill
Chairman
28 June 2017
Alex Dacre
Chief Executive
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Case study
Leonardo Helicopters
!
We are long standing partners to one of the leading
aerospace, defence and security providers
in the UK
We maintain cooling towers and provide process
line and copper plate line support to ensure
Leonardo’s manufacturing processes are operating
at optimised efficiency. This is a highly regulated
COMAH process involving extreme noxious
substances such as cyanide, chrome, cadmium and
various solvents.
Our team are highly qualified and have HSE
COMAH passport qualifications. We manage
Leonardo’s onsite Occupational Health Safety and
Environment employing a Statutory Inspection
Team. The team carries out all water hygiene
works (legionella testing etc), effluent discharge
monitoring, cooling tower treatment and testing,
steam boiler treatment and testing, LEV testing and
water meter readings.
The Health and Safety Team also consists of health
and safety advisors, specialist administrators and
one fire risk assessor. They control all health and
safety aspects on site. Our Occupational Health
team consists of nurses, a physio, a part time doctor,
nursing technicians and medical administrators.
Our team carries out all return to work checks, staff
wellbeing, minor injuries, testing of flight crews and
testing of staff involved with COMAH processes
where noxious substances are used.
25
We have worked with Leonardo Helicopters in
Yeovil for 28 years. We provide engineering services
through a team of 8 specialist engineers.
Our team delivers all water plant and local exhaust
ventilation maintenance and breakdown callouts.
Marlowe plc
Annual Report 2017
Investor proposition
Customer diversification
Robust markets with steady
growth prospects
Bank of England
For the Bank of England we designed, supplied and
commissioned large integrated systems which we
maintain on an ongoing basis. All the systems are open
protocol using networked Kentec Syncro control panels
with guide graphics user interfaces and operating with
Apollo Discovery detection. The annunciation uses
Baldwin Boxall voice alarm systems. Our engineers must
have special security clearance to access sites and must
adhere to extremely high standards.
The Group has relationships with over 10,000 customers
of which about 500 are key national accounts. Whilst
we have specialisms in many industry verticals, we
aren’t dependent upon any and we service customers
across the entire spectrum of the built-environment.
Our customers can be found on most high streets, in
office complexes and industrial estates, and include
SMEs, local authorities, leisure facilities, manufacturers
& industry, facilities management providers, property
agents, multi-site NHS trusts and FTSE 100 companies.
We estimate that we provide at least one service to 6%
of the UK’s 1.8 million non-residential buildings.
Travelodge
For over 7 years WCS has partnered with Travelodge
Hotels providing services to their 515 hotels around
the UK. We deliver a broad range of services related
to water safety and water system optimisation: we
carry out Legionella risk assessments, conduct regular
tank cleans, monitor thermostatic valves and quickly
remediate any issues that need resolving across all their
sites. Travelodge has 20 new hotels planned this year
which we will service. As our customers grow, we grow
with them. We have the ability to accelerate organic
growth and upsell service offerings.
We operate in noncyclical, specialised markets.
In the service markets we operate in demand is largely
non-discretionary and our services, to a significant
degree, are not threatened by changes in trends or the
economy. Demand for our services is underpinned by
long-term growth drivers including health and safety
regulation and population growth. Whilst technology,
which we embrace across the Group, can enhance the
services we provide, it will not threaten the requirement
for the services that we provide. Since 2000, the value
of the UK’s commercial property stock has grown
by an average of 3.7% each year, compared to RPI
inflation of 2.8%. Each of our markets grows at about
5% per annum as new buildings are built in the UK and
standards of compliance and health and safety improve
and continue to be increasingly enforced.
26
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Long and valuable customer
relationships, annuity-type
recurring revenues and good
visibility of earnings
Growth through value enhancing
M&A, integration & collaboration
Hentland
Our geographically targeted acquisition of Hentland
Group, the Bodmin headquartered national provider of
Fire & Security, for £7.6m, was completed in October
2016. Since the acquisition, our integration team has
been focused on enhancing the businesses IT and
operating infrastructure to enable integration into our
Fire & Security Division. The integration of the business
is now complete.
The acquisition has:
• significantly expanded the scale of the Group's Fire
division, offered synergy benefits and provided
additional critical mass and route density in
geographical regions that are attractive to our
strategy;
• materially increased the customer base and recurring
revenues of our fire activities, with the addition of
large blue-chip organisations to which the Group can
cross-sell other services
Royal Warrant
For over 20 years BBC Fire Protection has protected the
Queen and the Royal Family from the threat of fire. We
are proud to be holders of the Royal Warrant.
Our businesses carry out in the region of half a million
planned preventative maintenance site visits and
maintain millions of assets at those sites each year.
Typically, these site visits are planned many months in
advance and recur between 1 and 4 times per year.
At each service visit, we identify whether systems are
working correctly, safely and efficiently. If remediation
is required, we carry out this work as well. If a system
breaks down, we respond immediately to fix the
problem or replace the system.
Our average customer relationship length across the
Group is over 7 years. The services we provide are so
important to our customers that the costs of switching
service providers can be undesirable. The services we
provide in the main are highly technical and critical
to the safe functioning of our customers businesses.
The services we provide are not a commodity, and the
standards of the service we deliver can differentiate
us from our competition whilst ensuring that we enjoy
high customer retention rates. The complexity and
specialism of the services that we deliver results in our
customers relying on us as trusted outsourced
service partners.
27
Marlowe plc
Annual Report 2017
Investor proposition continued
Operational improvements
and innovation
National coverage and
growing barriers to entry
Utilisation of engineers
We are experts in route-based services and we look to
continually improve engineer utilisation & productivity.
Our businesses rely on skilled and technical engineers
to provide critical services to our customers. We invest
in our people to ensure that they possess the correct
training, tools and expertise to provide expert services.
We look to improve compliance at our customers
sites and to enhance the productivity of our engineers
through correctly managing stock and ensuring the
engineer equipped with the most appropriate expertise
is sent to each service visit. We implement sophisticated
route planning to improve response times and ensure
that we spend less time travelling between jobs and
spend more profitable time delivering services at
customers sites.
Through effective research and development we
have invested in the latest technology to deliver our
services to the highest standards. We have developed
proprietary CRM platforms to drive cross-selling
between our sales teams and to provide real-time and
useful analytics and compliance data to our customers
and engineers. This data continually improves the
delivery of our services and ensures high standards of
compliance. We are continually innovating the service
that we are delivering to customers: WCS now provides
remote technology to continually monitor water systems
remotely. We invest in technology to improve back
office processes, such as developing the efficiency
of purchasing through the use of OCR technology to
intelligently interpret thousands of purchase invoices.
Boots
Since 2012 we have provided a broad range of Fire
Protection services to all 2,700 boots stores in the UK.
We have to be wherever our customers are. Our Group
has 11 strategically located hubs around the UK and
engineers based across the UK able to access every
postcode in the UK rapidly. We are one of a handful
of service providers that can provide true national
coverage in all the service sectors we operate in. Our
customers procurement processes are becoming
increasingly sophisticated such that they are looking to
consolidate their supplier base to work with strategic
national partners who possess a national footprint, such
as ourselves, rather than numerous regional providers
who are unable to operate nationally effectively.
We occupy markets which have growing barriers to
entry: For instance, our customers continue to require
higher and more transparent standards of service,
compliance and response times, which our smaller
competitors find very difficult to deliver on any sort
of scale. Our customers demand well-invested and
complex operating systems in order to comply with
higher regulatory standards and customer demands;
The economies of scale that we are beginning to enjoy
through large volume relationships with suppliers,
along with the significant advantages presented by
increased route density (the proximity of our customers
to one another) as a result of increased scale, make our
services more cost-effective to our customers and more
profitable to deliver.
28
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Case study
Cambridge University
!
We provide the following maintenance services;
• Fire detection
• Refuge alarms
• Gaseous suppression
• Voice alarm
• Evacuation chairs
• Smoke dampers
• Smoke and fire doors
• Fire shutters
• Dry risers
• Sprinkler systems and associated pumps
• Fire extinguishers and blankets
• Private hydrants
• Emergency lighting
The numbers are impressive with over
206 individual fire alarm systems, 7000
extinguishers and 20,000 emergency
lights.
The contract has a dedicated team of
5 permanent engineers.
As a group, we have significant contracts with
approximately 10% of the UK’s universities.
29
The Cambridge University Estate comprises 276
buildings ranging in size and occupancy – all
of which we provide services for. These include
academic departments, libraries, the Fitzwilliam
Museum and student accommodation blocks.
Marlowe plc
Annual Report 2017
Board of Directors
as at 31 March 2017
The Company is led by a Board of Directors
who bring strong track records in value
creation and years of experience in running
large quoted and private businesses in the
support services sector
1 Alex Dacre has a background in the quoted business-
to-business services sector and an expertise in executing
buy-and-build growth strategies. Prior to forming
Marlowe, he directed Impellam Group plc’s corporate
development activities, completing a number of
significant acquisitions including the transformational
£73m acquisition of Lorien Resourcing, a UK market
leader in technology recruitment with £350m in
revenues. During an 18 month period of acquisitions,
Impellam saw its market capitalisation more than
double to over £400m and it became the UK’s second
largest temporary staffing business. Prior to this, he
worked with Charles Skinner to turn around AIM-listed
Restore plc into one of the UK’s leading office services
companies and a leading consolidator in the document
management and commercial relocation sectors.
2 Derek O’Neill was Chief Executive and a majority
shareholder of Lorien Resourcing, a £350m revenue
market leader in technology recruitment, until its recent
sale to Impellam Group plc. He has previously been on
the Board of two listed companies including Deltron
Electronics plc. He spent 12 years as an executive
director of a number of private equity backed businesses
and also as an executive director in a diverse range
of sectors, including house building, electronics,
engineering, telecommunications, logistics and
recruitment. He is currently a non-executive director of
Impellam.
3 Peter Gaze was recently the Chief Financial Officer
and a Director of BCB Holdings Limited and of Waterloo
Investment Holdings Limited. Peter was an executive
at ADT Group plc during its expansion in the UK and
US, in the period leading up to its acquisition by Tyco
International for £3.7 billion in 1997. He chairs the Audit
Committee.
4 Nigel Jackson was appointed to the Board on
1st April 2016 following the acquisition of Swift. He has
a background in developing support service businesses
and has operated in the service sector since 1980.
Nigel qualified as a chartered accountant in 1978 whilst
working for PricewaterhouseCoopers. He co-founded
Swift in 1982 and for the last 10 years, as Managing
Director, has spearheaded its growth into one of the
leading independent businesses in the sector during
a period which has seen consistent growth in revenue
and profit. Prior to running Swift, Nigel ran his own
accountancy practice, Jacksons Chartered Accountants,
from 1985 to 2005 before it was sold to the other
partners. He is a director of a number of other private
businesses.
5 Charles Skinner is Chief Executive of Restore plc,
the AIM-listed provider of office services. Under his
leadership its market capitalisation has grown from
£1m to around £500m today. He was previously Chief
Executive of Johnson Services Group plc and Brandon
Hire plc, prior to which he was at SG Warburg, 3i plc and
was Editor of Management Today. Charles has 20 years’
experience as Chief Executive of quoted companies, all
operating in the business to business service sector. He
chairs the Remuneration Committee.
30
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
1
Alex Dacre
Chief Executive
3
Peter Gaze
Non-Executive Director
2
Derek O’Neill
Chairman
4
Nigel Jackson
Executive Director and
Managing Director of Swift
5
Charles Skinner
Non-Executive Director
31
Marlowe plc
Annual Report 2017
Directors’ report
The Directors submit their report and the financial statements of Marlowe plc
for the year ended 31 March 2017
Derek O’Neill, Chairman (left)
Charles Skinner, Non executive director (right)
Marlowe plc is a public limited company quoted on AIM,
incorporated and domiciled in the United Kingdom where
the vast majority of trading occurs.
Results
The profit before tax for the year ended 31 March 2017 was
£0.7m (2016: (£0.1m)).
Directors
The following Directors have held office during the year:
Derek O’Neill
Alex Dacre
Nigel Jackson
Charles Skinner
Peter Gaze
(Chairman)
(Chief Executive)
(Director)
(Non-Executive Director)
(Non-Executive Director)
Dividends
The Company has not declared any dividends in respect of
the current or prior period.
Directors’ remuneration, long-term executive plans, pension
contributions and benefits are set out in the Directors’
remuneration report on pages 36 to 37.
Principal activities
The principal activities of the Group during the year were
the provision of Fire & Security and Water Treatment
services.
Business review and future developments
This is dealt with in the Strategic report on pages 4 to 29.
The Company maintains liability insurance for its Directors
and Officers.
Share capital
Full details of the authorised and issued share capital of the
Company are set out in note to the financial statements.
32
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Substantial shareholdings
At 31 March 2017 the Company had been notified of
the following interest amounting to 3% or more of the
Company’s issued share capital:
Lord Ashcroft
Alex Dacre
Nigel Jackson
BlackRock Investment
Management (UK)
Hargreave Hale
Milton Asset
Management Limited
Number of 50p
ordinary shares
11,877,361
3,503,334
3,500,000
1,110,699
974,133
Percentage of
issued share
capital
38.42%
11.33%
11.32%
3.59%
3.15%
938,000
3.03%
Employees
The Group’s people are its most important asset. Our policy
is to employ the best people irrespective of race, gender,
nationality, disability or sexual orientation. Consultation
with employees or their representatives occurs at all levels,
with the aim of ensuring their views are taken into account
when decisions are made that are likely to affect their
interests.
Disabled employees
Applications for employment by disabled persons are given
full and fair consideration for all vacancies, having regard
to their particular aptitudes and abilities. In the event of
an employee becoming disabled, every effort is made to
retain them in order that their employment with the Group
may continue. It is the policy of the Group that training,
career development and promotion opportunities should
be available to all employees.
Environmental policy
Maintaining and improving the quality of the environment
in which we live is an important concern for the Group,
our staff, customers, suppliers, sub-contractors and
communities. We have adopted high standards of
environmental practices and aim to minimise our impact on
the environment wherever this is practical. In particular, we
comply with, and endeavour to exceed the requirements of
all laws and regulations relating to the environment.
Health and safety
The Group recognises the importance of maintaining high
standards of health and safety for everyone working within
our business and also for anyone who may be affected
by our business. Health and safety is a particular concern
to our customers. Consequently, both of our operating
segments have appointed Health and Safety Officers. The
Group’s operations report to the Board on a monthly basis
includes a section on all health and safety matters.
Financial risk management
Information in respect of the financial risk management
objectives and policies of the Group, is contained in note 3.
Political and charitable donations
Donations of £10,000 were made by the Group for
charitable purposes during the year (2016: £Nil). The Group
does not make political donations.
Statement as to disclosure of information to
auditors
The Directors in office on 28 June 2017 have confirmed
that, as far as they are aware, there is no relevant audit
information of which the auditor is unaware. Each of the
Directors have confirmed that they have taken all steps
that they ought to have taken as Directors in order to make
themselves aware of any relevant audit information and to
establish that it has been communicated to the auditor.
Annual general meeting
The notice of the Annual General Meeting to be held on
19 September 2017 is enclosed with this Annual Report.
Post balance sheet events
Details of post balance sheet events are given in note 32 of
the financial statements.
Derek O’Neill
Chairman
28 June 2017
33
Marlowe plc
Annual Report 2017
Corporate governance statement
for the year ended 31 March 2017
The policy of the Board is to manage the affairs of the
Company having regard to guidance issued by the
Quoted Company Alliance.
The Directors support the principles underlying these
requirements insofar as is appropriate for a group of the
size of Marlowe plc.
All Directors participate in the key areas of decision-making,
including the appointment of new directors. There is no
separate Nomination Committee due to the current size
of the Board. The Board receives timely information on all
material aspects of the Group to enable it to discharge
its duties.
The Board of Directors
The Group is led and controlled by the Board comprising
three Executive Directors and two Non-Executive Directors.
Directors’ remuneration
The Company has an established Remuneration
Committee.
Board meetings are held on a regular basis and no
significant decision is made other than by the Directors.
Details of the remuneration of each Director are set out in
the Remuneration report on pages 36 to 37.
Executive Directors
Alex Dacre
Derek O’Neill
Nigel Jackson
Non-Executive Directors
Charles Skinner
Peter Gaze
Number of Board meetings
attended during the year
ended 31 March 2017
Total: 8
Number of Audit
Committee meetings
attended during the year
ended
31 March 2017
Total: 3
Number of Remuneration
Committee meetings
attended during the year
ended
31 March 2017
Total: 1
8
8
8
8
8
2
3
-
3
3
-
1
-
1
1
The Executive Directors are not members of the Audit Committee or Remuneration Committee but may attend the
meetings as a guest of the Chair of the committee.
34
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Accountability and audit
The Company has established an Audit Committee
comprising the Chairman and Non-Executive Directors
who are responsible for reviewing the scope and results of
the audit, its cost effectiveness and the independence and
objectivity of the auditor.
Management structure – the Board meets regularly to
discuss all issues affecting the Group.
Investment appraisal – the Group has a clearly defined
framework for investment appraisal and approval is
required by the Board where appropriate.
Relations with shareholders
The Chief Executive and the Chairman are the Company’s
principal contact for investors, fund managers, the press
and other interested parties. At the Annual General
Meeting, investors are given the opportunity to question
the entire Board.
Internal control
The Board acknowledges its responsibility for establishing
and monitoring the Group’s systems of internal control.
Although no system of internal control can provide
absolute assurance against material mis-statement or loss,
the Group’s systems are designed to provide the Directors
with reasonable assurance that problems are identified on a
timely basis and dealt with appropriately.
The key procedures that have been established and which
are designed to provide effective control are as follows:
The Board regularly reviews the effectiveness of the
systems of internal control and considers the major
business risks and the control environment.
The Board considers that, in light of the control
environment described above, there is no current
requirement for a separate internal audit function. The
Board will continue to review the need to put in place an
internal audit function.
Going concern
As more fully explained in note 2, having made appropriate
enquiries and having examined the major areas which
could affect the Group’s financial position, the Directors
are satisfied that the Group has adequate resources to
continue in operation for the foreseeable future.
35
Marlowe plc
Annual Report 2017
Directors’ remuneration report
for the year ended 31 March 2017
Charles Skinner
Chairman of the Remuneration
Committee
Remuneration Committee
The Company has an established remuneration committee
consisting of the Chairman and the Non-Executive
Directors. The Chairman and Non-Executive Directors are
responsible for the consideration and approval of the terms
of service, remuneration, bonuses, share-based incentives
and other benefits of the Executive Directors. All decisions
made are after giving due consideration to the size and
nature of the business and the importance of retaining and
motivating management. The committee meets at least
once a year and at other times as appropriate.
Directors’ Contracts and Letters of
Appointment
The Company’s policy on Executive Directors’ service
contracts is that, in line with the best practice provisions
of the UK Corporate Governance code, they are to be
terminable by the Company on 6 months notice.
Executive Directors
Alex Dacre
Derek O’Neill
Nigel Jackson
Date of Contract
Notice Period
29 February 2016
6 months
29 February 2016
6 months
1 April 2016
6 months
The Non-Executive Directors do not have service contracts
but have letters of appointment.
Date of letter
Notice Period
Non-Executive Directors
Charles Skinner
29 February 2016
1 month
Peter Gaze
29 February 2016
1 month
36
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Directors’ Emoluments
The aggregate emoluments of the Directors of the Company were:
Executive Directors
Alex Dacre
Derek O’Neill
Nigel Jackson
Non-Executive Directors
Charles Skinner
Peter Gaze
Total
2017
£’000
100
30
84
-
35
249
Salary & Fees
2016
£’000
2017
£’000
Benefits
2016
£’000
Pension costs
2017
£’000
2016
£’000
2017
£’000
Total
2016
£’000
-
-
-
-
-
-
-
1
16
-
-
17
-
-
-
-
-
-
-
-
26
-
-
26
-
-
-
-
-
-
100
31
126
-
35
292
-
-
-
-
-
-
The £30,000 (2016: £Nil) paid regarding Derek O'Neill is paid directly to Signature Quality Refurbished Homes Limited for
the provision of his services as Chairman.
The £35,000 (2016: £Nil) paid regarding Peter Gaze is paid directly to Anne Street Partners Limited for the provision of his
services as a Non-Executive Director.
Directors’ Interest in Shares
The beneficial interests of the Directors who were in office
at 31 March 2017 in the shares of the Company (including
family interests) were as follows:
Marlowe Executive Incentive Plan
The Company has an Executive Investment Plan (EIP),
details which are given in note 27. The Directors’ interest
in the EIP are as follows:
Number of ordinary
shares of 50p each
31 March 2017
Number of ordinary
shares of 50p each
31 March 2016
Number of
performance units
31 March 2017
Number of
performance units
31 March 2016
Alex Dacre
Derek O’Neill
Nigel Jackson
Charles Skinner
Peter Gaze
3,503,334
3,333,333
Alex Dacre
828,432
416,667
Derek O’Neill
3,500,000
467,156
600,925
-
Nigel Jackson
333,333
Charles Skinner
218,625
5,460
1,820
900
1,183
-
-
-
-
By order of the Board
Charles Skinner
Chairman of the Remuneration Committee
37
Marlowe plc
Annual Report 2017
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic
report and the Directors’ report and the financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and
Company financial statements for each financial year. The
Directors are required by the AIM Rules of the London
Stock Exchange to prepare Group financial statements in
accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU) and have
elected under company law to prepare the Company
financial statements also in accordance with IFRS.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group’s and the Company’s transactions and disclose
with reasonable accuracy at any time the financial position
of the Group and the
Company and enable them to ensure that the financial
statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the
Group and the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The Group financial statements are required by law and
IFRS adopted by the EU to present fairly the financial
position and performance of the Group; the Companies
Act 2006 provides in relation to such financial statements
that references in the relevant part of that Act to financial
statements giving a true and fair view are references to their
achieving a fair presentation.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Marlowe plc website (www.marloweplc.com).
Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
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
the Company and of the profit or loss of the Group for
that period.
In preparing each of the Group and Company 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;
for the Group and Company financial statements, state
whether they have been prepared in accordance with
IFRS adopted by
the EU; and
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and the Company will continue in business.
38
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Independent Auditors’ report
to the Members of Marlowe Plc
We have audited the financial statements of Marlowe plc
for the year ended 31 March 2017 which comprise the
consolidated and parent company statement of financial
position, the consolidated statement of comprehensive
income, the consolidated statement of cash flows, the
consolidated and parent company statement of changes
in equity and the related notes. 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
United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
This report is made solely to the company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the company’s members
those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors and
auditor
As explained more fully in the Directors’ Responsibilities
Statement set out on page 38, the directors are responsible
for the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial
statements is provided on the Financial Reporting Council's
website at www.frc.org.uk/auditscopeukprivate.
•
•
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
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
•
•
the information given in the Strategic Report and
Directors' Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
the Strategic Report and Directors' Report has
been prepared in accordance with applicable legal
requirements.
Matter on which we are required to report
under the Companies Act 2006
In the light of the knowledge and understanding of the
company and its environment obtained in the course of the
audit, we have not identified material misstatements in the
Strategic Report and Directors' Report.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
•
•
•
adequate accounting records have not been kept by
the parent company, or returns adequate for our audit
have not been received from branches not visited by
us; or
the parent company financial statements are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified
by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Opinion on financial statements
In our opinion
•
•
the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs
as at 31 March 2017 and of the group's profit for the
year then ended;
the group financial statements have been properly
Marc Summers, FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
28 June 2017
39
Marlowe plc
Annual Report 2017
Consolidated statement of comprehensive income
For the year ended 31 March 2017
Year ended 31 March 2017
Period ended 31 March 2016
Adjusted
results
£’m
Acquisition &
other costs
£’m
Unadjusted
results
£’m
Adjusted
results
£’m
Acquisition &
other costs
£’m
Unadjusted
results
£’m
Notes
4
6
5
12
30
30
27
6
7
8
Revenue
Cost of sales
Gross profit
Administrative expenses excluding
acquisition and other costs
Acquisition costs
Restructuring costs
Amortisation of acquisition
intangibles
Gain on merger of Marlowe
Holdings Limited
Impairment of Marlowe Holdings
Limited
Share-based payments
Operating profit
Finance costs
Profit before tax
Income tax credit/(charge)
Profit for the year
Other comprehensive income
Profit and total comprehensive
income for the year from
continuing operations
Attributable to owners of the
parent
Earnings per share attributable to
owners of the parent (pence)
9
Total
Basic
Diluted
Continuing operations
Basic
Diluted
40
46.8
(30.2)
16.6
(13.1)
-
-
-
-
-
-
3.5
(0.2)
3.3
-
-
-
-
(0.6)
(1.1)
46.8
(30.2)
16.6
(13.1)
(0.6)
(1.1)
(0.6)
(0.6)
-
-
(0.3)
(2.6)
-
(2.6)
-
-
(0.3)
0.9
(0.2)
0.7
(0.4)
0.3
-
0.3
0.3
1.1p
1.1p
1.1p
1.1p
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.1)
(0.1)
-
-
7.6
7.6
(7.6)
-
(0.1)
-
(0.1)
(7.6)
-
(0.1)
-
(0.1)
-
(0.1)
-
(0.1)
(0.1)
(0.9p)
(0.9p)
(0.9p)
(0.9p)
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Consolidated statement of changes in equity
For the year ended 31 March 2017
Balance at 14 January 2016
Loss for the period
Total comprehensive income for the year
Transactions with owners
Issue of shares during the year
Liquidation of Marlowe Holdings Limited
Balance at 31 March 2016
Balance at 1 April 2016
Profit for the year
Total comprehensive income for the year
Transactions with owners
Issue of shares during the year
Issue costs
Share-based payments charge
Balance at 31 March 2017
Attributable to owners of the parent
Share capital
£’m
Merger relief
reserve
£’m
Share
premium
£’m
Other
reserves
£’m
Retained
earnings
£’m
Total equity
£’m
-
-
-
7.3
-
7.3
7.3
7.3
-
-
8.2
-
-
8.2
15.5
-
-
-
0.3
(0.3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19.2
(0.5)
-
18.7
18.7
-
-
-
-
-
-
-
-
-
-
-
-
0.3
0.3
0.3
-
(0.1)
(0.1)
-
0.3
0.3
0.2
0.2
0.3
0.3
-
-
-
-
0.5
-
(0.1)
(0.1)
7.6
-
7.6
7.5
7.5
0.3
0.3
27.4
(0.5)
0.3
27.2
35.0
41
Marlowe plc
Annual Report 2017
Consolidated statement of financial position
As at 31 March 2017
Company registered no. 05169780
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Financial liabilities – borrowings
Other financial liabilities
Current tax liabilities
Provisions
Subscription received in advance
Non-current liabilities
Financial liabilities – borrowings
Deferred tax liability
Other financial liabilities
Total liabilities
Net assets
EQUITY
Share capital
Share premium account
Other reserves
Retained earnings
Equity attributable to the owners of the parent
Note
12
13
20
14
15
19
16
17
18
17
20
18
21
22
23
24
2017
£’m
26.6
2.6
0.2
29.4
1.8
16.5
7.8
26.1
55.5
2016
£’m
-
-
-
-
-
-
10.6
10.6
10.6
(13.1)
(0.1)
(1.1)
(1.1)
(0.2)
(0.1)
-
(15.6)
(3.7)
(1.0)
(0.2)
(4.9)
(20.5)
35.0
15.5
18.7
0.3
0.5
35.0
-
-
-
-
(3.0)
(3.1)
-
-
-
-
(3.1)
7.5
7.3
-
-
0.2
7.5
These financial statements were approved by the Board of Directors and authorised for issue on 28 June 2017 and were
signed on its behalf by:
Derek O'Neill
Chairman
Alex Dacre
Chief Executive
42
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Consolidated statement of cash flows
For the year ended 31 March 2017
Net cash generated from operations
Net finance costs
Income taxes paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Cash received on acquisition of Marlowe Holdings Limited
Purchase of subsidiary undertakings,
net of cash acquired
Cash flows used in investing activities
Cash flows from financing activities
Proceeds from share issues
Repayment of bank borrowings
New bank loans raised
Cost of share issues
Finance lease repayments
Other financing activities
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
Cash and cash equivalents shown above comprise:
Cash at bank
Note
25
30
11
19
Year ended
31 March
2017
£’m
Period ended
31 March
2016
£’m
2.1
(0.2)
(0.5)
1.4
(0.4)
0.1
-
(23.3)
(23.6)
20.0
(6.7)
6.5
(0.5)
(0.2)
0.3
19.4
(2.8)
10.6
7.8
7.8
-
-
-
-
-
-
10.6
-
10.6
-
-
-
-
-
-
-
10.6
-
10.6
10.6
43
Marlowe plc
Annual Report 2017
Notes to the Group financial statements
For the year ended 31 March 2017
1. GENERAL INFORMATION
Marlowe plc (the "Company") and its subsidiaries (together referred to as the "Group") specifically focus on critical asset
maintenance services. The Group primarily operates in the UK. The Company is a public limited company incorporated on
14 January 2016 and domiciled in the United Kingdom. The address of its registered office is 20 Grosvenor Place, London,
SW1X 7JN.
On 30 March 2016, in accordance with the provision of Part VII of the Business Companies Act 1990 of Belize (the "IBCA")
Marlowe Holdings Limited merged with Marlowe plc so that Marlowe plc became the surviving company resulting from the
merger and all rights and obligations as Marlowe Holdings Limited vested with the company.
The Company is listed on the AIM market.
These Group consolidated financial statements were authorised for issue by the Board of Directors on 28 June 2017.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements of Marlowe plc have been prepared in accordance with EU endorsed International
Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting
under IFRS.
The financial statements have been prepared on a historical cost basis although derivatives are reflected at their fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed later in this note.
The consolidated financial statements are presented in pounds sterling and, unless stated otherwise, shown in pounds
million to one decimal place.
Prior period numbers are for the period 14 January to 31 March 2016.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance, financial
position, its cash flows, liquidity position, principal risks and uncertainties affecting the business are set out in the Strategic
report on pages 4 to 29.
The Group meets its day-to-day working capital requirements through its financing facilities which are due to expire in April
2020. Details of the Group’s borrowing facilities are given in note 19 of the financial statements.
The Group’s budgets for 2018 and forecasts for 2019, taking account of reasonably possible changes in trading performance,
show that the Group should be able to operate within the level of its current facility.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for
the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial
statements.
Basis of consolidation
The Consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries) made up to 31 March each year. Control is achieved where the Company has the power to govern
the financial and operating policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the Consolidated statement of
comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.
44
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
2. SIGNIFICANT ACCOUNTING POLICIES - Basis of consolidation continued
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into
line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of
an acquisition is measured as the fair value of the assets given, equity instruments issued, contingent consideration and
liabilities incurred or assumed at the date of exchange. Costs directly attributable to the acquisition are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially
measured at fair value at the acquisition date. Provisional fair values are adjusted against goodwill if additional information is
obtained within one year of the acquisition date about facts or circumstances existing at the acquisition date. Other changes
in provisional fair values are recognised through profit or loss.
Contingent consideration
Contingent consideration is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the
contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit
or loss or as a change to other comprehensive income unless the contingent consideration is classified as equity. In such
circumstances, changes are recognised within equity.
Changes in contingent consideration arising from additional information, obtained within one year of the acquisition date,
about facts or circumstances that existed at the acquisition date are recognised as an adjustment to goodwill.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker.
In the opinion of the Directors, the chief operating decision maker is the Board of Marlowe plc and there are two segments,
Fire and Security; and Water Treatment, whose reports are reviewed by the Board in order to allocate resources and assess
performance. Segment revenue comprises sales to external customers most of whom are located in the UK. Services are
provided primarily from the UK.
Revenue recognition
Revenue is measured as the fair value of the consideration received or receivable and represents amounts receivable for
goods and services provided in the normal course of business, net of discounts, VAT, returns, rebates and after eliminating
intra-group sales.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic
benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below.
Sale of goods and services – Fire & Security
Revenue arises from the sale of goods and rendering of services. It is measured at the fair value of the consideration
received or receivable, excluding sales taxes, and reduced by any rebates and trade discounts allowed. Revenue from the
sale of electronic fire safety and security systems equipment together with installations is recognised when the significant
rewards and risks of ownership have been transferred to the buyer, generally when the goods have been delivered to the
customer. Revenue from service and monitoring is recognised on a straight-line basis over the future period of a contract as
this represents the best estimate of the stage of completion. Income invoiced for future periods is deferred and included in
current liabilities. Income for call out charges where such items do not form part of ongoing contracts are recognised when
work is completed.
When a contract has only been partially completed at the balance sheet date turnover represents the value of the service
provided to date based on a proportion of the total expected consideration at completion. Where payments are received
from customers in advance of services provided, the amounts are recorded as deferred income and included as part of
creditors due within one year.
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OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
2. SIGNIFICANT ACCOUNTING POLICIES - Revenue recognition continued
Sale of goods and services – Water Treatment
Revenue arises from the sale of goods and rendering of services. It is measured at the fair value of the consideration
received or receivable, excluding sales taxes, and reduced by any rebates and trade discounts allowed. Revenue from the
sale of water hygiene and water treatment together with installations is recognised when the significant rewards and risks
of ownership have been transferred to the buyer, generally when the goods have been delivered to the customer. Revenue
from service and monitoring is recognised on a straight-line basis over the future period of a contract as this represents the
best estimate of the stage of completion. Income invoiced for future periods is deferred and included in current liabilities.
Income for call out charges where such items do not form part of ongoing contracts are recognised when work is completed.
When a contract has only been partially completed at the balance sheet date turnover represents the value of the service
provided to date based on a proportion of the total expected consideration at completion. Where payments are received
from customers in advance of services provided, the amounts are recorded as deferred income and included as part of
creditors due within one year.
Interest income
Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial
asset to that asset’s net carrying amount.
Acquisition and other costs
Acquisition and other costs are those significant costs which are separately disclosed by virtue of their size or incidence
to enable a full understanding of the Group’s financial performance. Transactions which may give rise to acquisition
costs are principally costs incurred upon acquisition of a company, such as legal fees and stamp duty. Restructuring costs
predominately relate to redundancy, integration and other restructuring costs incurred following acquisition.
Profit measures
Due to the one-off nature of acquisition and other costs items and the non-cash element of certain charges, the Directors
believe that an adjusted measure of operating profit, EBITDA, profit before tax and earnings per share provide shareholders
with a more appropriate representation of the underlying earnings of the Group. The items adjusted for in arriving at these
are share-based payments charge, acquisition costs, restructuring costs, amortisation of intangible assets and a standard tax
charge.
Intangible assets
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of
identifiable assets and liabilities of a subsidiary, at the date of acquisition. Goodwill is initially recognised as an asset at cost
and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is
reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently
reversed.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to
benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested
for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable
amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the
basis of the carrying amount of each asset in the unit.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on
disposal.
Other intangible assets
Other intangible assets are recognised when they are controlled through contractual or other legal rights, or are separable
from the rest of the business, and their fair value can be reliably measured.
46
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 2. SIGNIFICANT ACCOUNTING POLICIES - Other intangible assets continued
Customer relationships
Acquired customer relationships are identified as a separate intangible asset as they are separable and can be reliably
measured by valuation of future cash flows. This valuation also assesses the life of the particular relationship. The life of the
relationship is assessed annually and is determined on a company by company basis. All customer relationships are being
written off on a straight-line basis between four and ten years. The customer lists are considered annually to ensure that this
classification is still appropriate.
Property, plant and equipment
Property, plant and equipment is stated at historical cost, less accumulated depreciation and accumulated impairment
losses. Depreciation is provided on the following basis:
Freehold and long leasehold buildings
Basis
2% per annum
Short leasehold land and buildings
Over the life of the lease
Leasehold improvements
IT Hardware
Plant and machinery
Office equipment, fixtures and fittings
Motor vehicles
Shorter of life of the lease or 10 years
33% per annum
20% per annum
20% per annum
25% reducing balance
Leased assets
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to
profit or loss on a straight-line basis over the period of the lease.
Where property lease contracts contain guaranteed minimum incremental rental payments, the total committed cost is
determined and is amortised on a straight-line basis over the life of the lease. Leases of property, plant and equipment
which transfer substantially all the risks and rewards of ownership to the Group are classified as finance leases. Finance leases
are classified as a financial liability and measured at amortised cost. Finance leases are capitalised at the inception of the
lease at the lower of the fair value of the leased property, plant and equipment and the present value of the minimum lease
payments and depreciated over the period of the lease. The resulting lease obligations are included in liabilities. Lease
payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of
interest on the remaining balance of the liability.
Investments
The Company has investments in eight subsidiaries. Investments are valued at cost less allowances for impairment. An
impairment test is performed annually on the carrying value of the investment. An impairment loss is recognised for the
amount by which the asset’s carrying value exceeds its recoverable amount, when there is objective evidence for impairment
including significant or prolonged decline in fair value below cost.
Investments which are held for the long term and over which management do not exercise significant control are carried at
cost. An impairment review is carried out annually.
47
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
2. SIGNIFICANT ACCOUNTING POLICIES continued
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first in first out basis. Net
realisable value is the price at which inventories can be sold in the normal course of business. Provision is made where
necessary for obsolete, slow moving and defective inventories.
Trade and other receivables
Trade receivables, classified as loans and receivables in accordance with IAS 39 ‘Financial Instruments: Recognition and
Measurement’, are recorded initially at fair value and subsequently measured at amortised cost. A provision for impairment
of trade receivables is established when there is evidence that the Group will not be able to collect all amounts due
according to the original terms. The amount of the provision is the difference between the assets’ carrying amount and the
present value of future cash flows discounted at the effective interest rate. The movement in the provision is recognised in
profit or loss.
Any other receivables are recognised at their initial fair value less an allowance for any doubtful amounts. An allowance is
made when collection of the full amount is no longer considered probable.
Cash and cash equivalents
Cash and cash equivalents as defined for the Consolidated statement of cash flows comprise cash in hand, cash held at bank
with immediate access, other short-term investments and bank deposits with maturities of three months or less from the date
of inception.
Trade payables
Trade payables, classified as other liabilities in accordance with IAS 39, are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method. Other payables are stated at amortised cost.
Borrowings
Borrowings are classified as other liabilities in accordance with IAS 39 and are recorded at the fair value of the consideration
received, net of direct transaction costs. Finance charges, including bank interest and non-utilisation fees, are accounted for
in profit or loss over the term of the instrument using the effective interest rate method.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from accounting profit as reported in
the Consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current
tax is calculated using tax rates that have been enacted or substantively enacted at the reporting date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and
accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the tax profits nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised based upon tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax is charged
or credited in profit or loss, except when it relates to items charged or credited directly to other comprehensive income and
equity, in which case the deferred tax is also dealt with in other comprehensive income and equity.
48
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 2. SIGNIFICANT ACCOUNTING POLICIES continued
Provisions
Provisions 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 a reliable estimate of the amount can be
made. If the effect is material, provisions are determined by discounting the expected future cash flows at an appropriate
pre-tax discount rate.
Equity instruments
Equity instruments issued by the Company are recorded at fair value net of transaction costs.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payment.
The Group issues equity-settled share-based payments to certain directors and employees. Equity-settled share-based
payments are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-
based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that
will eventually vest. Fair value is measured by use of a Monte Carlo pricing model. Where director and employees’ contracts
are terminated the options are treated as having been forfeited and accordingly previous charges are credited back to profit
or loss if the option has not yet vested or retained earnings if the option has vested.
Further details of the Group's Incentive Scheme are documented in Note 27.
Pensions
The Group operates a number of defined contribution pension schemes. Contributions are charged to profit or loss as incurred.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s statement of financial position when the Group has
become party to the contractual provisions of the instrument.
Critical accounting estimates and judgements
The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at
the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require
a material adjustment to the carrying amount of the asset or liability affected in the future.
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from
those involving estimates, which have the most significant effect on the amounts recognised in the financial statements.
Acquisitions
The Group has made significant acquisitions in the year, being the acquisition of Fire & Security (Group) Limited (“Swift”),
WCS Environmental Group Limited (“WCS”), Fire Alarm Fabrication Services Limited (“FAFS”), H2O Chemicals Limited
(“H2O”), Hentland Limited (“Hentland”), Titan Fire and Security Limited (“Titan”), B.B.C. Fire Protection Limited (“BBC”),
and Alpha Peerless Fire Systems Limited (“Alpha”). The assessment of the fair values of the assets and liabilities at
acquisition is inherently judgmental and where these are still being assessed until further information is received, the
amounts included in these financial statements are included as provisional. The key assumption has been made in respect of
the valuation of customer relationships.
Valuation of separable intangibles on acquisition
When valuing the intangibles acquired in a business combination, management estimate the expected future cash flows from
the asset and select a suitable discount rate in order to calculate the present value of those cash flows. Separable intangibles
valued on acquisitions made in the year were £5.5m (2016: £Nil) as detailed further in note 12.
49
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
2. SIGNIFICANT ACCOUNTING POLICIES - Critical Accounting Estimates and Judgements continued
Impairment of trade receivables
Management regularly review trade receivables that are past due for signs of impairment taking into account credit ratings,
recent history of default and the number of days past due date. Following this assessment, a £1.4m (2016: £Nil) provision for
impairment of trade receivables has been made. Refer to note 15 for further information.
Restructuring items
Included within administrative expenses, and as disclosed in note 5, are restructuring and reorganisation and the related
duplication of costs. The period taken to complete restructuring varies for each acquisition and management judgement is
applied in determining the level of duplication of costs incurred, particularly in relation to personnel costs where it can take
some time for the optimal levels of staffing to be achieved.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year
are discussed below.
Impairment of non-financial assets
The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date.
Goodwill is tested for impairment annually and at other times when such indicators exist. Other non-financial assets are
tested for impairment when there are indicators that the carrying amounts may not be recoverable.
When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or
cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. Further
details are given in note 12.
Provisions
Included within provisions is a provision for warranty claims on installed equipment.
Adoption of new and revised standards
New standards, amendments and interpretations issued and effective during the financial year commencing 1 April 2016
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
The IASB has clarified that the use of revenue-based methods to calculate the depreciation of property, plant or equipment
is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other
than the consumption of the economic benefits embodied in the asset.
The IASB also clarified that amortisation methods based on revenue are presumed to be an inappropriate for an intangible
asset as revenue typically reflects factors that are not directly linked to the consumption of the economic benefits embodied
in the intangible asset. This presumption can be rebutted in certain limited circumstances.
The amendment to IAS 38 also refers to the contract that sets out the entity’s rights over its use of an intangible asset as a
starting point for the identification of the appropriate basis of amortisation, for example if the entity’s use of the intangible
asset is over time or as a number of units are produced.
Both amendments clarify that expected future reductions in the selling price of an item produced using an asset could
indicate expected technical or commercial obsolescence of that asset, which in turn might reflect a reduction of the future
economic benefits embodied in the asset.
50
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 2. SIGNIFICANT ACCOUNTING POLICIES - Adoption of New and Revised Standards continued
Annual Improvements to IFRSs 2012-2014 Cycle
In September 2014, the IASB published ‘Annual Improvements to IFRSs – 2012-2014 Cycle’ as part of its annual
improvements project. A summary of the amendments relevant to the Group is set out below:
IAS 19 Employee Benefits
The amendment clarifies that, for currencies in which there is no deep market in high quality corporate bonds, the market
yields on government bonds denominated in that currency shall be used.
IAS 34 Interim Financial Reporting
Where disclosures required in the interim financial statements are cross referenced to some other statement (such as
management commentary or a risk report), that other statement should be made available to the users of the financial
statements at the same time and on the same terms as the interim financial statements. If access is not provided at the same
time and on the same terms, the interim financial statements are incomplete.
Amendments to IAS 1: Disclosure initiative
The amendments are in response to views that guidance on materiality in IFRS was not clear and that this led to difficulties
in applying the concept of materiality in practice. As a consequence, financial statements contained too much irrelevant
information and not enough relevant information. Various amendments were made to clarify that the concept of materiality.
IFRS 14 Regulatory Deferral Accounts*
The aim of this interim Standard is to enhance the comparability of financial reporting by entities that are engaged in rate-
regulated activities. It is relevant to first time IFRS adopters who provide goods or services that are subject to rate regulation.
Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses*
The amendments introduce illustrative examples together with new explanatory paragraphs.
Amendments to IAS 7: Disclosure initiative*
The amendment requires the changes in liabilities arising from financing activities to be disclosed
IFRS 15 Revenue from Contracts with Customers
The core principle of the new standard is for entities to recognise revenue to depict the transfer of goods or services to
customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or
services.
Clarifications to IFRS 15 Revenue from Contracts with Customers*
The amendments target areas of IFRS 15 as well as some transition relief.
IFRS 9 Financial Instruments*
The Amendments include a logical model for classification and measurement, a single, forward-looking ‘expected loss’
impairment model and a substantially- reformed approach to hedge accounting.
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions*
The amendments made eliminate diversity in practice in three main areas vesting conditions when measuring cash-settled
share-based payment transactions, classification of share-based payment transactions with net settlement features for
withholding tax obligations, change of classification from cash-settled to equity-settled.
IFRS 16 Leases*
The new standard recognises a leased asset and a lease liability for almost all leases and requires them to be accounted for
in a consistent manner. This introduces a single lessee accounting model and eliminates the previous distinction between an
operating lease and a finance lease.
The Directors are still considering the impact that the adoption of these Standards and Interpretations will have in future
periods.
* Not yet endorsed by the EU
51
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
3. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and capital risk. The Group’s
overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the Group’s financial performance.
Risk management is carried out centrally under policies approved by the Board of Directors. The Group evaluates and
hedges financial risks. The Board provides written principles for overall risk management.
Market risk
Foreign exchange risk
The Group operates primarily in the UK and has limited exposure to foreign exchange risk.
Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash
flow interest rate risk. During 2016 and 2017 the Group’s borrowings at variable rates were denominated in pounds sterling.
The Group analyses its interest rate exposure using financial modelling on a periodic basis. Based on the various scenarios,
the Group does not currently consider any hedging appropriate.
Credit risk
Credit risk is managed on a Group basis, except for credit risk relating to accounts receivable balances. Each local entity is
responsible for managing and analysing the credit risk for each of their new customers before standard payment, delivery
terms and conditions are offered. Credit risk arises from cash and cash equivalents, deposits with banks and financial
institutions, as well as credit exposures to retail customers, including outstanding receivables and committed transactions.
The maximum exposure is the carrying amount as disclosed in note 19.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents,
the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying
amount of these instruments as also shown in note 19.
Liquidity risk
The Group monitors its risk to a shortage of funds using a forecasting model. This model considers the maturity of both
its financial assets and financial liabilities and projected cash flows from operations. The Group’s objective is to maintain a
balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and finance in order to
ensure that there is sufficient cash or working capital facilities to meet the requirements of the Group for its current business
plan. A detailed analysis of the Group’s debt facilities is given in note 19.
Capital risk
The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will trade
profitably in the foreseeable future. The Group also aims to maximise its capital structure of debt and equity so as to
minimise its cost of capital.
The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by
monitoring its gearing ratio on a regular basis. The Group considers its capital to include share capital, share premium,
other reserves, retained earnings and net cash as noted below. Net cash includes short and long-term borrowings (including
overdrafts) net of cash and cash equivalents.
52
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 3. FINANCIAL RISK MANAGEMENT - Credit risk continued
No changes were made in the objectives, policies or processes during the year ending 31 March 2017 and period ending
31 March 2016.
The Group’s strategy is to strengthen its capital base in order to sustain the future development of the business.
Cash at bank
Bank loans due within one year
Bank loans due after one year
Net cash
2017
£’m
7.8
(1.1)
(3.7)
3.0
2016
£’m
10.6
-
-
10.6
Under the bank facility the Group is required to meet quarterly covenant tests in respect of cashflow cover, interest covered
leverage. All tests were met during the year and the Directors expect to continue to meet these tests.
Fair value estimation
The fair value of financial instruments is market value.
4. SEGMENTAL ANALYSIS
The Group is organised into two main operating segments, Fire & Security and Water Treatment. Services per segment
operate as described in the Strategic report. The main segmental profit measure is adjusted operating profit and is shown
before acquisition and restructuring costs, share-based charge and amortisation of intangible assets. The vast majority
of trading of the Group is undertaken within the United Kingdom. Segment assets include intangibles, property, plant
and equipment, inventories, receivables and operating cash. Central assets include deferred tax and head office assets.
Segment liabilities comprise operating liabilities. Central liabilities include deferred tax, corporate borrowings and head
office liabilities. Capital expenditure comprises additions to computer software, property, plant and equipment and includes
additions resulting from acquisitions through business combinations. Segment assets and liabilities are allocated between
segments on an actual basis.
53
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
4. SEGMENTAL ANALYSIS continued
Revenue
The revenue from external customers was derived from the Group’s principal activities primarily in the UK (where the
Company is domiciled) as follows:
Continuing operations
Revenue
Segment adjusted operating profit/(loss)
Acquisition costs
Restructuring costs
Amortisation of intangible assets
Share-based payments charge
Operating profit
Finance costs
Profit before tax
Tax charge
Profit after tax
Segment assets
Segment liabilities
Capital expenditure
Depreciation and amortisation
Continuing operations
Revenue
Segment adjusted operating profit/(loss)
Acquisition costs
Restructuring costs
Share-based payments charge
Amortisation of intangible assets
Operating profit
Finance costs
Loss before tax
Tax charge
Loss after tax
Segment assets
Segment liabilities
Capital expenditure
Depreciation and amortisation
Fire &
security
£’m
37.8
3.4
Water
treatment
£’m
9.0
0.8
Head
office
£’m
-
(0.7)
18.7
8.6
0.3
0.4
2.3
1.8
0.1
0.1
Fire &
security
£’m
Water
treatment
£’m
-
-
-
-
-
-
-
-
-
-
-
-
34.5
10.1
-
0.6
Head
office
£’m
-
-
10.6
(3.1)
-
-
2017
Total
£’m
46.8
3.5
(0.6)
(1.1)
(0.6)
(0.3)
0.9
(0.2)
0.7
(0.4)
0.3
55.5
20.5
0.4
1.1
2016
Total
£’m
-
-
-
(0.1)
-
-
(0.1)
-
(0.1)
-
(0.1)
10.6
(3.2)
-
-
Major customers
For the year ended 31 March 2017 no customers individually accounted for more than 10% of the Group’s total revenue.
54
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 5. RESTRUCTURING COSTS
Restructuring and redundancy costs have increased to £1.1m in 2017. This was mainly due to the following:
• Development and implementation of new IT software across the group
• The cost of duplicated staff roles during the integration and restructuring period
• The cost of implementing the post completion staff structures
•
IT costs associated with the wind down of duplicated IT systems and the transfer across to the destination systems
• Property costs associated with sites which are identified at the point of acquisition as being superfluous to ongoing
requirements and where a credible exit strategy is clear to management.
Transaction costs include stamp duty costs and transitional service arrangement fees, in addition to the cost of legal and
professional fees incurred as part of the acquisitions.
6. OPERATING PROFIT
The following items have been included in arriving at operating profit:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment (note 5)
Share-based payments charge
Operating leases – plant and machinery
Operating leases – land and buildings
Auditors’ remuneration*:
– Parent and consolidated financial statements
– Audit of Company’s subsidiaries pursuant to legislation
– Review of half yearly financial report
2017
£’m
2016
£’m
0.6
0.5
-
0.3
0.2
0.3
-
0.1
-
-
-
-
-
-
-
-
-
-
-
* Audit fees of £30k in respect of the parent and consolidated financial statements and £110k in respect of the audit of the Company's subsidiaries
were incurred during the year. £13k was incurred by the Group in respect of the review of the half yearly financial reports.
7. FINANCE COSTS
Interest on bank loans and overdrafts
Total
2017
£’m
0.2
0.2
2016
£’m
-
-
55
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
8. TAXATION
Current tax:
UK corporation tax on profit for the year
Adjustment in respect of previous periods
Total current tax
Deferred tax: (note 20)
Current year
Adjustment in respect of previous periods
Total deferred tax
Total tax charge
2017
£’m
2016
£’m
0.2
-
0.2
0.2
-
0.2
0.4
-
-
-
-
-
-
-
The charge for the year can be reconciled to the profit in the Consolidated statement of comprehensive income as follows:
Profit/(loss) before tax
Profit before tax multiplied by the rate of corporation tax of 20.0%
Effects of:
Expenses not deductible for tax purposes
Tax charge
2017
£’m
0.7
0.2
-
0.2
0.4
2016
£’m
(0.1)
-
-
-
-
56
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued
9. EARNINGS PER ORDINARY SHARE
Basic earnings per share have been calculated on the profit for the year after taxation and the weighted average number of
ordinary shares in issue during the year.
Weighted average number of shares in issue
Total profit/(loss) for the year
Total basic earnings per ordinary share (pence)
Weighted average number of shares in issue
Share issue contingent on acquisition of Fire & Security (Group) Limited
Executive incentive plan
Weighted average fully diluted number of shares in issue
Total fully diluted earnings per share (pence)
2017
2016
25,508,993
14,584,999
£0.3m
1.1p
(£0.1m)
(0.9p)
25,508,993
14,584,999
-
3,000,000
98,992
-
25,607,985
17,584,999
1.1p
(0.9p)
Adjusted earnings per share
The Directors believe that the adjusted earnings per share provide a more appropriate representation of the underlying
earnings derived from the Group’s business. The adjusting items are shown in the table below:
Profit/(loss) before tax
Adjustments:
Acquisition costs
Restructuring costs
Amortisation of intangible assets
Share-based payments charge
Adjusted continuing profit for the year
2017
£’m
0.7
0.6
1.1
0.6
0.3
3.3
2016
£’m
(0.1)
-
0.1
-
-
-
The adjusted earnings per share, based on the weighted average number of shares in issue during the year is calculated
below:
Adjusted profit before tax (£’m)
Tax at 20% (£’m)
Adjusted profit after tax (£’m)
Adjusted basic earnings per share (pence)
Adjusted fully diluted earnings per share (pence)
10. DIVIDENDS
The Company has not declared any dividends in respect of the current year or prior period.
2017
3.3
(0.7)
2.6
10.4
10.3
2016
-
-
-
-
-
57
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
11. BUSINESS COMBINATIONS
If the following acquisitions had been completed on the first day of the financial year, Group revenue would have been
£65m and Group profit before tax would have been £1.0m. As explained in Note 5, following acquisitions a number of
restructuring costs are incurred, and after this post acquisition restructuring the acquisitions have a positive impact on Group
profit before tax.
The factors which make up goodwill are disclosed in note 12.
Acquisition of Fire and Security (Group) Limited
On 1 April 2016 the Group acquired Fire and Security (Group) Limited (“Swift”), a fire protection and security solutions
business, for a total consideration of £13.0m, satisfied by the payment of £8.5m in cash on completion, £1.0m in cash on
31 May 2016 and £3.5m satisfied by the issuance of 3.5m ordinary shares in the Company. The shares are subject to a lock-in
arrangement where one third of the shares will be released on the first anniversary of the acquisition and a further third on
the second and third anniversaries of the acquisition respectively.
Further assesments have been made during the year as more information has become available and the fair values of the
acquisition have been finalised. The main changes are valuation of customer relationships, decreasing the value by £0.5m
and the recognition of £1.2m loans payable on the balance sheet, which was settled immediately post acquisition. Other
changes have been made to the value of acquired assets and liabilities resulting in an increase in goodwill of £1.9m.
The final fair values are as follows:
Trade and other receivables
Intangible assets – customer relationships
Cash
Property, plant and equipment
Inventories
Intangible assets – order backlog
Trade and other payables
Loans payable
Tax liabilities
Deferred tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Ordinary Shares in Marlowe plc to vendors
Fair value at
acquisition
£’m
6.3
2.6
0.5
0.6
0.6
0.1
(6.3)
(1.2)
(0.2)
(0.4)
2.6
10.4
13.0
9.5
3.5
One hundred percent of the equity of Swift was acquired in this transaction. Deferred tax has been provided on the value
of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £127k
have been charged to profit or loss.
58
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued
11. BUSINESS COMBINATIONS continued
Acquisition of WCS Environmental Group Limited
On 15 April 2016 the Group acquired WCS Environmental Group Limited (“WCS”), a provider of integrated water treatment,
hygiene, testing and engineering services, for a total consideration of £1.9m, satisfied by the payment of £1.6m in cash and
£0.3m satisfied by the issuance of 209,734 ordinary shares of the Company. The shares issued are subject to a lock-in period
of between 24 and 36 months. Further assessments have been made during the year as more information has become
available and the fair values of the acquisition have been finalised. The main changes are to the valuation of customer
relationships, decreasing the value by £0.2m. Other changes have been made to the value of acquired assets and liabilities
resulting in an increase of goodwill by £0.4m.
The final fair values are as follows:
Trade and other receivables
Intangible assets – customer relationships
Property, plant and equipment
Cash
Trade and other payables
Loans payable
Deferred tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Ordinary Shares in Marlowe plc to vendors
Fair value at
acquisition
£’m
1.1
0.5
0.2
0.1
(0.6)
(0.6)
(0.1)
0.6
1.3
1.9
1.6
0.3
One hundred percent of the equity of WCS was acquired in this transaction. Deferred tax has been provided on the value
of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £35k
have been charged to profit or loss.
59
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
11. BUSINESS COMBINATIONS continued
Acquisition of Fire Alarm Fabrication Services Limited
On 12 May 2016 the Group acquired Fire Alarm Fabrication Services Limited (“FAFS”), a provider of fire protection services,
for a total consideration of £2.5m, satisfied by the payment of £2.4m in cash on completion and £0.1m in cash payable
subject to the achievement of certain performance targets by the acquired business in the period ending 11 May 2017
(discounted value £95k). The business met its targets and £0.1m deferred consideration was paid in May 2017.
The final fair values are as follows:
Trade and other receivables
Cash
Property – sale and leaseback receivable
Intangible assets – customer relationships
Property, plant and equipment
Trade and other payables
Tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Deferred cash consideration to vendors
Fair value at
acquisition
£’m
0.8
0.7
0.5
0.1
0.2
(0.3)
(0.2)
1.8
0.7
2.5
2.4
0.1
One hundred percent of the equity of FAFS was acquired in this transaction. Deferred tax has been provided on the value
of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £74k
have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year FAFS would have generated £4.6m revenue and
£0.7m profit before tax.
60
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 11. BUSINESS COMBINATIONS continued
Acquisition of H2O Chemicals Limited
On 8 September 2016 the Group acquired H2O Chemicals Limited (“H2O”), a water treatment and hygiene specialist, for
a total consideration of £2.5m, satisfied by the payment of £2.1m in cash and £0.4m satisfied by the issuance of 211,765
ordinary shares of the Company. The shares are subject to a lock-in period of 24 months. Since the acquisition date is less
than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
Trade and other receivables
Property – sale and leaseback receivable
Intangible assets – customer relationships
Loans receivable
Loans payable
Trade and other payables
Tax liabilities
Deferred tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Ordinary Shares in Marlowe plc to vendors
Fair value at
acquisition
£’m
1.3
0.6
0.8
0.2
(1.2)
(0.9)
(0.1)
(0.1)
0.6
1.9
2.5
2.1
0.4
One hundred percent of the equity of H2O was acquired in this transaction. Deferred tax has been provided on the value
of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £91k
have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year H2O would have generated £3.9m revenue and
£0.2m profit before tax.
61
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
11. BUSINESS COMBINATIONS continued
Acquisition of Hentland Limited
On 15 October 2016, the Group acquired Hentland Limited, a provider of fire protection and security services, for a total
consideration of £4.7m, satisfied by the payment of £4.7m cash on completion. Since the acquisition date is less than
12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
Trade and other receivables
Intangible assets – customer relationships
Inventories
Property, plant and equipment
Deferred tax asset
Finance leases
Cash
Loans payable
Trade and other payables
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Fair value at
acquisition
£’m
2.7
0.5
0.5
0.9
0.2
(0.5)
(0.4)
(2.0)
(1.8)
0.1
4.6
4.7
4.7
One hundred percent of the equity of Hentland was acquired in this transaction. Deferred tax has been provided on the
value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of
£82k have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year Hentland would have generated £11.3m revenue
and £0.1m profit after tax.
62
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 11. BUSINESS COMBINATIONS continued
Acquisition of Titan Fire and Security Limited
On 3 November, the Group acquired Titan Fire and Security Limited (“Titan”), a provider of fire protection services, for a
total consideration of £0.8m, satisfied by the payment of £0.5m in cash on completion and two cash payments of £0.15m
payable subject to the achievement of certain performance targets by the acquired business in six and twelve months post
acquisition. Since the deferred consideration will have to be settled within one year of acquisition if the business meets
its targets, the fair value of the consideration is deemed to be its settlement value. The business met its first target and
£0.15m was paid in June 2017. It is unclear at this stage whether it will meet the performance target set for 12 months post
acquisition. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition
balance sheet is still subject to finalisation.
The provisional fair values are as follows:
Intangible assets – customer relationships
Inventories
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Deferred cash consideration to vendors
Fair value at
acquisition
£’m
0.2
0.1
0.3
0.5
0.8
0.5
0.3
One hundred percent of the equity of Titan was acquired in this transaction. Deferred tax has been provided on the value
of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £56k
have been charged to profit or loss.
63
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
11. BUSINESS COMBINATIONS continued
Acquisition of BBC Fire Protection Limited
On 3 February, the Group acquired BBC Fire Protection Limited (“BBC”), a provider of fire protection services, for a total
consideration of £8.3m, satisfied by the payment of £7.8m cash on completion, and two cash payments of £0.25m payable
subject to the successful completion of an onerous contract which existed on acquisition. The contract is still ongoing so
it remains uncertain how much of the additional consideration will be paid. It is expected the onerous contract will be
completed within one year of acquisition. As a result the value of the deferred consideration is deemed to be its settlement
value. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition
balance sheet is still subject to finalisation.
The provisional fair values are as follows:
Trade and other receivables
Intangible assets – customer relationships
Property, Plant and Equipment
Cash
Inventories
Finance Leases
Trade and other payables
Deferred tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Deferred cash consideration to vendors
Fair value at
acquisition
£’m
2.8
0.4
0.6
4.4
0.4
(0.1)
(2.1)
(0.1)
6.3
2.0
8.3
7.8
0.5
One hundred percent of the equity of BBC was acquired in this transaction. Deferred tax has been provided on the value of
the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £100k
have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year BBC would have generated £9.4m revenue and
£0.6m profit before tax.
64
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 11. BUSINESS COMBINATIONS continued
Acquisition of Alpha Peerless Fire Systems Limited
On 7 February, the Group acquired Alpha Peerless Fire Systems Limited (“Alpha”), a provider of fire protection services, for
a total consideration of £0.6m, satisfied by the payment of £0.6m cash on completion. Since the acquisition date is less than
12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
Trade and other receivables
Intangible assets – customer relationships
Loan receivable
Trade and other payables
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Fair value at
acquisition
£’m
0.3
0.3
0.1
(0.4)
0.3
0.3
0.6
0.6
One hundred percent of the equity of Alpha was acquired in this transaction. Deferred tax has been provided on the value
of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £46k
have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year Alpha would have generated £1.0m revenue and
£nil profit before tax.
65
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
12. INTANGIBLE ASSETS
Cost
14 January 2016
Arising on acquisition of subsidiaries
31 March 2016
1 April 2017
Arising on acquisition of subsidiaries
31 March 2017
Accumulated amortisation and impairment
14 January 2016
Charge for the year
31 March 2016
1 April 2016
Charge for the year
31 March 2017
Carrying amount
31 March 2017
31 March 2016
Goodwill
£’m
Customer
relationships
£’m
Order
backlog
£’m
-
-
-
-
21.7
21.7
-
-
-
-
-
-
21.7
-
-
-
-
-
5.4
5.4
-
-
-
-
0.5
0.5
4.9
-
-
-
-
-
0.1
0.1
-
-
-
-
0.1
0.1
-
-
The customer relationships have a remaining life of 4 – 10 years.
The changes to goodwill during the year were as follows:
Cost
1 April 2016
Swift
WCS
FAFS
H2O
Hentland
Titan
BBC
Alpha
31 March 2017
Provision for impairment
1 April 2016
Charge for the year
31 March 2017
Net book value
31 March 2016
31 March 2017
66 66
Total
£’m
-
-
-
-
27.2
27.2
-
-
-
-
0.6
0.6
26.6
-
£’m
-
10.4
1.3
0.7
1.9
4.6
0.5
2.0
0.3
21.7
-
-
-
-
21.7
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued
12. INTANGIBLE ASSETS continued
Allocation to cash-generating units
Goodwill has been allocated for impairment testing purposes using the following cash-generation units. The carrying value is
as follows:
Fire & Security
Water Treatment
2017
£’m
18.5
3.2
21.7
2016
£’m
-
-
-
Goodwill is calculated for each acquired company using the Multi-Period Excess Earnings Method where excess earnings are
discounted to present value at an appropriate rate of return to estimate the fair value of the intangible assets and goodwill.
Goodwill represents earmings from future customers and the contribution of the assembled workforce to the separately
identifiable intangible assets. The calculations use pre-tax cash flow projections based on financial budgets approved by
the Directors for year one and cash flow projections for years two to ten using growth rates that are considered to be in line
with the general trends in which each cash-generating unit operates. The industries in which we operate are characterised by
long standing customer relationships and as such ten year cash flow projections are deemed to be an appropriate forecast
window. Terminal cash flows are based on these ten year projections, assumed to grow perpetually at 1%. In accordance
with IAS 36, the growth rates for beyond the forecasted ten years do not exceed the long-term average growth rate for the
industry. The forecasts have been discounted at an average rate of 18.4%. The key assumptions forming inputs to cash
flows are in revenues and margins. Revenues for 2017 have been assessed by reference to existing contracts and market
volumes. Margins have been assumed to be consistent with those currently achieved in the Fire and Security and Water
Treatment divisions.
The key assumptions used for value in use calculations are as follows:
Revenue growth – average over 10 years
Revenue growth – remainder
Cost growth – employee/overheads, average over 10 years
Fire & Security
%
Water Treatment
%
4
1
4
4
1
4
Sensitivity
The Group has not identified any reasonable potential changes to key assumptions that would cause the carrying value of
the remaining goodwill or intangibles to exceed its recoverable amount.
67
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
13. PROPERTY, PLANT AND EQUIPMENT
Cost
14 January 2016
31 March 2016
1 April 2016
Additions
Disposals
Acquisitions
31 March 2017
Accumulated Depreciation
14 January 2016
31 March 2016
1 April 2016
Charge for the year
Disposals
31 March 2017
Net book value
31 March 2017
31 March 2016
1 April 2016
Long
leasehold
land &
buildings
£’m
Leasehold
improvements
£’m
Plant
& machinery
£’m
Office
equipment
fixtures &
fittings
£’m
Motor
vehicles
£’m
Total
£’m
-
-
-
-
-
0.3
0.3
-
-
-
-
-
0.3
-
-
-
-
-
-
-
0.5
0.5
-
-
-
-
-
0.5
-
-
-
-
-
-
-
0.1
0.1
-
-
-
-
-
0.1
-
-
-
-
-
0.4
-
0.5
0.9
-
-
0.2
(0.1)
0.1
0.8
-
-
-
-
-
-
(0.3)
1.2
0.9
-
-
0.3
(0.3)
-
0.9
-
-
-
-
-
0.4
(0.3)
2.6
2.7
-
-
0.5
(0.4)
0.1
2.6
-
-
Depreciation is charged to profit or loss as an administrative expense. Assets with a net book value of £0.4m (2016: £nil)
were held under finance leases.
68
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued
14. INVENTORIES
Finished goods and goods for resale
15. TRADE AND OTHER RECEIVABLES
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
2017
£’m
1.8
2017
£’m
15.5
(1.4)
14.1
0.3
2.1
16.5
2016
£’m
-
2016
£’m
-
-
-
-
-
-
Trade receivables are provided for based on estimated irrecoverable amounts, determined by reference to past payment
history and the current financial status of the customers.
As at 31 March 2017, trade receivables of £2.4m (2016:£Nil) were past due but not impaired. These relate to a number of
independent customers with no recent history of default. The ageing analysis of these trade receivables is as follows:
0-120 days
Greater than 120 days
16. TRADE AND OTHER PAYABLES
Trade payables
Other taxation and social security
Other payables
Accruals and deferred income
2017
£’m
2.4
-
2017
£’m
6.5
2.8
0.3
3.5
13.1
2016
£’m
-
-
2016
£’m
-
-
-
0.1
0.1
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs.
69
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
17. FINANCIAL LIABILITIES – BORROWINGS
Current
Bank loans and overdrafts due within one year
Bank loans – secured
Non-current
Bank loans – secured
2017
£’m
2016
£’m
1.1
1.1
3.7
4.8
-
-
-
-
The bank debt is due to Lloyds Bank plc and is secured by a fixed and floating charge over the assets of the Group. The
interest rate profile and an analysis of borrowings is given in note 19. Under the bank facility the Group is required to meet
quarterly covenant tests in respect of cashflow cover, interest cover and leverage. All tests were met during the year and the
Directors expect to continue to meet these tests.
Analysis of net cash
Cash at bank and in hand
Bank loans and overdrafts due within one year
Bank loans due after one year
18. OTHER FINANCIAL LIABILITIES
Obligations under finance leases – present value of finance lease liabilities
Repayable by instalments:
In less than one year
In two to five years
Over five years
Deferred consideration - payable in less than one year
2017
£’m
7.8
(1.1)
(3.7)
3.0
2016
£’m
10.6
-
-
10.6
2017
£'m
2016
£’m
-
-
-
-
0.2
0.2
-
0.4
0.9
1.3
70
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued
19. FINANCIAL INSTRUMENTS
The Group’s financial instruments comprise cash, bank and various other receivable and payable balances that arise from its
operations. The main purpose of these financial instruments is to finance the Group’s operations.
Cash and cash equivalents
Cash at bank and in hand
2017
£’m
7.8
2016
£’m
10.6
The main financial risks arising from the Group’s financial instruments are interest rate risk and liquidity risk. The Directors
review and agree policies for managing each of these risks. Interest rates are regularly reviewed to ensure competitive rates
are paid. Detailed cash flow forecasts are produced on a regular basis to minimise liquidity risks.
Carrying value of financial assets and (liabilities) excluding cash and borrowings
Loans and receivables
Financial liabilities measured at amortised cost
2017
£’m
14.7
(11.4)
2016
£’m
-
-
Currency and interest rate risk profile of financial liabilities
All bank borrowings are subject to floating interest rates, at LIBOR plus a margin of 2.75%. Any undrawn borrowings are
subject to floating interest rates, at 35% of LIBOR plus a margin of 2.75%.
The interest rate risk profile of the Group’s gross borrowings for the year was:
Floating rate
financial
liabilities
£’m
Weighted
average
interest rates
%
Currency
Sterling at 31 March 2017
Sterling at 31 March 2016
Total
£’m
4.8
-
4.8
-
The exposure of Group borrowings to interest rate changes and contractual pricing dates at the end of the year are as
follows:
3 months or less
The interest rate risk profile of the Group's undrawn borrowings at the end of the year was:
2017
£’m
4.5
3.1
-
2016
£’m
-
Currency
Sterling at 31 March 2017
Sterling at 31 March 2016
Floating rate
financial
liabilities
£’m
Weighted
average
interest rates
%
5.0
-
1.0
-
Total
£’m
5.0
-
The exposure of the Group’s undrawn borrowings to interest rate changes and contractual pricing dates at the end of the
year are as follows:
3 months or less
2017
£’m
5.0
2016
£’m
5.0
71
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
19. FINANCIAL INSTRUMENTS continued
Interest rate sensitivity
At 31 March 2017, if interest rates had been 50 basis points higher and all other variables were held constant, it is estimated
that the Company’s profit before tax would be approximately £30k lower (2016: £Nil). This is mainly attributable to the
Company’s exposure to interest rates on its variable rate borrowings and is based on the change taking place at the
beginning of the financial year and held constant throughout the year.
The Company’s sensitivity to future interest rates changes has increased during the current year due to the increased debt
and debt facility.
Financial assets recognised in the statement of financial position and interest rate profile
All financial assets are short-term receivables and cash at bank. The cash at bank earns interest at based on the Bank of
England Base rate less a margin of 0.05-0.15% and is held with Lloyds Bank plc.
Maturity of financial liabilities
The maturity profile of the carrying amount of the Group’s financial liabilities (including interest payment) other than short-
term trade payables and accruals which are due within one year was as follows:
Within one year, or on demand
Between one and two years
Between two and five years
Bank debt
£’m
1.1
1.1
2.6
4.8
Other
financial
liabilities
£’m
0.9
0.2
0.2
1.3
2017
Total
£’m
2.0
1.3
2.8
6.1
Bank debt
£’m
Other
financial
liabilities
£’m
-
-
-
-
-
-
-
-
2016
Total
£’m
-
-
-
-
Borrowing facilities
The Group has a finance facility with Lloyds Bank plc which expires on 27 April 2020. This facility as at 31 March 2017
comprises term loans of £10m, a revolving credit facility (RCF) of £2.5m, and an overdraft facility of £0.5m (2016: £Nil). Of
this facility, £4.5m of the term loan, £2.5m of the RCF and £0.5m of the overdraft facility were undrawn as at 31 March 2017.
Since year end, on 27 April 2017, the term loan facility with Lloyds Bank plc has increased by an additional £5m. The total
debt facility is now £18m.
All of the Group’s borrowings are in sterling.
Fair values of financial assets and financial liabilities
The Group’s financial assets and liabilities bear floating interest rates and are relatively short-term in nature. In the opinion of
the Directors the book values of the assets and liabilities equate to their fair value.
72
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued
20. DEFERRED TAX
Summary of balances
Deferred tax liabilities
Deferred tax asset
The movement in the year in the Group’s net deferred tax position is as follows:
1 April
Charge to profit for the year
Acquisitions
31 March
2017
£’m
(1.0)
0.2
(0.8)
2017
£’m
-
0.2
(1.0)
(0.8)
2016
£’m
-
-
-
2016
£’m
-
-
-
-
The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during
the year:
Deferred tax liabilities
14 January 2016
Charge to income for the year
Acquisitions
31 March 2016
Charge to income for the year
Acquisitions
31 March 2017
Deferred tax assets
14 January 2016
Charge to income for the year
Acquisitions
31 March 2016
Charge to income for the year
Acquisitions
31 March 2017
Accelerated
capital
allowances
£’m
Intangible
assets
£’m
-
-
-
-
-
-
-
-
-
-
-
0.2
(1.2)
(1.0)
Total
£’m
-
-
-
-
0.2
(1.2)
(1.0)
Losses
£’m
Total
£’m
-
-
-
-
-
0.2
0.2
-
-
-
-
-
0.2
0.2
73
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
21. CALLED UP SHARE CAPITAL
Authorised:
37,925,456 ordinary shares of 50p each (2016: 28,113,332 ordinary shares of 50p each)
Allotted, issued and fully paid:
30,916,995 ordinary shares of 50p each (2016: 14,584,999 ordinary shares of 50p each)
The issued ordinary share capital is as follows:
Date
14 January 2016
30 March 2016 – equity issued in merger with Marlowe Holdings Limited
31 March 2016
1 April 2016 - Subscription Shares
1 April 2016 - Consideration Shares (“Swift”)
15 April 2016 - Consideration Shares (“WCS”)
7 September 2016 - Consideration Shares (“H2O”)
9 September 2016 - Subscription Shares
27 September 2016 - Subscription Shares
16 December 2016 - Subscription Shares
31 March 2017
22. SHARE PREMIUM ACCOUNT
1 April
Premium on shares issued during the year
Share issue costs
31 March
2017
£’m
18.1
15.5
2016
£’m
14.1
7.3
Number of
ordinary shares
Issue price
1
14,584,998
14,584,999
3,000,000
3,500,000
287,878
211,765
2,994,166
2,888,187
3,450,000
30,916,995
2017
£’m
-
19.2
(0.5)
18.7
50p
50p
100p
100p
165p
170p
170p
170p
290p
2016
£’m
-
-
-
-
The Company may use the reserve to reduce a deficit in the retained earnings of the Company from time to time subject
to shareholders and court approval and the Company may release the reserve upon transferring to a blocked trust bank
account a sum equal to the remaining amount outstanding to non-consenting creditors that existed at the date of the capital
reduction.
23. OTHER RESERVES
Share-based payments reserve
1 April
Charge for the year
31 March
2017
£’m
-
0.3
0.3
2016
£’m
-
-
-
The share-based payments reserve comprises charges made to the income statement in respect of share-based payments
under the Group’s equity incentive scheme.
74
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued
24. RETAINED EARNINGS
1 April
Profit/(loss) for the year
Liquidation of Marlowe Holdings Limited
31 March
2017
£’m
0.2
0.3
-
0.5
2016
£’m
-
(0.1)
0.3
0.2
Retained earnings are the balance of income retained by the Group. Retained earnings may be distributed to shareholders
by a dividend payment.
25. NET CASH GENERATED FROM OPERATIONS
Continuing operations
Profit/(loss) before tax
Depreciation of property, plant and equipment
Amortisation of intangible assets
Net finance costs
Acquisition costs
Share-based payments charge
(Increase) in inventories
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Net cash generated from operations
2017
£’m
0.7
0.5
0.6
0.2
0.6
0.3
(0.2)
(1.4)
0.8
2.1
2016
£’m
(0.1)
-
-
-
-
-
-
0.1
-
-
26. PENSIONS
The Group operates a number of defined contribution schemes for all qualifying employees. The assets of the schemes are
held separately from those of the Group in funds under the control of trustees. The total cost charged to profit or loss of
£0.2m (2016: £nil) represents contributions payable to these schemes by the Group at rates specified in the rules of the plan.
27. SHARE-BASED PAYMENTS
Marlowe 2016 Incentive Scheme
The Directors believe the success of the Company will depend to a significant degree on the future performance of the
management team. Accordingly, arrangements have been put in place to create incentives for those who are expected to
make key contributions to the success of the Group. A long term incentive scheme was created in February 2016 to reward
the key contributors for the creation of shareholder value. In order to make these arrangements most efficient, they are
based around a subscription for B Shares in Marlowe 2016 Limited, a 100% wholly owned subsidiary of Marlowe plc, by the
B Shareholders.
The B Shareholders have subscribed for B Shares. A subscription price of £0.01 was paid for each share. In certain
circumstances, detailed below, the B shareholders can give notice to the Company and Marlowe 2016 redeem their B Shares
in exchange for the issue by the Company of Ordinary Shares.
75
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
27. SHARE-BASED PAYMENTS Marlowe 2016 Incentive Scheme continued
On such redemption, the aggregate value of the B Shares is to be 10% of the result of the following:
•
the market value of Ordinary Shares that were in issue at Admission (being 21,084,998 Ordinary Shares), in addition to
the market value of any Ordinary Shares issued following Admission in relation to net shareholder investments of up to
£40m (any Ordinary Shares issued where net shareholder investments exceed £40m will be excluded); less
the Ordinary Shares in issue at Admission (being 21,084,998 Ordinary Shares) multiplied by the Issue Price of 100 pence
(equaling £21,084,998); less
•
the amount of any dividends declared by the Company following Admission.
• net shareholder investments of up to £40m in the Company raised by way of a share placing following Admission; plus
•
The market value of Ordinary Shares for these purposes will be the average closing price of the Ordinary Shares over the 10
Business Days immediately preceding the day on which notice of redemption is given by a B Shareholder.
The B Shareholders may only give notice to redeem their B Shares in any of the following circumstances:
• a sale of all or a material part of the business of the Enlarged Group;
• a sale of more than 51% of the Ordinary Shares to an unconnected person;
• a winding up of the Company, or any other return of capital
• not earlier than the third anniversary of the relevant agreement relating to the B Shares and not later than the fifth
anniversary of the relevant agreement relating the B Shares.
The B Shareholders have agreed that if they cease to be involved with the Group in the three years after Admission for a
reason other than death, long-term disability, injury or ill-health, redundancy, retirement at or after the date on which the B
Shareholder would normally be expected to retire, dismissal other than for gross misconduct, or being voted off a board of
the Group other than for poor performance, Marlowe 2016 will have the ability to redeem the B Shareholder’s B Shares for
the amount subscribed for those B Shares. No other rights are attached to the B shares.
The B Shares were valued using a Monte Carlo model. The effective date of the award is deemed to be 1 April 2016:
Date of issue of Marlowe 2016 Limited redeemable B ordinary shares
27 February 2016
Issue price of B shares
Marlowe plc share price at effective date
Redemption value
Number of employees
B shares issued
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividends expressed as a dividend yield
£0.01
£1.375
See below
5
10,000
Up to 6.9 years
50%
6.9
4.45
1.15%
0%
The total fair value of options issued in the year was £0.7m (2015: £0.1m). The volatility is measured by calculating the
standard deviation of the natural logarithm of share price movements.
The Director’s interests in the performance units of the Incentive Scheme is as follows:
Alex Dacre
Derek O’Neill
Charles Skinner
Nigel Jackson
76
2017
5,460
1,820
1,183
900
2016
5,460
1,820
1,183
-
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued 27. SHARE-BASED PAYMENTS Marlowe 2016 Incentive Scheme continued
The issued B Share capital is as follows:
28 January 2016
27 February 2016 - equity issued
31 March 2016
1 April 2017 - equity issued
31 March 2017
28. DIRECTORS AND EMPLOYEES
Staff costs during the year
Wages and salaries
Social security costs
Post employment benefits
Share-based payments charge
Number of B Shares
Issue price
-
9,100
9,100
900
10,000
2017
£’m
16.9
2.0
0.2
0.3
19.4
£0.01
£0.01
2016
£’m
-
-
-
-
-
Average monthly number of employees during the year
Number
Number
Directors
Management
Engineers
Administration
Sales
Total amounts for Directors’ remuneration and other benefits
Emoluments for Directors’ services
Directors’ remuneration shown above included the following amounts in respect of the
highest paid Director:
Salary and benefits
Key management compensation
Short-term employment benefits
Social security costs
Post employment benefits
Other benefits
Share-based payments charge
6
69
287
113
69
544
2017
£’m
0.3
0.1
2017
£’m
0.7
0.1
-
-
0.3
1.1
1
-
-
5
-
6
2016
£’m
-
-
2016
£’m
-
-
-
-
-
-
The key management of the Group include the Directors of the Company, the Group Finance function, and the Managing
and Financial Directors of each Division.
77
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
29. LEASING COMMITMENTS
The Group leases various premises and assets under non-cancellable operating lease agreements of varying terms. The
majority of the lease agreements are renewable at the end of the lease period at market rate.
Future aggregate minimum lease payments under
non-cancellable operating leases
– Within one year
– Within two to five years
– Over five years
Land and
buildings
2017
£’m
Land and
buildings
2016
£’m
Vehicles
2017
£’m
Vehicles
2016
£’m
0.2
0.7
0.4
1.3
-
-
-
-
1.2
0.9
-
2.1
-
-
-
-
The operating leases represent rentals payable by the Group for certain properties, vehicles and equipment.
30. MERGER OF MARLOWE HOLDINGS LIMITED
On 30 March 2016, the Company merged the assets and liabilities of Marlowe Holdings Limited, a strategic investment
company incorporated in Belize, for an equity consideration of £7.3 million (14,584,998 shares of 50p). The fair values are as
follows:
Cash
Subscription received in advance
Net assets
Fair value at
acquisition
£’m
10.6
(3.0)
7.6
Marlowe Holdings Limited's net assets included a £20,000 receivable from Marlowe plc. This was subsequently eliminated
following a merger along with the corresponding payable in Marlowe plc's statement of financial position. As a result, net
assets of £7.6 million were transferred upon the merger. A gain of £302,000 arose on merger and was recognised in the
Merger Relief Reserve. Subsequent to Marlowe Holdings Limited's liquidation following acquisition this was transferred to
Retained Earnings.
78
Marlowe plcAnnual Report 2017Notes to the Group financial statements continued
31. RELATED PARTY TRANSACTIONS AND CONTROLLING PARTY
The remuneration of key management personnel and details of the Directors' emoluments are shown in note 28.
The following sales and purchases were to companies which are related by virtue of Nigel Jackson being a controlling party.
Premier Business Support Services Limited
Video Receiving Centre Limited
Boundary Gate & Barriers (Contracts) Limited
Alarm Response of Keyholding Limited
Sales
2017
£’000s
-
41
7
20
Sales
2016
£’000s
10
27
6
8
Purchases
Purchases
2017
£’000s
-
202
96
351
2016
£’000s
-
208
83
195
32. POST BALANCE SHEET EVENTS
On 27 April 2017 the Company increased its debt facility with Lloyds Bank by an additional £5m to £17.5m (£15m term loan,
£2.5m revolving credit facility). £10m of the facility remains undrawn.
On 15 June 2017 the Company acquired Advance Environmental Limited, a provider of water treatment and hygiene
services, for a total consideration of £2.7m. One hundred percent of the equity was acquired in this transaction. A purchase
price allocation has not yet been performed as the Company is still in the process of establishing the fair value of the assets
and liabilities acquired in this acquisition.
79
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
Marlowe plc
Annual Report 2017
Company statement of changes in equity
For the year ended 31 March 2017
Balance at 14 January 2016
Loss for the period
Total comprehensive income for the year
Transactions with owners
Issue of shares during the year
Liquidation of Marlowe Holdings Limited
Balance at 31 March 2016
Balance at 1 April 2016
Loss for the year
Total comprehensive income for the year
Transactions with owners
Issue of shares during the year
Issue costs
Share-based payments charge
Balance at 31 March 2017
Attributable to owners of the parent
Share capital
£’m
Merger Relief
Reserve
£’m
Share
premium
£’m
Other
reserves
£’m
Retained
earnings
£’m
Total Equity
£’m
-
-
-
7.3
-
7.3
7.3
7.3
-
-
8.2
-
-
8.2
15.5
-
-
-
-
-
-
-
-
-
-
19.2
(0.5)
-
18.7
18.7
0.3
(0.3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.3
0.3
0.3
-
(0.1)
(0.1)
-
0.3
0.3
0.2
0.2
(1.7)
(1.7)
-
-
-
-
(1.5)
-
(0.1)
(0.1)
7.6
-
7.6
7.5
7.5
(1.7)
(1.7)
27.4
(0.5)
0.3
27.2
33.0
80
Marlowe plcAnnual Report 2017 Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Company statement of financial position
As at 31 March 2017
ASSETS
Non-current assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Financial liabilities – borrowings
Other financial liabilities
Subscription received in advance
Non-current liabilities
Financial liabilities – borrowings
Total liabilities
Net assets
EQUITY
Share capital
Share premium account
Other reserves
Retained earnings
Equity attributable to the owners of the parent
Note
33
34
35
36
37
36
38
39
2017
£’m
13.4
13.4
26.6
3.2
29.8
43.2
(4.5)
(1.1)
(0.9)
-
(6.5)
(3.7)
(10.2)
33.0
15.5
18.7
0.3
(1.5)
33.0
2016
£’m
-
-
-
10.6
10.6
10.6
(0.1)
-
-
(3.0)
(3.1)
-
(3.2)
7.5
7.3
-
-
0.2
7.5
In accordance with Section 408 of the Companies Act 2006, the Company has not presented its own income statement in
these financial statements. The Company results for the year included a loss after tax of £1.7m (2016: (£0.1m)).
These financial statements were approved by the Board of Directors and authorised for issue on 28 June 2017 and were
signed on its behalf by:
Derek O'Neill
Chairman
Alex Dacre
Chief Executive
81
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Marlowe plc
Annual Report 2017
Company accounting policies
These financial statements were prepared in accordance with Financial Reporting Standard 101 “Reduced Disclosure
Framework” (FRS 101”) and in accordance with applicable accounting standards. The Company has adopted the
following accounting policies, which are the same as applied by the Group: Revenue, Interest Income, Property, Plant
and Equipment, Acquisition and Other Costs, Leased Assets, Investments, Trade and Other Receivables, Cash and Cash
Equivalents, Trade Payables, Borrowings, Taxation, Provisions, Share-based Payments, Pensions and Financial Instruments.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
The requirements of paragraphs 45 (b) and 46-52 of IFRS 2 “Share based Payment” because equivalent disclosures are
included in the consolidated financial statements of the Group in which the entity is consolidated:
The requirements of IFRS 7 “Financial Instruments: Disclosures” because equivalent disclosures are included within the
consolidated financial statements in which the entity is consolidated:
The requirements of paragraphs 91-99 of IFRS 13 “Fair Value Measurement” because equivalent disclosures are included
within the consolidated financial statements in which the entity is consolidated:
The requirement in paragraph 38 of IAS 1 “Presentation of Financial Statements” to present comparative information in
respect of:
paragraph 79(a)(iv) of IAS 1;
paragraph 73(e) of IAS 16 “Property, Plant and Equipment; and
paragraph 118 (e) of IAS 38 “Intangible Assets”;
the requirements of paragraphs 10(d), 10(f), 39(c) and 134-136 of IAS 1 “Presentation of Financial Statements”;
the requirements of IAS 7 “Statement of Cash Flows”;
the requirements of paragraphs 30 and 31 of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”;
the requirements of paragraph 17 of IAS 24 “Related Party Disclosures”
the requirements in IAS 24 “Related Party Disclosures” to disclose related party transactions entered into between two
or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a
member;
the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d)-134(f) and 135(c)-135(e) of IAS 36 “Impairment of Assets”; and
the requirement to produce a balance sheet at the beginning of the earliest comparative period.
GOING CONCERN
The going concern basis has been applied in these accounts on the basis the Company generate management charges
and has access to funds made available from other Group companies.
The going concern position is discussed further in the consolidated financial statements of the Group on page 44 and
applies to the Company.
COMPANY INCOME STATEMENT
In accordance with section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its
own income statement. The results for the financial year of the Company are given on page 71 of the financial statements.
82
Marlowe plcAnnual Report 2017
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Notes to the Company Financial Statements
For the period ended 31 March 2017
33. INVESTMENTS
Shares in subsidiary undertakings.
Cost:
1 April 2016
Marlowe 2016
H2O
31 March 2017
Provision for impairment
1 April 2016
Charge for the year
31 March 2017
Net book value:
31 March 2016
31 March 2017
£’m
-
13.0
0.4
13.4
-
-
-
-
13.4
83
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Marlowe plc
Annual Report 2017
33. INVESTMENTS continued
At 31st March 2017, the Company held directly and indirectly equity and voting rights of the following undertakings:
Company
Class of holding
% held
Country of incorporation
Nature of business
All Management Divisions
All companies are registered at
Marlowe Plc, 20 Grosvenor Place,
London, SW1X 7HN.
*Marlowe 2016 Limited
**H20 Chemicals Limited
***Fire & Security (Group) Limited
***Swift Fire and Security Group Limited
***Protecting What Matters Limited
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
***Swift Fire Suppression Systems Limited
Ordinary
***Swift Fire & Security (National) Limited
Ordinary
***Swift Fire & Security (Northern) Limited
Ordinary
***Swift Fire and Security Limited
Ordinary
***Swift Fire& Security (Electrical Engineers)
Limited
***Swift Integrated Systems Limited
Ordinary
Ordinary
***Swift Keyholding and Response Limited
Ordinary
***Swift Connect Monitoring Limited
***Swift Monitoring Centre Limited
Ordinary
Ordinary
***Swift Fire & Mechanical Products Group
Ordinary
***Swift Fire & Mechanical Products Limited
Ordinary
***Swift Holdings Limited
Ordinary
***Fire Alarm Fabrication Services Limited
Ordinary
***Hentland Limited
***Titan Fire and Security Limited
***BBC Fire Protection Limited
Ordinary
Ordinary
Ordinary
***Alpha Peerless Fire Systems Limited
Ordinary
***WCS Environmental Group Limited
***WCS Environmental Limited
Ordinary
Ordinary
*
Held directly
** 15% held directly and 85% held via Marlowe 2016 Limited
*** Held via Marlowe 2016 Limited
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
England and Wales
Holding Company
England and Wales Water Treatment Services
England and Wales
Holding Company
England and Wales
Fire and Security Services
England and Wales
England and Wales
Dormant
Dormant
England and Wales
Fire and Security Services
England and Wales
Fire and Security Services
England and Wales
Dormant
England and Wales
Holding Company
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
England and Wales
Fire and Security Services
England and Wales
Fire and Security Services
England and Wales
Fire and Security Services
England and Wales
Fire and Security Services
England and Wales
Fire and Security Services
England and Wales
Holding Company
England and Wales Water Treatment Services
Dormant companies are exempt from filing accounts under section 394 of the Companies Act 2006
84
Marlowe plcAnnual Report 2017Notes to the Company financial statements continued Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
34. TRADE AND OTHER RECEIVABLES
Due in less than one year
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Amounts due from Group undertakings
Other receivables
Prepayments and accrued income
2017
£’m
0.3
-
0.3
25.5
0.2
0.6
26.6
2016
£’m
-
-
-
-
-
-
-
Of the £25.5m amounts due from Group undertakings, £20.8m relates to amounts due from Marlowe 2016 in respect of
investments made in the year.
35. TRADE AND OTHER PAYABLES
Trade payables
Amount due to Group undertakings
Other payables
Accruals and deferred income
2017
£’m
0.5
3.8
0.1
0.1
4.5
2016
£’m
0.1
-
-
-
0.1
The Company has financial risk management policies in place to ensure that all payables are paid within the credit time
frame.
36. FINANCIAL LIABILITIES – BORROWINGS
Current
Bank loans and overdrafts due within one year
Bank loans – secured
Non-current
Bank loans – secured
2017
£’m
2016
£’m
1.1
1.1
3.7
3.7
-
-
-
-
The bank debt is due to Lloyds Bank plc and is secured by a fixed and floating charge over the assets of the Group. The
interest rate profile and an analysis of borrowings is given in note 19. Under the bank facility the Group is required to meet
quarterly covenant tests in respect of cashflow cover, interest cover and leverage. All tests were met during the year and the
Directors expect to continue to meet these tests.
85
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Company financial statements continued
Analysis of net debt
Cash at bank and in hand
Bank loans and overdrafts due within one year
Bank loans due after one year
37. OTHER FINANCIAL LIABILITIES
Deferred Consideration
38. SHARE CAPITAL
Authorised:
37,925,456 ordinary shares of 50p each (2016: 28,113,332 ordinary shares of 50p each)
Allotted, issued and fully paid:
30,916,995 ordinary shares of 50p each (2016: 14,584,999 ordinary shares of 50p each)
The issued ordinary share capital is as follows:
Date
14 January 2016
30 March 2016 – equity issued in merger with Marlowe Holdings Limited
31 March 2016
1 April 2016 - Subscription Shares
1 April 2016 - Consideration Shares (“Swift”)
15 April 2016 - Consideration Shares (“WCS”)
7 September 2016 - Consideration Shares (“H2O”)
9 September 2016 - Subscription Shares
27 September 2016 - Subscription Shares
16 December 2016 - Subscription Shares
31 March 2016
2017
£’m
3.2
(1.1)
(3.7)
(1.6)
2017
£’m
0.9
0.9
2017
£’m
18.1
15.5
2016
£’m
10.6
-
-
10.6
2016
£’m
-
-
2016
£’m
14.1
7.3
Number of
ordinary shares
Issue price
1
14,584,998
14,584,999
3,000,000
3,500,000
287,878
211,765
2,994,166
2,888,187
3,450,00
30,916,995
50p
50p
100p
100p
165p
170p
170p
170p
290p
86
Marlowe plcAnnual Report 2017Notes to the Company financial statements continued
39. SHARE PREMIUM ACCOUNT
1 April 2016
Premium on shares issued during the year
Share issue costs
31 March 2017
2017
£’m
-
19.2
(0.5)
18.7
40. SHARE-BASED PAYMENTS
Details of the share-based payments can be found in note 27.
41. LEASING COMMITMENTS
The Company leases an office under an operating lease. The future minimum lease payments are as follows:
Future aggregate minimum lease payments under non-cancellable operating leases
– Within one year
– Within two to five years
– Over five years
42. DIRECTORS AND EMPLOYEES
Staff costs during the year
Wages and salaries
Social security costs
Post employment benefits
Share-based payments charge
2017
£’m
0.1
0.2
-
0.3
2017
£’m
0.4
-
-
0.3
0.7
2016
£’m
-
-
-
-
2016
£’m
-
-
-
-
2016
£’m
-
-
-
-
-
Average monthly number of employees during the year
Number
Number
Directors
Corporate Development
IT
Finance
Adminstration
1
2
1
1
1
6
1
2
1
1
-
5
87
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Company financial statements continued
Marlowe plc
Annual Report 2017
42. DIRECTORS AND EMPLOYEES continued
Total amounts for Directors’ remuneration and other benefits
Emoluments for Directors’ services
Directors’ remuneration shown above included the following amounts in respect of the
highest paid Director:
Salary and benefits
Key management compensation
Short-term employment benefits
Share-based payments charge
2017
£’m
0.1
0.1
2017
£’m
0.1
0.2
0.3
2016
£’m
-
-
2016
£’m
-
-
-
43. RELATED PARTY TRANSACTIONS AND CONTROLLING PARTY
Details of related party transactions can be found in note 30.
44. POST BALANCE SHEET EVENTS
On 27 April 2017 the Company increased its debt facility with Lloyds Bank by an additional £5m to £17.5m (£15m term loan,
£2.5m revolving credit facility). £10m of the facility remains undrawn.
On 15 June 2017 the Company acquired Advance Environmental Limited, a provider of water treatment and hygiene
services, for a total consideration of £2.7m. One hundred percent of the equity was acquired in this transaction. A purchase
price allocation has not yet been performed as the Company is still in the process of establishing the fair value of the assets
and liabilities acquired in this acquisition.
88 88
Marlowe plcAnnual Report 2017Notes to the Company financial statements continued Trading record
Officers & Advisers
Year ended 31 March
Revenue
Adjusted profit before taxation*
Adjusted earnings per share*
Net cash
Net assets
2017
£’m
46.8
2.9
10.4p
3.0
35.0
2016
£’m
-
-
-
10.6
7.5
* Before amortisation of intangible assets, share based payments, and acquisition and
restructuring costs.
Financial calendar
Event
Date
Annual General Meeting
19 September 2017
Half year results
Financial year end
Full year results
December
31 March
June
Further information
Marlowe plc
Website
www.marloweplc.com
Alex Dacre, Chief Executive
+44 (0)20 3813 8498
Email
IR@marloweplc.com
Cenkos Securities plc
(Nominated Adviser and Broker)
Nicholas Wells
Elizabeth Bowman
+44 (0)20 7397 8900
FTI Consulting
Nick Hasell
Alex Le May
+44 (0)20 3727 1340
Company Secretary
Derek O’Neill
Registered Office
20 Grosvenor Place
London
SW1X 7HN
Directors
Alex Dacre (appointed 14 January 2016)
Derek O’Neill (appointed 14 January 2016)
Charles Skinner (appointed 14 January 2016)
Peter Gaze (appointed 14 January 2016)
Nigel Jackson (appointed 1 April 2016)
Nominated Adviser & Broker
Cenkos Securities plc
6-8 TokenhouseYard
London EC2R 7AS
Public Relations
FTI Consulting
200 Aldersgate
Aldersgare Street
London EC1A 4HD
Solicitors
Brabners LLP
Fifth Floor 55 King Street
Manchester M2 4LQ
Bankers
Lloyds Bank plc
4thFloor 25 Gresham Street
London EC2V 7HN
Registrar and Transfer Agent
Capita Registrars Limited
The Registry 34 Beckenham Road
Beckenham Kent BR34TU
Independent Auditors
Grant Thornton UK LLP
Grant Thornton House
Melton Street Euston Square
London NW1 2EP
Company number: 09952391
Marlowe plc, 20 Grosvenor Place, London SW1X 7HN
www.marloweplc.com