Marlowe plc Annual Report and Financial Statements
for the year ended 31 March 2018
Contents
Highlights
Overview
Business model
Strategic Report
Chairman’s statement
Group overview
Chief Executive’s report
Our markets
Finance Director’s review
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
Additional Information
Trading record, financial
calendar and further information
Officers and advisers
1
2
4
6
10
18
20
24
26
28
30
32
33
38
39
40
41
42
80
81
82
83
89
89
Marlowe plc 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.
Alex Dacre
Chief
Executive’s
report
10-16
“
Our businesses provide
closely-related services
which deliver a
comprehensive and
integrated approach
to our customers safety,
regulatory compliance
and the upkeep of
the building systems
they rely on
“
Mark Adams
Finance
Director’s
review
20-22
Derek O'Neill
Chairman's
statement
4-5
Charles Skinner
Directors’
remuneration report
30-31
A fast-emerging history of shareholder value creation
Share price performance (%)
550
450
350
250
150
50
0
-50
Marlowe
AIM All Share
JMAMFJ
DNOSAJ
JMAMFJ
DNOSAJ
JMAMFJ
DNOSAJ
MAMFJ
2015
2016
2017
2018
During our second year of trading since formation we have further
refined our clear model to create shareholder value through the growth
and development of market-leading, complementary, service businesses.
Our businesses are now well-established forces in their markets and
our strategy has gained momentum. Our track record in value creation
continues to develop apace.
Since we launched our venture in May 2015, our market
capitalisation has grown from £3m to over £140m.
Highlights
Strong financial performance
• Two operating divisions providing
services across four main service sectors
• Top-four market position in each of
our sectors
• Nine acquisitions completed during
the year, two since year-end, nineteen
since inception
• Key divisional management appointments
and operational improvements
implemented during year
Revenue (£’m):
£80.6m
2018 £80.6m
2017 £46.8m
+72%
Adjusted EBITDA1 (£’m)
£7.2m
2018 £7.2m
2017 £4.0m
+81%
• New service sector entered during year,
with others under review
Adjusted PBT2 (£’m)
• Marlowe provides at least one
service to 9% of the UK’s 1.8m
non-residential buildings
• 10,000+ customers, 500+ national
accounts
• 700,000+ service visits each year
• 12,000,000+ assets serviced each year
£5.8m
2018 £5.8m
2017 £3.3m
+74%
Adjusted Earnings Per Share3 (p)
14.0p
2018 14.0p
2017 10.4p
+35%
1: Adjusted earnings before interest, tax, depreciation and amortisation (“EBITDA”) is EBITDA before separately disclosed acquisition and other costs as
presented on the consolidated statement of comprehensive income. 2: Adjusted profit before tax (“PBT”) is PBT before separately disclosed acquisition
and other costs as presented on the consolidated statement of comprehensive income. 3: Adjusted earnings per share is earnings per share calculated on
adjusted PBT.
These are all non-IFRS measures. Further information about these measures and the reasons why we believe they are important for an understanding
of the performance of the business is provided in the Finance Director’s review on p.20 and Note 4.
1
Marlowe plc
Annual Report 2018
Marlowe’s model for creating shareholder value
“
The potential offered by the fragmented service sectors that we identify combined
with our disciplined approach to M&A, quick decision making and the operational
improvements we implement, when married with our access to capital to invest in
growth, creates superior returns and provides a platform for significant growth
“
Alex Dacre Chief Executive
Acquire
Deep industry knowledge: identify
target sectors which fit with the Marlowe
investment criteria
• Businesses in strategically complementary service sectors
with good growth prospects which offer the potential to
build a strong position in markets that are large enough to
accommodate significant growth
• Sectors with resilient growth drivers where businesses
provide services which are non-discretionary and often
governed by the need for regulatory compliance
• Sectors in which the margins are attractive – and can be
enhanced through the efficiencies that come with scale
and operational improvements
• Sectors in which the need for services is sustained
throughout economic cycles and aren’t threatened by
technological change
• Fragmented markets where we recognise growing barriers
to entry which lay the foundations for consolidation.
These sectors are well suited to support growth, over and
above the long-term organic revenue growth rate, through
acquisition and subsequent integration
• We consider including equity in transactions which aligns
the interests of our management teams closely with our
shareholders and locks-in our people. In a similar vein,
the founders of Marlowe have invested in a significant
shareholding in the Company
Enhance
Agile decision-making and
entrepreneurial autonomy
• Make investment decisions, change and provide strategic
focus, oversee the implementation of operational
improvements; build scale and take advantage of the
economies it presents: we seek to improve customer service
whilst expanding margins and delivering an improved return
on capital
• Refine the business model of acquired companies in
preparation for further growth
• Broaden the service capabilities of acquired companies
through organic investment or further targeted acquisitive
growth
Operational and financial improvements
• Whilst we fundamentally believe in empowering our
management teams and our operational resources are
placed close to our customers, Marlowe is not a passive
investor in the businesses it acquires. The Marlowe team
have a very close relationship with each acquired business
and works with its management team to develop long-
term strategic plans, as well as having regular input on
key decisions, capital expenditure and working capital
management. 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
• Implement high standards of governance, financial systems
and controls with the aim of improving visibility, identifying
and nurturing our most profitable workstreams and
improving operating cash generation
A platform for fast-paced organic and acquisition-led growth
Industry expertise
service sectors with trends towards
consolidation
Set the strategic framework
a coherent model that fosters growth
Change management focus
empower our operating divisions
Effective governance
financial controls and close
Provide access to capital for
expansion
divisional oversight
funding M&A and organic investment
Operational improvements
route-based efficiencies
2
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Accelerate
Integrate
Collaborate
Acquisition-led
growth
• Organic investment and swiftly
executed, value-enhancing,
add-on M&A
• We inject pace into our businesses
whilst providing a platform which
allows our management teams to
focus on profitable growth
• We create value through utilising
our resources and re-investing
generated cash to accelerate the
growth of acquired businesses
through targeted add-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 adept at quickly identifying,
negotiating and executing these
types of deals. Our pipeline of
potential add-on deals going into
the new financial year is strong and
well-developed
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 and those in which
scale enhances our competitive
proposition
Expertise in market
consolidation
• Bring about efficiencies and
leverage economies of scale to build
leading positions across the UK
• Our acquisition model is
disciplined, based on clear criteria
and can be deployed at pace. Our
M&A team are responsible for
identifying targets and maintaining
key relationships. We are in
contact with numerous acquisition
targets at any one time. We know
what it takes to deliver successful
acquisitions across the UK service
sector landscape and are experts in
scrutinising targets and structuring
deals before overseeing carefully
planned integration programmes
and providing close governance
of new businesses under our
ownership
• Through adding further scale, with
add-on acquisitions, we create
opportunities for our management
teams to realise the synergies
between acquired businesses
and to implement operational
improvements
• Our management teams are
proficient in post-acquisition
management, restructuring
and tight cost-control. Our
integration processes are well-
rehearsed and carried out by
dedicated resource
Collaboration within
our Group
• Realise strategic synergies across
the Marlowe group which provide a
competitive advantage and further
accelerates growth
• We favour entering sectors
which share a similar channel to
market and where our customers
can see the logic. This creates
competitive advantages: because
all the businesses in our Group
share a similar customer base,
with services usually procured by
the same decision-makers within
our customers’ organisations, 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. When
successfully executed, this binds our
relationships with customers more
firmly
• 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
A platform for fast-paced organic and acquisition-led growth
Industry expertise
service sectors with trends towards
Set the strategic framework
a coherent model that fosters growth
Change management focus
empower our operating divisions
consolidation
Effective governance
financial controls and close
divisional oversight
Provide access to capital for
expansion
funding M&A and organic investment
Operational improvements
route-based efficiencies
3
Marlowe plc
Annual Report 2018
Chairman’s statement
For the year ended 31 March 2018
“
I am pleased to report a second year of strong
progress for the Group as we continue to
develop and implement our strategy of organic
and acquisitive growth focused on regulated
service markets
Derek O’Neill
“
Non-Executive Chairman
Results
2018 represents the second year of trading for Marlowe plc
and another successful year as we delivered operational
improvements and further expanded our activities and
geographical coverage through the implementation of our
acquisition led strategy.
The details of our financial performance are set out in the
Chief Executive’s and Finance Director’s reviews.
For the year ended 31 March 2018, adjusted EBITDA1 was
ahead of market expectations at £7.2 million. Revenue was
£80.6 million and earnings per share2, on an adjusted basis,
were also ahead of market expectations at 14.0 pence.
The Group has two operating divisions, Fire Protection &
Security Systems (“Fire & Security”) and Water Treatment
& Air Quality (“Water & Air”) both of which are focused on
providing critical asset maintenance services across the UK
built environment. During a year of significant restructuring,
the Fire & Security division performed in line with
expectations benefitting from the full year contribution of
acquisitions in 2017 and a partial contribution from those
completed in 2018. The Water & Air division had a strong
year. Good organic growth supplemented the impact of
acquisitions and operating margins improved as a result of
the focus on operating efficiencies.
Investment focus
Critical services
Recurring revenues
Operational complexity
Our investment focus is on B2B service
sectors in which businesses provide
services which are essential or
mandatory, where demand is at least
partially driven by regulation and there
is consistency in demand. The mission-
critical nature and switching costs of
these services can result in customer
stickiness: if we deliver a competitive
service, customers generally prefer not
to change provider.
A large proportion of our revenues
recur periodically from month to month
and year to year and derive from long-
term, durable customer relationships.
These revenues, which demonstrate
these annuity-type characteristics, allow
for good forward earnings visibility and
allow us to plan our operations many
months ahead.
We focus on service sectors which are
technical, specialist and operationally
complex to deliver. These services
command attractive margins thanks to the
value they add to our customers’ operations.
They are invariably outsourced rather
than conducted in-house because of this
specialist nature, the levels of regulatory
compliance which govern them, the need
for service providers to adhere to stringent
industry standards and the efficiencies
which can result from outsourcing.
4
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Corporate transactions
We completed nine acquisitions in the year and a further
two since the year-end, adding to the eight acquisitions
during Marlowe’s first year of trading. In line with
our strategy to broaden the Group's capabilities into
complementary areas of critical asset maintenance, the key
event in the year was the acquisition in July of Ductclean
(UK) Limited ("DCUK"), which broadened the services
provided by the Group into a market-leading position
in the ventilation maintenance, ductwork cleaning and
management, kitchen extract cleaning and contamination
remediation services markets ("Air Quality").
In addition to the DCUK transaction, we added scale and
further broadened the Group’s capabilities through four
add-on acquisitions in the Fire & Security division and four
in the Water & Air division.
People
We appointed Mark Adams as Group Finance Director
on 1 January 2018. Mark brings to Marlowe more than
20 years of experience in senior finance roles in a broad
range of sectors.
In addition to Mark’s appointment, we also appointed Rob
Flinn to the role of Chief Executive of the Fire & Security
division and Phil Greenwood as Chief Executive of our
Water businesses. Rob and Phil both bring to the Group
a wealth of relevant experience in building and managing
businesses in the UK support services sector.
Since our first acquisition in April 2016, our Group has
rapidly increased in scale and now employs over 1,300
people, over half of whom are highly skilled engineers.
The continued dedication of all the teams across Marlowe
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 and I would like to thank all of our people for
their hard work and dedication.
Looking forward
The markets in which we operate are fragmented, and offer
significant scope for continued organic and acquisitive
growth. We are well-placed to take advantage of this
opportunity through the model that we have established.
We have a well-developed pipeline of attractive
opportunities to add further scale to the Group as we
continue to implement our strategy of building a leading
UK support services group in complementary areas of
critical asset maintenance.
The new financial year has started in line with our
expectations and we look forward to making further
progress during the year.
1: Adjusted earnings before interest, tax, depreciation and amortisation (“EBITDA”) is EBITDA before separately disclosed acquisition and other costs as presented
on the consolidated statement of comprehensive income. 2: Adjusted earnings per share is earnings per share calculated on adjusted profit before tax (“PBT”).
These are all non-IFRS measures. Further information about these measures and the reasons why we believe they are important for an understanding of the
performance of the business is provided in the Finance Director’s review on p.20 and Note 4.
Derek O’Neill
Non-Executive Chairman
25 June 2018
Economies of scale
Strategic fit
Fragmented markets
We favour service sectors in which scale
can present the opportunity to generate
enhanced efficiencies for our customers
and returns for our shareholders, and
those in which larger, national operators
generate pricing power and possess a
competitive advantage in winning and
delivering business. All the sectors we
focus on and occupy offer significant
scope for profit growth and margin
enhancement.
We will continue to build our Group
upon businesses which fit well together
and share a similar channel to market
along with complementary operational
methodologies. This provides our
businesses with an automatic advantage
gained through our ability to share
customer relationships across the
Group and to implement well-rehearsed
operational improvement initiatives.
We focus on markets which are
fragmented which we believe exhibit
characteristics that lend themselves
well towards industry consolidation.
As we inject pace and build market
share through add-on acquisitions and
investment in organic growth, barriers
to entry grow as the service which we
can deliver, and the returns we can
generate, create barriers against our
smaller competitors.
5
Marlowe plc
Annual Report 2018
Group overview
Our history
2015-16
• Marlowe was formed in May
2015 as a platform for growth
through targeted acquisitions in
B2B service sectors
• Board appointed, £8m
fundraising and acquisition
search begins
• Initial focus on businesses
providing regulated maintenance
service in sectors across the
UK that possess annuity-type
recurring revenues, typically
with long term contracts and a
degree of operational complexity
2016-17
• Admission to AIM as Marlowe
plc in April 2016
• Formation of Fire Protection
& Security Systems division
through acquisition of Swift Fire
& Security
• Formation of Water Treatment
division through acquisition of
WCS
• Six further add-on acquisitions
2017-18
• Developed a market leading
position in Air Quality &
Ventilation Hygiene market,
expanding into a new service
sector, through the acquisition
of DCUK
• 8 further add-on acquisitions
• Key divisional leadership
appointments made
• Mark Adams appointed as Group
Finance Director
2018 and beyond
• 2 further add-on acquisitions
announced so far this year
• Build existing divisions into
market leaders through further
organic and acquisition-led
growth and continue to broaden
capabilities into adjacent
and complementary service
sectors which offer scope for
consolidation
6
6
Marlowe’s unique strength is that it provides
a range of closely related critical testing and
maintenance services each of which is delivered
by one of our specialist Fire & Security or Water
& Air divisions. Individually, these divisions
are leaders in their fields but together form a
group that can provide our customers with a
comprehensive and integrated approach to their
safety, regulatory compliance and the upkeep of
the building systems they rely on.
That means more convenience, better across
the board compliance, greater consistency
and, of course, the benefits of a trusted in-
depth relationship. More importantly, our size,
range and extensive national footprint give our
customers the peace of mind that comes from
knowing that they can count on Marlowe to
deliver those mission critical services that are so
vital to them every day of the year in every part
of the UK.
Our Group
Fire Protection & Security
Systems division
Provision of maintenance and installation services
providing a comprehensive range of fire safety
compliance, fire protection, security systems and
connected services
Revenue (£'m)
Adjusted EBITDA1 (£'m)
2018
2017
+39%
£52.6m
2018
£4.6m
£37.8m
2017
£3.8m
+25%
1: Adjusted earnings before interest, tax, depreciation and amortisation (“EBITDA”) is EBITDA before
separately disclosed acquisition and other costs as presented on the consolidated statement of
comprehensive income.
This is a non-IFRS measure. Further information about this measure and the reasons why we
believe it is important for an understanding of the performance of the business is provided in the
Finance Director’s review on p.20 and Note 4.
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
The Marlowe business philosophy
Our decentralised operating model gives our businesses considerable
autonomy within a well-defined strategic and control framework.
Our managers are empowered to make the decisions that they need to
for their businesses and markets. Our model seeks to retain the agility of
entrepreneurial private businesses whilst providing a platform, as part of
Marlowe, which unlocks their potential and stewards their rapid growth,
ensuring that all the key stakeholders are focused on value creation.
Air
15%
of total
annualised
revenue
Fire &
Security
60%
of total
annualised
revenue
Water
25%
of total
annualised
revenue
Water Treatment & Air Quality division
Water Treatment: Provision of
maintenance and engineering services
related to treating, optimising and
safeguarding a building’s water systems
Air Quality: Provision of services
related to ventilation maintenance &
management, ductwork and extract
cleaning and contamination remediation
Revenue (£'m)
2018
2017
£9.0m
+221%
Adjusted EBITDA1 (£'m)
£28.8m
2018
£3.6m
2017
£0.9m
+274%
1: Adjusted earnings before interest, tax, depreciation and amortisation (“EBITDA”) is EBITDA before separately disclosed acquisition and other costs as
presented on the consolidated statement of comprehensive income.
This is a non-IFRS measure. Further information about this measure and the reasons why we believe it is important for an understanding of the performance
of the business is provided in the Finance Director’s review on p.20 and Note 4.
7
Our Group
Marlowe plc
Annual Report 2018
Group overview continued
All the spheres in which we operate are complementary: Fire Protection & Fire Safety
Compliance, Security Systems, Water Treatment, Ventilation Hygiene and Contamination
Remediation are all services which are governed by strict regulation and tend to be
procured by the same person or department within an organisation. Ever-increasing health
and safety awareness results in stricter legislation and places more onus on organisations to
ensure the safety of their buildings’ occupants, in turn driving our growth.
All Marlowe’s businesses operate nationally and are represented by around 750 technically
trained field-based service engineers in nearly every postcode across the UK along with a
team of 550 support, sales and account management staff. We install, test, inspect, maintain
and certify complex fire, security, water and ventilation systems ensuring they are working
at optimum efficiency and complying with legislation. Our services are mission-critical
and our responsibility, in many cases, is not just to keep our customers’ systems operating
effectively, but also to keep our customers safe from very real health and safety threats.
“Route Density”
The ability to service multiple
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, nationwide
customers that we can deliver more
economically. The maps on the right
demonstrate how the density of our
engineers, and their resultant proximity
to our customers, has progressed over
the past two years.
Acquisitions conducted during 2018
15 June 2017
14 August 2017
25 August 2017
Advance Environmental,
a Brackley based Water
Treatment specialist
Philton, a Watford
based Fire & Security
service business
BTE Systems, a
Chertsey based Fire
Protection specialist
31 July 2017
Ductclean UK, the UK leader
in ventilation hygiene and
contamination remediation
25 October 2017
dB Audio, a Tonbridge
based Fire Protection
specialist
Jun
8
Jul
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
201720172016 Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
“
Our businesses, which all operate across mainland Britain,
are distinct from one another and our management teams
have the freedom to operate and to innovate in response to
customer feedback. Collectively, our Group understands what
it takes to effectively deliver services which ensure safety,
systems efficiency and regulatory compliance
“
Derek O’Neill
Non-Executive Chairman
1,300
Employees
22
Sites
750
Engineers &
technicians
Acquisitions conducted during 2018
8 December 2017
SB Hygiene, a Osset
based ventilation
hygiene specialist
7 February 2018
Future Water, a
Milford based Water
Treatment specialist
17 May 2018
Forest Environmental, an
environmental services and
asbestos remediation business
20 December 2017
26 March 2018
24 April 2018
Guardian Water, a
Basildon based Water
Treatment specialist
Flamefast Fire Systems,
a Wellingborough based
commercial kitchen fire
safety specialist
Island Fire Protection,
a Birmingham based fire
protection specialist
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
9
201820182017
Marlowe plc
Annual Report 2018
Chief Executive’s report
For the year ended 31 March 2018
Marlowe continues to
demonstrate strong
progress
“
We have continued to execute
our strategy at pace throughout
the year. Our Group has been
transformed in the two years
since we commenced trading
and our run rate revenues
are now approaching
£100 million
“
Alex Dacre
Chief Executive
Investment propositon
Marlowe’s record for
generating shareholder value
is built upon attractive and
sustainable foundations
Robust markets with steady growth prospects
Long customer relationships, annuity-type
Growth through value-enhancing M&A
recurring revenues with good future visibility
and integration
We operate in specialist markets and provide services
that are largely non-discretionary and generally insulated
from changes in trends or the economy. Growth is
underpinned by long-term drivers: population growth,
insurance requirements, reputational risk, urbanisation,
digitalisation driving the need for more complex
systems and the resulting requirement that they have
for maintenance along with ever-increasingly broad and
stringent health, safety and environmental regulations
and their enforcement burden.
Our services are non-cyclical and each year we forward
The combination of fast-paced acquisition activity and
plan over 700,000 visits to maintain millions of assets.
organic investment enables us to deliver impressive
Our services are so vital to our customers and in many
growth which outpaces our competitors and the market.
instances complex to effectively deliver that the costs and
We occupy fragmented markets and have a record of
inconvenience of switching providers can be undesirable
sourcing complementary bolt-on acquisitions which we
leading to interdependence and high retention rates.
effectively integrate resulting in increased efficiency,
Our businesses, which have a core focus on regulated
cost-savings and a larger market share. When acquired
services, offer long-term growth and our knowledge of
businesses join our Group we focus on driving revenue
these markets ensures we channel our efforts into areas
synergies that are available to us through effective inter-
we are confident will provide sustainable returns.
company collaboration within the Marlowe group.
10
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
The Group made good progress during 2018 delivering a strong
financial performance with substantial improvements in revenue,
adjusted profit and adjusted earnings per share, alongside
significant M&A activity and further focus and investment on
operational improvements.
For the year ended 31 March 2018, adjusted EBITDA1 was
up 81% to £7.2 million, adjusted profit before tax2 was up
74% to £5.8 million and adjusted earnings per share3 were
up 35% to 14.0p on revenues up 72% to £80.6 million.
We have continued to execute our strategy at pace
throughout the year. Our Group has been transformed in
the two years since we commenced trading and our run
rate revenues are now approaching £100 million.
We formed Marlowe 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, the regulation that drives its growth, high
customer retention rates and its attractive earnings visibility
we decided, initially, to enter the Fire & Security market.
Since then, we have implemented a clear strategy to build
a leading UK support services group providing a range
of closely related critical maintenance services each of
which is delivered by one of our specialist Fire Protection
& Security Systems (“Fire & Security”) or Water Treatment
& Air Quality (“Water & Air”) divisions. Individually, the
businesses that make up these divisions are leaders in
their fields but together form a group that can provide our
customers with a comprehensive and integrated approach
to their safety, regulatory compliance and the upkeep of
the building systems they rely on. The markets on which we
focus offer long-term growth prospects and we continue to
benefit from an increased awareness of the requirement to
comply with high safety standards and regulations.
We completed nine further acquisitions during our 2018
financial year and have completed another two acquisitions
following the year end. Our two operating divisions,
now focused on four main service sectors, are becoming
well-established forces in their respective markets. Our
decentralised structure allows each division operational
autonomy within a clearly defined strategic framework.
This approach is designed to promote collaboration
1: Adjusted earnings before separately disclosed interest, tax, depreciation and amortisation (“EBITDA”) is EBITDA before acquisition and other costs as
presented on the consolidated statement of comprehensive income. 2: Adjusted profit before tax (“PBT”) is PBT before separately disclosed acquisition
and other costs as presented on the consolidated statement of comprehensive income. 3: Adjusted earnings per share is earnings per share calculated on
adjusted PBT.
These are all non-IFRS measures. Further information about these measures and the reasons why we believe they are important for an understanding of the
performance of the business is provided in the Finance Director’s review on p.20 and Note 4.
Robust markets with steady growth prospects
Long customer relationships, annuity-type
recurring revenues with good future visibility
Growth through value-enhancing M&A
and integration
We operate in specialist markets and provide services
that are largely non-discretionary and generally insulated
from changes in trends or the economy. Growth is
underpinned by long-term drivers: population growth,
insurance requirements, reputational risk, urbanisation,
digitalisation driving the need for more complex
systems and the resulting requirement that they have
for maintenance along with ever-increasingly broad and
stringent health, safety and environmental regulations
and their enforcement burden.
Our services are non-cyclical and each year we forward
plan over 700,000 visits to maintain millions of assets.
Our services are so vital to our customers and in many
instances complex to effectively deliver that the costs and
inconvenience of switching providers can be undesirable
leading to interdependence and high retention rates.
Our businesses, which have a core focus on regulated
services, offer long-term growth and our knowledge of
these markets ensures we channel our efforts into areas
we are confident will provide sustainable returns.
The combination of fast-paced acquisition activity and
organic investment enables us to deliver impressive
growth which outpaces our competitors and the market.
We occupy fragmented markets and have a record of
sourcing complementary bolt-on acquisitions which we
effectively integrate resulting in increased efficiency,
cost-savings and a larger market share. When acquired
businesses join our Group we focus on driving revenue
synergies that are available to us through effective inter-
company collaboration within the Marlowe group.
11
Marlowe plc
Annual Report 2018
Chief Executive’s report continued
Marlowe’s defensive market qualities, strong channel to market, organic
growth momentum and potential to acquire new businesses strongly
position us to continue to create shareholder value.
between all of the Group’s businesses and demonstrate
to our customers the clear coherence across the services
they provide. This decentralised structure relies on the
calibre of our divisional management teams, which we have
strengthened and refocused during the year through key
leadership appointments in our Fire & Security and Water
Treatment businesses.
Alongside building market-leading positions in each
service sector in which we operate, our model seeks to:
identify adjacent areas for further diversification that satisfy
certain key investment criteria; acquire a platform business
within that area; enhance and improve the operations of
that platform; and accelerate its growth through further,
targeted, bolt-on acquisitions to build and integrate a
national infrastructure.
The service sectors that we enter are a logical extension
of those where we already have a presence and the
acquisition during the year of DCUK, the market leader
in ventilation hygiene and contamination remediation,
was an example of this strategy in action. Since the DCUK
acquisition, we have acquired SB Hygiene and, following
the year-end, we acquired the business and assets of
Forest Environmental – two complementary add-on
acquisitions which have extended the scale and capabilities
of DCUK and enhanced its national footprint. Additionally,
DCUK’s growth has been accelerated through access
to the customer base of other Marlowe companies and
similarly other Marlowe companies have been successful
in delivering services, such as Fire Protection and Water
Treatment, to the DCUK customer base.
As a Group we now have a successful track record of
sourcing, acquiring, integrating and developing businesses
providing critical asset maintenance services across the UK
and our strategy is focused on three main areas:
•
•
continuing to build the scale of our activities in
Fire & Security and Water & Air through continued
investment in organic growth, cross-selling across
the customer bases and through further fast-paced
acquisition activity;
enhancing and improving the operations of each of our
route-based operating divisions. We are focused on
margin enhancement which can be effected through
engineer utilisation and productivity, procurement
initiatives, and is directly determined by route
density such that increased scale, when employed
appropriately, results in improved profitability and
more rapid response-times and service;
• broadening the Group’s capabilities both within
existing service sectors and also by extending the
scope of its activities through further targeted strategic
acquisitions of businesses in complementary service
sectors that possess a strong element of recurring
revenues and would benefit from being part of our
Group, to which we can then apply the Marlowe
acquisition-based growth model.
Marlowe’s defensive market qualities, strong channel
to market, organic growth momentum and potential to
acquire new businesses strongly position us to continue to
create shareholder value.
Operational improvements
Growing barriers to entry
We are experts in UK route-based services and we look
to continually improve engineer utilisation & productivity
to add value to our customers and generate improved
returns. We invest in our people to ensure that they
possess the correct tools and expertise to enhance our
services. We implement route planning tools to improve
response times and ensure that we effectively leverage
our scale to spend less time travelling between jobs and
more profitable time delivering services. Service levels,
organic growth and profitability, when balanced correctly,
go hand in hand in our markets such that our most
efficient means of profitable growth is achieved through
refining and improving our service delivery model.
In each of our service sectors, we are one of only a small
number of providers who can operate nationally. Our
customers increasingly seek to consolidate their supplier
base towards partners who, like them, possess a national
footprint. They continue to demand better standards of
service, partly in order to comply with higher regulatory
standards, which our smaller competitors find difficult
to deliver on any sort of scale; the scale economies
that we are beginning to enjoy and, in particular, the
advantages presented by route density (the proximity of
our customers to one another), make our services more
desirable to our customers and profitable to deliver,
further strengthening our position.
12
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Water & Air division margin expansion
Strategy in action
Enhance
We entered the Water Treatment market in April 2016
through the acquisition of WCS Group. The acquired
business had revenues in the region of £6m. Since
acquiring WCS we have gone on to acquire a number of
other water treatment businesses whilst also broadening
the capabilities of the division into the ventilation hygiene
and contamination remediation markets. We have
enhanced and refocused management, made investments
in unified technology platforms to drive revenues, removed
duplicated costs, strengthened our customer relationships
and effectively integrated add-on acquisitions. Revenues
in the twelve months to March ’18 were £29m and are
expected to expand significantly again during the current
financial year. Since we acquired WCS, our focus on
operational improvements and the economies that come
with the scale from which we now benefit have resulted
in a 2.3 percentage point improvement in the division’s
underlying operating margin.
Today, our water business is one of the largest specialist
water treatment and hygiene outsourcing companies in
the UK. We have strong market positions with universities
(working for more than 23 of the top 60) and in healthcare
(working on over 270 NHS Trust and Care Home sites
across the UK). We also have significant experience in
aerospace and defence and hospitality and leisure (working
for a large portion of the major UK hotel groups). Our
customers now have access to digital applications: ‘For
the Record’, our online customer compliance portal, our
remote monitoring services and our operating system
which digitally connects all our engineers and allows our
customers access to their critical asset compliance data in
real time.
“
Underlying operating profit margin (%)
2018
2017
11.6%
9.3%
+24.5%
“
13
Our focus on integration, cost-control and disciplined working capital management ensures we are able to deliver enhanced returns on capital to our investors Mark Adams Group Finance Director
Marlowe plc
Annual Report 2018
Chief Executive’s report continued
Key performance figures
Revenue
2018
£’m
Revenue
2017
£’m
52.6
28.8
37.8
9.0
(0.8)
-
80.6
46.8
Adjusted
operating
profit1
2018
£’m
Adjusted
operating
profit1
2017
£’m
3.9
3.3
(1.0)
6.2
3.4
0.8
(0.7)
3.5
Fire & Security
Water & Air
Inter-segment
elimination / Head
Office costs
Total
Fire & Security division
During a period of significant restructuring, the Fire &
Security division traded in line with expectations during
2018 and recorded adjusted EBITDA2 growth of 25% to
£4.6 million with adjusted operating profits1 of £3.9 million
(2017: £3.4 million) and revenues of £52.6 million
(2017: £37.8 million). The main contributor to this growth
was the impact of add-on acquisitions made at the end of
2017 and during 2018.
Our Fire & Security division comprises three main activities
focused on the maintenance of fire and security systems:
installation and mandatory recurring maintenance of
mechanical and electrical systems. The systems we
maintain are designed to detect and suppress fire,
protecting people from the threat it poses; the provision
of services related to installing and maintaining electronic
security systems; and 24/7 monitoring and connected
services for alarms and CCTV from our purpose-built
Alarm Receiving Centre (‘ARC’). The strategic strength of
this business model was demonstrated towards the end
of the financial year with the award of a national contract
across c.3,000 stores for one of the UK’s largest retailers.
The division now delivers an integrated fire safety, security
and off-site monitoring solution. This strength was also
evident following the liquidation of Carillion, a customer of
the Group, when we successfully re-secured the majority
of the work directly with the end customers that we had
previously conducted as a sub-contractor, in a number of
cases at enhanced profit margins.
Our model and the bulk of our revenues are based upon
contracted maintenance and planned service visits, which
are typically arranged months in advance alongside
reactive repairs and remedial works, and which provide
good forward revenue visibility. During the year we
conducted four earnings-enhancing add-on acquisitions in
Fire & Security, with a further acquisition since the year-end.
These acquisitions have significantly extended our base of
recurring revenues and our density of customer locations.
When we acquire a business in this space, we refocus
it where necessary to ensure that it is aligned with the
recurring maintenance on which our model is based.
Operational efficiency, which can be enhanced through
economies of scale mainly linked to route density, and high
standards of service are closely linked in the provision of
fire and security services. Through ensuring that engineers
have the appropriate training, the correct stock and that
their routes are carefully planned, we focus closely on our
ability to both increase the amount of time that an engineer
spends at a customer’s site (as opposed to travelling
between them) and also to remediate system faults at
the first service visit, thus avoiding the need for a return
visit. 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 will improve and the key metric, revenue
per engineer per day, grows too. As one of a small number
of truly national service providers in the market, we expect
to benefit from the current trend of national customers
consolidating their suppliers.
During the past year we have made good progress on the
restructuring and integration of the four fire and security
acquisitions that were completed in the year and the six
acquisitions completed during 2017. The integrations are
on track, our model is well-defined, and the business is
now operating as three main brands following the recent
rebranding of our main Fire & Security entity as Marlowe
Fire & Security. Our focus within the division has continued
to be on investing in the development of our nationwide
operating platform in preparation for further growth,
alongside developing and investing in our engineering
teams to enhance standards of service and compliance
at customers’ sites. We expect these initiatives to deliver
attractive improvements in our operating margins in
the medium term and our near-term operational focus
continues to be on leveraging our increased scale.
Following the acquisitions, we have been focused
on closing and relocating three regional offices and
integrating our service delivery network. All the businesses
within the division now operate from unified operating
systems resulting in increased visibility. The acquisition of
Flamefast, the leader in the installation and maintenance
of fire suppression systems with a focus on commercial
1: Adjusted operating profit is adjusted EBITDA less depreciation incurred during the year. 2: Adjusted earnings before interest, tax, depreciation and
amortisation (“EBITDA”) is EBITDA before separately disclosed acquisition and other costs as presented on the consolidated statement of comprehensive
income. These are all non-IFRS measures. Further information about these measures and the reasons why we believe they are important for an understanding
of the performance of the business is provided in the Finance Director’s review on p.20 and Note 4.
14
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Fire and Security add on acquisitions
Strategy in action Integrate
“
We possess the skills to identify good quality, compatible
acquisitions which we are able to effectively integrate through
carefully implemented programmes
“
Alex Dacre
Chief Executive
During the year we conducted a number of
add-on Fire & Security acquisitions. These types
of acquisitions typically have £1-£10m of revenues
and enable us to accelerate our growth in attractive
geographic areas and build critical mass. Once
properly integrated these acquisitions enable us
to remove duplicated costs (such as unnecessary
regional offices), infill locally, develop further
density and grow margins. Once integrated, we
can improve service levels and response times for
customers who benefit from our scale, breadth of
technical expertise and the investments in digital
applications we make to enhance the customer
experience. Our proprietary systems allow our fire
& security engineers to quote for remedial works at
service visits to ensure that our customers’ systems,
whenever possible, are functioning safely following
the first service visit. The investments that we make
across our Group, the opportunities that we provide
to our people and the ambitious strategy that we
have embarked upon enable us to attract and
retain motivated and technically capable people to
work for us.
15
Marlowe plc
Annual Report 2018
Chief Executive's report continued
kitchen fire safety, demonstrates our strategy to broaden
our capabilities into areas of the fire protection market
aligned to our customers’ needs. The services provided by
Flamefast are also highly complementary to those of other
Marlowe businesses, such as DCUK which provides a range
of services to commercial kitchens across the UK.
The economies of scale that these acquisitions will provide,
once integrations are fully complete, are expected to be a
significant contributor to enhanced profitability and we are
now beginning to see some improvements in margins as
acquisition and route density synergies are realised.
Water & Air division
Our Water & Air division traded strongly in 2018 with
adjusted EBITDA1 increasing by £2.7 million to £3.6 million
and adjusted operating profits2 of £3.3 million
(2017: £0.8 million). Turnover increased from £9.0 million
to £28.8 million, as a result of the acquisitions made in
2017 and 2018 which supplemented good organic growth.
Our Water & Air division comprises three primary activities:
water treatment & hygiene, ventilation hygiene and
contamination remediation.
Water treatment & hygiene, which has been formed
through five acquisitions, is the largest and most profitable
segment of the division and is focused on delivering
services related to maintaining and optimising a building’s
water systems to: manage the health and safety risk posed
by water borne diseases; maintain systems to improve
operational efficiency, extend life and conserve energy;
and to provide engineering and installation services to
water systems, with a focus on converting these projects
into long-term recurring service relationships. Our water
treatment activities trade as two main brands, WCS Group
and Guardian Water, and operate nationally from four main
locations across the UK. We are a top-three player in our
segment of the market.
During the year we broadened the division’s capabilities
into the ventilation hygiene and contamination remediation
markets through three acquisitions, two of which were
completed during the financial year and one post year-
end. These activities are focused on delivering a range
of services related to ventilation maintenance, ductwork
cleaning and management, kitchen extract cleaning –
services largely designed to ensure air hygiene standards
and prevent the spread of fire through ventilation systems
in commercial buildings, alongside a leading capability
in asbestos and contamination remediation services. We
trade as DCUK FM from three locations across the UK. The
business, which has had a promising start under Marlowe
ownership, is the market leader in its sector and unlike
our other markets, the ventilation hygiene market is fast-
growing, relatively immature and significantly un-vended
which provides us with significant scope for organic growth,
which has been accelerated during the year through our
cross-selling activities. We have proven our ability to
accelerate this growth through acquisitions in this market
which is at the early stages of consolidation.
Much like our Fire & Security activities, critical mass and
route density can lead to increased efficiency in the
provision of water and air services. The market remains
highly fragmented, but the advantages of route density on
a national scale, along with the increasing awareness within
our customer base of the requirement to comply with
standards and regulations, continues to put pressure on the
smaller independent players. We view this as representing
a significant opportunity for the Group to continue to
consolidate this market through further acquisitions.
The integration of the acquisitions conducted during the
year is on track and cost savings as a result of the mergers
have been in line with our expectations at the time of
acquisition. Operating margins within the division improved
to 11.6% for the year (2017: 9.3%) as we begin to see the
benefits of our increased scale and the effectiveness of our
focus on operating efficiencies. As in Fire & Security, we
strengthened our management team bringing on board
a new leader to head up our water treatment activities
towards the end of the year as we prepare the division for
further planned growth and continue to convert our well-
developed pipeline of acquisition opportunities.
Outlook
The markets in which we operate are fragmented and offer
significant scope for continued organic and acquisitive
growth. We are well-placed to take advantage of this
opportunity through the model that we have established.
We have a well-developed pipeline of attractive
opportunities to add further scale to the Group as we
continue to implement our strategy of building a leading
UK support services group in complementary areas of
critical asset maintenance.
The new financial year has started in line with our
expectations and we look forward to making further strong
progress during the year.
Alex Dacre
Chief Executive
1: Adjusted earnings before interest, tax, depreciation and amortisation (“EBITDA”) is EBITDA before separately disclosed acquisition and other costs as
presented on the consolidated statement of comprehensive income. 2: Adjusted operating profit is adjusted EBITDA less depreciation incurred during the year.
These are all non-IFRS measures. Further information about these measures and the reasons why we believe they are important for an understanding of the
performance of the business is provided in the Finance Director’s review on p.20 and Note 4.
16
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Acquisition of Guardian Water
Strategy in action Accelerate
We acquired Guardian Water Treatment Limited
(“Guardian”) for approximately £3m in December 2017
to expand the scale of our Water division. The business
has revenues of about £7m.
Founded in 2000, Guardian operates nationally from head-
quarters in Basildon, Essex, and employs around 90 staff.
Guardian provides a comprehensive portfolio of water
treatment services to over 400 customers with a significant
presence within the facilities management, engineering
and manufacturing sectors in and around London, a market
in which our existing Water Services business previously
lacked critical mass. The acquisition accelerated our growth
into one of the UK’s leading providers of water treatment
services and provides the Group with enhanced route
density in the important London market.
Our Water activities
8
320+
273+
Regional offices
Water technicians, engineers and support staff
Number of NHS and Private Hospital / Care Home sites we manage
23,195+
Number of prisoners we service across 34+ sites
250,000+ Number of water assets we monitor, report and service per annum
384,000 + Miles our water engineers travelled last year
500,000+
Pupils, staff and students who enjoy safe, clean water in schools and
universities as a result of our services
Organic growth, the raising of equity from
shareholders along with the conservative use
of leverage, generates the financial resources
we need to fund acquisitions to accelerate our
growth and to enter adjacent service sectors.
This in turn creates value and generates
returns for our shareholders
Mark Adams, Group Finance Director
17
““
Marlowe plc
Annual Report 2018
Our markets
Fire protection
Security systems
Water treatment
Air quality
The fire protection
market in the UK is worth
an estimated
£1.5bn
at 31 March 2018
Growing at an estimated
5% per year
The security systems
market in the UK is worth
an estimated
£1.4bn
at 31 March 2018
Growing at an estimated
4% per year
Our fire protection activities are focused on the installation,
service and maintenance of a very wide variety of electrical
and mechanical systems that are intended to detect fire
and to protect people, buildings and assets from the threat
it poses.
We have four main leading brands in this market: Marlowe
Fire & Security, BBC Fire & Security, FAFS Fire & Security
and Flamefast with nine sites across the UK. From initial
fire risk assessment through to the design and installation
of fire detection and fire suppression systems and ongoing
maintenance and monitoring contracts, we provide our
customers with a complete fire safety solution. The majority
of our revenues derive from predictable, long-term or
repeat customer contracts.
Demand is underpinned by stringent regulation which
applies to all commercial premises, typically placing the
burden of responsibility on employers or landlords to
ensure that fire does not place lives at risk. Fire legislation
includes the Regulatory Reform Fire Safety Order 2005, the
Health & Safety at Work Act 1974 and the Management
of Health & Safety at Work Regulations 1999 and
typically dictates that systems require recurring periodic
maintenance. Barriers to entry are growing in the market
generated by economies of scale, route densities, the
investment required to meet ever-increasing regulatory
standards and the growing preference of larger customers
to partner with national service providers who offer
extended coverage and efficiency.
Our security services centre on the provision of service and
maintenance for systems including intruder alarms, closed
circuit television cameras, access control systems and a
range of connected services.
Driven by the requirements of insurance providers seeking
to minimise their risk and by our customers looking to
minimise risk, the market is governed by key bodies
including the National Police Chiefs Council (NPCC) and
the National Security Inspectorate. Electronic security
systems are essential for the majority of commercial
premises and the market is demonstrating trends towards
internet connected devices.
A typical service contract will run for three years with a
two-year extension although relationship lengths typically
can last much longer, providing the business with good
forward earnings visibility. The service contract entitles our
businesses to the exclusive right to provide maintenance
services and sets out the scheduled maintenance
programme for the duration of the contract term. We
provide CCTV and alarm monitoring and work alongside
the emergency services to protect our customers’
properties from our Innovation Centre, Marlowe Connect,
a state of the art, purpose-built remote monitoring facility.
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 all their fire and security
services from a single provider.
Key services: fire detection and alarm systems,
aspirating systems, emergency lighting, fire
extinguishers, fire risk assessments, fire safety training,
gaseous extinguishing systems, room integrity testing,
kitchen fire suppression systems, dry / wet risers,
sprinkler systems, emergency voice communication,
fire alarm monitoring
18
Key services: CCTV, intruder alarms, access control,
connected services: monitoring, remote diagnostics,
lone-worker solutions
Every day, we help manufacturers, commercial businesses,
Our Air Quality activities centre on two main business
public organisations, institutions and facilities management
activities: the cleaning, maintenance and management
companies look for better ways to perform strategic, non-
of ducting and ventilation systems in commercial
core processes managing and upgrading water systems,
premises and the licenced removal of asbestos and other
hygiene, water chemicals and compliance. From eight
contaminants. The requirement for regular maintenance
regional offices, we deliver services that are safe, maintain
of ventilation systems is driven by the need to comply
clean environments, optimise water and energy use,
with fire safety regulations as ventilation systems, over
improve operational efficiency, manage water systems
time, build up combustible materials such as grease.
related to heating and cooling systems and maintain
Our services are also necessitated by the increasing
critical plant and equipment. We tailor risk assessments,
understanding of the importance of air quality and the
chemical dose, monitoring, water treatment and hygiene
need to provide safe, clean air to building occupants.
solutions by sector, customer need and by individual plant
The industry is fast-growing, fragmented and relatively
configuration delivering predictability and measurable
young. Our maintenance activities extend to the checking
results. The complexity of many of the water services that
of the operation of fire dampers within the ductwork
we provide presents a strong rationale for customers to
systems, which is required to be undertaken annually in all
remain with existing suppliers.
commercial buildings. Operators of commercial buildings
are required to comply not only with the Fire Reform Order
We ensure BS 2486, BG 50, HSG 274 part 1 and ACoP
along with TR19 regulations, but also with the requirements
L8 compliance and control improvements for customers
of their insurance policies to have their ventilation systems
in aerospace and defence, energy, food, healthcare,
cleaned of potentially combustible materials.
hospitality, industrial markets and the public sector.
Comprehensive regulations and legislation including the
Our asbestos activity is mainly focused on the provision of
Health & Safety Act 1974, LS (ACOP) 2001, Control of
Health & Safety Executive licenced removals in buildings
Substances Hazardous to Health Regulations 2002 and
with on-going occupancy, such as schools, hospitals of
Water Supply Regulations 1999 ensure that organisations
social housing dwellings.
have a legal duty to prepare and manage a scheme for
maintaining safe water quality (and provide a framework of
The removal of asbestos has been on-going in the UK for
actions designed to assess, prevent or control the risk from
over 30 years and will continue throughout the remaining
bacteria such as Legionella and take suitable precautions).
life of the existing national building stock. Asbestos is
We help organisation comply with the full requirements of
often found in ventilation systems presenting good
water regulations.
cross-selling opportunities.
Fire protection
Security systems
Water treatment
Air quality
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Our fire protection activities are focused on the installation,
Our security services centre on the provision of service and
service and maintenance of a very wide variety of electrical
maintenance for systems including intruder alarms, closed
and mechanical systems that are intended to detect fire
circuit television cameras, access control systems and a
and to protect people, buildings and assets from the threat
range of connected services.
it poses.
Driven by the requirements of insurance providers seeking
We have four main leading brands in this market: Marlowe
to minimise their risk and by our customers looking to
Fire & Security, BBC Fire & Security, FAFS Fire & Security
minimise risk, the market is governed by key bodies
and Flamefast with nine sites across the UK. From initial
including the National Police Chiefs Council (NPCC) and
fire risk assessment through to the design and installation
the National Security Inspectorate. Electronic security
of fire detection and fire suppression systems and ongoing
systems are essential for the majority of commercial
maintenance and monitoring contracts, we provide our
premises and the market is demonstrating trends towards
customers with a complete fire safety solution. The majority
internet connected devices.
of our revenues derive from predictable, long-term or
repeat customer contracts.
A typical service contract will run for three years with a
two-year extension although relationship lengths typically
Demand is underpinned by stringent regulation which
can last much longer, providing the business with good
applies to all commercial premises, typically placing the
forward earnings visibility. The service contract entitles our
burden of responsibility on employers or landlords to
businesses to the exclusive right to provide maintenance
ensure that fire does not place lives at risk. Fire legislation
services and sets out the scheduled maintenance
includes the Regulatory Reform Fire Safety Order 2005, the
programme for the duration of the contract term. We
Health & Safety at Work Act 1974 and the Management
provide CCTV and alarm monitoring and work alongside
of Health & Safety at Work Regulations 1999 and
the emergency services to protect our customers’
typically dictates that systems require recurring periodic
properties from our Innovation Centre, Marlowe Connect,
maintenance. Barriers to entry are growing in the market
a state of the art, purpose-built remote monitoring facility.
generated by economies of scale, route densities, the
Our ability to provide customers with fire, security and
investment required to meet ever-increasing regulatory
monitoring services gives us a significant competitive
standards and the growing preference of larger customers
advantage in developing new business relationships with
to partner with national service providers who offer
customers who prefer to source all their fire and security
extended coverage and efficiency.
services from a single provider.
The water treatment
market in the UK is
worth an estimated
£700m
at 31 March 2018
Growing at an estimated
4% per year
The air quality market
in the UK is worth an
estimated
£300m
at 31 March 2018
Growing at an estimated
7% per year
Every day, we help manufacturers, commercial businesses,
public organisations, institutions and facilities management
companies look for better ways to perform strategic, non-
core processes managing and upgrading water systems,
hygiene, water chemicals and compliance. From eight
regional offices, we deliver services that are safe, maintain
clean environments, optimise water and energy use,
improve operational efficiency, manage water systems
related to heating and cooling systems and maintain
critical plant and equipment. We tailor risk assessments,
chemical dose, monitoring, water treatment and hygiene
solutions by sector, customer need and by individual plant
configuration delivering predictability and measurable
results. The complexity of many of the water services that
we provide presents a strong rationale for customers to
remain with existing suppliers.
We ensure 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.
Comprehensive regulations and legislation including the
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).
We help organisation comply with the full requirements of
water regulations.
Our Air Quality activities centre on two main business
activities: the cleaning, maintenance and management
of ducting and ventilation systems in commercial
premises and the licenced removal of asbestos and other
contaminants. The requirement for regular maintenance
of ventilation systems is driven by the need to comply
with fire safety regulations as ventilation systems, over
time, build up combustible materials such as grease.
Our services are also necessitated by the increasing
understanding of the importance of air quality and the
need to provide safe, clean air to building occupants.
The industry is fast-growing, fragmented and relatively
young. Our maintenance activities extend to the checking
of the operation of fire dampers within the ductwork
systems, which is required to be undertaken annually in all
commercial buildings. Operators of commercial buildings
are required to comply not only with the Fire Reform Order
along with TR19 regulations, but also with the requirements
of their insurance policies to have their ventilation systems
cleaned of potentially combustible materials.
Our asbestos activity is mainly focused on the provision of
Health & Safety Executive licenced removals in buildings
with on-going occupancy, such as schools, hospitals of
social housing dwellings.
The removal of asbestos has been on-going in the UK for
over 30 years and will continue throughout the remaining
life of the existing national building stock. Asbestos is
often found in ventilation systems presenting good
cross-selling opportunities.
Key services: water treatment, testing, hygiene, remote
monitoring, engineering, control of scale, corrosion and
bacteria, waste water and effluent, water purification,
steam boilers, cooling towers, closed circuit and chiller
systems and evaporative condensers
Key services: asbestos and contamination remediation,
ductwork and ventilation cleaning and maintenance,
fire and smoke damper maintenance, fan maintenance,
kitchen canopy cleaning, health and safety training
19
Marlowe plc
Annual Report 2018
Finance Director's review
For the year ended 31 March 2018
“ A disciplined approach to
integration, the removal of
duplicated costs and the
implementation of strong
financial controls results in
predictable and improved
shareholder returns
“
Mark Adams
Group Finance Director
20
Revenue
Revenue for the year ended 31 March 2018 was up 72% to
£80.6 million (2017: £46.8 million) reflecting organic growth
and the contribution from acquisitions completed in the year
together with the full year impact of those completed in 2017.
Profitability
On a statutory basis, loss before tax from continuing
operations for the year ended 31 March 2018 was £0.4 million
(2017: £0.7 million profit). Adjusted profit before tax for the
year was £5.8 million (2017: £3.3 million). Our key measures
of profitability for the Group are adjusted operating profit
and adjusted EBITDA. In the year ended 31 March 2018,
adjusted EBITDA increased by 81% to £7.2 million
(2017: £4.0 million). Adjusted EBITDA means operating profit
before interest, tax, depreciation and amortisation and
excludes separately disclosed acquisition and other costs.
Non-IFRS measures
This Annual Report includes measures which are not defined
by generally accepted accounting principles such as IFRS.
We believe this information, along with comparable IFRS
measures, is useful as it provides investors with a basis for
measuring the operating performance of the Group on a
comparable basis. The Board and our managers use these
financial measures to evaluate our operating performance.
Non-IFRS financial measures should not be considered in
isolation from, or as a substitute for, financial information
presented in compliance with IFRS. Similarly, non-IFRS
measures as reported by us may not be comparable with
similar measures reported by other companies.
Due to the one-off nature of acquisition and other costs and
the non-cash element of certain charges, the Directors believe
that adjusted EBITDA and adjusted measures of profit before
tax and earnings per share provide shareholders with a more
appropriate representation of the underlying earnings derived
from the Group’s business and a more comparable view of the
year-on-year underlying financial performance of the Group.
To arrive at adjusted profit before tax the following
adjustments have been made:
Continuing operations
(Loss)/profit before tax
Acquisition costs
Restructuring costs
Exceptional loss on customer liquidation
Amortisation of acquisition intangibles
Share-based payments
2018
£’m
(0.4)
0.6
3.6
0.7
0.9
0.4
Adjusted profit before tax – continuing operations 5.8
2017
£’m
0.7
0.6
1.1
-
0.6
0.3
3.3
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Reconciliation of adjusted operating profit and adjusted
EBITDA
Adjusted Operating profit
Depreciation
Adjusted EBITDA
2018
£’m
6.2
1.0
7.2
2017
£’m
3.5
0.5
4.0
Acquisition and other costs
Acquisition and other costs totalled £6.2 million in the year
(2017: £2.6 million).
Acquisition costs
Restructuring costs
Exceptional loss on customer liquidation
Amortisation of acquisition intangibles
Share based payments
Total
2018
£’m
0.6
3.6
0.7
0.9
0.4
6.2
2017
£’m
0.6
1.1
-
0.6
0.3
2.6
Acquisition costs include legal and professional fees, and
staff costs incurred as part of the acquisitions.
Restructuring costs, being the costs associated with the
integration of acquisitions, remain the key component of
acquisition and other costs and increased to £3.6 million
(2017: £1.1 million) as the pace of transactions increased
in the year. The costs include the bulk of the restructuring
of acquisitions in the second half of 2017 and those
completed in 2018. These primarily consisted of:
•
•
•
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 integration and transfer
to Group IT systems.
The majority of these costs are incurred in the 12 months
following an acquisition.
During the year, Carillion, a customer of the Group went
into liquidation. A large proportion of the work carried
out for the buildings maintained by that customer was
continued by the Group post liquidation. As such,
the ongoing impact to the trading of the Group was
not material. As a result of the liquidation, a one-off
exceptional bad debt of £0.7 million was incurred by the
Group in the year.
Earnings per share
Basic adjusted earnings per share are calculated as adjusted
profit for the year less a 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.
Earnings per share* (EPS)
Basic adjusted earnings per share
Basic earnings per share
* Refer to note 9
2018
pence
14.0
(2.2)
2017
pence
10.4
1.1
Interest
Net finance costs amounted to £0.4 million
(2017: £0.2 million) which reflects the increased average
levels of debt arising from the financing of acquisitions.
Taxation
UK Corporation Tax is calculated at 19% (2017: 20%)
of the estimated assessable (loss)/profit for the year.
The UK Corporation Tax rate reduced to 19% in the year.
The rate will reduce further to 17% from 1 April 2020;
accordingly, this rate reduction has been reflected in the
deferred tax balance which forms part of the statement of
financial position.
Statement of financial position
Net assets increased to £48.1 million (2017: £35.0 million)
primarily due to the placing of shares in July 2017 and
equity issued as part of acquisition consideration.
Goodwill and intangibles at 31 March 2018 were
£42.4 million (2017: £26.6 million).
Property, plant and equipment totalled £4.2 million
(2017: £2.6 million), comprising freehold and long
leasehold property, leasehold improvements, operational
equipment, vehicles and computer systems.
Cash flow
The net cash inflow from operating activities was
£2.4 million (2017: £2.5 million) in the year.
There was a net working capital outflow in the year of
£3.2 million (2017: £0.8 million). The movement reflects the
increased scale of the Group but also includes additional
working capital investment at certain businesses acquired
in the year. Management of working capital is a key focus
across the Group with a strong emphasis on cash collection
and overdue debt reduction.
Amortisation of intangible assets for the year was £0.9 million
(2017: £0.6 million) with the increase attributable to the
higher carrying value of intangible assets.
Capital expenditure totalled £0.5 million (2017: £0.4 million)
following the investment in our IT systems across the
business.
21
Marlowe plc
Annual Report 2018
Finance Director’s review continued
The Group closely monitors the funding it has available to it and
is conservative in its use of debt
Net debt
Net debt at the end of the year was £2.9 million
(2017: net cash £2.6 million). In April 2017 we increased
our debt facilities with Lloyds Bank by an additional
£5.0 million to £18.0 million, comprising £15.0 million of
term loans, a £2.5 million revolving credit facility and a
£0.5 million overdraft facility. The Group has sufficient
headroom on its facilities at the end of the year to continue
to fund acquisitions as part of its strategy should it choose
to do so with debt.
Key Performance Indicators (‘KPIs’)
The Group uses many different KPIs 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, adjusted
EBITDA and adjusted 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.
Acquisition strategy
As the Group continues to pursue acquisitions as part of
its overall growth strategy, the failure to properly integrate
acquired businesses or to realise the anticipated benefits
from acquisitions could have a negative impact on
performance. The Group’s integration processes are well
defined and are carried out by dedicated resources and
management teams across the Group who are experienced
in post-acquisition restructuring and management.
Liquidity
The Group is likely to require additional funds in future
to finance the acquisition of other businesses and its
operations. 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.
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 Group 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 23 has been approved
by the Board and signed on its behalf by
Alex Dacre
Chief Executive
Mark Adams
Group Finance Director
25 June 2018
22
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Acquisition of DCUK
Strategy in action
Acquire
Accelerate
Integrate
“
The acquisition of DCUK represents the next chapter in the Marlowe story.
Our strategy is focused on deepening our market share within existing
service sectors and extending our capabilities into adjacent service sectors
which share the same channel to market and where our customers see the
strategic coherence; the DCUK deal is a prime
example of this strategy in action
“
Alex Dacre
Chief Executive
We intend to continue developing and extending the
Group’s activities into adjacent and complementary
service sectors. By developing a presence in adjacent
sectors, we create opportunities to implement
operational improvement techniques to bolster organic
growth and enhance efficiency. Through entering
sectors which share the same channel to market, we
create opportunities to leverage the existing customer
relationships within our Group and to cross-sell services.
We then create shareholder value through accelerating
growth and broadening the capabilities of the
businesses within our Group through further, bolt-on,
acquisition-led growth.
In July we acquired Ductclean (UK) Limited (“DCUK”)
for a total enterprise value of up to £10.0 million,
financed through a combination of Marlowe equity,
cash and deferred contingent payments. DCUK is a UK
market leader in ventilation maintenance, ductwork
cleaning and management, kitchen extract cleaning and
contamination remediation services - mainly asbestos
remediation.
The acquisition of DCUK represents Marlowe’s first
step into the air quality market which shares attractive
key characteristics with the fire & security and water
treatment markets, including a significant element
of non-discretionary spend, strong regulatory and
legislative drivers, a degree of operational and technical
complexity which favours outsourcing and the same
channel to market, which provides opportunities for
cross-selling. In addition to providing the Group with
a presence in a new complementary service sector,
the market in which DCUK operates is currently
highly fragmented and offers significant scope for
consolidation. The first step of this consolidation was
the add-on acquisition of SB Hygiene in December
which was immediately integrated into DCUK.
In May 2018, we followed this with the acquisition
of the business and assets of leading asbestos
remediation provider, Forest
Environmental which is currently
undergoing integration.
23
Marlowe plc
Annual Report 2018
Board of Directors
as at 31 March 2018
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
Chief Executive
2 Mark Adams
3 Derek O’Neill
Group Finance Director
Non-Executive Chairman
4 Peter Gaze
Non-Executive Director
5 Charles Skinner
Non-Executive Director
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
founding Marlowe, he directed Impellam plc’s corporate
development activities. 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 the leading consolidator in the
document management and commercial relocation
sectors.
2 Mark Adams joined the Board as Group Finance
Director on 1 January 2018. He brings to Marlowe more
than 20 years of experience in senior finance roles in a
broad range of sectors. Most recently Mark was interim
Chief Financial Officer (“CFO”) at Stobart Group Ltd,
Pets at Home Group plc and Cognita Schools. He has
previously served as CFO at Hastings Insurance Group,
easyJet plc, Helphire Group plc and Alpha Airports
Group plc.
3 Derek O’Neill was Chief Executive and a majority
shareholder of Lorien Resourcing, a £350m revenue
market leader in technology recruitment, until its sale to
Impellam Group plc. He has previously been on
the Board of three listed companies including Deltron
Electronics plc and Impellam Group 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.
4 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.
5 Charles Skinner is Chief Executive of Restore plc,
the AIM-listed UK leader in document management
and business relocation services. Under his leadership
its market capitalisation has grown from £1m to over
£600m 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 services sector. He chairs the
Remuneration Committee.
24
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Cross-selling across our customer bases
Strategy in action Collaborate
By design, all the businesses in our Group share a common
channel to market. Typically, the different businesses in
our Group are selling to the same individual, or team,
within our customers’ organisations. As a result, we
understand this channel to market intimately and are
able to take advantage of this knowledge to sell multiple
services across the customer bases of different Marlowe
businesses. We have had good success with this strategy
over the past year: for one of the UK’s leading leisure
operators, we now provide fire protection along with
ventilation hygiene and asbestos remediation services.
We partner with Travelodge Hotels through managing
water treatment services across their portfolio and now
advise them on the maintenance of their ducting and
ventilation systems. For a leading UK retailer with 3,000
stores across Britain we now provide fire protection,
security and connected monitoring services. These are
just a few examples of the success we are having through
our strategy to encourage our businesses to be both
the leading specialists within their market, whilst also
collaborating closely with other Marlowe companies to take
advantage of the strategic synergies that are available to
us. This collaboration provides us with a strong competitive
advantage against our largely single-service competitors
and when implemented successfully, deepens the
relationship that we hold with our customers
and lowers the cost of sale.
25
25
Marlowe plc
Annual Report 2018
Directors’ report
The Directors submit their report and the financial statements of Marlowe plc
for the year ended 31 March 2018
Marlowe plc is a public limited company
quoted on AIM, incorporated and domiciled in
the United Kingdom where the vast majority of
trading occurs.
Business review and future developments
The Chief Executive’s Report on pages 10 to 16 includes
a review of the business, the Group’s trading for the
year ended 31 March 2018 and an overview of future
developments.
Results and dividend
The Group’s results for the year ended 31 March 2018 are
set out in the consolidated statement of comprehensive
income on page 38. The (loss) / profit before tax for the
year was £(0.4) million (2017: £0.7 million).
The Company has not declared any dividends in respect of
the current or prior period.
Principal activities
The principal activities of the Group during the year were
the provision of fire & security, water treatment and air
hygiene services.
Directors
The following Directors have held office during the year:
Derek O’Neill (Non-Executive Chairman)
Alex Dacre
Mark Adams
(Chief Executive)
(Group Finance Director)
Appointed 1 January 2018
Charles Skinner (Non-Executive Director)
Peter Gaze
(Non-Executive Director)
Nigel Jackson (Director) Resigned 30 September 2017
Directors’ remuneration, long-term executive plans,
pension contributions and benefits are set out in the
Directors’ Remuneration Report on pages 30 to 31. The
Company maintains liability insurance for its Directors
and Officers.
Share capital
Full details of the share capital of the Company are set out
in note 21 to the financial statements.
26
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Substantial shareholdings
At 31 March 2018 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
Hargreave Hale
Number of 50p
ordinary shares
11,877,361
3,503,334
2,499,470
Nigel Jackson
1,500,000
Percentage of
issued share
capital
34.41%
10.15%
7.24%
4.35%
Employees
The Directors believe that 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
always fully considered, having regard to their particular
aptitudes and abilities. In the event of an employee
becoming disabled, every effort is made to ensure that
their employment with the Group continues. It is the policy
of the Group that the training, career development and
promotion opportunities of disabled persons should, as far
as possible, be identical to those of other 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
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
to the financial statements.
Political and charitable donations
Donations of £10,000 were made by the Group for
charitable purposes during the year (2017: £10,000).
The Group does not make political donations.
Statement as to disclosure of information
to auditors
The Directors in office on 25 June 2018 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
5 September 2018 is enclosed with this Annual Report.
Post balance sheet events
Details of post balance sheet events are given in note 31 to
the financial statements.
Derek O’Neill
Non-Executive Chairman
25 June 2018
27
Marlowe plc
Annual Report 2018
Corporate governance statement
for the year ended 31 March 2018
The Directors recognise the importance of sound
corporate governance. The policy of the Board is to
manage the affairs of the Company having regard to the
guidance issued by the Quoted Company Alliance to the
extent appropriate for a group of the size of Marlowe plc.
The Board of Directors
The Board currently comprises of two Executive Directors
and three Non-Executive Directors (including the
Chairman). The Board retains a range of commercial and
financial experience and there is a good balance of skills
and knowledge of both the Group and the sectors in which
it operates.
Board meetings are held on a regular basis to review,
formulate and approve the Group’s strategy, budgets,
corporate actions and to oversee the Group’s progress
towards its goals. The Board receives timely information
on all material aspects of the Group to enable it to
discharge its duties.
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.
Directors’ remuneration
The Company has an established Remuneration
Committee.
Details of the remuneration of each Director are set out in
the Directors’ Remuneration Report on pages 30 and 31.
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.
Relations with shareholders
The Chief Executive, Group Finance Director and Chairman
are the Company’s principal contacts for investors, fund
managers, the press and other interested parties. There is
regular dialogue with institutional and major shareholders
including meetings following the announcement of the
Group’s annual and interim results. At the Annual General
Meeting, private and institutional investors are given the
opportunity to question the entire Board.
28
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
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:
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.
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.
Number of meetings attended during the year
ended 31 March 2018
Board
Total: 9
Audit
Committee
Total: 4
Remuneration
Committee
Total: 1
Executive Directors
Alex Dacre
Mark Adams*
Nigel Jackson**
Non-Executive Directors
Derek O’Neill
Charles Skinner
Peter Gaze
9
2
3
8
9
9
3
1
1
3
4
4
-
-
-
-
1
1
*Appointed 1 January 2018 **Resigned 30 September 2017
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.
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.
29
Marlowe plc
Annual Report 2018
Directors’ remuneration report
for the year ended 31 March 2018
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 committee meets at least once a year and at
other times as appropriate.
The committee is responsible for the consideration and
approval of the terms of service, remuneration, bonuses,
share-based incentives and other benefits of the Executive
Directors and other senior executives. All decisions made
are after giving due consideration to the size and nature
of the business and the importance of retaining and
motivating management.
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
Mark Adams
Date of Contract
Notice Period
29 February 2016
6 months
17 January 2018
6 months
The Non-Executive Directors have either a service contract
or a letter of appointment.
Date of Contract/Letter
Notice Period
Non-Executive Directors
Derek O’Neill
29 February 2016
6 months
Charles Skinner
29 February 2016
1 month
Peter Gaze
29 February 2016
1 month
30
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Directors’ Emoluments
The aggregate emoluments of the Directors of the Company were:
Salary & Fees
2018
£’000
2017
£’000
2018
£’000
Benefits
2017
£’000
Pension costs
2018
£’000
2017
£’000
Executive Directors
Alex Dacre
Mark Adams*
Nigel Jackson**
Non-Executive Directors
Derek O’Neill
Charles Skinner
Peter Gaze
Total
100
100
31
50
30
-
35
-
84
30
-
35
246
249
-
-
14
3
-
-
17
-
-
16
1
-
-
17
-
-
-
-
-
-
-
*Appointed 1 January 2018 **Resigned 30 September 2017
2018
£’000
100
31
64
33
-
35
Total
2017
£’000
100
-
126
31
-
35
-
-
26
-
-
-
26
263
292
The £30,000 (2017: £30,000) 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 (2017: £35,000) 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 2018 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 on page 76. The
Directors’ interest in the EIP are as follows:
Number of ordinary
shares of 50p each
31 March 2018
Number of ordinary
shares of 50p each
31 March 2017
Alex Dacre
Derek O’Neill
Charles Skinner
Peter Gaze
3,503,334
3,503,334
Alex Dacre
828,432
467,156
600,925
828,432
Derek O’Neill
467,156
Charles Skinner
600,925
Number of
performance units
31 March 2018
Number of
performance units
31 March 2017
5,460
1,820
1,183
5,460
1,820
1,183
By order of the Board
Charles Skinner
Chairman of the Remuneration Committee
31
Marlowe plc
Annual Report 2018
Statement of Directors’ responsibilities
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 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.
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 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.
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.
32
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Independent Auditors’ report
to the Members of Marlowe Plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Marlowe plc (the
‘parent company’) and its subsidiaries (the ‘group’) for the
year ended 31 March 2018 which comprise the Consolidated
statement of comprehensive income, the Consolidated and
Company statements of financial position, Consolidated and
Company statements of changes in equity, the Consolidated
statement of cash flows and notes to the financial statements,
including a summary of significant accounting policies. The
financial reporting framework that has been applied in the
preparation of the group financial statements is applicable
law and International 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, including Financial
Reporting Standard 101 ‘Reduced Disclosure Framework’
(United Kingdom Generally Accepted Accounting Practice).
In our opinion
•
the financial statements give a true and fair view of the state
of the group’s and of the parent company’s affairs as at 31
March 2018 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
•
•
•
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the group and the
parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Who we are reporting to
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.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you where:
•
the directors’ use of the going concern basis of accounting in
•
the preparation of the financial statements is not appropriate;
or
the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group’s or the parent company’s ability to
continue to adopt the going concern basis of accounting for
a period of at least twelve months from the date when the
financial statements are authorised for issue.
Overview of our audit approach
• Overall group materiality is £321,000,
which represents 5% of the group’s
adjusted operating profit based on
preliminary results.
•
Key audit matters were identified as valuation at
acquisition of goodwill and other intangible assets,
impairment of goodwill and other intangible assets, and
the classification, presentation and disclosure of adjusted
performance measures.
• We performed full scope procedures at all operating
subsidiaries identified as subject to statutory audit as per
note 1. We performed analytical audit procedures at all
other entities.
Key audit matters
The graph below depicts the audit risks identified and their relative
significance based on the extent of the financial statement impact
and the extent of management judgement.
Key audit matters
Significant risk
Other risk
Other matter
* Impact the identified risk would have on the group or parent
company’s financial statements
** Probability that the identified risk could occur during the year
under review if not properly controlled
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those that had
the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters
33
Marlowe plc
Annual Report 2018
Independent Auditors’ report continued
Key Audit Matter
How the matter was addressed in the audit
Valuation at acquisition of goodwill and other intangible assets (Group)
Goodwill (cost): £35.9m (2017: £21.7m)
Customer relationships (cost): £7.9m (2017: £5.4m)
Refer to notes 2, 11 and 12 to the Group financial statements.
The Group has acquired 9 businesses in the year, as disclosed on
pages 59 to 66, and has finalised the fair values in respect of the 8
businesses it acquired in the previous year.
Under International Financial Reporting Standard (IFRS) 3 ‘Business
combinations’, management are required to recognise, separately
from goodwill, the assets acquired and liabilities assumed, and
then recognise goodwill on the purchase.
Management make significant judgements to identify specific
intangible assets that are acquired with a new business, and
significant estimates to value these assets. The residual goodwill
is subsequently updated for any fair value adjustments identified
during the measurement period of one year from the date of
acquisition and such adjustments are also significant judgements
and estimates.
We therefore identified the valuation of goodwill and other
intangible assets as a significant risk, which was one of the most
significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
• reviewing the accounting policy for valuation of such assets,
ensuring the policy is followed and that it was consistent with
the relevant IFRS;
• obtaining the acquisition date balance sheet of each acquired
subsidiary and performing appropriate audit procedures as
relevant over the assets and liabilities acquired, including testing
the recoverability of acquired debtors and inspecting expenses
post acquisition to identify any unrecorded creditors;
• obtaining the details of any fair value adjustments and the
consideration paid, and agreeing these to relevant source
documents, such as sale and purchase agreements;
• obtaining management’s purchase price allocation as contained
within their Multi-Period Excess Earnings Method and assessing
the appropriateness and reasonableness of key assumptions
made in the calculations, such as growth rates, customer attrition
rates and discount rates, and consulting our internal valuation
specialists to confirm the reasonableness of such assumptions;
• challenging management’s assessment of the identifiable
intangible assets acquired by the group, and whether any
further intangible assets, such as brands or trademarks, should
be identified;
• obtaining management’s calculation of the intangible assets
identified, and confirming the mathematical accuracy of the
calculations; and
• for any fair value adjustment made to goodwill within the
allowed measurement period, obtaining evidence that the
adjustment is accurate and that management were aware of the
adjustment within the allowed one year measurement period.
Key observations
As a result of our work, we concluded that the valuation at acquisition of goodwill and other intangible assets was acceptable.
Impairment of goodwill and other intangible assets (Group)
Goodwill (carrying value): £35.9m (2017: £21.7m)
Customer relationships (carrying value): £6.5m (2017: £4.9m)
Refer to notes 2 and 12 to the Group financial statements.
Our audit work included, but was not restricted to:
• obtaining management’s assessment of the alignment of its
Under International Accounting Standard (IAS) 36 ‘Impairment of
assets’, the directors are required to make an annual assessment to
determine whether the Group’s goodwill and intangible assets are
impaired, to test goodwill for impairment and to test intangibles
for impairment if indicators of impairment are identified.
subsidiaries to the relevant cash generating unit (CGUs) used
in the impairment calculation and comparing those to our
understanding of the business units and operating structure of
the Group;
• determining the arithmetical accuracy of those calculations
The process for assessing whether impairment exists under IAS 36
is complex. The process of determining the value in use, through
forecasting cash flows related to cash generating units (‘CGUs’)
and the determination of the appropriate discount rate and other
assumptions to be applied can be highly judgemental and can
significantly impact the results of the impairment review.
We therefore identified the impairment of goodwill and other
intangible assets as a significant risk, which was one of the most
significant assessed risks of material misstatement.
including the associated sensitivity analyses;
• testing the assumptions utilised in the impairment models,
including comparing growth rates to those achieved,
benchmarking discount rates to other companies in the
market, and consulting with our internal experts to confirm the
appropriateness of the rates used;
• ensuring these assumptions are consistent across the business,
and where different assumptions are used based on the profile
of different CGUs, that these are consistent with our knowledge
of the business;
• testing the accuracy of management’s forecasting through a
comparison of budget to actual data and historical variance
trends and inspecting the forecast cash flows for unusual items
or assumptions; and
• challenging management’s assessment of impairment indicators
relating to intangible assets by assessing whether any CGUs
showed further indicators of impairment such as decline in
performance or performance below budget.
Key observations
As a result of our work, we concluded that the impairment of goodwill and other intangible assets was acceptable.
34
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Key Audit Matter
How the matter was addressed in the audit
Classification, presentation and disclosure of adjusted performance measures (Group)
Acquisition and other costs, presented as a separate column in the Consolidated statement of comprehensive income,
£6.2m (2017: £2.6m)
Refer to the Consolidated statement of comprehensive income,
the Finance Director’s review, and page 44 of the accounting
policies.
The Group has presented separately certain items on the face
of the Consolidated statement of comprehensive income. The
Directors believe that the resulting adjusted financial information
better reflects the Group’s trading performance during the year.
In the Group’s reported results, significant adjustments have been
made to statutory loss before tax of £0.4m to derive adjusted
profit before tax of £5.8m, and to statutory loss after tax of £0.7m
to derive adjusted profit after tax of £5.9m. The most significant of
these are discussed in detail in the Finance Director’s review and in
note 5 to the Group financial statements.
These costs are not defined by IFRSs as adopted by the European
Union. Consequently, management have written an accounting
policy to define acquisition and other costs in the financial
statements, which is set out in Note 2. In applying this accounting
policy, management exercises significant judgement in respect of
what it determines as acquisition and other costs. In making this
assessment, management has identified significant costs that by
their size or nature require separate presentation. As such, there is
a risk of management bias in the selection of the items identified.
Alternative performance measures can provide shareholders with
appropriate additional information and understanding of a group’s
financial performance and strategy. However, when improperly
used and presented, such measures might prevent the Annual
Report being fair, balanced and understandable by confusing the
real financial position and results or by making the results of the
reporting entity seem more attractive. Failure to disclose clearly
the nature and impact of material adjustments to earnings may
distort the reader’s view of the financial result in the year.
We therefore identified the following significant risks in respect
of acquisition and other costs in the consolidated statement of
comprehensive income, which was one of the most significant
assessed risks of material misstatement:
Our audit work included, but was not restricted to:
Classification
• inspecting and challenging the nature of the items included
within acquisition and other costs by obtaining a detailed
breakdown of these items and obtaining an understanding of
the nature of each cost, testing a sample of items to invoices or
other supporting evidence, and confirming that the specific cost
incurred is one identified in the policy by management.
Presentation
• challenging management’s rationale for the basis for inclusion
of certain classes of items within the consolidated statement of
comprehensive income statement acquisition and other costs,
particularly around the areas of higher judgement such as
identified duplicated personnel costs, to determine whether the
items identified meet the criteria of the accounting policy for
such items defined by the Group;
• the extent to which the prominence given to the adjusted
financial information and related commentary in the Annual
Report compared to the statutory financial information and
related commentary could be misleading;
• evaluating the appropriateness of the inclusion of items, both
individually and in aggregate, within acquisition and other
costs, including ensuring adherence to IFRS requirements and
latest FRC guidance, and benchmarking them against market
practice, including, but not limited to, the ICAEW’s statement of
principles, guidance issued by the FRC in their thematic review,
and guidance issued by the European Securities and Markets
Authority (ESMA).
Disclosure
We also assessed the disclosures made, and considered:
• whether the statutory and adjusted financial information
are reconciled with sufficient prominence given to that
reconciliation;
• whether the basis of the adjusted financial information is clearly
and accurately described and consistently applied; and
• whether the adjusted financial information is not otherwise
Classification of acquisition and other costs and whether they
meet the definition set out in the policy;
misleading in the form and context in which it appears in the
Annual Report.
Presentation of acquisition and other costs as a separate column
in the consolidated statement of comprehensive income, and
whether the presentation of the adjusted financial information is
fair, balanced, and understandable in its representation of adjusted
performance, or whether undue prominence has been given to
this information over the information required under IFRS; and
Disclosure of information in respect of the acquisition and other
costs in respect of its appropriateness and quality, including
associated critical judgements and estimates.
Key observations
As a result of our work, we concluded that the classification, presentation and disclosure of adjusted performance measures was
acceptable.
No key audit matters were identified in relation to the parent company.
35
Marlowe plc
Annual Report 2018
Independent Auditors’ report continued
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in
determining the nature, timing and extent of our audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality Measure
Group
Parent
Financial statements as a whole
Performance materiality used to drive the
extent of our testing
Communication of misstatements to the
audit committee
£321,000 which is 5% of adjusted
operating profit based on preliminary
results. This benchmark is considered the
most appropriate because this is a key
performance measure used by the Board
of Directors to report to investors on the
financial performance of the Group.
Materiality for the current year is higher
than the level that we determined for the
year ended 31 March 2017 to reflect the
growth of the Group.
£241,000 which is 2% of the parent
company’s total assets capped at 75% of
Group financial statement materiality. Net
assets is considered the most appropriate
benchmark because the parent company is
a holding company.
Materiality for the current year is higher
than the level that we determined for the
year ended 31 March 2017 to reflect the
growth of the Group.
75% of financial statement materiality.
75% of financial statement materiality.
£16,000 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£12,000 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for
potential uncorrected misstatements.
Overall materiality - group
Overall materiality - parent
25%
25%
75%
Tolerance
for potential
uncorrected
mistatements
75%
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a
thorough understanding of the group’s business, its environment
and risk profile and in particular included evaluation by the group
audit team of identified components to assess the significance
of that component and to determine the planned audit response
based on a measure of materiality considering each as a
percentage of total group assets, liabilities, revenues and profit
before taxes, to assess the significance of the component and to
determine the planned audit response.
For those components that were evaluated as significant to the
group, a full scope audit approach was undertaken. For these
components we documented our understanding of the controls
relevant to financial reporting, reviewed the accounts production
process and evaluated the appropriateness of management’s
treatment of critical accounting matters at a component level,
including the recognition of revenue and recoverability of debtors
and other receivables. We then undertook substantive testing on
significant transactions and material account balances.
The components that were subject to full scope audit procedures
comprised 96% of consolidated revenues and 84% of consolidated
adjusted operating profit.
The remaining subsidiaries were not considered significant to the
group, and were subject to analytical audit procedures. These
entities are incorporated in the UK but have taken parental
guarantee for exemption from statutory audit, as set out in note 1.
All of the items that are presented in the “Acquisition and other
costs” column have been tested under a comprehensive approach,
even if the related entity was subject to an analytical approach.
36
Overview
Strategic Report
Corporate Governance Financial Statements
Additional Information
Responsibilities of directors for the financial
statements
As explained more fully in the Statement of Directors’
responsibilities set out on page 32, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group
or the parent company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Marc Summers, FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
25 June 2018
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual
report set out on pages 1 to 32, other than the financial statements
and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed
by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of
the audit:
• the information given in the strategic report and the
directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
• the strategic report and the directors’ report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report
under the Companies Act 2006
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
strategic report or the directors’ report.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
37
Marlowe plc
Annual Report 2018
Consolidated statement of comprehensive income
For the year ended 31 March 2018
Revenue
Cost of sales
Gross profit
Administrative expenses excluding
acquisition and other costs
Acquisition costs
Restructuring costs
Exceptional loss on customer
liquidation
Amortisation of acquisition
intangibles
Share-based payments
Operating profit
Finance costs
(Loss)/profit before tax
Income tax charge
(Loss)/profit for the year
Notes
4
5
12
27
6
7
8
Other comprehensive income
(Loss)/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
Year ended 31 March 2018
Year ended 31 March 2017
Adjusted
results
£’m
Acquisition &
other costs
£’m
Unadjusted
results
£’m
Adjusted
results
£’m
Acquisition &
other costs
£’m
Unadjusted
results
£’m
80.6
(54.2)
26.4
(20.2)
-
-
-
-
-
6.2
(0.4)
5.8
-
-
-
-
80.6
(54.2)
26.4
46.8
(30.2)
16.6
(20.2)
(13.1)
-
-
-
-
-
3.5
(0.2)
3.3
(0.6)
(3.6)
(0.6)
(3.6)
(0.7)
(0.7)
(0.9)
(0.4)
(6.2)
-
(6.2)
(0.9)
(0.4)
-
(0.4)
(0.4)
(0.3)
(0.7)
-
(0.7)
(0.7)
(2.2p)
(2.2p)
(2.2p)
(2.2p)
-
-
-
-
(0.6)
(1.1)
46.8
(30.2)
16.6
(13.1)
(0.6)
(1.1)
-
-
(0.6)
(0.3)
(2.6)
-
(2.6)
(0.6)
(0.3)
0.9
(0.2)
0.7
(0.4)
0.3
-
0.3
0.3
1.1p
1.1p
1.1p
1.1p
38
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Consolidated statement of changes in equity
For the year ended 31 March 2018
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
Balance at 1 April 2017
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 2018
Attributable to owners of the parent
Share capital
£’m
Share
premium
£’m
Other
reserves
£’m
Retained
earnings
£’m
Total equity
£’m
7.3
-
-
8.2
-
-
8.2
15.5
15.5
-
-
1.8
-
-
1.8
17.3
-
-
-
19.2
(0.5)
-
18.7
18.7
18.7
-
-
12.0
(0.3)
-
11.7
30.4
-
-
-
-
-
0.3
0.3
0.3
0.3
-
-
-
-
0.3
0.3
0.6
0.2
0.3
0.3
-
-
-
-
0.5
0.5
(0.7)
(0.7)
-
-
-
-
(0.2)
7.5
0.3
0.3
27.4
(0.5)
0.3
27.2
35.0
35.0
(0.7)
(0.7)
13.8
(0.3)
0.3
13.8
48.1
39
Marlowe plc
Annual Report 2018
Consolidated statement of financial position
As at 31 March 2018
Company registered no. 09952391
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
Non-current liabilities
Trade and other payables
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
2018
£’m
2017
£’m
12
13
20
14
15
19
16
17
18
16
17
20
18
21
22
23
24
42.4
4.2
-
46.6
2.7
24.6
7.7
35.0
81.6
(19.9)
(2.3)
(0.3)
(0.5)
(0.2)
(23.2)
(1.0)
(7.7)
(1.3)
(0.3)
(10.3)
(33.5)
48.1
17.3
30.4
0.6
(0.2)
48.1
26.6
2.6
0.2
29.4
1.8
16.5
7.8
26.1
55.5
(14.0)
(1.1)
(0.2)
(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
These financial statements were approved by the Board of Directors and authorised for issue on 25 June 2018 and were
signed on its behalf by:
Derek O'Neill
Chairman
Alex Dacre
Chief Executive
40
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Consolidated statement of cash flows
For the year ended 31 March 2018
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
Restructuring costs
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
5
11
19
Year ended
31 March
2018
£’m
Year ended
31 March
2017
£’m
3.2
(0.4)
(0.4)
2.4
(0.5)
0.3
(3.6)
(11.2)
3.2
(0.2)
(0.5)
2.5
(0.4)
0.1
(1.1)
(23.3)
(15.0)
(24.7)
10.0
(5.2)
6.7
(0.3)
(0.7)
2.0
12.5
(0.1)
7.8
7.7
20.0
(6.7)
6.5
(0.5)
(0.2)
0.3
19.4
(2.8)
10.6
7.8
7.7
7.8
41
Marlowe plc
Annual Report 2018
Notes to the Group financial statements
For the year ended 31 March 2018
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 United Kingdom. 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 7HN.
The Company is listed on the AIM market.
These Group consolidated financial statements were authorised for issue by the Board of Directors on 25 June 2018.
Exemption from audit
For the year ended 31 March 2018 Marlowe plc has provided a guarantee in respect of all liabilities due by its following
subsidiaries: Fire & Security (Group) Limited, Swift Fire and Security Group Limited, Swift Fire and Security (Northern)
Limited, Hentland Limited, Titan Fire and Security Limited, Alpha Peerless Limited, The Philton Group Limited, BTE Systems
Limited, DB Audio Electrical Services Limited, Flamefast Fire Systems Limited, Advance Environmental Limited, Future Water
Limited, G.P.C.S. Limited, SB Hygiene Limited. This entitles them to exemption from audit under 479A of the Companies
Act 2006 relating to subsidiary companies.
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.
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 23.
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 2019 and forecasts for 2020, 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.
42
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
2. SIGNIFICANT ACCOUNTING POLICIES - Basis of consolidation continued
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.
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 charge 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 Protection & Security Systems (“Fire & Security”); and Water Treatment & Air Quality (“Water & Air”), 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.
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OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
2. SIGNIFICANT ACCOUNTING POLICIES - Sale of goods and services – Fire & Security continued
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.
Sale of goods and services – Water & Air
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 treatment and air hygiene 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, which include legal and professional fees and staff costs incurred as
part of the acquisitions. Restructuring costs predominately relate to the cost of duplicated staff roles during the integration
and restructuring period, redundancy costs of implementing the post completion staff structures and IT costs associated with
the integration and transfer to Group IT systems.
Profit measures
Due to the one-off nature of acquisition and other costs and the non-cash element of certain charges, the Directors believe
that adjusted operating profit, adjusted EBITDA and adjusted measures of profit before tax and earnings per share provide
shareholders with a more appropriate representation of the underlying earnings derived from the Group’s business and a
more comparable view of the year-on-year underlying financial performance of the Group. The items adjusted for in arriving
at these are share-based payments charge, acquisition costs, restructuring costs, exceptional loss on customer liquidation,
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.
44
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 2. SIGNIFICANT ACCOUNTING POLICIES - Intangible assets continued
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.
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
amortised on a straight-line basis between one 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 seventeen 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.
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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.
46
Marlowe plcAnnual Report 2018Notes 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 and cash-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. Cash-settled share-
based payments are measured at fair value at each reporting date and at settlement date. The fair value is recognised
over the vesting period by discounting the expected liability at an appropriate pre-tax discount rate, based on the Group’s
estimation of the share price at vesting date. Fair value is measured by use of a Binomial 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 Schemes 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 judgements and estimates
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 that are dealt with separately below, which have the most significant effect on the amounts
recognised in the financial statements.
47
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
2. SIGNIFICANT ACCOUNTING POLICIES continued
Identification of separable intangibles on acquisition and rate of customer attrition
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. Customer relationships have been identified by
management as a separate intangible asset as they are separable and can be reliably measured by valuation of future cash
flows. Management do not believe there are any other intangible assets that have arisen on acquisition during the year which
can be identified and reliably measured. The rate of customer attrition is determined by reference to the acquired company’s
historical customer life cycle.
Acquisition and other costs
Due to the one-off nature of acquisition and other costs and the non-cash element of certain charges, the Directors believe
that adjusted operating profit, adjusted EBITDA and adjusted measures of profit before tax and earnings per share provide
shareholders with a more appropriate representation of the underlying earnings derived from the Group’s business and a
more comparable view of the year-on-year underlying financial performance of the Group.
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 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 £1.2m (2017: £1.4) provision for
impairment of trade receivables has been made. Refer to note 15 for further information.
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 £2.5m (2017: £5.4m) as defined further in note 12.
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 and within our acquisition strategy risk on page 22.
Adoption of new and revised standards
New standards, amendments and interpretations issued and effective during the financial year commencing 1 April 2017:
Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses*
The amendments are aimed at reducing diversity by clarifying how to account for deferred tax assets related to debt
instruments measured at fair value. The following clarifications are made.
An entity takes into account any restrictions imposed by tax law on the source or type of taxable profits against which a
deductible temporary difference can be relieved when assessing whether taxable profit will be available against which
the deductible temporary difference can be utilised. If a restriction exists the entity considers the recovery of a deductible
temporary difference only with other such differences of the appropriate type.
48
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 2. SIGNIFICANT ACCOUNTING POLICIES - Adoption of new and revised standards continued
Future taxable profit used for assessing the utilisation of deductible temporary differences excludes tax deductions resulting
from the reversal of those deductible temporary differences; otherwise they would be double counted. This comparison
shows the extent to which the future taxable profit is sufficient for the entity to deduct the amounts resulting from the
reversal of the deductible temporary differences.
Future taxable profit may include the recovery of some of an entity’s assets for more than their carrying value if there is
sufficient evidence that it is probable that the entity will achieve this. The amendment suggests that this may be the case for
an asset measured at fair value, for example, when an entity expects to hold a fixed-rate debt instrument measured at fair
value and collect the contractual cash flows.
Amendments to IAS 7: Disclosure initiative*
The amendment has the objective of ensuring that disclosures help users of financial statements to evaluate changes in
liabilities arising from financing activities. To achieve the following changes in liabilities arising from financing activities are
to be disclosed, changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other
businesses; the effect of changes in foreign exchange rates; changes in fair values; and other changes.
Periods commencing on or after 1 April 2018
IFRS 15 Revenue from Contracts with Customers (endorsed for use in the EU on 22 September 2016)
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. The new standard will also result in enhanced disclosures about revenue.
The final standard has the following stepped approach, which is to identify the contract with a customer, identify the
performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance
obligations in the contract, recognise revenue when the entity satisfies a performance obligation.
The Group has undertaken analysis of how the adoption of IFRS 15 will have an impact on the timing of recognition of
revenue across its business, depending upon the nature and terms of their customer contracts.
the determination of distinct goods and services
The key areas which have been assessed are:
• contract modifications
•
• customer options for future purchases
•
•
• how the performance obligation is satisfied over time
• how contract costs should be allocated to fulfilling a contract.
the determination of a standalone selling price
the allocation of the transaction price and any discounts to the separate performance obligations
The current contract terms and business practices were reconsidered, and it has been concluded that the new standard is
not expected to have an impact on the timing of the recognition of revenue and that no restatement will be required. All
new contracts and changes to existing contract terms are considered on an ongoing basis to ensure that the accounting is
appropriate.
IFRS 9 Financial Instruments (endorsed for use in the EU on 22 November 2016)
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. IFRS 9 Financial Instruments replaces IAS 39
Financial Instruments: Recognition and Measurement.
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2. SIGNIFICANT ACCOUNTING POLICIES - Adoption of new and revised standards continued
Financial assets are still measured at amortised cost, fair value through profit or loss or fair value through other
comprehensive income but their classification and measurement is driven by the contractual cash flow characteristics of the
financial asset and the business model in which an asset is held. This single, principle-based approach replaces existing rule-
based requirements that are generally considered to be overly complex and difficult to apply. The new model also results
in a single impairment model being applied to all financial assets, thereby removing a source of complexity associated with
previous accounting requirements.
The classification and measurement of financial liabilities is largely unchanged, except for entities that designate financial
liabilities as at fair value through profit and loss. They will be required to present the portion of the change in fair value
attributable to the entity’s own credit risk in other comprehensive income rather than profit or loss. Entities can elect to early-
adopt this requirement without applying the other requirements in IFRS 9.
IFRS 9 introduces a substantially-reformed model for hedge accounting, with enhanced disclosures about risk management
activity. The new model represents a significant overhaul of hedge accounting that aligns the accounting treatment with risk
management activities, enabling entities to better reflect these activities in their financial statements. In addition, as a result
of these changes, users of the financial statements will be provided with better information about risk.
The Group has undertaken an assessment of how the adoption of IFRS 9 will have an impact on the Group’s financial
instruments. The key area that was considered across the business was the bad debt provisioning because of the
implementation of the expected loss model and it was concluded that there will not be an impact as a result of the changes
and that no restatement is required (note 15).
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions*
The amendment seeks clarification 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.
Annual Improvements to IFRSs 2014–2016 Cycle*
In December 2016, the IASB published Annual Improvements to IFRSs 2014–2016 Cycle as part of its annual improvements
project. A summary of the amendments is set out below:
IFRS 1 First-time Adoption of International Financial Reporting Standards
Deletion of short-term exemptions that are no longer applicable for first-time adopters. Applies for annual periods beginning
on or after 1 January 2018.
IFRS 12 Disclosure of Interests in Other Entities
Clarification that except as described in paragraph B17, the disclosure requirements for interests in other entities also apply
to interests that are classified as held for sale or distribution. Applies retrospectively in annual periods beginning on or after
1 January 2017.
IAS 28 Investments in Associates and Joint Ventures
Clarification that a venture capital organisation, or other qualifying entity, may elect to measure its investments in an
associate or joint venture at fair value through profit or loss. This election can be made on an investment-by-investment
basis.
A non-investment entity investor may also elect to retain the fair value accounting applied by an investment entity associate
or investment entity joint venture to its subsidiaries. This election can be made separately for each investment entity
associate or joint venture. Applies retrospectively for annual periods beginning on or after 1 January 2018. Early application
is permitted as long as that fact is disclosed.
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Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 2. SIGNIFICANT ACCOUNTING POLICIES - Adoption of new and revised standards continued
Periods commencing on or after 1 January 2019
IFRS 16 Leases*
The new standard, which was issued in January 2016 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 expense recognised in profit and loss is consistent with the charge recognised under IAS 17 with regards to finance
leases in that it will comprise a depreciation charge on the leased asset and an interest charge on the lease liability. For
leases previously classified as operating leases, this will replace the expense for lease payments.
Short-term leases (less than twelve months) and leases of low-value assets (such as personal computers) are exempt from the
requirement to recognise a leased asset and lease liability. Instead, lessees can recognise the lease payments as an expense
over the term of the lease either on a straight-line basis or on another systematic basis more representative of the pattern of
the lessee’s benefit.
The lessor accounting model is largely unchanged as it retains the classification of leases as operating or finance leases and
the different methods of accounting for them.
Effective Date: Periods commencing on or after 1 January 2019. Early application is permitted but only if companies also
apply IFRS 15 Revenue from Contracts with Customers at the same time. Transition exemptions from full retrospective
application are available.
The Group has started the analysis of how IFRS 16 should be implemented and is in the process of taking tentative
accounting policy decisions. Based upon this analysis and given the number of the Group’s properties we expect that
the adoption of IFRS 16 will have a material impact on the financial position of the Group. The key judgements which are
currently in the process of being quantified are the interest rate which is implicit in the lease, and the lease term including
judgements on break clause options, extensions and renewals.
* Not yet endorsed by the EU
Other than where specifically stated above, the Directors are still considering the impact that the adoption of these
Standards and Interpretations in future periods will have but do not expect a material impact on the financial statements of
the Group when the relevant standards and interpretations come into effect.
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 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 2018 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.
52
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 3. FINANCIAL RISK MANAGEMENT continued
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.
No changes were made in the objectives, policies or processes during the year ended 31 March 2018 and prior year ended
31 March 2017.
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
Finance leases due within one year
Finance leases due after one year
Net (debt) / cash
2018
£’m
7.7
(2.3)
(7.7)
(0.3)
(0.3)
(2.9)
2017
£’m
7.8
(1.1)
(3.7)
(0.2)
(0.2)
2.6
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.
Fair value estimation
The fair value of financial instruments is market value.
53
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
4. SEGMENTAL ANALYSIS
The Group is organised into two main operating segments, Fire Protection & Security Systems (“Fire & Security”) and Water
Treatment & Air Quality (“Water & Air”). Services per segment operate as described in the Strategic report. The key profit
measures are adjusted operating profit and adjusted EBITDA and are shown before acquisition and restructuring costs,
exceptional loss on customer liquidation, share-based payments 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.
Continuing operations
Revenue
Inter-segment elimination
Revenue from external customers
Segment adjusted operating profit/(loss)
Acquisition costs
Restructuring costs
Exceptional loss on customer liquidation
Amortisation of acquisition intangibles
Share-based payments
Operating profit
Finance costs
Loss before tax
Tax charge
Loss after tax
Segment assets
Segment liabilities
Capital expenditure
Depreciation and amortisation
Fire &
Security
£’m
52.6
(0.7)
51.9
3.9
Water
& Air
£’m
28.8
(0.1)
28.7
3.3
Head
Office
£’m
-
-
-
(1.0)
16.8
6.9
0.3
0.7
11.3
5.0
0.2
0.3
53.5
21.6
-
0.9
2018
Total
£’m
81.4
(0.8)
80.6
6.2
(0.6)
(3.6)
(0.7)
(0.9)
(0.4)
-
(0.4)
(0.4)
(0.3)
(0.7)
81.6
33.5
0.5
1.9
54
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 4. SEGMENTAL ANALYSIS - Revenue continued
Continuing operations
Revenue
Inter-segment elimination
Revenue from external customers
Segment adjusted operating profit/(loss)
Acquisition costs
Restructuring costs
Amortisation of acquisition intangibles
Share-based payments
Operating profit
Finance costs
Profit before tax
Tax charge
Profit after tax
Segment assets
Segment liabilities
Capital expenditure
Depreciation and amortisation
Fire &
Security
£’m
37.8
-
-
3.4
Water
& Air
£’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
34.5
10.1
-
0.6
The revenue from external customers was derived from the Group’s principal activities primarily in the UK (where the
Company is domiciled).
Reconciliation of segment adjusted operating profit to adjusted EBITDA
Segment adjusted operating profit/(loss)
Depreciation
Adjusted EBITDA
Segment adjusted operating profit/(loss)
Depreciation
Adjusted EBITDA
Fire &
security
£’m
3.9
0.7
4.6
Fire &
security
£’m
3.4
0.4
3.8
Water
& air
£’m
3.3
0.3
3.6
Water
& air
£’m
0.8
0.1
0.9
Head
office
£’m
(1.0)
-
(1.0)
Head
office
£’m
(0.7)
-
(0.7)
2017
Total
£’m
46.8
-
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
2018
Total
£’m
6.2
1.0
7.2
2017
Total
£’m
3.5
0.5
4.0
The above tables reconcile segment adjusted operating profit/(loss), which excludes separately disclosed acquisition and
other costs, to the standard profit measure under International Financial Reporting Standards (Operating Profit). This is the
Groups’ Alternate Profit Measure used when discussing the performance of the Group. The Directors believe that adjusted
EBITDA and operating profit is the most appropriate approach for ascertaining the underlying trading performance and
trends as it reflects the measures used internally by senior management for all discussions of performance and also reflects
the starting profit measure when calculating the Group’s banking covenants.
Adjusted EBITDA is not defined by IFRS and therefore may not be directly comparable with other companies’ adjusted profit
measures. It is not intended to be a substitute, or superior to, IFRS measurements of profit.
55
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
4. SEGMENTAL ANALYSIS - Reconciliation of segment adjusted operating profit to adjusted EBITDA continued
Major customers
For the year ended 31 March 2018, no customers (2017: Nil) individually accounted for more than 10% of the Group’s
total revenue.
5. RESTRUCTURING COSTS
Restructuring and redundancy costs were £3.6m in 2018 (2017: £1.1m). These costs arise due to the following:
• 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 integration and transfer to Group IT systems.
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
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
2018
£’m
2017
£’m
0.9
1.0
0.1
0.4
0.1
0.5
-
0.2
-
0.6
0.5
-
0.3
0.2
0.3
-
0.1
-
* Audit fees of £30k (2017: £30k) in respect of the parent and consolidated financial statements and £155k (2017: £110k) in respect of the audit of
the Company's subsidiaries were incurred during the year. £13k (2017: £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
Amortisation of deferred finance costs
Total
56
2018
£’m
0.3
0.1
0.4
2017
£’m
0.2
-
0.2
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 8. TAXATION
Current tax:
UK corporation tax on loss/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
2018
£’m
2017
£’m
0.5
(0.2)
0.3
(0.1)
0.1
-
0.3
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:
(Loss)/profit before tax
(Loss)/profit before tax multiplied by the rate of corporation tax of 19% / 20%
Effects of:
Expenses not deductible for tax purposes
Prior year adjustments
Tax charge
2018
£’m
(0.4)
(0.1)
0.5
(0.1)
0.3
2017
£’m
0.7
0.2
0.2
-
0.4
9. EARNINGS PER ORDINARY SHARE
Basic earnings per share have been calculated on the (loss)/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 (loss)/profit for the year
Total basic earnings per ordinary share (pence)
Weighted average number of shares in issue
Executive incentive plan
Weighted average fully diluted number of shares in issue
Total fully diluted earnings per share (pence)
2018
2017
33,296,260
25,508,993
(£0.7m)
(2.2p)
£0.3m
1.1p
33,296,260
25,508,993
157,880
98,992
33,454,140
25,607,985
(2.2p)
1.1p
57
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
9. EARNINGS PER ORDINARY SHARE continued
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:
(Loss)/profit before tax
Adjustments:
Acquisition costs
Restructuring costs
Exceptional loss on customer liquidation
Amortisation of acquisition intangibles
Share-based payments
Adjusted continuing profit for the year
2018
£’m
(0.4)
0.6
3.6
0.7
0.9
0.4
5.8
2017
£’m
0.7
0.6
1.1
-
0.6
0.3
3.3
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 19% / 20% (£’m)
Adjusted profit after tax (£’m)
Adjusted basic earnings per share (pence)
Adjusted fully diluted earnings per share (pence)
2018
5.8
(1.1)
4.7
14.0
13.9
2017
3.3
(0.7)
2.6
10.4
10.3
10. DIVIDENDS
The Company has not declared any dividends in respect of the current year or prior year.
58
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 11. BUSINESS COMBINATIONS
If the acquisitions had been completed on the first day of the financial year, Group revenue would have been £98m and
Group profit before tax would have been £0.1m. 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.
Finalisation of fair values for acquisitions acquired in the current year
Acquisition of Advance Environmental
On 15 June 2017 the Company acquired Advance
Environmental Limited (“Advance”), a provider of water
treatment and hygiene services, for a total consideration of
£2.7 million, satisfied by the payment of £2.7 million in cash
on completion.
The final fair values are shown to the right.
One hundred percent of the equity of Advance 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 £67k have been charged to profit or loss.
If the acquisition had been completed on the first day of
the financial year Advance would have generated £2.2m
revenue and £0.5m profit before tax.
Cash
Intangible assets – customer relationships
Trade and other receivables
Property, plant and equipment
Trade and other payables
Deferred tax liabilities
Tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Fair value at
acquisition
£’m
0.8
0.6
0.4
0.1
(0.5)
(0.1)
(0.1)
1.2
1.5
2.7
2.7
59
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
11. BUSINESS COMBINATIONS continued
Provisional fair values for acqusitions acquired in the current year
Acquisition of Ductclean (UK) Limited
On 31 July 2017 the Company acquired Ductclean (UK)
Limited (“DCUK”), a provider of ductwork and kitchen
extract cleaning and contamination remediation services,
for a total consideration of £9.2 million, satisfied by the
payment of £3.3 million in cash, £3.4m satisfied by the
issuance of 878,031 ordinary shares of the Company on
completion, and additional earnouts of £0.5m, £1m and £1m
payable subject to the achievement of certain performance
targets by the acquired business 2 months, 14 months and
26 months respectively post acquisition. The shares are
subject to a lock-in period of 60 months. The earnouts
can be settled in cash or ordinary shares at the Company's
option. The earnout shares would be issued at the market
price at the time of issue and subject to the same lock-in
period. It is expected that DCUK will achieve its performance
targets and the earnouts will be paid out in full. 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 shown to the right.
One hundred percent of the equity of DCUK 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 £175k have been charged to profit or loss.
Trade and other receivables
Property, plant and equipment
Loans receivable
Intangible assets – customer relationships
Inventories
Loans payable
Trade and other payables
Cash
Finance leases
Tax liabilities
Deferred tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Ordinary Shares in Marlowe plc to vendors
Deferred cash consideration to vendors
Fair value at
acquisition
£’m
2.7
2.0
1.9
0.7
0.5
(2.4)
(1.9)
(0.5)
(0.4)
(0.2)
(0.2)
2.2
7.0
9.2
3.3
3.4
2.5
If the acquisition had been completed on the first day of the financial year DCUK would have generated £16.4m revenue and
£1.2m profit before tax.
Acquisition of The Philton Group Limited
On 14 August 2017 the Company acquired The Philton
Group Limited (“Philton”), a provider of fire protection
services, for a total consideration of £0.1 million, satisfied by
the payment of £0.1 million in 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.
Trade and other receivables
Trade and other payables
Tax liabillities
Cash
The provisional fair values are shown to the right.
Net assets acquired
One hundred percent of the equity of Philton 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 £42k have been charged to profit or loss.
Goodwill
Consideration
Satisfied by:
Cash to vendors
Fair value at
acquisition
£’m
0.2
(0.3)
(0.1)
(0.1)
(0.3)
0.4
0.1
0.1
If the acquisition had been completed on the first day of the financial year Philton would have generated £0.8m revenue and
£0.1m profit before tax.
60
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 11. BUSINESS COMBINATIONS - Provisional fair values for acqusitions acquired in the current year continued
Acquisition of BTE Systems Limited
On 25 August 2017 the Company acquired BTE Systems
Limited (“BTE”), a provider of fire protection services, for
a total consideration of £1.7m, satisfied by the payment
of £1.5m in cash on completion and a cash payment of up
to £0.2m payable subject to the achievement of certain
performance targets by the acquired business 6 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 shown to the right.
One hundred percent of the equity of BTE 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 £48k have been charged to profit or loss.
If the acquisition had been completed on the first day of the
financial year BTE would have generated £1.5m revenue and
£0.3m profit before tax.
Acquisition of dB Audio and Electronic Services Limited
On 25 October 2017 the Company acquired dB Audio
and Electronic Services Limited (“dB”), a provider of fire
protection services, for a total consideration of £0.5m,
satisfied by the payment of £0.5m in 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 shown to the right.
One hundred percent of the equity of dB 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 £39k have been charged to profit or loss.
Cash
Trade and other receivables
Intangible assets – customer relationships
Loans payable
Trade and other payables
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Deferred cash consideration to vendors
Cash
Trade and other receivables
Trade and other payables
Tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Fair value at
acquisition
£’m
0.5
0.4
0.3
(0.1)
(0.1)
1.0
0.7
1.7
1.5
0.2
Fair value at
acquisition
£’m
0.3
0.2
(0.1)
(0.1)
0.3
0.2
0.5
0.5
If the acquisition had been completed on the first day of the financial year dB would have generated £0.9m revenue and
£0.1m profit before tax.
61
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
11. BUSINESS COMBINATIONS - Provisional fair values for acqusitions acquired in the current year continued
Acquisition of SB Hygiene Limited
On 8 December 2017, the Company acquired SB Hygiene
Limited (“SB”), a provider of duct cleaning services, for a
total consideration of £0.8m, satisfied by the payment of
£0.8m in 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 shown to the right.
One hundred percent of the equity of SB 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 £47k have been charged to profit or loss.
If the acquisition had been completed on the first day of the
financial year SB would have generated £0.7m revenue and
£Nil profit before tax.
Trade and other receivables
Property, plant and equipment
Trade and other payables
Loans payable
Finance leases
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Acquisition of Guardian Water Treatment
On 20 December 2017, the Company acquired Guardian
Water Treatment Limited and GPCS Limited ("Guardian"),
a provider of water treatment services, for a total
consideration of £4.0m, satisfied by the payment of £3.1m
in cash on completion and £0.9m in cash payable subject
to the achievement of certain performance targets by the
acquired business in the period ending 31 March 2018. The
business met its targets and £0.9m deferred consideration
was paid in June 2018. 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 shown to the right.
One hundred percent of the equity of Guardian 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.
Trade and other receivables
Intangible assets – customer relationships
Cash
Trade and other payables
Tax liabilities
Deferred tax liabilities
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Deferred cash consideration to vendors
Fair value at
acquisition
£’m
0.4
0.1
(0.3)
(0.2)
(0.1)
(0.1)
0.9
0.8
0.8
Fair value at
acquisition
£’m
1.7
0.6
1.0
(0.9)
(0.1)
(0.1)
2.2
1.8
4.0
3.1
0.9
If the acquisition had been completed on the first day of the financial year Guardian would have generated £7.7m revenue
and £1.0m profit before tax.
62
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued
11. BUSINESS COMBINATIONS - Provisional fair values for acqusitions acquired in the current year continued
Acquisition of Future Water Limited
On 7 February 2018, the Company acquired Future Water
Limited (“Future”), a provider of water treatment services,
for a total consideration of £0.6m, satisfied by the payment
of £0.5m 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 31 July 2018.
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 shown to the right.
One hundred percent of the equity of Future 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.
Trade and other receivables
Intangible assets – customer relationships
Trade and other payables
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)
-
0.6
0.6
0.5
0.1
If the acquisition had been completed on the first day of the financial year Future would have generated £1.8m revenue and
£Nil profit before tax.
Acquisition of Flamefast Fire Systems Limited
On 26 March 2018, the Company acquired Flamefast Fire
Systems Limited (“Flamefast”), a provider of fire protection
and suppression services, for a total consideration of £0.1m,
satisfied by the payment of £0.1m. 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 shown to the right.
One hundred percent of the equity of Flamefast 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 £nil have been charged to profit or loss.
If the acquisition had been completed on the first day of the
financial year Flamefast would have generated £5m revenue
and (£0.1m) loss before tax.
Trade and other receivables
Intangible assets – customer relationships
Inventories
Trade and other payables
Loans payable
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash to vendors
Fair value at
acquisition
£’m
1.3
0.1
0.5
(1.0)
(0.9)
-
0.1
0.1
0.1
63
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
12. INTANGIBLE ASSETS
Cost
1 April 2016
Arising on acquisition of subsidiaries
31 March 2017
1 April 2017
Arising on acquisition of subsidiaries
31 March 2018
Accumulated amortisation and impairment
1 April 2017
Charge for the year
31 March 2017
1 April 2017
Charge for the year
31 March 2018
Carrying amount
31 March 2018
31 March 2017
Goodwill
£’m
Customer
relationships
£’m
Order
backlog
£’m
-
21.7
21.7
21.7
14.2
35.9
-
-
-
-
-
35.9
21.7
-
5.4
5.4
5.4
2.5
7.9
0.5
0.5
0.5
0.9
1.4
6.5
4.9
-
0.1
0.1
0.1
-
0.1
0.1
0.1
0.1
-
0.1
-
-
Total
£’m
-
27.2
27.2
27.2
16.7
43.9
0.6
0.6
0.6
0.9
1.5
42.4
26.6
The customer relationships have a remaining life of 1-10 years.
64 64
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 12. INTANGIBLE ASSETS continued
The changes to goodwill during the year and prior year were as follows:
Cost
1 April 2016
Acquired - Swift
Acquired - WCS
Acquired - FAFS
Acquired - H2O
Acquired - Hentland
Acquired - Titan
Acquired - BBC
Acquired - Alpha
31 March 2017
Adjusted – Hentland
Adjusted – Titan
Adjusted – BBC
Acquired – Advance
Acquired – DCUK
Acquired – Philton
Acquired – BTE
Acquired – dB
Acquired – SB
Acquired – Guardian
Acquired – Future
Acquired – Flamefast
31 March 2018
Accumulated impairment
1 April 2017 and March 2018
31 March 2018
Net book value
31 March 2018
31 March 2017
£’m
-
10.4
1.3
0.7
1.9
4.6
0.5
2.0
0.3
21.7
0.7
0.1
0.2
1.5
7.0
0.4
0.7
0.2
0.9
1.8
0.6
0.1
35.9
-
-
35.9
21.7
65
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
12. INTANGIBLE ASSETS continued
Finalisation of fair values for acquisitions acquired in the prior year
Further assessments have been made during the year as more information has become available and the fair values of the
following acquisitions have been finalised.
Hentland Limited (“Hentland”) - the main changes are to trade and other payables, increasing the value by £0.4m, and
deferred tax assets, decreasing the value by £0.2m. Other changes have been made to the value of acquired assets and
liabilities resulting in an increase in goodwill of £0.7m.
Titan Fire and Security Limited (“Titan”) – the main change is to inventories, decreasing the value by £0.1m, which resulted in
an increase of goodwill of £0.1m.
BBC Fire Protection Limited (“BBC”) – the main changes are to tax liabilities, increasing the value by £0.2m, and trade and
other payables, increasing the value by £0.1m. Other changes have been made to the value of acquired assets and liabilities
resulting in an increase in goodwill of £0.2m. Deferred consideration of £0.5m remains 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 6 months of
the reporting date of the group accounts.
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
Swift/Hentland
FAFS/Titan/Alpha/Philton/BTE
BBC/dB
Flamefast
Total
Water & Air
WCS/AE/Future/H2O
DCUK
Guardian
Total
2018
£’m
15.7
2.7
2.4
0.1
20.9
2018
£’m
5.3
7.9
1.8
15.0
2017
£’m
15.0
1.5
2.0
-
18.5
2017
£’m
3.2
-
-
3.2
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 earnings 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%.
66
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 12. INTANGIBLE ASSETS - Allocation to cash-generating units continued
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 15.50% (2017:18.40%). The key
assumptions forming inputs to cash flows are in revenues and margins. Revenues for 2019 have been assessed by reference
to existing contracts and market volumes. Margins have been assumed to be consistent with historical performance of the
acquired business and reflect management’s view of the post-acquisition performance following integration into the Marlowe
Group.
For the purpose of impairment testing, goodwill and other intangibles are allocated to business segments which represent
the lowest level at which that those assets are monitored for internal management purposes. The recoverable amount of
each cash-generating unit is determined from value-in-use calculations. 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 five using
growth rates that are considered to be in line with the general trends in which each cash-generating unit operates. Terminal
cash flows are based on these five year projections, assumed to grow perpetually at 2%. In accordance with IAS 36, the
growth rates for beyond the forecasted five years do not exceed the long-term average growth rate for the industry. The key
assumptions forming inputs to the cash flows are in revenues and margins. Budgeted revenues for 2019 have been assessed
by reference to existing contracts and market volumes. Having begun moving out of the restructuring and integration phase,
budgeted margins in 2019 reflect the impact of implemented restructuring and post-integration performance improvement
measures, particularly in relation to the Swift and Hentland cash-generating unit. Although these performance improvements
are yet to be fully realised, management consider the 2019 budgets to contain reasonable and supportable assumptions.
The forecasts have been discounted at a pre-tax rate of 11.69%. This discount rate was calculated using a pre-tax rate based
on the weighted average cost of capital for the Group. The key assumptions used for the value in use calculations are as
follows:
Revenue growth – average over 5 years
Revenue growth – remainder
Cost growth – employee/overheads, average over 5 years
Fire & Security
%
Water & Air
%
5
2
4
2
2
2
Management do not consider that a reasonably possible change in any key assumption would result in an impairment.
67
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
13. PROPERTY, PLANT AND EQUIPMENT
Long
leasehold
land &
buildings
£’m
Leasehold
improvements
£’m
Plant
& machinery
£’m
Office
equipment
fixtures &
fittings
£’m
Motor
vehicles
£’m
Total
£’m
Cost
1 April 2016
Additions
Disposals
Acquisitions
31 March 2017
1 April 2017
Additions
Disposals
Acquisitions
31 March 2018
Accumulated depreciation
1 April 2016
Charge for the year
Disposals
31 March 2017
1 April 2017
Charge for the year
Disposals
Acquisitions
31 March 2018
Net book value
31 March 2018
31 March 2017
1 April 2016
-
-
-
0.3
0.3
0.3
-
-
1.4
1.7
-
-
-
-
-
-
-
-
-
1.7
0.3
-
-
-
-
0.5
0.5
0.5
-
-
-
0.5
-
-
-
-
-
0.1
-
-
0.1
0.4
0.5
-
-
-
-
0.1
0.1
0.1
0.1
-
0.1
0.3
-
-
-
-
-
0.1
-
-
0.1
0.2
0.1
-
-
0.4
-
0.5
0.9
0.9
0.4
-
0.5
1.8
-
0.2
(0.1)
0.1
0.1
0.5
-
0.5
1.1
0.7
0.8
-
-
-
(0.3)
1.2
0.9
0.9
0.3
(1.0)
2.1
2.3
-
0.3
(0.3)
-
-
0.3
(0.6)
1.4
1.1
1.2
0.9
-
-
0.4
(0.3)
2.6
2.7
2.7
0.8
(1.0)
4.1
6.6
-
0.5
(0.4)
0.1
0.1
1.0
(0.6)
1.9
2.4
4.2
2.6
-
Depreciation is charged to profit or loss as an administrative expense. Motor vehicle assets with a net book value of £1.1m
(2017: £0.4m) were held under finance leases.
14. INVENTORIES
Finished goods and goods for resale
68
2018
£’m
2.7
2017
£’m
1.8
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued
15. TRADE AND OTHER RECEIVABLES
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
2018
£’m
22.0
(1.2)
20.8
0.4
3.4
24.6
2017
£’m
15.5
(1.4)
14.1
0.3
2.1
16.5
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 2018, trade receivables of £6.9m (2017: £2.4m) 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
Current
Trade payables
Other taxation and social security
Other payables
Accruals and deferred income
Deferred consideration payable in less than one year
Non-current
Deferred consideration payable in one to three years
2018
£’m
5.1
1.8
2018
£’m
7.7
4.1
0.4
5.0
2.7
2017
£’m
2.4
-
2017
£’m
6.5
2.8
0.3
3.5
0.9
19.9
14.0
1.0
1.0
-
-
Trade and other payables principally comprise amounts outstanding for trade purchases, ongoing costs and deferred
consideration. Prior year comparatives have been updated to conform with the current year presentation.
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
2018
£’m
2017
£’m
2.3
2.3
7.7
7.7
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.
Analysis of net (debt)/cash
Cash at bank and in hand
Bank loans and overdrafts due within one year
Bank loans due after one year
Finance leases due within one year
Finance leases due after one year
Net (debt)/cash
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
2018
£’m
7.7
(2.3)
(7.7)
(0.3)
(0.3)
(2.9)
2017
£’m
7.8
(1.1)
(3.7)
(0.2)
(0.2)
2.6
2018
£'m
2017
£’m
0.3
0.3
-
0.6
0.2
0.2
-
0.4
70
Marlowe plcAnnual Report 2018Notes 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
2018
£’m
7.7
2017
£’m
7.8
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
2018
£’m
23.8
(20.6)
2017
£’m
14.7
(11.4)
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:
Currency
Sterling at 31 March 2018
Sterling at 31 March 2017
Total
£’m
10.0
4.8
10.0
4.8
Floating rate
financial
liabilities
£’m
Weighted
average
interest rates
%
3.2
3.1
2017
£’m
4.5
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:
2018
£’m
9.5
Currency
Sterling at 31 March 2018
Sterling at 31 March 2017
Floating rate
financial
liabilities
£’m
Weighted
average
interest rates
%
6.5
5.0
1.0
1.0
Total
£’m
6.5
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
2018
£’m
6.5
2017
£’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 2018, 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 £39k lower (2017: £30k). 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 based on the Bank of
England Base rate less a margin of 0.25% 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
2.3
2.1
5.6
10.0
Other
financial
liabilities
£’m
0.3
0.2
0.1
0.6
2018
Total
£’m
2.6
2.3
5.7
10.6
Bank debt
£’m
1.1
1.1
2.6
4.8
Other
financial
liabilities
£’m
0.2
0.2
-
0.4
2017
Total
£’m
1.3
1.3
2.6
5.2
Borrowing facilities
The Group has a finance facility with Lloyds Bank plc which expires on 27 April 2020. This facility as at 31 March 2018
comprises term loans of £15m, a revolving credit facility (RCF) of £2.5m, and an overdraft facility of £0.5m (2017: Term loans
of £10m, a revolving credit facility (RCF) of £2.5m, and an overdraft facility of £0.5m. Of this facility, £4.5m of the term loan,
£1.5m of the RCF and £0.5m of the overdraft facility were undrawn as at 31 March 2018.
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 2018Notes 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
2018
£’m
(1.3)
-
(1.3)
2018
£’m
(0.8)
-
(0.5)
(1.3)
2017
£’m
(1.0)
0.2
(0.8)
2017
£’m
-
0.2
(1.0)
(0.8)
The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during
the year:
Deferred tax liabilities
1 April 2016
Charge to income for the year
Acquisitions
31 March 2017
Charge to income for the year
Acquisitions
31 March 2018
Deferred tax assets
1 April 2016
Charge to income for the year
Acquisitions
31 March 2017
Charge to income for the year
Acquisitions
31 March 2018
Intangible
assets
£’m
0.2
(1.2)
(1.0)
0.2
(0.5)
(1.3)
Losses
£’m
-
0.2
0.2
(0.2)
-
-
Total
£’m
0.2
(1.2)
(1.0)
0.2
(0.5)
(1.3)
Total
£’m
-
0.2
0.2
(0.2)
-
-
73
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
21. CALLED UP SHARE CAPITAL
Allotted, issued and fully paid:
34,517,425 ordinary shares of 50p each (2017: 30,916,995 ordinary shares of 50p each)
17.3
15.5
2018
£’m
2017
£’m
The issued ordinary share capital is as follows:
Date
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
28 July 2017 – Consideration Shares (“DCUK”)
28 July 2017 – Subscription Shares
11 January 2018 – Consideration Shares (“DCUK”)
31 March 2018
22. SHARE PREMIUM ACCOUNT
1 April
Premium on shares issued during the year
Share issue costs
31 March
Number of
ordinary shares
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
878,031
2,597,402
124,997
34,517,425
2018
£’m
18.7
12.0
(0.3)
30.4
Issue price
100p
100p
165p
170p
170p
170p
290p
394p
385p
360p
2017
£’m
-
19.2
(0.5)
18.7
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.
74
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 23. OTHER RESERVES
Share-based payments reserve
1 April
Charge for the year
31 March
2018
£’m
0.3
0.3
0.6
2017
£’m
-
0.3
0.3
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.
24. RETAINED EARNINGS
1 April
(Loss)/profit for the year
31 March
25. NET CASH GENERATED FROM OPERATIONS
Continuing operations
(Loss)/profit before tax
Depreciation of property, plant and equipment
Amortisation of intangible assets
Net finance costs
Acquisition costs
Restructuring costs
Share-based payments charge
Gain on disposal of property, plant and equipment
Decrease/(increase) in inventories
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Net cash generated from operations
2018
£’m
0.5
(0.7)
(0.2)
2017
£’m
0.2
0.3
0.5
2018
£’m
2017
£’m
(0.4)
1.0
0.9
0.4
0.6
3.6
0.4
(0.1)
0.3
(1.2)
(2.3)
3.2
0.7
0.5
0.6
0.2
0.6
1.1
0.3
-
(0.2)
(1.4)
0.8
3.2
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 £0.3m
(2017: £0.2m) represents contributions payable to these schemes by the Group at rates specified in the rules of the plan.
75
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
27. SHARE-BASED PAYMENTS
Marlowe 2016 Incentive Scheme
The Directors believe the success of the Group 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.
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; and
• 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 to 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
76
£0.01
£1.375
See below
5
10,000
Up to 6.9 years
50%
6.9
4.45
1.15%
0%
Marlowe plcAnnual Report 2018Notes to the Group financial statements continued 27. SHARE-BASED PAYMENTS - Marlowe 2016 Incentive Scheme continued
The Director’s interests in the performance units of the Incentive Scheme is as follows:
Alex Dacre
Derek O’Neill
Charles Skinner
Nigel Jackson*
2018
5,460
1,820
1,183
-
2017
5,460
1,820
1,183
900
*Nigel Jackson retired as a Director of Marlowe on 30 September 2017. For the purposes of the Scheme Nigel Jackson
would benefit up to a capped value at his time of retirement with any excess that would have passed to him at redemption
being shared amongst the other B shareholders in proportion to the number of B shares they hold. Following Nigel
Jackson’s retirement he continues to hold an interest in the Marlowe 2016 Incentive Scheme. His interest is subject to a
maximum value based on the contribution made to the Group prior to retirement.
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
Number of B Shares
Issue price
-
9,100
9,100
900
10,000
£0.01
£0.01
A charge of £0.3m (£2017: £0.3m) was recognised in the year in respect of the Marlowe 2016 Incentive Scheme.
Phantom Award Scheme
The Phantom Award Scheme (the “Scheme”) provides eligible participants with the right to receive cash based on the
appreciation in the Company’s share price between the date of grant and the vesting date. Under the scheme, such eligible
participants are granted phantom shares. Phantom shares are settled in cash and contain a service condition of 3-4 years.
50% of the phantom shares are settled for cash on the third anniversary of the grant date and the remaining 50% of the
phantom shares are settled for cash on the fourth anniversary of the grant date. The fair value of the liability for the awards
made is remeasured at each reporting date and at the settlement date. The fair value is recognised over the vesting period.
The amount of expense recognised takes into account the best available estimate of the number of equity instruments
expected to vest under the service and performance conditions underlying each phantom share granted.
The Phantom Award Schemes were valued using a Binomial model using the following assumptions:
Grant date
Share price at grant date
Number of employees
Phantom shares granted
Vesting period
Expected volatility
Risk free rate
Fair value per phantom share
11 May 2017
12 July 2017
320p
2
170,000
3-4
360p
1
50,000
3-4
39.89%
39.89%
0.88%
441p
0.88%
463p
77
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Group financial statements continued
27. SHARE-BASED PAYMENTS continued
Long Term Investment Plan
During the year the Remuneration Committee approved a Long Term Incentive Plan (“LTIP”) Award to Robert Flinn, Chief
Executive of the Fire & Security Division,and Phil Greenwood, Chief Executive of the Water Division which can be exercised
between the third and fifth year of their employment, which commenced on 1 September 2017 and 3 January 2018
respectively. The LTIP is calculated by reference to the financial performance of the Fire & Security and Water Divisions.
The fair value of the liability for the LTIPs is remeasured at each reporting date and at the settlement date. The fair value is
recognised over the vesting period.
In total, a charge of £0.1m was recognised in respect of the Phantom Award Scheme and Long Term Investment Plan. As at
31 March 2018, the liability was £0.1m.
28. DIRECTORS AND EMPLOYEES
Staff costs during the year
Wages and salaries
Social security costs
Post employment benefits
Share-based payments charge
2018
£’m
33.6
3.6
0.3
0.4
37.9
2017
£’m
16.9
2.0
0.2
0.3
19.4
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
5
178
495
192
70
940
2018
£’m
0.3
0.1
2018
£’m
0.8
0.1
-
-
0.3
1.2
6
69
287
113
69
544
2017
£’m
0.3
0.1
2017
£’m
0.7
0.1
-
-
0.3
1.1
The key management of the Group include the Directors of the Company, the Company Secretary and the Managing
Directors of each Division.
78
Marlowe plcAnnual Report 2018Notes 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
2018
£’m
Land and
buildings
2017
£’m
Vehicles
2018
£’m
Vehicles
2017
£’m
0.5
1.0
0.7
2.2
0.2
0.7
0.4
1.3
1.6
1.3
-
2.9
1.2
0.9
-
2.1
The operating leases represent rentals payable by the Group for certain properties, vehicles and equipment.
30. 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
up to the date of his resignation on 30 September 2017.
Canon Fire Protection Limited
Video Receiving Centre Limited
Boundary Gate & Barriers (Contracts) Limited
Alarm Response & Keyholding Limited
Sales
2018
£’000s
-
-
-
1
Sales
2017
£’000s
-
41
7
20
Purchases
Purchases
2018
£’000s
59
11
67
88
2017
£’000s
169
202
96
351
31. POST BALANCE SHEET EVENTS
On 23 April 2018 the Company acquired Island Fire Protection Limited, a provider of fire protection services, for a total
consideration of £1.4m. 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.
On 17 May 2018 the Company acquired the business and assets of Forest Environmental Limited, a provider of duct
cleaning and asbestos remediation services, for a total consideration of £0.6m. 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 2018
Company statement of changes in equity
For the year ended 31 March 2018
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
Balance at 1 April 2017
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 2018
Attributable to owners of the parent
Share capital
£’m
Share
premium
£’m
Other
reserves
£’m
Retained
earnings
£’m
7.3
-
-
8.2
-
-
8.2
15.5
-
-
-
19.2
(0.5)
-
18.7
18.7
15.5
18.7
-
-
1.8
-
-
1.8
17.3
-
-
12.0
(0.3)
-
11.7
30.4
-
-
-
-
-
0.3
0.3
0.3
0.3
-
-
-
-
0.3
0.3
0.6
0.2
(1.7)
(1.7)
-
-
-
-
(1.5)
(1.5)
(2.0)
(2.0)
-
-
-
-
(3.5)
Total
equity
£’m
7.5
(1.7)
(1.7)
27.4
(0.5)
0.3
27.2
33.0
33.0
(2.0)
(2.0)
13.8
(0.3)
0.3
13.8
44.8
80
Marlowe plcAnnual Report 2018 Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Company statement of financial position
As at 31 March 2018
ASSETS
Non-current assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Tax asset
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Financial liabilities – borrowings
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
2018
£’m
2017
£’m
32
33
34
35
35
36
37
22.6
22.6
42.4
0.6
0.2
43.2
65.8
(11.0)
(2.3)
(13.3)
(7.7)
(7.7)
(21.0)
44.8
17.3
30.4
0.6
(3.5)
44.8
13.4
13.4
26.6
3.2
-
29.8
43.2
(5.4)
(1.1)
(6.5)
(3.7)
(3.7)
(10.2)
33.0
15.5
18.7
0.3
(1.5)
33.0
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 £2.0m (2017: 1.7m).
These financial statements were approved by the Board of Directors and authorised for issue on 25 June 2018 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 2018
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;
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 42 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 81 of the financial statements.
82
Marlowe plcAnnual Report 2018
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
Notes to the Company Financial Statements
For the period ended 31 March 2018
32. INVESTMENTS
Shares in subsidiary undertakings.
Cost:
1 April 2016
Marlowe 2016
H2O
31 March 2017
1 April 2017
DCUK
31 March 2018
Provision for impairment
1 April 2016
Charge for the year
31 March 2017
1 April 2017
Charge for the year
31 March 2018
Net book value:
31 March 2018
31 March 2017
£’m
-
13.0
0.4
13.4
13.4
9.2
22.6
-
-
-
-
-
-
22.6
13.4
83
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Marlowe plc
Annual Report 2018
32. INVESTMENTS continued
At 31st March 2018, the Company held directly and indirectly equity and voting rights of the following undertakings:
Company
All Management Divisions
All companies are registered at
Marlowe Plc, 20 Grosvenor Place,
London, SW1X 7HN.
Class of
holding
% held
Country of
incorporation
Nature of business
* Marlowe 2016 Limited
Ordinary
100%
England & Wales
Holding Company
* Ductclean (UK) Limited
Ordinary
100%
England & Wales
Duct Cleaning and Asbestos
Removal Services
* DCUK (FM) Limited
Ordinary
100%
England & Wales
Dormant
** H20 Chemicals Limited
Ordinary
100%
England & Wales
Water Treatment Services
*** Fire & Security (Group) Limited
Ordinary
100%
England & Wales
Holding Company
*** Swift Fire and Security Group Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** Protecting What Matters Limited
Ordinary
100%
England & Wales
Dormant
*** Swift Fire Suppression Systems Limited
Ordinary
100%
England & Wales
Dormant
*** Swift Fire & Security (National) Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** Swift Fire & Security (Northern) Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** Swift Fire and Security Limited
Ordinary
100%
England & Wales
Dormant
*** Swift Fire & Security (Electrical Engineers) Limited
Ordinary
100%
England & Wales
Holding Company
*** Swift Integrated Systems Limited
Ordinary
100%
England & Wales
Dormant
*** Swift Keyholding and Response Limited
Ordinary
100%
England & Wales
Dormant
*** Swift Connect Monitoring Limited
Ordinary
100%
England & Wales
Dormant
*** Swift Monitoring Centre Limited
Ordinary
100%
England & Wales
Dormant
*** Swift Fire & Mechanical Products Group
Ordinary
100%
England & Wales
Dormant
*** Swift Fire & Mechanical Products Limited
Ordinary
100%
England & Wales
Dormant
*** Swift Holdings Limited
Ordinary
100%
England & Wales
Dormant
*** Fire Alarm Fabrication Services Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** Hentland Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** Titan Fire and Security Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** BBC Fire Protection Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** Alpha Peerless Fire Systems Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** WCS Environmental Group Limited
Ordinary
100%
England & Wales
Holding Company
*** WCS Environmental Limited
Ordinary
100%
England & Wales
Water Treatment Services
*** Advance Environmental Limited
Ordinary
100%
England & Wales
Water Treatment Services
*** Guardian Water Treatment Limited
Ordinary
100%
England & Wales
Water Treatment Services
*** G.P.C.S. Limited
*** Future Water Limited
Ordinary
100%
England & Wales
Water Treatment Services
Ordinary
100%
England & Wales
Water Treatment Services
*** The Philton Group Limited
Ordinary
100%
England & Wales
Holding Company
*** Philton Fire and Security Limited
Ordinary
100%
England & Wales
Fire and Security Services
84
Marlowe plcAnnual Report 2018Notes to the Company financial statements continued
Overview
Strategic Report
Corporate Governance
Financial Statements
Additional Information
32. INVESTMENTS continued
Company
Class of
holding
% held
Country of
incorporation
Nature of business
*** Guardian Fire Detector Systems Limited
Ordinary
100%
England & Wales
Dormant
*** DB Audio & Electronic Service Limited
Ordinary
100%
England & Wales
Fire and Security Services
*** SB Hygiene Limited
Ordinary
100%
England & Wales
Duct Cleaning Services
*** Flamefast Fire Systems Limited
Ordinary
100%
England & Wales
Fire and Security Services
*
Held directly
** 15% held directly and 85% held via Marlowe 2016 Limited
*** Held via Marlowe 2016 Limited
Dormant companies are exempt from filing accounts under section 394 of the Companies Act 2006.
H2O Chemicals Limited was dissolved on 20 March 2018. Prior to this H2O’s assets and liabilities were transferred to WCS
Environmental Limited. As a result, the investment in H2O has been redesignated as an investment in WCS.
33. 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
2018
£’m
0.3
-
0.3
41.9
-
0.2
42.4
2017
£’m
0.3
-
0.3
25.5
0.2
0.6
26.6
Of the £41.9m (2017: £25.5m) amounts due from Group undertakings, £30.1m (2017: £20.8m) relates to amounts due from
Marlowe 2016 in respect of investments made in the year.
34. TRADE AND OTHER PAYABLES
Trade payables
Amount due to Group undertakings
Other payables
Accruals and deferred income
Deferred consideration payable
2018
£’m
0.3
6.5
0.1
0.4
3.7
11.0
2017
£’m
0.5
3.8
0.1
0.1
0.9
5.4
The Company has financial risk management policies in place to ensure that all payables are paid within the credit time frame.
85
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Company financial statements continued
35. FINANCIAL LIABILITIES – BORROWINGS
Current
Bank loans and overdrafts due within one year
Bank loans – secured
Non-current
Bank loans – secured
2018
£’m
2017
£’m
2.3
2.3
7.7
7.7
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.
Analysis of net debt
Cash at bank and in hand
Bank loans and overdrafts due within one year
Bank loans due after one year
36. SHARE CAPITAL
Allotted, issued and fully paid:
34,517,425 ordinary shares of 50p each (2017: 30,916,995 ordinary shares of 50p each)
2018
£’m
0.6
(2.3)
(7.7)
(9.4)
2018
£’m
17.3
2017
£’m
3.2
(1.1)
(3.7)
(1.6)
2017
£’m
15.5
86
Marlowe plcAnnual Report 2018Notes to the Company financial statements continued
36. SHARE CAPITAL continued
The issued ordinary share capital is as follows:
Date
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
28 July 2017 – Consideration Shares (“DCUK”)
28 July 2017 – Subscription Shares
11 January 2017 – Consideration Shares (“DCUK)
31 March 2018
37. SHARE PREMIUM ACCOUNT
1 April 2017
Premium on shares issued during the year
Share issue costs
31 March 2018
Number of
ordinary shares
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
878,031
2,597,402
124,997
34,517,425
2018
£’m
18.7
12.0
(0.3)
30.4
38. SHARE-BASED PAYMENTS
Details of the share-based payments are set out in note 27.
39. 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
2018
£’m
0.1
0.1
-
0.2
Issue price
100p
100p
165p
170p
170p
170p
290p
394p
385p
360p
2017
£’m
-
19.2
(0.5)
18.7
2017
£’m
0.1
0.2
-
0.3
87
OverviewStrategic ReportCorporate GovernanceFinancial StatementsAdditional InformationNotes to the Company financial statements continued
40. DIRECTORS AND EMPLOYEES
Staff costs during the year
Wages and salaries
Social security costs
Post employment benefits
Share-based payments charge
2018
£’m
0.5
0.1
-
0.3
0.9
2017
£’m
0.4
-
-
0.3
0.7
Average monthly number of employees during the year
Number
Number
Directors
Corporate Development
IT
Finance
Adminstration
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
1
2
1
2
1
7
2018
£’m
0.3
0.1
2018
£’m
0.3
0.3
0.6
1
2
1
1
1
6
2017
£’m
0.1
0.1
2017
£’m
0.1
0.2
0.3
41. RELATED PARTY TRANSACTIONS AND CONTROLLING PARTY
Details of related party transactions can be found in note 30.
42. POST BALANCE SHEET EVENTS
On 23 April 2018 the Company acquired Island Fire Protection Limited, a provider of fire protection services, for a total
consideration of £1.4m. 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.
On 17 May 2018 the Company acquired the business and assets of Forest Environmental Limited, a provider of duct
cleaning and asbestos remediation services, for a total consideration of £0.6m. 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
Marlowe plcAnnual Report 2018Notes to the Company financial statements continued
Trading record
Officers & Advisers
Year ended 31 March
Revenue
Adjusted profit before taxation*
Adjusted earnings per share*
Net debt/(cash)
Net assets
2018
£’m
80.6
5.8
14.0
2.9
48.1
2017
£’m
46.8
3.3
10.4p
(2.6)
35.0
* Before amortisation of intangible assets, share based payments, and acquisition and
restructuring costs.
Financial calendar
Event
Annual General Meeting
Half year results
Financial year end
Full year results
Date
5 September 2018
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
+44 (0)20 7397 8900
FTI Consulting
Nick Hasell
Alex Le May
+44 (0)20 3727 1340
Company Secretary
Matthew Allen
Registered Office
20 Grosvenor Place
London
SW1X 7HN
Directors
Alex Dacre
Derek O’Neill
Charles Skinner
Peter Gaze
Nigel Jackson (resigned 30 September 2017)
Mark Adams (appointed 1 January 2018)
Nominated Adviser & Broker
Cenkos Securities plc
6-8 TokenhouseYard
London EC2R 7AS
Public Relations
FTI Consulting
200 Aldersgate
Aldersgare Street
London EC1A 4HD
Solicitors
Fieldfisher LLP
5th Floor Free Trade Exchange
37 Peter Street
Manchester M2 5GB
Bankers
Lloyds Bank plc
4thFloor 25 Gresham Street
London EC2V 7HN
Registrar and Transfer Agent
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Independent Auditors
Grant Thornton UK LLP
30 Finsbury Square
London EC2A 1AG
Company number: 09952391
89
Marlowe plc, 20 Grosvenor Place, London SW1X 7HN
www.marloweplc.com