2016
Lakehouse plc
Annual Report
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Who we are
Lakehouse is an asset and energy
support services group. We make
a difference to people’s lives by
constructing, improving, maintaining
and providing regulated and legislated
services to homes, schools, public
and commercial buildings.
About us
Lakehouse was founded in 1988 and we are headquartered
in Romford, Essex. The Group employs over 2,000 people
through 33 offices across the UK.
Lakehouse listed on the Main Market of the London Stock Exchange
in March 2015.
For up to date news and
further information visit:
www.lakehouse.co.uk
2016 highlights
Operational highlights
• Review of strategy and operations complete
• Compliance, Energy Services and Construction well
established, excellent businesses with a clear vision
• New management in Property Services and problem
externals departments closed
• Some project timing in Compliance and Construction
• Pricing stabilised in Energy Services; focus on
mobilising smart metering
Financial highlights
Underlying2 revenue
Revenue
£305.8m
£333.8m
Underlying EBITA1
£10.9m
Underlying2 profit
before tax
£9.9m
Underlying EBITA1 margin
3.6%
Operating loss
£(31.7)m
Loss before tax
Underlying² basic EPS
5.2p
Net debt
£(20.6)m
£(33.3)m
Basic EPS
(18.6)p
Full year dividend
1.5p
1. EBITA is earnings before interest, tax and amortisation of acquisition intangibles. Underlying EBITA is
defined as operating profit before deduction of Exceptional and Other Items, as outlined in Note 7 and
on the face of the Statement of Comprehensive Income. Underlying EBITA is the same as ‘Operating
profit before Exceptional and Other Items’ on the face of the Statement of Comprehensive Income, but
used as terminology in light of being a key performance measurement for management in the Group.
2. As set out in the Statement of Comprehensive Income, other underlying numbers are stated before
deduction of Exceptional and Other Items, as outlined in Note 7 and on the face of the Statement of
Comprehensive Income. Underlying profit after tax and underlying earnings per share are net of an imputed
tax charge. Underlying revenue represents revenue for the Group before Exceptional and Other Items.
Strategic review
1 2016 highlights
2
Lakehouse at a glance
3 Our four divisions
4 Executive Chairman’s statement
6 Market overview
8 Business model
10 Our strategy
14 Key performance indicators
16 Operational review
24 Financial review
30 Principal risks and uncertainties
34 Resources, relationships and sustainability
Governance
39 Executive Chairman’s
introduction to Corporate Governance
40 Board of Directors
42 Corporate Governance report
47 Nomination Committee report
49 Audit Committee report
52 Directors’ remuneration report
52 Remuneration Committee Chairman’s
annual statement
53 Annual report on remuneration
61 Directors’ remuneration policy report
70 Directors’ report
72 Directors’ responsibilities
Financial statements
73
Independent auditor’s report
82 Consolidated statement of comprehensive income
83 Consolidated statement of financial position
84 Consolidated statement of changes in equity
85 Consolidated statement of cash flows
86 Notes to the consolidated financial statements
116 Company balance sheet
117 Company statement of changes in equity
118 Notes to the Company financial statements
120 Corporate Directory
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Lakehouse plc Annual Report 2016
Lakehouse at a glance
Our long term approach is reflected in the quality of our work and in the strength and depth of the relationships
we develop; with our clients, customers, communities, financial partners, people, shareholders and
suppliers, and across the social housing, public buildings, education and energy services markets.
Number of
offices
33
Number of
employees
2,250
A provider of gas servicing,
maintenance and installations
in southern England
A provider of gas servicing, maintenance
and installations in central England
A provider of gas servicing,
maintenance and installations
in northern England
Specialists in fire safety, servicing
and planned works
A water and air hygiene specialist
A lift installation and
maintenance company
A leading energy services provider
A leading UK energy broker and energy
management services provider
One of the UK’s leading smart
metering specialists
A housing services specialist
providing construction, renovation
and maintenance
Providing planned and responsive
maintenance for social housing clients
Offering refurbishment and small to
medium-sized public building works,
predominantly for local authority clients
in the education sector
Compliance
Energy Services
Property Services
Construction
2
Lakehouse plc Annual Report 2016 Our four divisions
Compliance
Compliance comprises planned and responsive
maintenance, installation and repair services to local
authority and housing association clients in the areas
of gas, fire and electrical, water and air hygiene and
lifts. These services cover clients’ social housing and
public building assets. We also provide a small but
growing proportion of these services to industrial
and commercial customers.
Key business drivers
• Regulatory requirements
• Client requirements for multiple
service lines
• Mix of work (service, maintenance
and project)
• Seasonal influences in gas and
lift markets
• Reliability and performance of service
• Productivity and manpower efficiency
2016 Underlying
revenue
£91.0m
29%
Energy Services
Energy Services provides a range of energy efficiency
measures to primarily social housing and private
homes, including insulation, heating systems and
renewable technologies. The division also uses
these services to deliver carbon emissions savings
for energy companies, enabling them to meet their
legislative targets. In addition, the division offers
smart metering services and energy brokerage to
customers throughout the UK.
Property Services
Formerly called 'Regeneration', the division is focused
on planned and responsive maintenance services for
social housing. The significant part of our services is
project managing delivery and ongoing resident liaison
in delivering planned services such as new kitchens,
bathrooms, roofs and windows. We contract with
customers predominantly under framework agreements,
where the number of suppliers will vary from one to
a small group.
Construction
Construction offers refurbishment and small to
medium-sized public building works, predominantly
for local authority clients. The division focuses on clients
in the education sector, although it also delivers
some works to a range of other public buildings.
Key business drivers
• Fuel poverty
2016 Underlying
revenue
£67.4m
22%
• Understanding subsidy regimes
• Compliance with claims
submission process
• Scheduling of manpower, especially
smart metering
• Responsiveness to market
changes and opportunities
• Client service
Key business drivers
• Client budgets
• Framework awards
• Numerical position on framework
• Contract settlements and claims
• Mix of work (internals vs externals)
• Delivery method (direct vs subcontract)
• Range of specialist services
• Operational performance
2016 Underlying
revenue
£98.1m
32%
Key business drivers
• Ability to be selective in taking work
2016 Underlying
revenue
£52.1m
17%
• Long term frameworks
• Service and delivery quality
(via supply chain)
• Control over project management
• Track record over a number of years
for high quality service
3
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Executive Chairman’s statement
Introduction
I was appointed to the Board in July 2016, following the earlier
departure of a number of Executive and Non-Executive Directors
and with the business facing a number of operational challenges.
Since my appointment, I have looked to structure the business
so as to continue delivering a quality service to our clients whilst
building a platform for more consistent performance and sustainable
growth. I am pleased to report that the management of the
Group has embraced the changes implemented and I believe
that the market outlook for the range of services the Group
provides is strong.
It would be remiss of me not to pay tribute to Steve Rawlings,
the founder of Lakehouse, who sadly passed away in July 2016.
Steve was the architect for the great progress achieved by
Lakehouse in its formative years. I should also like to thank
those Directors since departed from the Board for their
contribution to the Group during a difficult period.
My initial focus has been on reviewing the strategy of the Group
and stabilising operational performance with a view to improvement
and controlling costs at every level. We are focusing the businesses
on markets where we can operate effectively and creating an
environment where entrepreneurship is allowed to prosper.
Importantly, I believe a small central function is right for a group
like Lakehouse, where we rely on our leaders in the Group’s
divisions to take decisions and drive the business forward
on a day to day basis.
Our decision to withdraw from self-delivered externals work within
Property Services was clear, as we had fallen short operationally
at a number of levels. Following this restructuring, I felt that
renaming what was known as the ‘Regeneration’ division as
‘Property Services’ better reflected the services we will be offering
moving forward. We have brought in new management who
understand the core risks in this market, from pricing, through
operational management to controls and processes and they
are doing an excellent job in returning Property Services to an
acceptable level of performance. This will, however, take time
and we took a very cautious approach to bidding for new work
in the second half of the year in this division as we sought to
stabilise operations. We are therefore setting modest
expectations in the near term.
We are fortunate that the other three divisions, Compliance,
Energy Services and Construction, have excellent business
models, underpinned by strong and experienced management
and with a strong pipeline of opportunity.
Whilst the Group’s order book has declined from £595m to
£543m this principally reflects our focus on managing risk
within Property Services. Our value of frameworks, however,
increased from £1.3bn to £1.6bn which we expect to provide
a strong workflow in the future.
Trading performance
The trading performance for the year was disappointing with
underlying EBITA of £10.9m (2015: £22.2m) on underlying
revenues of £305.8m (2015: £336.6m, which includes £28.4m
of revenues from businesses being exited, which are reported
within Other Items in the 2016 accounts). Reported total Group
statutory revenues were £333.8m (2015: £340.2m) with an
operating loss of £31.7m (2015: £4.6m profit), reflecting a
number of significant one-off cost items in the year.
Businesses acquired since IPO have been integrated well and
contributed £60.0m of revenues and £5.5m of underlying EBITA
year on year. This includes the results of Aaron Heating Services
and Precision Lift Services which were acquired towards the
start of this financial year for a total consideration of £16.8m.
As part of the operational review, the Board took the decision
that it was not sustainable to continue with the provision of
directly delivered externals work within the Property Services
division and this business is being exited. The £6.6m of pre-tax
contract losses from this business are significant and reported
within other items in the 2016 accounts. The comparative figure
of £2.5m for FY15 relates to the previous exit from our former
Development business.
We also felt it important to highlight the significant £2.5m
investment we have made in smart metering within Energy
Services, predominantly training its workforce to the highest
standard of regulation. We see our smart metering business
providing significant growth opportunities in the medium term.
Inevitably with the level of change we have experienced this year,
we have seen one-off events that led to £3.1m of net Exceptional
Items. We also recognised a £19.2m impairment against goodwill
and intangible assets, predominantly in relation to the Property
Services business, in light of its financial performance.
I have stressed to the team that the new year marks a transition
from the old world to the new and I want us to now look forward
collectively with confidence in the future.
Lakehouse has undergone a number of changes during 2016
and I am pleased that we have come out of a very challenging
period as a strong and focused Group. I have stressed to the
Group’s leadership that our overriding objective has to be to
deliver on our promises, financially as a public listed company,
but without compromising on protecting our employees or falling
short in levels of customer service. If we do this, it will give our
invested stakeholders – clients, customers, communities,
financial partners, people, shareholders and suppliers – the
confidence to support the Group and participate in its future
growth and success.
4
Lakehouse plc Annual Report 2016 The Group has a cohesive
structure, with leading
positions in key markets,
based on delivering a core
range of services where
there is sustainable demand.
Strategy
Lakehouse has an established strategy and although FY16 has
been challenging for the Group, significant elements of our
strategy have been very successful and I am satisfied that the
future strategy for the Group will be one based on evolution
rather than radical change. However, it is critical that everyone
within our business appreciates the importance of delivering
on our promises as without this passion and commitment,
any strategy counts for nothing.
I have been particularly pleased with the performance of the
businesses we have brought into the Group through acquisition
which, with our existing operations, have allowed us to build
market leading Compliance and Energy Services divisions.
The services offered by these businesses are complementary
and offer considerable growth potential through increased
penetration of our extensive client base together with the
geographic opportunities offered by a national footprint.
In our Construction division, we have a business that is very
focused on its core education and public buildings markets and
is highly experienced in delivery. This means that we can earn
excellent returns on capital, whilst remaining cost competitive
for clients.
It is important that we deliver on the strategy for these three divisions
as much of the narrative concerning the Group in the past year
has surrounded Property Services. This division has had its
historical issues but under new and capable management and
with modest expectations for growth, I am confident we can
focus on the improvements in operational delivery that will
allow this business to thrive in the future and deliver value
for all stakeholders.
The Group has a cohesive structure, with leading positions in
key markets, based on delivering a core range of services where
there is sustainable demand. We will look to build on these
strengths in developing the Group moving forward.
Dividend
The Board is looking to adopt a progressive dividend policy
which recognises shareholder need whilst retaining sufficient
capital for future growth. The Board proposes a final dividend
of 0.5 pence per share for the year which, subject to shareholder
approval, will be paid on 6 April 2017 to shareholders on the
register at 10 March 2017. This represents a total dividend
of 1.5 pence per share for the year (2015: 1.9 pence).
People
We continue to invest in our people, giving them the skills they
need to deliver for our clients and advance their own careers.
Without doubt this has been a difficult period for all stakeholders
and I want to thank everyone in Lakehouse for their hard work,
commitment and contribution in difficult circumstances.
Outlook
The Board has now been settled and management has taken action
to address the problems faced by Property Services, which will
comprise a far smaller part of the Group in the future. The Board
looks forward to working together with its staff and wider
stakeholders to build on the significant potential we have across
the Group to deliver future growth and returns for our investors.
Bob Holt
Executive Chairman
23 January 2017
5
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Market overview
We operate in attractive markets with long term sustainable fundamentals,
which offer us considerable potential to expand in the coming years.
Our markets
Our divisions serve predominantly public sector customers
in the social housing, public buildings and education markets,
along with a broad mix of customers within Energy Services.
We are also increasingly serving customers in the industrial
and commercial market on a selective basis.
Our markets and primary customers are:
• Compliance: social housing providers and some industrial
and commercial customers, with an increasingly national
footprint, leveraging the strong market presence of our
Gas Compliance businesses in the south, centre and
north of England
• Energy Services: private and social housing providers,
public and commercial building owners, the 'Big Six'
and key independent energy utility companies and the
Scottish Government, as well as customers nationwide
for domestic smart meters and industrial and commercial
energy brokerage
• Property Services: social housing providers, which
are mainly local authorities and housing associations,
focused on London, the South East, East Anglia and
the East Midlands
• Construction: education customers predominantly
in London and the South East, as well as the Ministry
of Defence and other public buildings
As well as working with clients to deliver energy efficient services
to their customers, Everwarm uses these services to deliver carbon
emissions savings for energy companies, enabling them to meet
their legislative targets.
6
What drives our markets?
A number of important factors create demand for our services.
Market outlook
Customers must comply with regulations
We help many of our customers to meet their legal or regulatory
obligations. Compliance services are usually mandatory and
driven by regulation or legislation. This creates predictable
demand for these services, which allows us to plan and invest.
Customers have environmental targets
Energy providers are obliged to fund energy efficiency measures
under the Government’s Energy Company Obligation (‘ECO’)
policy. There are also important funding schemes, such as the
Home Energy Efficiency Programme for Scotland, a key policy
programme of the Scottish Government. Improvements to energy
efficiency are an important Government objective, with legal
climate change targets and political pressures surrounding a
reduction in fuel poverty. Our Energy Services division provides
energy efficiency measures to help customers improve their
properties’ environmental performance, installs smart meters
to enable customers to monitor consumption, advises customers
on energy efficiency and helps customers buy energy at the
lowest price.
Growing demand for education
The growing population has created considerable unmet
demand for primary school places, which will lead to an
increasing shortage of secondary school places as children
grow. Nationally, an additional 730,000 school places are
needed by 2020, equivalent to more than 2,000 schools
(source: The School Places Challenge, 2016), with our core
markets in London, the East and the South East making up
more than half of this total. This will naturally extend into future
demand in the Secondary and Higher Education systems.
A growing crisis in social housing
A recent Government report indicated that more than 2.3m
families are living in fuel poverty in England. Furthermore, the
increasing unaffordability of private housing is creating huge
demand for social housing, with a recent report by the House of
Lords Economic Affairs Committee suggesting that a further
300,000 homes need to be built nationally every year. This has
led to significant pressures among social housing providers in
turning around void properties and ensuring existing properties
are maintained to a high standard, which in turn creates demand
for our services.
Customers must comply with regulations
We expect a continued increase in demand from our client base for our services,
driven by regulation and legislation. We have a strong market position in the Compliance
and Energy sectors, with significant opportunity for growth of both adjacent services
and geographic markets.
Customers have environmental targets
We have seen pressures within the Energy market, particularly in light of changes
following the 2015 General Election. This impacted margins, in light of lower subsidy
prices received for every tonne of carbon claimed, which were felt in the final quarter
of the year to 30 September 2015 and had a consequential impact on the first three
quarters of the year to 30 September 2016. More positively, we were pleased to note
the Government’s renewed commitment to its 2050 decarbonisation targets and
appreciate that whilst decarbonisation of energy generation is proceeding well,
the country is lagging behind in improving the housing stock to a necessary standard.
We are seeing a stabilisation of carbon pricing at the present time and were pleased
to note that, in November 2015, the Government announced that from April 2017
the scheme will be replaced with a new supplier obligation to reduce carbon emissions
and focus on fuel poverty, to run for a five-year period. We await the outcome of the
current consultation on this scheme with interest and cautious optimism. The UK smart
meter rollout has commenced and it is apparent that this is a complex service that only
a few players, such as Providor, can provide on a national basis.
Growing demand for education
The pressure on school places provides strong predictability of demand in this market,
which allows us to plan well into the long term. We have found short term disruption
in light of a change in client preference for procurement from a single stage to two
stages, but believe this will reduce our risk profile in the long run, as it removes
some of the uncertainty hitherto experienced in the bidding process.
A growing crisis in social housing
Notwithstanding pressures of demand for social housing, we are operating against
a backdrop of active cost reductions taking place within client organisations, resulting
in part from a requirement for social landlords to reduce rents by 1% per annum over
the next four years. This is creating significant holes in housing funding models, when
compared to Consumer Price Inflation and has caused some clients to review their
budgets. Over the long term, we see those pressures leading to an inevitable demand
for our services. In the near term, we are focusing our work on areas with greater
levels of predictability and clients with whom we feel we can work well and earn an
acceptable rate of return. Our ability to deliver energy efficiency funding is a particular
differentiator as clients seek ways of maintaining and improving their housing stock.
Lakehouse plc Annual Report 2016
What drives our markets?
A number of important factors create demand for our services.
Market outlook
Customers must comply with regulations
We help many of our customers to meet their legal or regulatory
obligations. Compliance services are usually mandatory and
driven by regulation or legislation. This creates predictable
demand for these services, which allows us to plan and invest.
Customers have environmental targets
Energy providers are obliged to fund energy efficiency measures
under the Government’s Energy Company Obligation (‘ECO’)
policy. There are also important funding schemes, such as the
Home Energy Efficiency Programme for Scotland, a key policy
programme of the Scottish Government. Improvements to energy
efficiency are an important Government objective, with legal
climate change targets and political pressures surrounding a
reduction in fuel poverty. Our Energy Services division provides
energy efficiency measures to help customers improve their
properties’ environmental performance, installs smart meters
to enable customers to monitor consumption, advises customers
on energy efficiency and helps customers buy energy at the
lowest price.
Growing demand for education
The growing population has created considerable unmet
demand for primary school places, which will lead to an
increasing shortage of secondary school places as children
grow. Nationally, an additional 730,000 school places are
needed by 2020, equivalent to more than 2,000 schools
(source: The School Places Challenge, 2016), with our core
markets in London, the East and the South East making up
more than half of this total. This will naturally extend into future
demand in the Secondary and Higher Education systems.
A growing crisis in social housing
A recent Government report indicated that more than 2.3m
families are living in fuel poverty in England. Furthermore, the
increasing unaffordability of private housing is creating huge
demand for social housing, with a recent report by the House of
Lords Economic Affairs Committee suggesting that a further
300,000 homes need to be built nationally every year. This has
led to significant pressures among social housing providers in
turning around void properties and ensuring existing properties
are maintained to a high standard, which in turn creates demand
for our services.
Customers must comply with regulations
We expect a continued increase in demand from our client base for our services,
driven by regulation and legislation. We have a strong market position in the Compliance
and Energy sectors, with significant opportunity for growth of both adjacent services
and geographic markets.
Customers have environmental targets
We have seen pressures within the Energy market, particularly in light of changes
following the 2015 General Election. This impacted margins, in light of lower subsidy
prices received for every tonne of carbon claimed, which were felt in the final quarter
of the year to 30 September 2015 and had a consequential impact on the first three
quarters of the year to 30 September 2016. More positively, we were pleased to note
the Government’s renewed commitment to its 2050 decarbonisation targets and
appreciate that whilst decarbonisation of energy generation is proceeding well,
the country is lagging behind in improving the housing stock to a necessary standard.
We are seeing a stabilisation of carbon pricing at the present time and were pleased
to note that, in November 2015, the Government announced that from April 2017
the scheme will be replaced with a new supplier obligation to reduce carbon emissions
and focus on fuel poverty, to run for a five-year period. We await the outcome of the
current consultation on this scheme with interest and cautious optimism. The UK smart
meter rollout has commenced and it is apparent that this is a complex service that only
a few players, such as Providor, can provide on a national basis.
Growing demand for education
The pressure on school places provides strong predictability of demand in this market,
which allows us to plan well into the long term. We have found short term disruption
in light of a change in client preference for procurement from a single stage to two
stages, but believe this will reduce our risk profile in the long run, as it removes
some of the uncertainty hitherto experienced in the bidding process.
A growing crisis in social housing
Notwithstanding pressures of demand for social housing, we are operating against
a backdrop of active cost reductions taking place within client organisations, resulting
in part from a requirement for social landlords to reduce rents by 1% per annum over
the next four years. This is creating significant holes in housing funding models, when
compared to Consumer Price Inflation and has caused some clients to review their
budgets. Over the long term, we see those pressures leading to an inevitable demand
for our services. In the near term, we are focusing our work on areas with greater
levels of predictability and clients with whom we feel we can work well and earn an
acceptable rate of return. Our ability to deliver energy efficiency funding is a particular
differentiator as clients seek ways of maintaining and improving their housing stock.
Our Compliance division
has a strong market
position, with significant
opportunity for growth of
both adjacent services
and geographic markets.
7
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Business model
We have built a group that is focused on delivering a comprehensive and high
quality service in the sustainable target markets of social housing, public buildings,
education and energy services.
How we do business
A comprehensive and high
quality service offering
This approach means that many
clients view us as their provider of
choice. We achieve high customer
satisfaction levels, which reinforces
our reputation and brand, and
helps us to win work with new
and existing clients. Our breadth
of services strengthens our
position, allowing us to cross-sell
and meet a growing number of
our clients’ challenges. This is
attractive to them, as they look to
increase efficiency by rationalising
their supply chains and rely on
fewer providers for more services.
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Methods of
assessment:
Return on capital
Risk management
Cash conversion
Future visibility
Careful selection of who we work with
We start by prioritising our opportunities, based on their
risk, returns and strategic fit. Our strong customer relationships
and market intelligence are critical, enabling us to understand
our clients’ challenges and requirements, which are crucial
to a successful tender. This process however only gets us
so far in public tendering, as we have to understand whether
we can offer the service to the required standard and at a
price that is both competitive and offers an acceptable rate
of return.
Differentiation through our service offering
Many businesses in our sector will talk of client relationships
and adding value, as do we. We are different as we benefit
from being able to offer a wide range of services and
geographic spread. This presents more opportunities
to us, so we can be selective about what we bid for and
only pursue tenders where we believe we have a better
chance of winning and delivering the work successfully.
We rely on our supply chain to deliver a number of our
services and for high quality materials. We build long term
relationships with them, paying to terms, so they deliver
consistently and benefit from our growth. A reliable supply
chain is key to achieving high levels of customer service.
8
Lakehouse plc Annual Report 2016
Investing in our growth strategy
The outcomes we aim to generate
Developing
key markets
Focused
divisions
Working
together
Do business the right way
Our clients and their customers are at the core of everything
we do. Even in the most challenging trading circumstances,
we ensure we work in the right way by focusing on quality
of service and delivery. An in-depth knowledge of our
clients’ challenges helps us to anticipate and respond to
their requirements, improve our services and increase
our chances of securing contract renewals and extensions.
Organic and acquired growth
With a broad service offering and extensive geographic coverage,
we seek to grow organically, as each new contract award provides
a case study for the next opportunity. We have acquired
businesses that reinforce our ability to grow organically, by
improving our service offering, customer base or geographical
footprint. We will, however, only acquire where we can improve
the business. After an exceptional period of acquisitive growth,
acquisitions are now a lower priority for the Group.
Shared stakeholder value
Clients – high quality service, delivered with greater efficiency,
which enables them to meet their legal, regulatory and
environmental obligations.
Clients’ customers – safe and well maintained homes and
buildings, which improve their quality of life.
Communities – increased employment and skills and
improved community infrastructure.
Financial Partners – responsible business management, with
an understanding of risk versus returns.
People – interesting and challenging careers, in a growing
business that offers them the chance to develop and reach
their potential.
Shareholders – growing revenue and profits, enabling us to
pay a progressive dividend while retaining funds to invest for
future growth.
Suppliers – the potential to grow their business, by developing
a strong relationship with an expanding Group.
Focus on operational excellence
By focusing on risks and winning contracts with appropriate
returns, we aim to deliver our business profitably. Each business
is assessed on its return on trading capital employed and this
informs our decision making in where we seek to grow. This
approach means that getting paid on time is as important as
the level of profitability on each contract and enables us to
work with clients on terms that benefit each party.
We look to improve continually both our service and our efficiency
by investing in systems, training, development and safety.
Our challenges have served to make us stronger and we are
focused on operational excellence, not only in the provision
of service to clients and customers, but in commercial
management and financial discipline.
9
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Our strategy
Our strategy is based on evolution, rather than radical change. Key to implementation is a recognition
of the importance of delivering on our promises.
Although the year to 30 September 2016 has been challenging
for the Group, significant elements of our strategy have been
very successful and we believe we have built a comprehensive
business, with market-leading positions in key growth markets.
Our strategy will remain focused on organic growth, seeking
to increase the services sold to existing clients, winning new
clients and expanding geographic coverage. We will seek
to do so principally on an organic basis and only consider
acquisitions where they complement our existing portfolio.
We are comfortable with and confident in the delivery model for
Compliance, Energy Services and Construction. However, the
self-delivery model in our closed 'externals' departments within
Property Services has resulted in significant losses and we will
pursue a far more rigid risk-based delivery model in the division
in the future.
Our strategy is oriented around three stages:
Developing key markets
Focused divisions
Working together
Prendergast School, a two-form entry primary
school in Lewisham, South London, was built by
Lakehouse and opened its doors in 2016 to
its first two Reception and Year One classes.
Our strategy will remain
focused on organic growth,
seeking to increase the
services sold to existing
clients, winning new clients
and expanding geographic
coverage.
10
Lakehouse plc Annual Report 2016
Developing key markets
Our business model is focused on delivering a comprehensive service in sustainable target markets
of social housing, public buildings, education and energy services. We have significant opportunities
for organic growth in the existing business model.
Focus on delivering an
acceptable return on capital and
reduce, or even exit, activities
where this cannot be achieved.
w areas of unacceptable risk/return
ocial h o u
S
vie
e
R
Complementary service lines,
leveraging existing competencies
such as commercial gas.
A
dja
c
e
n
t
s
g
s i n
Public b
e
r
v
i
c
e
s
u
il
d
i
n
g
s
Focused on
delivering a
comprehensive
service
E
x
i
s
t
i
n
g
s
(
i
e
n
r
d
v
i
c
u
s
e
E
d
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c
ation
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r
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i
a
l
n
t
o
a
n
e
n
d
c
o
m
m
w c
usto
ercial)
mer types
Use experience in the Group
to develop underpenetrated
markets, such as industrial and
commercial, where Orchard
Energy and H2O Nationwide
have existing relationships.
E n ergy
B r o
a d e n geographies
Utilise existing geographic
footprint to grow service lines
and fill in geographic 'gaps',
such as compliance in Scotland
and insulation in England.
11
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance
Our strategy continued
Focused divisions
We have four divisions, each with differing strategic dynamics:
Compliance
Energy
Services
Strategic advantages
• This is a legislation-driven market, where compliance
and performance is of paramount importance to
clients, so barriers to entry are high
Strategy
• Secure long term contracts with public sector clients
• Secure predictable service and repair work and market
upgrade project work
• We have a market leading Gas business, with an
increasingly national geographic footprint
• Our other Compliance businesses in fire, water
and air hygiene and lifts are well established in
their markets with long term client relationships
• The combined Compliance offering allows us to
provide a comprehensive service to clients
• Geographic expansion — for all services
• Expand core services among existing clients into
related areas where we have expertise
• Cross-sell into other Group customers
• Adjacent services, such as commercial gas
Strategic advantages
• Comprehensive Energy Services offering that allows
Strategy
• Geographical expansion into new areas, backed by
housing providers and building occupants to save the
amount of energy they consume (energy efficiency),
monitor energy usage (smart meters), become more
efficient in energy consumption (energy advisory) and
secure energy supply on the best terms (brokerage)
• Market leading energy efficiency business with strong
levels of understanding of energy subsidy regime
• Strong customer relations, which lead to us being
seen as a key partner and to repeat work
• Carbon agreements with customers allow us to offer
funding to housing providers and building occupants
• Fuel poverty remains an important political consideration,
allied to legal carbon reduction targets for Government
through to 2050
a strong track record to allow us to win work
• Capitalise on opportunities that will arise as a result of
the transition to the new Energy Company Obligation
regime in 2018–2022
• Use our scale and breadth to anticipate and adapt
to developments in the energy market
• Capitalise on the success of our leading role in the
Scottish Government’s flagship HEEPS fuel poverty
programme through expanding similar services elsewhere
• Consolidate our position as a leading provider of smart
meter installation services
• Longer term move into an asset compliance and
ownership model, especially in metering
Property
Services
Strategic advantages
• Geographic strength in our core markets
of East Anglia and the South East
Strategy
• Focus on operational performance
• Bid only on a selective basis and only with a core
• Service levels and quality of delivery remain high
group of clients
• Adaptable model that allows us to utilise wider Group
services to provide a comprehensive offering to clients
• Rigorous focus on risk vs return
• Cost management and operating efficiencies
to improve margins
Strategic advantages
• Highly reputable — we are known for successful and
Strategy
• The education market provides a considerable
reliable project management, with delivery on time and
to budget, both for bespoke and often complex projects
• Longstanding relationships, built over a number of
years — we have 29 framework contracts and our
relationships and reputation are key to securing work
• Experienced team of talented employees, used to
opportunity — we work predominantly with primary
schools, so there is natural growth into Secondary
and Higher Education
• We have expertise in wider public buildings, such as
defence and fire establishments, in which we will retain
an active part
working in occupied premises
• Growth west and north into adjacent
• Strong pipeline of work, arising from an increased
demand for school places
geographic territories
Construction
12
Lakehouse plc Annual Report 2016 Working together
In bringing together our markets and divisions, we have talked of cross-selling and have had considerable
success in this regard. This, however, underplays the Group structure we have created as we work together
at an inter- and intradivisional level.
Each part of the Group has an important part to play in the whole and each business therefore has an ability
to support sister companies in pursuing growth among existing clients.
Offer a route into the industrial
and commercial sector
Brokerage
(Orchard
Energy)
Metering
(Providor)
Metering
(Providor)
Air & Water
(H2O)
Energy
Efficiency
(Everwarm)
Gas
businesses
(Sure, K&T,
Aaron)
Fire & Electric
(Allied)
Construction
Lifts
(Precision)
National gas footprint
a base for growth
Focus on operational improvement
Property
Services
Foster
Property
Maintenance
We have been able to capitalise on the
cross-selling opportunities across the Group,
expanding services to existing customers and
pushing into new geographies.
13
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance
Key performance indicators
We use the following key performance indicators to monitor the
progression of the Group's strategy.
Financial indicators
Revenue
We operate primarily under service and construction contracts,
recognising revenue when we can reliably estimate a contract’s
outcome and by reference to the stage of completion of the work.
Underlying EBITA
EBITA is earnings before amortisation of acquisition intangibles,
interest, tax and discontinued activities. Underlying EBITA is
stated before Exceptional and Other Items.
Relevance to strategy
The level of revenue demonstrates our ability to grow the Group,
both through organic growth and carefully targeted acquisitions.
Relevance to strategy
The increase or decrease in underlying EBITA demonstrates
our ability to grow our profitability and to expand our margins.
Performance
Underlying revenue decreased by 9.2% to £305.8m
(2015: £336.6m), reflecting £28.4m of revenues reported
within underlying items in 2015, from the directly delivered
“externals” departments being exited and reported within Other
Items in 2016, together with a wider decline in Property Services.
Acquisitions made in the past 18 months however contributed
an estimated additional £60.0m in revenues year on year.
Performance
Underlying EBITA fell by 50.9% to £10.9m (2015: £22.2m),
reflecting the profit of £2.4m made in 2015 from businesses
being exited and reported in Other Items in 2016, together
with a wider decline in Property Services and the impact of
a year on year reduction in carbon pricing for energy efficiency
measures. This was offset in part by a £5.5m contribution
from acquisitions. The underlying EBITA margin decreased
to 3.6% (2015: 6.6%), reflecting a change in business mix
and reduction in energy subsidies.
Underlying revenue decrease
Underlying EBITA decrease
9.2%
50.9%
Order book
The order book is our contracted revenues, together with
prospective revenues from the frameworks we are on, where
our experience of customers deploying their confirmed
budgets means our revenue from the framework is predictable.
Underlying operating cash conversion
Underlying operating cash conversion is operating cash
flow, plus the cash impact of Exceptional and Other Items
(discussed further in Notes 7 and 33), as a percentage
of underlying EBITA.
Relevance to strategy
The order book measures our success at securing the long
term contracts and frameworks we bid for and make our
future revenue more predictable.
Performance
The order book decreased from £595m at the start of the year
to £543m at 30 September 2016, principally reflecting the
greater caution in bidding within our Property Services Division.
We currently have 87% visibility for the year to
30 September 2017 (like for like prior year: 77%).
Relevance to strategy
A high level of underlying operating cash conversion
demonstrates the quality of the profits we earn, as well
as our ability to generate funds for reinvesting in our
growth and paying dividends to shareholders.
Performance
Underlying operating cash conversion in the year was strong,
at 121% (2015: 115%). Cash conversion on a statutory
basis was an outflow of 171% (2015: inflow of 97%).
We continue to target average cash conversion of 80%
over the long term.
Order book at 30 September 2016
Underlying operating cash conversion
£543m
14
121%
Lakehouse plc Annual Report 2016 Non-financial indicators
Accident Incident Rate (AIR)
The AIR is the total number of specified injuries, seven-day
reportable injuries and reportable cases of ill health, multiplied
by 100,000 and divided by the average number of employees,
including subcontractors, within the Group.
Relevance to strategy
Working in a safe environment allows our people to focus
on delivering great service to our customers. Protecting our
people also supports employee engagement and retention.
Performance
The AIR improved to 85.66, compared with 98.62 in 2015,
and remains substantially below our target of 151.
Management retention rate
The management retention rate provides a measure for us to
assess our ability to retain employees who occupy a ‘leadership
role’. This is represented by a simple statistic – for example,
a retention rate of 80% would indicate that we retained
80% of our leadership team between 1 October 2015 to
30 September 2016. This is based on weighted average.
Employee data from acquisitions is included as they
become part of the Lakehouse Group.
Relevance to strategy
Our ability to deliver great service and to grow our business
ultimately depends on retaining our key people.
Performance
The management retention rate for the year was 69% (2015: 88%),
which is below our target of 85%. This reflects the restructuring
carried out in the year and, on a voluntary basis, retention
was 87%.
Accident Incident Rate (AIR)
Management retention rate
85.66
69%
Carbon usage
We calculate our carbon footprint by considering energy use
across the Group, including our vehicle fleet (both business
and privately owned).
Relevance to strategy
Our customers, particularly in the public sector, want to engage
responsible suppliers. Managing our environmental impact is
therefore important for our ability to win work, as well as being
socially responsible and more cost efficient for us.
Performance
Our carbon usage was 8,951 tonnes of CO2, a rise of 67.3%
on the 5,350 tonnes usage in 2015. This is equivalent to
26.8 tonnes per £million of revenue.
The year on year comparison is not like for like, as we have
included a number of new acquisitions for the first time and
they did not capture this type of information prior to our ownership.
We continue to aim to decrease our overall carbon emissions
relative to revenue by 2% per annum.
Carbon usage
8,951 tonnes
15
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Operational review
Financial performance
Underlying revenue was 9.2% lower at £305.8m (2015: £336.6m)
and underlying EBITA declined by 50.9% to £10.9m from £22.2m
in the prior year, representing a margin of 3.6% (2015: 6.6%).
The self-delivered externals businesses being exited, which are
reported in Other Items in FY16, made a £2.4m profit on
revenues of £28.4m for the comparative period in FY15, when
they were included within the underlying results. The decline in
underlying EBITA over and above this reflected an £8.4m fall in
Property Services, together with the £3.0m year on year impact
from a reduction in carbon pricing for energy efficiency
measures. The results included a full year contribution from
Orchard Energy (acquired in July 2015) and Sure Maintenance
(acquired in September 2015), together with 11 months from
Aaron Heating Services and nine months from Precision Lift
Services. Year on year, the full year impact of these acquisitions
contributed an estimated £60.0m in revenues and £5.5m of
underlying EBITA.
Statutory revenue was 1.9% lower at £333.8m (2015: £340.2m).
Operating losses were £31.7m (2015: £4.6m operating profit),
after Exceptional and Other Items, being Other Items of £9.1m
(2015: £2.5m), net Exceptional Items of £3.1m (collectively
totalling £12.2m), impairment of goodwill and intangible assets
acquired of £19.2m (2015: £nil) and amortisation of acquisition
intangibles of £11.2m (2015: £6.5m), which are discussed
further in the Financial Review below and Note 7.
Underlying profit before tax was £9.9m, down 54.2%
(2015: £21.6m), and underlying profit after tax was £8.2m
(2015: £17.5m), resulting in underlying basic earnings per
share of 5.2 pence (2015: 13.7 pence). Loss before tax was
£33.3m (2015: profit before tax £3.2m) and loss after tax
was £29.3m (2015: profit after tax £2.4m), resulting in basic
losses per share of 18.6 pence (2015: earnings of 1.9 pence).
Our Compliance, Energy
Services and Construction
divisions are all excellent
businesses that have
performed very well in
difficult circumstances.
16
Looking forward
During the final quarter of the year the Group had a successful
period of contract awards. In our Energy Services and Compliance
businesses we secured recurring revenues of £15m per annum
and our contracting businesses were awarded £20m of new
work. We are pleased to have visibility over 87% of forecast
revenues for the current year (as at November 2016), compared
to 77% at the same point in FY16.
The Group’s order book stood at £543m at 30 September 2016,
a 9% reduction on the prior year of £595m, which principally
reflects our focus on managing risk within Property Services.
Our value of frameworks, however, increased from £1.3bn to
£1.6bn which, with a sales pipeline of £3.2bn (2015: £2.8bn),
we expect to provide a strong workflow in the future.
As we discuss below, our Compliance, Energy Services and
Construction divisions are all excellent businesses that have
performed very well in difficult circumstances. We are confident
that under new leadership, improved operational disciplines and
selective bidding, the Property Services business will recover
and prosper.
The Board recognises the Group has performed below investor
expectations this year; however, our managers and staff have
continued to listen to clients, win work, deliver excellent service
and pay our supply chain promptly. This shows the resilience of
the Group and the Board would like to register its thanks to
staff, clients, suppliers and our financial partners for their
ongoing support and commitment in the year.
Compliance
(29% of Group underlying revenue)
Compliance: year ending 30 September
Revenue (£m)
Underlying EBITA (£m)
Underlying EBITA margin
2016
91.0
6.2
6.8%
2015
Change
36.6
4.5
148.5%
36.8%
12.3% -550ppt
The Compliance division comprises planned and responsive
maintenance, installation and repair services predominantly to
local authority and housing association clients, in the areas of
gas, fire and electrical, water and air hygiene and lifts. These
services cover clients’ social housing and public building assets,
as well as industrial and commercial properties. The division is
seeing the benefits of a wider pool of clients and mandatory
services that provide significant future opportunities.
Overall, revenue increased by 149% to £91.0m (2015: £36.6m),
with the contribution from acquisitions an estimated £56.1m.
EBITA increased 37% to £6.2m (2015: £4.5m), resulting in an
underlying EBITA margin of 6.8%, down by 550ppt, reflecting
the expected mix impact from our new acquisitions and
unexpected performance challenges in our Allied Protection
(fire) business, discussed further below. We expanded our
Gas Compliance services with the acquisitions of Sure
Maintenance in September 2015 and Aaron Heating Services
in November 2015. Precision Lift Services was acquired in
December 2015 to complete the range of services offered
by the division. Integration is a key focus of the Group and
the acquired businesses are all performing well, contributing
approximately £4.2m of EBITA year on year. We are seeing
the benefit of operational improvements and procurement
savings in the enlarged division, which we expect will see
margins improve towards our long term target of high single
to low double digit percentages.
Gas Compliance
The three Gas Compliance businesses (Sure, Aaron and K&T)
make up some three-quarters of the division and had a strong
year, albeit with differing characteristics. K&T has historically
operated within the dense metropolitan areas of London, while
Sure and Aaron worked in the wider geographic regions of the
North West and East Anglia respectively. K&T has enjoyed
higher margins as a result of higher engineer efficiency and
procurement leverage, which we have carried over into Sure
and Aaron with considerable success during 2016. We have
seen an improvement in margins during the year in both
businesses, arising mainly from procurement savings; keener
materials pricing has also allowed us to secure profitable work
that these businesses would have historically struggled to win.
We are seeing the benefits of the extensive geography served
by the three Gas Compliance businesses and expect future growth
to come from filling in territorial gaps and providing adjacent
services to clients. We also anticipate future margin improvement
through better fleet utilisation, benchmarking engineer performance
and seeking to provide a best in class service.
During the year, Gas Compliance secured a number of notable
wins. These included gas servicing and maintenance for Brighton
and Hove City Council over five years to September 2020; gas
servicing and maintenance and a separate heating installation
contract for Havebury Housing Partnership over three years to
May 2019; and mechanical and electrical maintenance over
three years for the Salvation Army. We also resecured a key
contract installation and maintenance framework for Flagship
Housing (to 2018).
17
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Operational review continued
Compliance continued
Other Compliance
Our other Compliance businesses represent the balance of the
division and comprise Allied Protection (fire), H2O Nationwide
(air & water) and Precision Lift Services (lifts).
H2O Nationwide performed very well as we succeeded in
developing a social housing client base, which was core to our
strategy on acquiring the business. During the year, H2O Nationwide
won a key framework for the South East Consortium which enabled
it to secure works for social housing client Moat Homes; we also
secured a three-year water hygiene monitoring contract for the
London Borough of Redbridge in the period. H2O Nationwide
has historically been focused on industrial and commercial clients
and management performed extremely well in mobilising the
new social housing contracts, whilst preserving client service.
Precision Lift Services made a slow start under our ownership
as a small number of new key contracts were delayed but the
business saw significant improvement towards the end of the
year as these contracts were brought on and mobilised.
Precision Lift Services was successful in securing contracts
with Brentwood Borough Council, the London Borough of
Wandsworth, South Essex Homes and Southend Borough
Council during the year. We remain optimistic with regards
to the future opportunities for this business.
Allied Protection had a poor year, with a £2m adverse movement
in profits. This was largely due to the non-repeat of significant
volumes of project work delivered in 2015 as two key clients
unexpectedly withdrew budgets. We saw some recovery in this
work towards the end of the year, albeit less than expected and,
in the absence of sufficient volume, margins were very weak.
Given the nature of the work involved, our service and repair
business has historically been operated at a lower margin and a
focus on operational improvement saw a pleasing improvement
in the year. We tend to secure project work where the Group
has a long term service and repair contract, so this is an important
development for Allied’s future. We were successful in securing
several key contracts including a five-year emergency lighting and
fire alarm testing contract for London Borough of Hammersmith
and Fulham, a six-year contract for Guinness Partnership Ltd
providing fire safety equipment and maintenance and a contract
providing door set installation for Canterbury City Council over
three years to January 2018. These contracts both provide scale
for further margin improvement and opportunity to build the
projects pipeline among a broader base of major clients.
The other Compliance businesses have significant opportunities
to cross-sell within the client base of our Gas Compliance
companies and we saw considerable success to that effect
during the year including a five-year fire alarm and emergency
lighting system for the London Borough of Kensington Chelsea
and fire compartmentation works for Wandle Housing, both
K&T Heating clients. In addition K&T Heating introduced
H2O Nationwide and Lakehouse to Arun District Council, resulting
in successful tenders for works including a renewables and
roofing scheme and plant room Legionella testing. Precision Lift
Services is already carrying out projects for Notting Hill Housing
and London Borough of Tower Hamlets, both existing clients
of K&T Heating and Allied Protection. Additionally the other
Compliance businesses are beginning to secure a broader
geographic client base, with Allied winning a five-year £1m
contract with Accord Housing (Nottingham) and H2O
securing a four-year contract with Alliance Homes via the
West Works framework.
Looking forward
Compliance now includes 108 frameworks, up considerably from
56 at 30 September 2015, with an aggregate potential value of
£447m (30 September 2015: £88m). The Compliance divisional
board is now well established and we believe we have created
a market leading business, offering a range of specialist services
which frequently have important regulatory drivers for the Group’s
clients. This is an area where the Group has considerable
expertise and capability and, with the benefits of increasing
scale and broadening range of complementary and adjacent
services, the Board expects the Compliance division to deliver
attractive returns, relative to the Group average, over time.
Improved margins, increased
geographic opportunities and better
procurement leverage has seen our
Gas Compliance businesses
perform well this year.
18
Lakehouse plc Annual Report 2016
Energy Services
(22% of Group underlying revenue)
Energy Services: year ending 30 September
2016
2015
Change
Revenue (£m)
Underlying EBITA (£m)
Underlying EBITA margin
67.4
8.0
11.9%
68.0
9.6
-0.9%
-16.1%
14.1% -220ppt
Energy Services provides a range of energy efficiency services
for social housing and private homes through its Everwarm
subsidiary. Everwarm also uses these services to deliver carbon
emissions savings for energy companies, enabling them to meet
their legislative targets. In addition, the division offers renewable
technologies, smart metering services through Providor and
energy brokerage and consultancy through Orchard Energy,
to customers throughout the UK.
Revenue decreased by 0.9% to £67.4m (2015: £68.0m),
with the year on year benefit of the Orchard Energy acquisition
approximately £3.9m. EBITA decreased by 16.1% to £8.0m
(2015: £9.6m), with Orchard Energy acquisition contributing
approximately £1.3m year on year. This resulted in an underlying
EBITA margin of 11.9%, which was 220ppt lower than last year,
the major factor being the impact of carbon pricing as discussed
below. In addition, we closed the Energy South business during
the year, which was managed by the Property Services team,
but reported segmentally as part of Energy Services in 2015
when we reported revenues of £7.3m and profits of £1.1m
within underlying items.
Everwarm
We saw, as expected, 2016 evolving as a transitional year
prior to the new Energy Company Obligation (‘ECO’) policy
commencement in April 2017. As the current ECO policy
moved into its final phase we saw a stabilisation in carbon
prices, with the results and margins in Everwarm in line with
management expectations and resulting in a £3.0m decrease
in underlying EBITA year on year.
The Group holds a one-third share in the Warmworks joint
venture, along with Changeworks and the Energy Saving Trust.
Warmworks operates the HEEPS programme, which is now
fully mobilised and performing very well. We discussed at the
half year that whilst volumes have been growing steadily within
Warmworks, referrals to Everwarm were behind expectations.
These pleasingly picked up during the second half and we
expect further improvement in 2017.
Providor Metering
We were delighted to announce in August 2016 the award
of a £37m contract with Scottish Power for the installation
of domestic smart meters across Northern Scotland, Wales
and North West England. The Group expects to install more
than 450,000 meters over the course of the contract’s five-year
term. We have also secured smart meter contracts with Utilita,
Ovo and E, the former two also mobilising during the year.
Total mobilisation costs of £2.5m have been reported as an
Other Item in the consolidated statement of comprehensive
income, as highlighted in August. This has been a complicated
logistics process and the Providor team has done a terrific job
in achieving above average levels of operational performance
under our new contracts.
Disappointingly, Providor’s major customer acquired two of its
competitors during the year, bringing this capability in house.
This led to the unexpected cancellation of anticipated work,
with the most profitable activities moving first. We have taken
a provision against our exit from those activities and other
non-profitable work streams within Exceptional and Other Items,
discussed in the Financial Review and Note 7.
In light of such a rapid transformation for Providor, the Group
expects FY17 to be one of consolidation for its metering activities
as we seek to deliver top quartile performance for our clients on
our smart metering contracts. The Group remains encouraged
by demand in the metering market and expects this to increase
as the challenges faced by utility companies intensify.
Orchard Energy
Orchard Energy, our energy procurement and advisory services
business, had an excellent year with monthly contract brokerage
signings exceeding £0.7m per month on average during the
second half of the year. We continue to grow these activities,
in addition to our advisory and water utility services offerings,
which we expect to help drive growth in 2017, along with
geographic opportunities.
Divisional contract position
In addition to the wins in Providor and Orchard discussed above,
Energy Services was awarded places on frameworks during the
year including the provision of energy efficiency measures for
the London Housing Consortium and energy saving measures
and insulation systems for Luton Borough Council (both to 2020).
Other notable wins in the year include a four-year framework
with the Scottish Government to provide non-domestic energy
works to December 2019, a solid wall project for Fife Council
(Kirkcaldy) and bathroom replacement works for Aberdeenshire.
19
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Operational review continued
Energy Services continued
Looking forward
Energy Services is now on 36 frameworks, up from 32
at 30 September 2015, with an aggregate value of £427m
(30 September 2015: £294m).
As previously reported, in relation to bidding insulation contracts,
the energy efficiency sector is exceptionally complex. Everwarm
has class-leading levels of compliance in submitting claims, which
is fundamental to earning an adequate return, an understanding
which we do not see among all market participants. Notwithstanding
a slow pace of evolution, we continue to believe that the English
market represents a significant future opportunity for the division,
given the Group’s long standing customer relationships and
experience in delivering these services, not least the Scottish
Government’s Home Energy Efficiency Programme for
Scotland (‘HEEPS’).
Energy Services delivers specialist works and has high levels
of expertise in complex markets and should, over time, deliver
a consistently high return. Given the transitional nature of the
market and mobilisation of smart metering services, we expect
2017 to be one of consolidation for the division. We remain
optimistic about the future prospects for Energy Services and
expect opportunities to arise from the new ECO transitional
period, prior to the full programme in 2018, together with the
deregulation of the water market from April 2017. This, with
our continuing involvement in the UK domestic smart meter
installation programme, underpins a sizeable proportion of
divisional revenue growth from 2018.
In partnership with Camden Council, Lakehouse was appointed
to install external wall insulation to a 21-storey high rise in Denton,
the seventh most deprived area in Camden where more than 9%
of households suffer from fuel poverty. The work is predicted to
save up to 30% of the energy in each home, making them more
energy efficient and supporting the UK’s commitment to reduce
its carbon footprint.
Property Services
(32% of Group underlying revenue)
Property Services: year ending 30 September
Revenue (£m)
Underlying EBITA (£m)
Underlying EBITA margin
2016
98.1
0.8
0.8%
2015
Change
-39.3%
161.7
10.5
-92.6%
6.5% -570ppt
Property Services provides planned and responsive maintenance
services for social housing clients, which are mainly local
authorities and housing associations. The Division operates
through two businesses:
• Lakehouse Property Services (formerly Regeneration South):
operates in London and the South East
• Foster Property Maintenance (‘Foster’ – formerly Regeneration
East): operates in East Anglia
At the half year, we highlighted operational challenges in our
directly delivered externals business managing growth in this work,
in particular inventory, staff and site contractors. This business
comprised two departments – Roofing and Energy South (managed
by the Lakehouse Property Services team, but reported in 2015
segmentally as part of Energy Services). In May 2016, we
instigated an operational improvement programme, focused
on managing a balanced position of risk and return on capital.
The conclusion was to close both departments as the risks
of delivering this work directly were too great and, following
the operational review, it was determined by the Board to exit
these operations. The total losses on the contracts within these
businesses are expected to amount to £6.6m pre-tax (on revenues
of £25.3m), which have been excluded from the underlying
result and reported as Other Items.
Property Services revenue was £98.1m in the year, down £63.6m
(39.3%). Businesses being exited and reported within Other Items
in 2016 recorded revenues of £21.1m within underlying revenues
in the comparative period. Underlying EBITA declined by £9.7m
(92.6%) to £0.8m, resulting in an underlying EBITA margin of 0.8%,
which was 570ppt lower than last year. Businesses being exited
in 2016 made profits of £1.3m in the comparative period, where
they were reported within the underlying results. The balance
of £8.4m related to a deterioration in both performance and
the trading environment during the year.
20
Lakehouse plc Annual Report 2016
As reported in February 2016, the 1% rent cap imposed on
social landlords has had a significant impact on our market as
clients sought to cut costs in response. This has taken a number
of forms – some budgets simply were cut, procurement under
frameworks was delayed and certain clients sought to fragment
frameworks in the expectation that multiple suppliers on individual
lots would improve competitiveness. We have responded to this
change in market dynamics by challenging the return on capital
at a client level and withdrawing from contracts that are not
economic. We have also taken the opportunity to review our staff
base, particularly in parts of the business where performance
was not adequate. With new leadership in this division and a
focus on those relationships where we can earn an acceptable
return, we expect to move forward as a smaller, leaner and more
focused business.
Lakehouse Property Services
As a result of difficult market conditions, as well as the previously
reported operational issues, Lakehouse Property Services has
had an exceptionally difficult year. The Board has taken action to
address this by withdrawing from some activities and restructuring
the cost base. The focus of the businesses is to deliver high levels
of client service whilst ensuring returns are acceptable through
strong operational management and we are very encouraged
by the approach taken by the new management team.
The major contributors to the reduction in revenues and margins
in the year arose from the previously announced cessation of
the Hackney contract in 2015, together with lower revenues
from Camden. Camden re-procured its planned maintenance
framework in multiple lots during the year, seeking cost savings
by directly managing a wide and diverse supply chain themselves.
We were successful in securing positions on half of the lots but
future work will be subject to successfully tendering individual
works; when seeking to participate, we will ensure this offers an
adequate balance of risk and return for the business.
Notwithstanding a reduction in bidding activity in the year,
Lakehouse Property Services nevertheless had a number of
good wins, including a place on Fusion 21’s national kitchen
and bathroom installation works framework to March 2020 and
places on the major works framework for the London Boroughs
of Southwark (until 2019), Newham (until 2021) and Barking
and Dagenham (until 2021) and separate internal and external
frameworks for the Vale of Aylesbury Housing Trust. We also
won a significant number of contracts including fire safety works
for the London Borough of Ealing, two one-year contracts with
Wandsworth Council for window and roof renewals and an
external refurbishment contract for two social housing blocks
with Portsmouth City Council.
Foster
Foster has faced very different challenges from Lakehouse
Property Services this year. Operational performance and
client service remained good through the year and Foster
was successful in resecuring its position on the key Eastern
Procurement framework for responsive repairs and voids to
May 2020, planned internal works to September 2019 and
roofing works to May 2020, which was important for its future
prospects. However, a number of Eastern Procurement members
drastically cut or withdrew budgets and the mix of remaining
work resulted in Foster seeing a significant fall in profitability
during the year.
Whilst it was important for Foster to resecure its place on
the Eastern Procurement framework for planned maintenance
throughout the East Anglia region, the management team
undertook an active drive to diversify the service offering to
existing and new clients in the region. Refurbishing student
accommodation has been, and continues to be, a productive
work stream, with future works at the University of East Anglia
being negotiated off the back of the scheme undertaken this
year. Similar works have been undertaken in Cambridge this
year at Tripos Court for Flagship Housing Association on behalf
of Cambridge University. There are a large number of military
bases in the region that will provide future opportunities, such
as Bodney Army Camp where we won a programme of major
upgrading works in the year and will continue to be targeted.
Foster sought also to grow into the Midlands and to expand
its responsive maintenance business. Neither performed as we
had hoped, mainly due to a lack of scale. Recognising this at an
early stage, we reorganised the Midlands business by absorbing
ongoing contracts into existing departments and have become
more selective in bidding within the region. We are reviewing all
commercial options to improve returns from responsive maintenance.
During the year Foster Property Services was awarded places
on ten important frameworks, including Efficiency East Midlands
(to February 2020), South East Consortium (to 2020), Fusion
21 and the United Lincolnshire NHS trust (to 2018). In addition,
Foster secured several significant works contracts including
Central Bedfordshire’s kitchen and bathroom refurbishment
programme and the design and construction of the Wade
House housing block for Havebury Housing Partnership.
As part of the operational review of Property Services during the
year, we identified a number of areas for potential improvement in
Foster, especially with regard to materials and cash management.
We also concluded there was a need to simplify the management
structure and now have a smaller, ambitious team to take the
business forward.
21
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Operational review continued
Property Services continued
Foster continued
We conducted a review of the value of capitalised goodwill
attaching to Foster at year end. In light of current trading
performance and the rebasing of the profitability achievable on
key frameworks, such as the Eastern Procurement framework,
we concluded that the forecast level of profitability in this
business does not support continued recognition of the goodwill
balance. We therefore wrote down the entire goodwill balance
of £17.4m, details of which are outlined below in the Financial
Review and Notes 7 and 14.
Looking forward
We are being highly selective in taking on further work in Property
Services, which is evidenced in the reduction in the Group’s
total order book. Property Services is now on 71 frameworks,
up against 53 at 30 September 2015 but with an aggregate
value of £370m (down against 30 September 2015: £540m).
With the significant number of challenges and management
changes within the year it is reassuring that we have managed
to secure positions on some key frameworks within our core
operating regions providing future opportunities with clients
who have money to spend. Our new management teams are
focused on building on Lakehouse’s reputation for winning and
delivering works successfully for our clients and managing an
adequate balance of risk and return. Property Services is a
division which, under the right leadership, provides the Group
with strong customer relationships and good forward visibility
on revenues. Looking forward, the Board believes that this is
a business which, under new management, strong operational
control and selective bidding, should be capable of delivering
a consistent mid to high single digit return.
Construction
(17% of Group underlying revenue)
Construction: year ending 30 September
Revenue (£m)
Underlying EBITA (£m)
Underlying EBITA margin
2016
52.1
3.6
6.9%
2015
Change
73.4
4.8
6.6%
-29.1%
-25.5%
30ppt
Construction is a public buildings services business that delivers
extension, refurbishment, rationalisation and new build works,
primarily in the education market, with a particular focus on schools.
Revenue decreased by 29.1% to £52.1m (2015: £73.4m). EBITA
decreased by 25.5% to £3.6m (2015: £4.8m). This resulted in
an underlying EBITA margin of 6.9%, which was 30ppt higher
than in the prior year, reflecting an improved contract mix and
tight commercial management of our contracts.
We discussed at the half year that factors under the control
of our clients had caused a reduction in revenues and this had
a similar impact for the full year. The principal cause has been
a move from single stage to two stage procurement. The
difference between the two contractual structures means that
we will be awarded a contract but can then face a significant
period before mobilising as a result of the need to address a
number of project considerations, which can include planning,
review of design/affordability and project-specific matters such
as rights of way, land purchase and environmental factors. This
is good from a risk management perspective, but very frustrating
when reporting performance as we saw 17 projects delayed by
these factors. We estimate that this directly reduced our revenues
by one third in the year, with a consequential impact on EBITA
and cash. These projects are all live or will be mobilised in the
first half of the new financial year and, as a consequence, we
head into 2017 with a very strong order book.
We remain excited
about the prospects
for Construction in a
market with strong
underlying growth
fundamentals.
22
Lakehouse plc Annual Report 2016 Lakehouse finished work on the new Harold Hill Library in the
London Borough of Havering mid 2016, delivering considerably
improved facilities, including 19 new public access PCs, a
self-service booking station for the public PCs and a meeting room
available for hire, seating approximately 50 people, with a smart TV.
The Construction team has a disciplined approach to bidding and
contract management, with a strong and long-serving workforce
who have an excellent grasp of commercial considerations on
their projects. This allowed us to earn excellent margins of 6.9%
on our contracts during the year and to see few of the commercial
disputes that we have experienced in Property Services.
In light of the opportunities that have presented themselves, our
typical project range has moved upwards in the year, with works
secured having an average value of £3.5m to £4.0m (2015: £2.5m
to £3.0m). We had significant success in securing major frameworks
in the year, including Essex County Council’s four-year school
expansion programme to April 2020 and Kent County Council’s
education, public buildings and commercial framework to
September 2019. Key contract wins in the year included:
• Orchardside School Enfield – design and construct of a new
specialist £7.5m teaching facility for challenged pupils
• Brentside High School – design and construct of a new
£8.6m classroom block and dining facility procured under
the LCP framework
• Gloucester Archive Building – design and construct of a
new £2.0m bespoke archiving facility for the local authority
•
Isleworth & Syon School – design and construct of a new £5.2m
teaching block and science laboratories for Hounslow Council
• Lindon Farm – design and construct of a £4.2m living
accommodation block for adults with autism for Surrey
County Council
Looking forward
The number of frameworks declined to 29 from 40 as at
30 September 2015, reflecting our plans as we sought to
focus on key clients where we can build predictability into
the business model and to bid selectively on projects where
we can earn an adequate return on capital. The frameworks had
an aggregate value of £353m (30 September 2015: £420m),
representing a 16% higher average value per framework.
These frameworks provide more than enough opportunity for
the Construction division to continue to grow, whilst maintaining
an acceptable rate of return. We remain excited about the
prospects for Construction in a market with strong underlying
growth fundamentals.
23
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance
Financial review
The Operational Review provides a detailed overview of our trading performance during the year.
This Financial Review therefore covers other aspects of the statement of comprehensive income,
statement of financial position and statement of cash flows.
Trading overview
Group underlying revenue in the year decreased by 9.2%
to £305.8m (2015: £336.6m), principally reflecting the year on
year impact of businesses being exited and the wider decline in
Property Services, partially offset by the impact of acquisitions.
Underlying EBITA decreased to £10.9m (2015: £22.2m). We
exclude Exceptional and Other Items in calculating underlying
EBITA to provide a more appropriate view of underlying operating
performance. Underlying EBITA margins fell to 3.6% in the year
against 6.6% in FY15. The decline in underlying EBITA reflected
a £9.7m fall in Property Services (discussed in the Property Services
review above), together with the £3.0m year on year impact from
a reduction in carbon pricing for energy efficiency measures.
As discussed in the Operational Review above, the results for
the year included a full year contribution from acquisitions of an
estimated £60.0m in revenues and £5.5m of underlying EBITA.
Operating expenses increased 37.1% to £32.6m in the year
(2015: £23.7m) reflecting the new businesses acquired in the
past 18 months. Central costs increased by 6.5% to £7.7m
(2015: £7.2m), reflecting the full year costs of being a listed
company, together with higher costs associated with the
infrastructure required to accommodate recent acquisitions.
As part of the operational review conducted in May 2016,
we concluded that a number of services historically delivered
centrally would be best managed at a divisional level. This led
to more than 100 staff either being redeployed or exiting the Group,
as we seek to maintain a lean central structure going forward.
We reported an operating loss of £31.7m (2015: profit of £4.6m)
in light of the charges for Exceptional and Other Items discussed
below. The loss after tax was £29.3m (2015: profit of £2.4m).
As part of the operating
review conducted in May
2016, we concluded that a
number of services historically
delivered centrally would
be best managed at a
divisional level.
24
Exceptional and Other Items, including
amortisation of acquisition intangibles
Exceptional and Other Items in the year reduced the Group’s
profit before tax by £43.2m (2015: £18.4m) and related to the
following items:
Contract losses on businesses being exited
Smart metering mobilisation costs
Total Other Items
Exceptional Items:
Acquisition costs
Contract costs
Impairment of receivables
Restructuring and EGM costs
IPO costs
Total exceptional costs
Release of deferred consideration
Total net Exceptional Items
Impairment of goodwill and
intangible assets acquired
Amortisation of acquisition intangible assets
2016
£m
6.6
2.5
9.1
0.6
—
2.6
2.5
—
5.7
(2.6)
3.1
19.2
11.2
42.6
2015
£m
2.5
—
2.5
0.8
2.9
—
0.8
4.1
8.6
—
8.6
—
6.5
17.6
Unamortised financing costs
included in finance expense
Unwinding discount of
deferred consideration
Total Exceptional and Other Items
—
0.4
0.6
43.2
0.4
18.4
Contract losses on businesses being exited
At the half year, we highlighted operational challenges in our
directly delivered externals business within Property Services
managing growth in this work, in particular inventory, staff and
site contractors. This business comprised two departments –
Roofing and Energy South (managed by the Lakehouse Property
Services team, but reported in 2015 segmentally as part of
Energy Services). In May 2016, we instigated an operational
improvement programme, focused on managing a balanced
position of risk and return on capital. The conclusion was to close
both departments as the risks of delivering this work directly were
too great and, following the operational review, it was determined
by the Board to exit these operations. The total losses on the
contracts within these businesses are expected to amount to
£6.6m pre-tax (on revenues of £25.3m), which have been excluded
from the underlying result and reported as Other Items. These
activities made a £2.4m profit on revenues of £28.4m in 2015,
when they were included within the underlying results.
The comparative figure for 2015 of £2.5m represented further
costs incurred on certain legacy contracts of our now ceased
social housing development business (reported under the
Construction division).
Lakehouse plc Annual Report 2016 Smart metering mobilisation costs
The Group made encouraging progress within Providor
(acquired in May 2015) in mobilising its domestic smart meter
installation programme with Scottish Power and other leading
utilities. Engineer efficiency is a key performance indicator in this
activity and we have seen steady improvement each month,
since mobilisation in July 2016. The £2.5m cost incurred in the
year (on revenues of £2.8m) was in line with the expectations
set out in August 2016 and represented costs associated with
training and retaining engineers in Providor, along with mobilisation
complexities associated with planning work, documenting
installations, inventory management and systems development.
We remain confident of the future prospects for this business.
Exceptional Items
Acquisition costs comprise legal, professional and other expenditure
in relation to acquisition activity during the year and amounted
to £0.6m (2015: £0.8m). Contract costs, which were £nil
in FY16 (2015: £2.9m), represented exceptional remediation
expenses associated with the resolution of historic matters
on a specific contract in 2015 (‘The Contract’).
Impairment of receivables of £2.6m (2015: £nil) reflects the
provision taken against receivables in relation to a small number
of contract settlements on which there is a range of possible
outcomes for the Group in terms of both cash flow and impact
on the income statement. This predominantly relates to a sum
receivable within Property Services relating to The Contract,
discussed above. This is a matter that has been ongoing since
2014 and does not reflect underlying trading in the year. A small
element related to the withdrawal from industrial and commercial
metering activities, discussed above in the Energy Services
operational review. The provisions were made in line with the
Group’s accounting policy for receivables, but highlighted as
an Exceptional Item in light of their unusual nature. Management
will continue to seek a full and advantageous settlement for
the Group.
We incurred a £2.5m charge in relation to restructuring and
EGM costs in the year. In May 2016, we indicated an operational
improvement programme would be initiated by the Board to
focus initially on the Property Services division, in which we
made significant progress during the second half of the year.
The Group recorded a £1.0m exceptional cost to cover the
costs of redundancy for over 100 staff associated with this
exercise, which included the rationalisation of certain central
functions. There has also been a great deal of change at Board
level this year and the Group took a charge of £1.5m associated
with the departure of former Directors, the two Extraordinary
General Meetings held during the year and other one-off expenses.
The prior year item of £0.8m related to the write-off of certain fixed
assets and legal fees in relation to reshaping the Group structure.
Release of deferred consideration of £2.6m (2015: £nil)
represented the renegotiation of sums due to the former owners
of H2O Nationwide Limited (£0.6m) and no further sums being
due to the former owners of Providor Limited (£1.5m) and Sure
Maintenance Limited (£0.5m), in light of the requisite performance
conditions under the sale and purchase agreement not being met.
IPO costs of £nil (2015: £4.1m) comprised legal, professional
and incidental expenditure incurred in relation to the IPO in
March 2015.
Impairment of goodwill
and intangible assets acquired
Impairment of goodwill and intangible assets acquired was £19.2m
for the year (2015: £nil) relating predominantly to the write-down
of £17.4m of goodwill in relation to Foster. The impairment of
Foster reflected the reduced actual and expected performance
of this business, discussed above in the Property Services
operational review. The £1.8m balance related to value attaching
to the contract with a major industrial and commercial customer
in Providor, which cancelled work unexpectedly during the year.
Although we succeeded in replacing these revenues with the
Scottish Power contract, accounting standards require us to
review carrying values based on the historic customer base alone.
Accordingly, this is not necessarily indicative of management
expectations of the prospects for Providor.
Amortisation of acquisition intangibles was £11.2m (2015: £6.5m),
with the increase reflecting a full year impact of Providor,
Orchard Energy and Sure Maintenance together with the
acquisitions of Aaron Heating Services and Precision Lift
Services during the year.
Lakehouse plc Annual Report 2016
25
Strategic reviewLakehouse plc Annual report 2016Financial statementsGovernance Financial review continued
Accelerated amortisation of financing costs
Finance costs of £nil (2015: £0.4m) represented the write-off
of unamortised costs on the term loan we replaced with a new
revolving credit facility in December 2014, ahead of the IPO.
Unwinding discount of deferred consideration
Unwinding discount of deferred consideration reflects the
present value of deferred sums, discounted at a post-tax rate
of 8.5%, due on outstanding payments for acquisitions.
All items discussed above in relation to ‘Exceptional and Other
Items’ are considered non-trading because they are not part of
the underlying trading of the Group and in the case of Exceptional
Items, impairment of goodwill and accelerated amortisation of
finance costs are not expected to recur year to year. Contract
losses on businesses being exited relate to businesses that have
been closed and smart metering mobilisation costs reflect the
one-off nature of mobilising our new domestic smart metering
programme, which we expect will carry on into the first half of
the year to 30 September 2017.
Finance expense
The total finance expense for the year represented the interest
charged on our debt facilities (net of finance income), together
with the amortisation of debt raising costs, which totalled £1.0m
(2015: £0.6m).
The total finance expense of £1.6m included the unwinding of
discounts on deferred consideration figure of £0.6m (2015: £0.4m),
discussed above and treated as a non-operating item.
Tax
The tax charge on underlying profit before tax of £9.9m was £1.7m,
representing an effective rate of 17.3%, which compares with
the statutory corporation tax rate of 20%. The difference was
due to prior year tax adjustments.
The effective tax rate on the statutory loss before tax for the year
was 12.1% which is lower than the UK statutory corporation
tax rate of 20% due to a combination of permanent differences
together with the enacted reductions in the UK corporation tax
rate and prior year credits. The increase in permanent differences
from £2.0m to £15.2m is due to a non-deductible impairment
of goodwill relating to Foster Property Maintenance of £17.4m
and non-taxable income of £2.6m relating to a release of
deferred consideration.
Our net cash tax payment for the year was £0.3m for continuing
operations (2015: a statutory credit of £2.7m), reflecting carried
forward tax losses. During the year, the Group has received the
anticipated cash tax refund from HMRC which formed the
corporation tax receivable on the 30 September 2015 balance
sheet. The Group has also made tax payments on account
during the year. As these payments on account are no longer
expected to be required as the Group has generated a tax loss,
this has resulted in a net receivable with regard to corporation
tax as at 30 September 2016.
The net deferred tax asset as at 30 September 2016 was £0.2m
(2015: liability of £1.9m), with the movement mainly relating to
acquisition intangibles, where a credit of £3.1m to the P&L was
offset by an additional £1.5m deferred tax liability in relation
to the acquisition intangibles of Aaron Heating Services and
Precision Lift Services.
In the year, the Group has increased its gross tax losses but,
due to a reduction in the UK’s corporation tax rate, the carried
forward tax credit reduced from £3.1m to £2.6m. The carried
forward tax losses mainly arose on the exercise of share options
at the time of the IPO and were eligible for Group tax relief.
The credits to set up the deferred tax asset arising on these tax
losses were recognised in equity and, as such, the tax charges
and credits relating to the utilisation of these will also be
recognised in equity. Therefore, this should not impact the
Group’s effective tax rate. The remaining tax credit relates to
four Group companies and may be utilised over a period of
greater than one financial year.
The Group has recognised a deferred tax asset arising on tax
losses of £2.6m on the basis of a combination of taxable
temporary differences (£0.1m) and forecast taxable profits
(£2.5m) which is consistent with the Board’s anticipation of
improving profitability as outlined above.
Year ending 30 September
Underlying EBITA
Less:
Exceptional and Other Items
Finance expense
Tax
2016
£m
10.9
(42.6)
(1.6)
4.0
2015
£m
22.2
(17.6)
(1.4)
(0.8)
(Loss)/profit for the year attributable
to the equity holders of the Group
(29.3)
2.4
Earnings per share
Underlying basic earnings per share were 5.2 pence
(2015: 13.7 pence), based on underlying earnings of £8.2m
(2015: £17.5m). Underlying earnings are stated after adding
back £37.4m of Exceptional and Other Items (after tax).
Our statutory losses for the year were £29.3m (2015: statutory
earnings of £2.4m). Based on the weighted average number of
shares in issue during the year of 157.5m, this resulted in basic
losses per share of 18.6 pence (2015: basic earnings per share
of 1.9 pence).
Further details are contained in Note 13.
Dividend
The Board has proposed a final dividend for the year of
0.5 pence per share, which is in addition to the interim dividend
of 1.0 pence paid in the year. This represents a total dividend
payable for the year of 1.5 pence (2015: 1.9 pence).
Subject to approval at the AGM, the final dividend will be paid
on 6 April 2017 to shareholders on the register at the close of
business on 10 March 2017.
26
Lakehouse plc Annual Report 2016 Cash flow performance
Our underlying operating cash flow for the year was an inflow
of £13.2m (2015: £25.6m), reflecting a strong underlying cash
conversion of 121% (2015: 115%). We calculate underlying
operating cash conversion as cash generated from operations,
excluding the cash impact of Exceptional and Other Items,
divided by underlying EBITA. We believe this measure provides
a consistent basis for comparing cash generation consistently
over time. On a statutory basis, we saw an operating cash
outflow of £3.0m (2015: inflow of £19.1m), representing an
outflow of 171% (2015: inflow of 97%).
As we highlighted at the half year, the timing of revenues, method
of contract delivery and customer contractual terms can all have
an impact on working capital and, consequently, cash conversion.
Generally, as revenues rise under a packaged subcontractor
model, there is a cash benefit, as we are paid more quickly by
our clients than we pay our supply chain (referred to as ‘net
negative work in progress’); conversely, as revenues fall, we
may find payments to subcontractors do not fall in proportion
to lower revenues, resulting in negative work in progress turning
positive and a cash outflow. We therefore felt the cash impact
of the poor performance in Property Services and contract
delays in Construction during the year and whilst the former is
likely to be permanent, we expect the delays in Construction to
be temporary and so see some recovery as revenues pick up.
We have also seen increased financial and resourcing pressure
faced by clients, making it harder to reach reasonable account
settlements. After an operating outflow of £11.4m (outflow of
£8.7m after taking account of the cash impact of Exceptional
and Other Items) in the first half of the year, we saw a strong
cash performance across every division in the second half, with
the net operating outflow reducing to £3.0m for the full year and
an underlying inflow of £13.2m after taking account of the cash
impact of Exceptional and Other Items.
After factoring in the matters highlighted above, together with
the impact of the Exceptional and Other Items in the statement
of financial position at the year end, we expect to continue to
target an average annual operating cash conversion of 80%
over the long term.
Net debt
Our net debt balance stood at £20.6m at 30 September 2016
(2015: net cash of £6.6m). This increase reflected, predominantly,
payments for acquisitions of £17.7m, the £1.1m owed to the
former owner of our Manor Road housing development (discussed
in provisions below) and £4.6m in respect of the dividends paid
during the year. The balance was accounted for predominantly
by a £3.0m net operating cash outflow, which included a £16.2m
cash cost of Exceptional Items, discussed further in Note 33.
Banking arrangements
We had drawn £21m under our revolving credit facility at
the year end. At the date of issuing this report we had drawn
£28m, reflecting our normal winter working capital requirements.
Royal Bank of Scotland (‘RBS’) remains very supportive of the
Group and, to show our commitment to managing our banking
arrangements within our means and also to reduce the cost of
non-utilisation fees, we requested that RBS reduce our Revolving
Credit Facility (‘RCF’) to £40m and further reduce the facility to
£35m in April 2017. We agreed this formally in a variation to our
RCF in January 2017, which included a revision to our banking
covenants reflecting the lower earnings expectations of the Group,
but at a higher rate of interest. We retain a £5m overdraft facility.
These revised arrangements provide the Group with funding
support that will ensure the Group is able to plan for future
growth, particularly in bidding with confidence on new contracts.
Balance sheet
The principal items in our balance sheet are goodwill, intangible
assets and working capital.
30 September
2016
£m
30 September
2015
£m
Goodwill and intangibles
Tangible and other fixed assets
Total non-current
Current assets
(Debt)/cash
Current liabilities
Net current assets
Non-current liabilities
Debt
Net assets
Net current assets (excluding cash)
Net negative work in progress
(packaged subcontractors)
69.3
4.7
74.0
75.7
(0.3)
(68.4)
7.0
(9.7)
(20.3)
51.0
7.3
83.5
4.2
87.7
85.9
6.5
(84.2)
8.2
(10.1)
(0.3)
85.5
1.7
(12.0)
(18.0)
The principal movement in net assets reflected a reduction
of £14.2m in goodwill and intangibles, reflecting £11.2m in
amortisation of acquisition intangibles and £19.2m in impairment
charges, discussed above and in Notes 7, 14 and 15, offset in
part by £15.0m of additional acquired goodwill and intangibles
relating to acquisitions made in the year, discussed in Note 34.
Net current assets (excluding cash) rose to £7.3m (30 September
2015: £1.7m). The acquisitions of Aaron Heating Services and
Precision Lift Services contributed £2.3m, with the balance of
the increase relating predominantly to a £6.0m reduction in net
negative work in progress relating to packaged subcontractors
to £12.0m (30 September 2015: £18.0m). This arose from a
reduction in revenues in our Property Services business and the
timing of projects in Construction, both of which employ packaged
subcontractor models and are in line with the trends highlighted
at the half year.
Deferred consideration on acquisitions is analysed overleaf.
27
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Financial review continued
Provisions
Provisions as at 30 September 2016 stood at £4.9m (30 September 2015: £6.4m). During the year, we utilised £3.2m of
provisions in line with our expectations, with £1.1m due to the former owner of the land at our Manor Road housing development,
£1.5m in relation to specific costs of The Contract (discussed in Exceptional Items above) and £0.6m of Other Items. We provided a
further £0.8m in relation to specific risks and also recognised £0.9m as part of fair value accounting on acquisitions for potential
risks and liabilities.
Further details are set out in Note 24.
Acquisitions
The Group made two acquisitions in the year:
• Aaron Heating Services (November 2015): gross consideration of £9.2m, comprising £2.6m of net assets (including cash of £0.3m),
£3.0m of acquired intangibles (net of deferred tax) and £3.6m of goodwill
• Precision Lift Services (December 2015): gross consideration of £7.5m, comprising £0.7m of net assets (including cash of £0.5m),
£3.2m of acquired intangibles (net of deferred tax) and £3.6m of goodwill
Further details are set out in Note 34.
Deferred consideration
A number of the acquisitions made by the Group in recent years incorporate deferred consideration as part of the transaction
terms, some of which depend on the performance of the businesses post-completion.
The table below shows the movement in the total discounted deferred consideration payable and the amount outstanding at the
year end.
Acquired business
Allied Protection
H2O Nationwide
Providor
Orchard Energy
Sure Maintenance
Aaron Heating Services
Precision Lift Services
At
30 September
2015
(£m)
Payments
in year
(£m)
Additions,
including
discount
unwind
(£m)
Release of
deferred
consideration
(£m)
At
30 September
2016
(£m)
3.3
2.3
1.5
1.6
0.5
—
—
9.2
(3.0)
(0.4)
—
—
—
(1.4)
—
(4.8)
—
—
—
0.6
—
2.4
1.1
4.1
—
(0.6)
(1.5)
—
(0.5)
—
—
(2.6)
0.3
1.3
—
2.2
—
1.0
1.1
5.9
Expected
payment date
Nov 2016
Oct 2016/Nov 2017
n/a
Dec 2017
n/a
Dec 2017
Dec 2018
Risks
The Board considers strategic, financial and operational risks and identifies actions to mitigate those risks. Key risks and their
mitigation are disclosed on pages 30 to 33.
As we discussed above in Exceptional Items, we provided against certain receivables under the Group’s accounting policy. We are
pursuing legal avenues with regard to full recovery in relation to these matters, but consider it important to maintain a prudent basis
of accounting.
We are conscious that unbilled balances represent a significant risk in our industry and we conducted a thorough review of
recoverability at the year end, providing against uncertain items where necessary.
We continue to manage a number of potential risks and uncertainties, including claims and disputes, which are common to other similar
businesses which could have a material impact on short and longer term performance. The Board remains focused on the outcome
of a number of contract settlements on which there is a range of outcomes for the Group in terms of both cash flow and impact on
the statement of comprehensive income.
28
Lakehouse plc Annual Report 2016
Going concern statement
The Directors acknowledge the Financial Reporting Council’s ‘Going Concern and Liquidity Risk: Guidance for Directors of UK
Companies’ issued in October 2009. The Group’s business activities, together with factors likely to affect its future development,
performance and position are set out in the Strategic Review as referred to on pages 1 to 38. The financial position of the Group,
its cash flows, liquidity position and borrowing facilities are described in the Financial Review, as part of the Strategic Review, on
pages 24 to 29. In addition, Note 31 to the consolidated financial statements within the 2016 Annual Report includes details of the
Group’s approach to financial risk management, details of its financial instruments and hedging activities, and its exposure to credit
risk and liquidity risk. In assessing the Group’s ability to continue as a going concern, the Board reviews and approves the annual
budget and three year plan, particularly for the following 16 months, including forecasts of cash flows, borrowing requirements
and covenant headroom. The Board reviews the Group’s sources of available funds and the level of headroom available against its
committed borrowing facilities and associated covenants. The Group’s financial forecasts, taking into account possible sensitivities
in trading performance, indicate that the Group will be able to operate within the level of its committed borrowing facilities and within
the requirements of the associated covenants for the foreseeable future. RBS remains very supportive of the Group and, to show
commitment to managing our banking arrangements within our means and also reduce the cost of non-utilisation fees, we requested
that RBS reduce our RCF to £40m and further reduce the facility to £35m in April 2017. We agreed this formally in a variation
to our RCF in January 2017, which included a revision to our banking covenants reflecting the lower earnings expectations of the
Group, but at a higher rate of interest. The facility will mature in December 2018, albeit RBS has the option to extend this to
December 2019. The Directors have a reasonable expectation that the Group has adequate resources to continue its operational
existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the
Annual Report and Accounts.
Viability statement
The Directors have considered section C.2.2 of the 2014 Corporate Governance Code and, taking account of the Group’s current
position, prospects and principal risks, confirm they have a reasonable expectation that the Group will continue to operate and meet
its liabilities, as they fall due, over the three-year period to 30 September 2019. A three-year period is considered appropriate in light
of the lifecycle of the Group’s order book, beyond which management has less visibility. This assessment was performed alongside
the Group’s consideration of principal risks and annual three-year financial planning process.
The Group performs a series of risk reviews during the year, managed through a Risk Committee and included in monthly
operational reviews conducted with each division; the outcome is presented to the Audit Committee twice annually for review and
challenge. This ensures that all matters of significance are considered and key risks brought to the attention of the Board.
The Group’s three year financial plan (‘Plan’) is built on a bottom-up basis by business and segment and utilises the data provided
in the Group’s order book, framework contracts and opportunity pipeline. The Plan is reviewed in detail with each division through
a series of reviews and tested for a range of sensitivities, which quantify the principal risks facing the business, including contract
losses, financial shortfalls and increased working capital demands. Management considers such risks insofar as they possess or
can determine the information to do so, and there will always be an element of inherent uncertainty, particularly as regard matters
outside their direct control, such as Government policy, client procurement policies and potential claims and disputes brought
against the Group by others. Sensitivities are also tested against available banking facilities to ensure sufficient headroom and
remaining compliant with banking covenants. In this assessment, we assumed RBS agrees to a renewal of our banking facilities
in December 2018.
Outlook
The Board has now been settled and management have taken action to address the problems faced by Property Services, which
will comprise a small part of the Group moving forward. The Board looks forward to working together with its staff and wider
stakeholders to build on the significant potential we have across the Group to deliver future growth and returns for our investors.
Bob Holt
Executive Chairman
23 January 2017
29
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Principal risks and uncertainties
We have a detailed and comprehensive risk management process, covering all aspects of business and
operational risk.
A key focus of our strategy is to reduce risk and build a
sustainable and profitable business, with predictable
revenues and increasing margins.
Risk
We constantly review our control and monitoring processes
and our systems and work closely with our clients to
understand how our marketplace is changing and how it is
likely to change in the future.
The table herewith details the main risks we currently face,
their potential impact on our business and how we mitigate
them. The heat map sets out each risk’s potential impact on
our business prior to mitigation, its likelihood of occurring
and the change in these factors during the year.
B1 Trading environment with the public sector
The public sector and regulated industries provide some 95%
of our revenue, so our business is heavily dependent on policies
and programmes adopted by UK, Scottish and local Governments.
In particular, Energy Services may be susceptible to changes in
Government policy and Property Services and Construction
susceptible to client procurement trends.
B2 Client actions
Revenue and profitability in parts of our business may be
impacted by the way we interact with our clients, importantly
in the event of litigation.
B2
B1
B5
B6
t
c
a
p
m
I
G2
G1
B4
B8
B3
B7
Likelihood
“B” items represent business risks
“G” items represent general corporate risks
More information about how we manage risk can be found
in the Corporate Governance Report on pages 42 to 46.
30
B3 Tendering for new work
We compete for work by tendering or negotiating directly
with our customers. We are reliant upon our credibility as
an organisation, so our reputation, experience, accreditations,
pricing and relationships all affect our ability to win work.
We compete with local and international companies, some
of which could have greater resources and capabilities.
B4 Revenue recognition
In our industry, the valuation and recognition of revenue requires
significant judgement by management. Our Construction division
operates under long term fixed-price contracts and our Property
Services division recognises revenue based on a valuation of
the work in progress, with reference to a contracted schedule
of rates. The valuation of revenue includes the determination of
estimated costs to complete, amount of margin to be recognised
and percentage of completion of work in progress.
We have multiple contracts that are the subject of such
Each contract is staffed by a proven team of operators,
judgement and an error could lead to a material misstatement
partnered by experienced quantity surveyors who follow a set
of both revenue and profit.
In particular 'unbilled' sums sitting on the Statement of Financial
Position reflect amounts that are as yet to reach a point of
invoice and involve the highest levels of judgement.
of clear and specific guidelines on contract valuations. We have
submitted these teams to increased levels of scrutiny during the
year as a result of performance concerns in Property Services
and sought to refresh the talent in the team where necessary.
Our principal focus is to ensure our Statement of Financial
Position reflects a realistic assessment of recoverable sums
when considered in light of the risks faced.
Explanation of risk
Mitigation
We have previously described two risks, in Government policy
Our recent acquisitions have enabled us to increase our business
and trends in client procurement, but feel they should be viewed
diversity and focus our efforts on those markets where we feel
together as under current Government austerity, the risks are
there is the opportunity of earning a more predictable return.
now broader for all service providers to the public sector.
Significant changes to policy, particularly in Energy Services
where we have seen considerable change in recent years,
could have a material impact on our results. Policy however
We recognise the importance of operational delivery in giving
confidence to clients and maintain high standards of service that
allow us to set ourselves apart.
extends beyond legislation into client procurement methods and
We have also continued to invest in business development, through
available budgets.
talented senior managers and experienced local leaders, aimed
at building sustainable relationships with clients and securing
long term contracts.
Beyond changes in procurement trends, we are experiencing
We recognise the challenges faced by our clients and seek to
the knock-on effects of challenges faced by our clients and feel
work with those where we can deliver a high standard of service,
this needs to be highlighted as a new risk. This includes the
whilst generating a reasonable return on capital. We are proactive
sudden withdrawal of confirmed budgets, changes in client
in seeking affordable solutions to budget challenges that help
staffing leading to alterations in priorities and difficulties in
us to ensure our clients deliver the services expected of them.
settling disputes and accounts for payment.
We continue to manage a number of potential risks and
to ensure that we present commercial settlements to an acceptable
uncertainties, including claims and disputes which are common
standard to make it easier for clients to work with us.
We have reviewed our internal operational procedures in the year
to other similar businesses which could have a material impact
on short and longer term performance. The Board remains
focused on the outcome of a number of contract settlements
on which there is a range of outcomes for the Group in terms
of both cash flow and impact on the Statement of
Comprehensive Income.
In preparing our annual accounts, we have taken a view on the
financial risk of pending claims and disputes and seek to provide
in full for potential shortfalls, whilst pursuing all claims in full, such
that we have a collectively balanced position of risk across all
such matters.
If we do not compete effectively we may not win enough work or
Our commitment to health and safety, a responsible business
retain existing contracts, affecting our revenues, profits and cash.
model and our focus on operational delivery are key to ensuring
we submit high quality scores in our bid submissions.
We have an experienced internal bidding function, so we can
submit the best possible bids and maximise our chance of
success. In the year, we reorganised bidding at a divisional level
to ensure there is a coordinated approach with local operations,
which is necessary for the credibility of our submissions and a
focus on bidding strategically.
We listen to our clients and offer solutions that suit their needs,
meaning we can be directly selected under existing frameworks or
we can negotiate work that they are not required to put out to tender.
Lakehouse plc Annual Report 2016 Risk
Explanation of risk
Mitigation
B1 Trading environment with the public sector
The public sector and regulated industries provide some 95%
of our revenue, so our business is heavily dependent on policies
and programmes adopted by UK, Scottish and local Governments.
In particular, Energy Services may be susceptible to changes in
Government policy and Property Services and Construction
susceptible to client procurement trends.
B2 Client actions
Revenue and profitability in parts of our business may be
impacted by the way we interact with our clients, importantly
in the event of litigation.
B3 Tendering for new work
We compete for work by tendering or negotiating directly
with our customers. We are reliant upon our credibility as
an organisation, so our reputation, experience, accreditations,
pricing and relationships all affect our ability to win work.
We compete with local and international companies, some
of which could have greater resources and capabilities.
B4 Revenue recognition
In our industry, the valuation and recognition of revenue requires
significant judgement by management. Our Construction division
operates under long term fixed-price contracts and our Property
Services division recognises revenue based on a valuation of
the work in progress, with reference to a contracted schedule
of rates. The valuation of revenue includes the determination of
estimated costs to complete, amount of margin to be recognised
and percentage of completion of work in progress.
We have previously described two risks, in Government policy
and trends in client procurement, but feel they should be viewed
together as under current Government austerity, the risks are
now broader for all service providers to the public sector.
Significant changes to policy, particularly in Energy Services
where we have seen considerable change in recent years,
could have a material impact on our results. Policy however
extends beyond legislation into client procurement methods and
available budgets.
Our recent acquisitions have enabled us to increase our business
diversity and focus our efforts on those markets where we feel
there is the opportunity of earning a more predictable return.
We recognise the importance of operational delivery in giving
confidence to clients and maintain high standards of service that
allow us to set ourselves apart.
We have also continued to invest in business development, through
talented senior managers and experienced local leaders, aimed
at building sustainable relationships with clients and securing
long term contracts.
Beyond changes in procurement trends, we are experiencing
the knock-on effects of challenges faced by our clients and feel
this needs to be highlighted as a new risk. This includes the
sudden withdrawal of confirmed budgets, changes in client
staffing leading to alterations in priorities and difficulties in
settling disputes and accounts for payment.
We continue to manage a number of potential risks and
uncertainties, including claims and disputes which are common
to other similar businesses which could have a material impact
on short and longer term performance. The Board remains
focused on the outcome of a number of contract settlements
on which there is a range of outcomes for the Group in terms
of both cash flow and impact on the Statement of
Comprehensive Income.
We recognise the challenges faced by our clients and seek to
work with those where we can deliver a high standard of service,
whilst generating a reasonable return on capital. We are proactive
in seeking affordable solutions to budget challenges that help
us to ensure our clients deliver the services expected of them.
We have reviewed our internal operational procedures in the year
to ensure that we present commercial settlements to an acceptable
standard to make it easier for clients to work with us.
In preparing our annual accounts, we have taken a view on the
financial risk of pending claims and disputes and seek to provide
in full for potential shortfalls, whilst pursuing all claims in full, such
that we have a collectively balanced position of risk across all
such matters.
If we do not compete effectively we may not win enough work or
retain existing contracts, affecting our revenues, profits and cash.
Our commitment to health and safety, a responsible business
model and our focus on operational delivery are key to ensuring
we submit high quality scores in our bid submissions.
We have an experienced internal bidding function, so we can
submit the best possible bids and maximise our chance of
success. In the year, we reorganised bidding at a divisional level
to ensure there is a coordinated approach with local operations,
which is necessary for the credibility of our submissions and a
focus on bidding strategically.
We listen to our clients and offer solutions that suit their needs,
meaning we can be directly selected under existing frameworks or
we can negotiate work that they are not required to put out to tender.
We have multiple contracts that are the subject of such
judgement and an error could lead to a material misstatement
of both revenue and profit.
In particular 'unbilled' sums sitting on the Statement of Financial
Position reflect amounts that are as yet to reach a point of
invoice and involve the highest levels of judgement.
Each contract is staffed by a proven team of operators,
partnered by experienced quantity surveyors who follow a set
of clear and specific guidelines on contract valuations. We have
submitted these teams to increased levels of scrutiny during the
year as a result of performance concerns in Property Services
and sought to refresh the talent in the team where necessary.
Our principal focus is to ensure our Statement of Financial
Position reflects a realistic assessment of recoverable sums
when considered in light of the risks faced.
31
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Principal risks and uncertainties continued
Risk
Explanation of risk
Mitigation
B5 Poor operational delivery
Poor operational delivery could lead to a local loss in trust and
reputation with a client or customer, or financial loss in the event
of a disputed contract settlement. A material loss of service or
event could result in the loss of a framework.
Poor operational performance leads to reputational loss and
weaker financial performance.
B6 People
The success of our business depends on recruiting, retaining,
motivating and developing the right people at all levels of
our organisation.
If we do not have enough suitably skilled, experienced and
engaged people we may not be able to deliver the service quality
we have promised to our clients and customers or grow our
business as quickly as we had planned.
B7 Acquisition selection and integration
Growth through acquisition in order to gain critical mass has
been an important part of our strategy. We need to ensure that
the acquisition selection process satisfies the needs of the
business and that the companies selected fit the desired criteria.
The consequence of a poor selection process could create friction
within the management structure, poor integration and ultimately
an acquired business which does not fit nor deliver on its anticipated
potential for the Group, leading to a financial shortfall.
We recognise that bringing new businesses together involves different cultures and business dynamics and it is important that
every business feels valued and supported equally. We bring senior management teams together in divisional boards and have
devolved activities during the year that were previously managed centrally. Empowering our businesses without central interference
but under a common Governance structure, will allow them to focus on what made them successful in the first place.
B8 Major health and safety incident
We provide our services in a range of potentially high risk
environments: working in homes, public buildings, at height,
with water, lifts, electrical and gas services and lone operatives
in vans.
There is potential for a major health and safety incident within
the environment in which we work which could have significant
impact on a person or people either directly, indirectly or not
involved with the works we are undertaking.
We could incur reputational loss or civil and criminal costs due
to a health and safety incident.
G1 Financial liquidity
We rely on the continued support of our financial partners to
ensure we have the necessary funds to trade on a day-to-day
basis and pursue the Group’s growth strategy. We have
periods in the year where there is a peak in working capital
needs, predominantly around the timing of work instructed by
our clients and arising from the circumstances of our contracts,
which require short term funding.
Were funding support to be withdrawn, we could face cash
shortfalls and a limitation of our ability to grow in the immediate
term and ultimately, an inability to settle our liabilities as they
fell due if we could not secure funding from alternative sources.
This risk would be exacerbated by poor financial performance
of the Group.
If we were unable to provide financial bonds, we would be
limited in our ability to tender for new work.
G2 ICT failure
Our business is 24/7 and relies on a robust ICT infrastructure
and service.
An ICT failure could cause business interruption or loss of
services which could impact local delivery and our reputation
and ultimately have financial consequences.
We maintain a Group ICT strategy which is designed to support the existing business needs and provide an ICT infrastructure
which is fit for purpose. We invest in resource and technology to ensure that the business is protected, such as back-up and
disaster recovery processes to ensure minimum disruption. We have business continuity processes for a range of events and we
audit these processes.
32
We mitigate this risk by having qualified, trained people, managers and operatives who are experienced in their roles. We closely
monitor quality, progress and service using industry standard products and are generating divisional KPIs to benchmark similar
services. We have accredited processes and systems which are audited both internally and externally and reported to the accountable
management teams. We have a robust approach to risk management from project level to Board, providing support and scrutiny to
mitigate the risk. We have regular project audits and support visits by trained staff. Where we use supply chain partners we work
with the teams, monitoring performance ensuring rapid resolution of issues as they arise.
This has worked well within Compliance, Energy Services and Construction during the year, but performance within Property
Services has fallen short. We have addressed this by closing activities that present an unacceptable level of risk and brought
in new management to improve standards.
We invest significant resources in developing our managers and training our employees. We work hard to make Lakehouse a
Group that people want to be part of, with a positive culture and opportunities to develop and learn. For the good of all staff, it is
important that we concentrate on those businesses that perform well, as well as those that perform poorly, which may mean we
reorganise resources accordingly.
We have an Employee Representative Council with members elected from all parts of the Group, ensuring that all of our people
have a voice. We are constantly assessing our training needs, listening to staff and developing innovative solutions such as our
in-house online training products. We actively seek out rising stars in the business and recognise and celebrate achievement.
We are likely to reduce our levels of acquisition activity in the future, but this remains an important area, particularly
post-acquisition integration.
Health and safety is managed throughout the business and the Accident Incident Rate is an important Group KPI. We have a
health and safety culture which is owned by the Managing Directors of the divisions.
Each division has a dedicated health and safety team who have an open remit to attend any site at any time to offer support or audit.
We have a robust UKAS-accredited health and safety management system which is administered by an independent centralised
team. We have mandatory training standards driven by job roles with a centralised training team who monitor and maintain training
standards and are seeking to improve accessibility to training through the Group’s learning management system.
Health and safety strategy is set by the Safety Core Group which is attended by all Managing Directors, local health & safety
leaders and an Executive Director.
We maintain excellent relationships with our bankers, maintaining regular dialogue on matters pertaining to trading and risk in the
Group. We maintain a strict internal review process on covenant compliance to ensure we remain in line with the requirements of
our banking documents. An important part of our relationship is that we borrow money responsibly and in January 2017, we agreed
formally a reduction in our facility, from £45m to £40m and further reduction to £35m in April 2017. Our going concern review and
viability statement were both prepared on the basis of this level of funding, along with the assumption of renewal when the facility
term ends in December 2018.
We maintain contact with a number of bonds providers to ensure we are in a position to satisfy the contractual needs of clients.
Lakehouse plc Annual Report 2016 Risk
Explanation of risk
Mitigation
B5 Poor operational delivery
Poor operational delivery could lead to a local loss in trust and
reputation with a client or customer, or financial loss in the event
of a disputed contract settlement. A material loss of service or
event could result in the loss of a framework.
Poor operational performance leads to reputational loss and
weaker financial performance.
B6 People
our organisation.
The success of our business depends on recruiting, retaining,
motivating and developing the right people at all levels of
If we do not have enough suitably skilled, experienced and
engaged people we may not be able to deliver the service quality
we have promised to our clients and customers or grow our
business as quickly as we had planned.
B7 Acquisition selection and integration
Growth through acquisition in order to gain critical mass has
been an important part of our strategy. We need to ensure that
the acquisition selection process satisfies the needs of the
business and that the companies selected fit the desired criteria.
B8 Major health and safety incident
We provide our services in a range of potentially high risk
environments: working in homes, public buildings, at height,
with water, lifts, electrical and gas services and lone operatives
There is potential for a major health and safety incident within
the environment in which we work which could have significant
impact on a person or people either directly, indirectly or not
involved with the works we are undertaking.
in vans.
We could incur reputational loss or civil and criminal costs due
to a health and safety incident.
G1 Financial liquidity
We rely on the continued support of our financial partners to
ensure we have the necessary funds to trade on a day-to-day
basis and pursue the Group’s growth strategy. We have
periods in the year where there is a peak in working capital
needs, predominantly around the timing of work instructed by
our clients and arising from the circumstances of our contracts,
which require short term funding.
Were funding support to be withdrawn, we could face cash
shortfalls and a limitation of our ability to grow in the immediate
term and ultimately, an inability to settle our liabilities as they
fell due if we could not secure funding from alternative sources.
This risk would be exacerbated by poor financial performance
of the Group.
If we were unable to provide financial bonds, we would be
limited in our ability to tender for new work.
We mitigate this risk by having qualified, trained people, managers and operatives who are experienced in their roles. We closely
monitor quality, progress and service using industry standard products and are generating divisional KPIs to benchmark similar
services. We have accredited processes and systems which are audited both internally and externally and reported to the accountable
management teams. We have a robust approach to risk management from project level to Board, providing support and scrutiny to
mitigate the risk. We have regular project audits and support visits by trained staff. Where we use supply chain partners we work
with the teams, monitoring performance ensuring rapid resolution of issues as they arise.
This has worked well within Compliance, Energy Services and Construction during the year, but performance within Property
Services has fallen short. We have addressed this by closing activities that present an unacceptable level of risk and brought
in new management to improve standards.
We invest significant resources in developing our managers and training our employees. We work hard to make Lakehouse a
Group that people want to be part of, with a positive culture and opportunities to develop and learn. For the good of all staff, it is
important that we concentrate on those businesses that perform well, as well as those that perform poorly, which may mean we
reorganise resources accordingly.
We have an Employee Representative Council with members elected from all parts of the Group, ensuring that all of our people
have a voice. We are constantly assessing our training needs, listening to staff and developing innovative solutions such as our
in-house online training products. We actively seek out rising stars in the business and recognise and celebrate achievement.
The consequence of a poor selection process could create friction
within the management structure, poor integration and ultimately
an acquired business which does not fit nor deliver on its anticipated
potential for the Group, leading to a financial shortfall.
We recognise that bringing new businesses together involves different cultures and business dynamics and it is important that
every business feels valued and supported equally. We bring senior management teams together in divisional boards and have
devolved activities during the year that were previously managed centrally. Empowering our businesses without central interference
but under a common Governance structure, will allow them to focus on what made them successful in the first place.
We are likely to reduce our levels of acquisition activity in the future, but this remains an important area, particularly
post-acquisition integration.
Health and safety is managed throughout the business and the Accident Incident Rate is an important Group KPI. We have a
health and safety culture which is owned by the Managing Directors of the divisions.
Each division has a dedicated health and safety team who have an open remit to attend any site at any time to offer support or audit.
We have a robust UKAS-accredited health and safety management system which is administered by an independent centralised
team. We have mandatory training standards driven by job roles with a centralised training team who monitor and maintain training
standards and are seeking to improve accessibility to training through the Group’s learning management system.
Health and safety strategy is set by the Safety Core Group which is attended by all Managing Directors, local health & safety
leaders and an Executive Director.
We maintain excellent relationships with our bankers, maintaining regular dialogue on matters pertaining to trading and risk in the
Group. We maintain a strict internal review process on covenant compliance to ensure we remain in line with the requirements of
our banking documents. An important part of our relationship is that we borrow money responsibly and in January 2017, we agreed
formally a reduction in our facility, from £45m to £40m and further reduction to £35m in April 2017. Our going concern review and
viability statement were both prepared on the basis of this level of funding, along with the assumption of renewal when the facility
term ends in December 2018.
We maintain contact with a number of bonds providers to ensure we are in a position to satisfy the contractual needs of clients.
G2 ICT failure
and service.
Our business is 24/7 and relies on a robust ICT infrastructure
An ICT failure could cause business interruption or loss of
services which could impact local delivery and our reputation
and ultimately have financial consequences.
We maintain a Group ICT strategy which is designed to support the existing business needs and provide an ICT infrastructure
which is fit for purpose. We invest in resource and technology to ensure that the business is protected, such as back-up and
disaster recovery processes to ensure minimum disruption. We have business continuity processes for a range of events and we
audit these processes.
33
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance Resources, relationships and sustainability
We seek to invest in our business and people, building a reputation as a responsible and
trustworthy partner.
Lakehouse has a responsible business strategy, which covers
how we invest in our people, support local economies through
our customer and supplier relationships, develop our communities
and champion environmental sustainability. This reflects our
belief that fully investing in a responsible business model and
targeting economic, social and environmental change helps to
differentiate us in increasingly competitive markets.
Workplace
Health and safety
Protecting the health and safety of our people, customers,
suppliers and members of the public adjacent to our sites is
the core priority for the Board. We report our Accident Incident
Rate in our monthly board meetings and Group performance
remains better than the sector average, with an Accident
Incident Rate of 85.66, compared with 98.62 last year and
a target of 151.
We have a training programme called the Lakehouse Health and
Safety Legacy, which we believe exceeds standards common to
the industry and is essential for all employees. We also make
this training available to some of our contractors and their
employees, at a subsidised rate.
In 2015, we formed a Group Safety, Health and Environment
('SHE') network, to share best practice and introduce improvements
and risk reduction plans across the business. This powerful
network is making a difference at the front line. It has improved
compliance with our training requirements and is bringing a
consistent Group-wide approach to audit.
Our health and safety champions coordinate employee
consultations and communication across the Group. They use
forums such as our intranet ‘Lakehouse World’ and our SHE
network to discuss safety strategy, review health and safety
projects and reflect on industry and regulatory changes. Our
champions have been instrumental in raising the profile of health
and safety and making sure it is part of the Group's DNA.
Recruitment and retention
The labour market, particularly among service and installation
engineers, makes recruitment and retention an important area
for us. We are addressing this in a number of ways, including a
graduate recruitment programme which targets people who can
grow with us. We have also put career structures in place and
identified successors for key roles, so people can see how they
can develop within the Group. We are particularly proud of our
track record in training gas engineers.
We monitor our performance through our management retention
rate. This was 69% for the year, against 88% in the prior year
and a target of 85%. This has been a year of substantial change
for the Group and we have had to address performance
shortfalls in Property Services in particular. This has led to
colleagues regrettably leaving the Group, but importantly new
colleagues joining us as we seek to grow our businesses in
Compliance, Energy Services and Construction. Underlying
voluntary retention was 87%.
We have an increasing proportion of directly employed engineers
working in the Group and have had to adapt our human resources
support structure accordingly, particularly to reflect the dynamic
of single workers in vans and operating in private residences.
Our culture
Our culture is evolving. A number of very successful businesses
have joined the Group and in order for all colleagues to feel part
of the whole, we have had to adapt our approach. The original
Lakehouse business has provided undue focus for the Group
causing some frustration, especially in light of performance
concerns in the directly delivered 'externals' activities within
Property Services, which were legacy Lakehouse activities.
Our culture in the future will be aligned to our strategy, which is
rooted in keeping our promises, financially to our stakeholders
and operationally to our customers. We will be entrepreneurial
in seeking to grow and develop the business, collaborative in
working together across businesses and supportive of colleagues.
We are not 'corporate' but we maintain the highest standards of
Governance and adopt a zero tolerance policy towards
any misconduct.
Our people remain the Group’s most valuable asset and the
Board wishes to reiterate its thanks and appreciation for their
dedication and commitment to maintaining the highest
standards of client service during the year.
Training and development
Our investment in training and development incorporates all
types of professional skills. We actively encourage our employees
to propose their own ideas for personal development. Training is
a core element of our success, particularly with the responsibilities
entrusted to us in keeping our customers safe. We invest in our
people at all levels and are especially proud of the 54 colleagues
we employed as apprentices during the year.
We recognise that it is difficult to manage training with the
pressures of the day job and have invested in our Group
Learning Management System ('LMS') during the year, which
will facilitate remote learning and make it easier for staff to
complete the necessary training obligations. LMS is set up to
ensure our people continue to be trained to a high standard,
especially in health and safety. As an online system, it allows us
to deliver training efficiently, saving considerable amounts of our
people’s time, and to monitor their compliance. We have seen
considerable success in rolling out this system during the year
with interactions increasing as LMS becomes a fundamental
learning delivery platform. We have plans in place for new
courses in early 2017, which will extend our learning offering to
the Group in areas such as data protection, equal opportunities,
driver awareness and new starter induction.
34
Lakehouse plc Annual Report 2016 Human rights
We are committed to protecting the rights of our people and
those who come into contact with our business. To support
this commitment, we have policies covering key areas such as
grievances, harassment and bullying at work, equal opportunities
and dignity, professional conduct and behaviour, anti-corruption
and whistleblowing.
Diversity
We value diversity and recognise the benefits that people of
different genders and backgrounds can bring. Our approach is
to ensure that all our people have equal opportunities to
advance their careers within the Group.
The table below analyses our employees by gender:
At 30 September 2016
At 30 September 2015
Male
Female
Male
Female
Board
Leadership team
Employees
Total
6
90
1,701
1,797
—
25
445
470
6
95
1,355
1,456
1
30
422
453
Employee representation
Lakehouse has an Employee Representative Council ('ERC')
made up of elected employees from across the Group. Its main
aims are to encourage employee engagement and involvement,
gather views and comments so that employees have a say on
Company policies, provide feedback on the services we provide
and give employees the opportunity to influence the future
direction of Lakehouse. The contribution and advice of ERC
was very important as we reduced the size of the workforce in
Property Services and head office during the year. Beyond this
key role, the ERC took part in a wide range of initiatives during
the year, oriented around communications and employee benefits.
We are committed to
protecting the rights of
our people and those
who come into contact
with our business.
It is Lakehouse’s
policy to promote an
environment free from
discrimination, where
everyone will receive
equal treatment. As part
of its commitment to
equal opportunities,
Lakehouse believes
that its male and female
workers should receive
equal pay for the same
or similar work.
35
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance
Resources, relationships and sustainability
continued
Marketplace
We believe that strong relationships with our customers,
suppliers and subcontractors are vital for creating a long term,
sustainable business which also supports our local economies.
A key part of this is understanding our clients’ and suppliers’
priorities and areas of focus. We therefore work hard to ensure
that our relationships are transparent and beneficial for everyone.
We do this by mapping the different types of communication and
interaction involved in our service, so we can establish new and
better ways to deliver and make a bigger impact on people’s lives.
Clients
Our success depends on our ability to consistently satisfy our
clients and their customers. This helps us to retain contracts at
retendering stage, to cross-sell additional services and to attract
new clients. We also track our success with pre-qualifications
and tenders by business. This shows the quality of our tenders
and our understanding of our customers’ needs. In the year, we
achieved a 42% success rate across our businesses, compared
to 47% in 2015, which reflected a strategic approach to bidding
work with clients and in services and markets where we could
make an acceptable rate of return.
Lakehouse Resident Liaison Officers, working across our Property Services
and Energy Services divisions, are committed to providing an excellent level of
service, facilitating the smooth running of projects by building and maintaining
positive relationships between the residents, tradesmen, client representatives
and the site team.
Supply chain
Our supply chain is crucial to our business. Construction
and Property Services both deliver certain services through
subcontractors and we also rely on merchants and manufacturers
for high quality materials, which enable us to meet our commitments
to our customers.
Our Procurement team enables us to purchase efficiently, cost
effectively and ethically, looking to achieve best value in all
situations. In the year, we devolved procurement to each division,
to ensure the function had closer alignment to the needs of
operational colleagues. This is supported by a more focused
Group function responsible for securing the best Group-wide
deals, managing fleets and maintaining overall standards.
Central procurement works across the Group to target cost
reduction, improve service levels and manage our supply chain,
taking advantage of the combined purchasing power of the
Group. All of our companies are now included in Group-wide
procurement activities and we are negotiating further purchasing
agreements as part of our procurement strategy.
The procurement team’s work with our supply chain to improve
pricing, reduce waste and enhance relationships has been recently
recognised by reaching the finals of both the Chartered Institute
of Procurement and Supply Awards and the Supply Chain
Excellence Awards.
Meetings involving procurement staff and key supply chain
partners from across the Group are held regularly to ensure the
current strategy meets the requirements of the Group and to
highlight early, potential pricing or supply issues which could
have a negative effect.
Strong relationships with
our customers, suppliers
and subcontractors are vital
for creating a long term,
sustainable business.
36
Lakehouse plc Annual Report 2016
Procurement is also used to have a positive influence and to
help small and local businesses to grow. We are particularly
proud of the contribution being made through our Warmworks
Joint Venture, which manages the HEEPS programme for
Scottish Government. This includes fair payment terms, free or
subsidised training, ensuring the procurement process is locally
accessible and encouraging innovation in our supply chain. In
addition, we consider social, environmental and economic
challenges when deciding what and where to buy.
Brands
Lakehouse has a well-respected and long-established brand,
based on our reputation for service. The companies we acquire
also typically have strong brands in their markets, built on their
established expertise and local standing.
We retain the acquired company’s name and add the Lakehouse
Group moniker and logo for consistency of presentation.
Community
We are dedicated to creating desirable, successful and
cohesive communities. This means playing our part in making
them sustainable places to live and work. Our work in the
community falls into the following areas:
We measure
environmental risks and
opportunities across
the Group, backed up
by training, awareness
and support.
Social impact and community infrastructure: we champion and
support resident and community-led initiatives that tackle key
social issues, such as crime, anti-social behaviour, digital and
financial inclusion, and health and wellbeing.
Being deeply involved in our communities has always been
fundamental to how we operate. Some of our local authority
customers require us to deliver social value through our contracts
with them — such as committing to job creation or apprenticeships.
We take the same approach in every area we work in. Our
Corporate Responsibility Manager, aided by our network of
community development champions around the business, helps
us to put our communities at the centre of our services both to
the public and private sectors. Our champions coordinate
connections between our communities and our operational
teams, who deliver our day-to-day services. This creates local
accountability for delivering social value through our projects.
Education and young people: we offer mentoring programmes
and education partnerships, working strategically with local
schools to provide support and increase young people’s
educational aspirations and skills.
In addition, we encourage all our employees to donate their time
and expertise during work hours, to tackle local social issues.
We aim to ensure that all volunteering is focused on our key
community development themes.
Employment and skills: we provide apprenticeships and employment
and skills development for residents in our communities.
We are committed to investing
in our employees, championing
training and development in the
workplace and helping employees
and those new to the workplace
progress their careers in line
with our business goals.
37
37
Strategic reviewLakehouse plc Annual Report 2016Financial statementsGovernance
Resources, relationships and sustainability
continued
Environment
A key part of our business strategy is to consider, manage
and measure the way our work streams can affect the natural
environment. We therefore monitor potential environmental
impacts, promote environmental awareness to employees and
reduce risks where possible. We measure environmental risks
and opportunities across the Group, backed up by training,
awareness and support. We aim to identify any potential risks
as a preventative measure and to control our impact on the
environments in which we work.
Our key environmental areas of focus are energy efficiency,
carbon management and waste diversion. We monitor all of
these aspects, analyse the results and set targets to ensure
continual improvement. Supporting this is our environmental
management system, which we communicate to all employees.
Group energy consumption
With our Energy Management System, we monitor energy use
on a monthly basis and assess the results in both kWh and CO2.
We review this in our monthly Board meetings and set energy
targets and objectives to reduce our overall energy consumption.
Although our carbon emissions rose to 8,951 in 2016 from
5,350 in 2015, this reflects the growth of the Group through
acquisitions that did not track such information. As a result,
like for like analysis is not yet possible. We expect to deliver
consistent improvements in our environmental performance
in future years.
Waste management
Waste management is vital for ensuring we do not negatively
affect the environment. We aim to divert at least 90% of waste
from landfill and therefore recycle as much as possible. We
ensure we use licensed waste removal companies, who divert
high percentage levels of waste from landfill.
This year we have achieved an average recycling and diversion from
landfill rate of 96%, maintaining our performance from last year.
Systems based solutions such as our Impact Response operating
system mean that we can optimise and streamline operations across
businesses and divisions, pushing improvements where there is an
advantage to do so.
Leadership and governance
The Board’s role in being a responsible business
The Board is directly responsible for implementing our
responsible business agenda. This includes:
• Ensuring our wider responsibilities are understood within
Lakehouse and in the marketplace
• Conveying how a responsible approach adds long term value
to our business
• Actively demonstrating a commitment to responsible
business practice by creating and championing a responsible
business culture
• Regularly reviewing our short and long term commitments
Systems governance
We have continued to invest in systems development during
the year, with all bar Sure Maintenance now on our Navision
financial platform. This provides an important framework for
financial control, consistency of presenting financial information
and a future opportunity to improve efficiencies.
Our Impact Response operating system continues for responsive
maintenance services in Allied Protection, Foster and Everwarm
and we are focusing on driving improvement between these
three businesses through shared learning, before deciding
on the future direction of our systems needs.
Return on capital
In order to maintain client service, we have to earn an adequate
return on capital. As we have seen from the performance of
Property Services, when the two do not go hand in hand, we
are placed in a position of having to make negative decisions
for both staff and clients alike.
We have determined that an acceptable threshold return on
capital is 50%, with a target of 100%. We were pleased to
see both Compliance and Construction both exceed target
and Energy Services exceeded threshold during the year,
with a steady improvement shown month on month.
The teams are now understanding the importance of return on
capital, which is directly linked to cash management, particularly
aged debt and unbilled items. This is discussed further in the
Financial Review on pages 24 to 29.
The Strategic Review set out on pages 1 to 38 was approved
by the Board of Directors on 23 January 2017 and signed on
its behalf by.
By order of the Board
Jeremy Simpson
Chief Financial Officer
23 January 2017
38
Lakehouse plc Annual Report 2016
Executive Chairman’s
introduction to Corporate Governance
Composition of the Board
The Corporate Governance Report sets out the Board’s approach
to maintaining a sound framework for the control and management
of the Group that is appropriate for a company of our size and
circumstances. The Report provides details of the Governance
structure, including the role and structure of the Board and
the key Board roles and responsibilities, including that of the
Executive Chairman and the Senior Independent Director.
The Report also provides details of the three Committees,
Audit, Nomination and Remuneration, which assist the Board
in performing its oversight function.
The Board of Directors comprises three Executive Directors and
two Non-Executive Directors. Biographical details of all the current
Directors are set out on pages 40 to 41. In accordance with the
UK Corporate Governance Code, the Directors will stand for
re-election at the Annual General Meeting on 31 March 2017.
Shareholders will be aware there have been a number of changes
to the composition and membership of the Board during the year.
Details of the individuals who served as Directors during the
year to 30 September 2016 and changes to the composition
of the Board that occurred during the year are set out in the
Directors’ Report on page 70.
Having gone through a period of change during the course of
the year, the focus of the Board will be directed upon addressing
the operational performance of the business and restoring
shareholder value over the short term.
Bob Holt
Executive Chairman
23 January 2017
Bob Holt
Executive Chairman
Dear Shareholder,
The Directors and I recognise good Governance is
fundamental to effective management of the business
and delivery of long term shareholder value.
The Board is committed to ensuring that a strong Governance
framework operates throughout the Group since this provides
an essential foundation on which to build the future success
of the Group. Responsibility for good Governance lies with the
Board. The Board recognise the importance of setting the right
tone at the top of the organisation in order to guide our people’s
behaviour and ensure that we live by and demonstrate the
right values across the Group. Our Code of Conduct is readily
accessible to all staff to support their day-to-day activities.
We demand the highest professional standards from all our
people all of the time and we have a zero tolerance approach
to breaches of the Code of Conduct.
39
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Board of Directors
Michael McMahon
Executive Director and
Managing Director – Energy Services
Appointment
Michael joined the Group in April 2014
following its acquisition of Everwarm.
Committee membership
None.
Key strengths
Michael has significant experience in the
Energy Services sector and was a
founding director of Everwarm.
Experience, skills
and qualifications
Michael has responsibility for the
operational performance of the Group.
Michael has significant experience in the
Energy Services sector and was a founding
director of Everwarm in 2011, which grew
to become a profitable company with
turnover of over £45.0m by the time of its
acquisition by Lakehouse in April 2014.
Prior to founding Everwarm, Michael was
Group Operations Director at Eaga plc,
leaving it shortly before it was acquired
by Carillion plc.
Bob Holt OBE
Executive Chairman
Jeremy Simpson
Chief Financial Officer
Appointment
Jeremy joined Lakehouse in April 2014
as Chief Financial Officer.
Committee membership
None.
Key strengths
Jeremy has broad finance experience and
has held senior financial positions with
a number of other public companies.
Experience, skills
and qualifications
Prior to joining Lakehouse, Jeremy was
Group Corporate Development Director
and UK Finance Director at Shanks Group
plc between 2011 and 2014. Prior to
that Jeremy held a number of senior roles
at Hunting plc, Avery Dennison and Smiths
Group. Jeremy is a qualified chartered
accountant, having trained at Ernst & Young
LLP. Jeremy is a trustee and treasurer of
the single parent charity, Gingerbread.
Appointment
Bob was appointed as a Director and
Executive Chairman of Lakehouse plc
in July 2016.
Committee membership
Member of the Nomination Committee.
Key strengths
Bob is an experienced manager and
developer of service businesses. In a
career in the service sector spanning over
35 years he has an extensive track record
of growing businesses and turning around
underperforming companies. Bob provides
experienced executive leadership to navigate
the business through challenging market
conditions whilst setting a clear strategic
direction for the Group for the medium term.
Experience, skills
and qualifications
Bob is chairman of Mears Group PLC, a
company in which he acquired a controlling
interest in 1996. Mears Group floated on
AIM in 1996 and moved to the Main Market
in 2008. As well as his continued involvement
with Mears Group, Bob also currently
serves as non-executive chairman of DX
(Group) Limited and Totally plc. Bob was
awarded an OBE in January 2016.
40
Lakehouse plc Annual Report 2016 Robert Legget
Senior Independent Director
Andrew Harrison
Non-Executive Director
Simon Howell
Company Secretary
Appointment
Robert was appointed to the Board
of Lakehouse in April 2016.
Appointment
Andrew was appointed to the Board as
an Alternate Director in June 2016 and as
a Director in July 2016.
Appointment
Simon joined Lakehouse in June 2014
as Group Company Secretary.
Committee membership
Chairman of the Nomination Committee,
Interim Chairman of the Audit Committee
and a member of the
Remuneration Committee.
Committee membership
Chairman of the Remuneration
Committee and a member of the
Audit and Nomination Committees.
Key strengths
Robert has extensive business and
finance experience.
Key strengths
Andrew has extensive business and
legal experience.
Experience, skills
and qualifications
Robert co-founded Progressive Value
Management Limited in 2000 and is
Chairman. Progressive Value Management
specialises in creating value and liquidity
for institutional investors from illiquid
holdings in underperforming companies.
In this role he has had significant
engagement with public company boards.
Robert was formerly a director of Quayle
Munro Holdings plc and Foreign & Colonial
Private Equity Trust plc. Robert is a member
of the Institute of Chartered Accountants
of Scotland.
Experience, skills
and qualifications
Andrew is the founder and owner of the
law firm, Tallar LLP and has more than
25 years’ experience as a solicitor in
private practice, specialising in company
law. He has advised on a wide range
of corporate transactions, including
management buy-outs and buy-ins,
corporate acquisitions and disposals
and listed company takeovers. Andrew
is a non-executive director of Victoria plc
and Islandbridge Capital Limited. Andrew
is an Executor and Trustee of the Estate
of Steve Rawlings.
Committee membership
n/a
Key strengths
Simon is an experienced company
secretarial and legal professional, having
held a number of such positions in quoted
and private companies, including in the
support services sector.
Experience, skills
and qualifications
Simon was Company Secretary and Head
of Legal at May Gurney Integrated Services
plc between 2009 and 2013. Prior to
joining May Gurney, Simon was Company
Secretary of UBC Media Group plc
between 2000 and 2009. Simon is a
Fellow of the Institute of Chartered
Secretaries and Administrators.
41
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Corporate Governance report
The Governance structure
The Board
Leadership, strategy and development, controls, risk and values
Audit Committee
Nomination Committee
Remuneration Committee
Interim Chairman
Robert Legget
Members
Andrew Harrison
Chairman
Robert Legget
Members
Andrew Harrison
Bob Holt
Chairman
Andrew Harrison
Members
Robert Legget
Key responsibilities
Reviewing and monitoring the integrity
of the Financial Statements.
Ensuring an effective system of internal
controls is maintained.
Monitoring accounting policies.
Key responsibilities
Providing a formal, rigorous and
transparent procedure in respect
of appointments to the Board.
Evaluating the structure, size and
composition of the Board.
Reviewing leadership of the Group and
giving consideration to succession planning.
Key responsibilities
Proposing the overarching principles,
parameters and governance framework
of the Group’s remuneration policy.
Determining the remuneration and
benefits packages of the
Executive Directors.
More information
Audit Committee Report,
pages 49 to 51.
More information
Nomination Committee Report,
pages 47 to 48.
More information
Remuneration Committee Report,
pages 52 to 69.
Executive
Management
Team
Members
• Executive Chairman
• Chief Financial Officer
• Executive Director and Managing Director of Energy Services
• Managing Directors of Property Services, Compliance
Services and Construction
• Company Secretary
• Group Commercial Director
42
Key responsibilities
Assist the Executive Chairman in the performance of his duties,
including development and implementation of the strategic plan.
Deal with all executive business of the Group not specifically
reserved to the Board or its Committees, including operational
management of the business and the implementation of
appropriate systems and controls.
Lakehouse plc Annual Report 2016 The role and structure of the Board
The Board is responsible for leading and controlling the Group
and has overall authority for the management and conduct of
the Group’s business, strategy and development. The Board is
also responsible for ensuring the maintenance of a sound system
of internal controls and risk management (including financial,
operational and compliance controls) and for reviewing the
overall effectiveness of systems in place as well as for the
approval of any changes to the capital, corporate and/or
management structure of the Group.
The Board operates in accordance with the Company’s Articles
of Association and the Board’s written ‘Matters Reserved for the
Board’. The Board has three formally constituted Committees,
the Audit Committee, the Nomination Committee and the
Remuneration Committee, each of which operates with defined
terms of reference. The terms of reference of the three Committees
are available on the Company’s website.
The Matters Reserved for the Board are set out in written terms
of reference and are available on the Company’s website at
www.lakehouse.co.uk/investors/corporate-governance/
board-and-committee-terms-reference.
UK Corporate Governance Code 2014 –
Compliance Statement
In September 2014, the Financial Reporting Council (‘FRC’)
published an edition of the Corporate Governance Code (the
‘Code’) which is applicable for financial years beginning before
17 June 2016. The main principles of the Code provide the
framework for the reporting model which we have used for
the last two years.
Lakehouse plc has applied all the main principles of the Code
for the year to 30 September 2016 and from that date to the
date of the publication of this Annual Report save as noted below:
Code Provision A.2.1
Detail — requires that the roles of Chairman and Chief
Executive should not be exercised by the same individual.
Explanation of non-compliance — in the period to
21July 2016 the Company was compliant with Provision A.2.1
of the Code. Bob Holt was appointed as Executive Chairman
on 21 July 2016 and his appointment was confirmed by
shareholders at a General Meeting of the Company on
9 August 2016. The Board believes that Bob Holt’s expertise
and background in the support services industry, in particular
his knowledge, considerable experience and reputation in the
sector and his track record of turning around under-performing
companies, makes him highly qualified for the position of
Executive Chairman as the Board seeks to restore value
for shareholders.
Code Provision A.3.1
Detail — requires that the Chairman should, on appointment,
meet the independence criteria in provision B.1.1.
Explanation of non-compliance — in the period to
8 March 2016 Stuart Black served as Executive Chairman
and in that period the Company was not compliant with
Provision A.3.1 of the Code. Bob Holt was appointed as
Executive Chairman on 21 July 2016 and his appointment
was confirmed by shareholders at a General Meeting of the
Company on 9 August 2016. The Board has given due and
careful consideration to any potential conflicts of interest that
may arise as a consequence of Bob Holt undertaking the role
whilst retaining his position as Non-Executive Chairman of
Mears Group PLC and his directorship of other companies
listed in the Annual Report. Although the Board recognises
there may be occasions where such conflicts arise the Board
believes that the number and extent of such conflicts is likely
to be minimal as a consequence of there being limited overlap
between the nature of the operations of Mears Group PLC
and other companies listed in the Annual Report of which he
is a director and the operations of Lakehouse. The Board is
satisfied that the existing procedures and processes it has in
place are sufficient to ensure that any such conflicts, should
they arise, are appropriately managed.
Code Provision B.1.2
Detail — requires that a smaller company should have at least
two independent non-executive directors.
Explanation of non-compliance — in the year to
30 September 2016 and in the period to 30 November 2016
the Company was compliant with Provision B.1.2 of the Code.
As at the date of publication of the Annual Report the Board
includes two Non-Executive Directors. The Non-Executive
Director Andrew Harrison is an Executor and Trustee of the
Estate of Steve Rawlings. Andrew Harrison is Chairman of
the Remuneration Committee and a member of the Audit and
Nomination Committee. It is the intention of the Board to seek
to appoint an additional Non-Executive Director to the Board
in due course.
Code Provisions B.6.1 and B.7.2
Detail — the Board did not undertake an annual evaluation
of its own performance and that of its Committees and
individual Directors.
Explanation of non-compliance — in view of the changes
that occurred in the year in the composition and membership
of the Board it was agreed to defer a planned internal evaluation
by the Board of its own performance. During the coming year
it is intended that an internal performance evaluation will
be undertaken.
43
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Corporate Governance report
The Board currently consists of three Executive Directors, including
the Executive Chairman and two Non-Executive Directors.
The Board meets formally at least 10 times a year, with additional
ad-hoc meetings called as and when circumstances require.
There is an annual calendar of agenda items to ensure that all
matters are given due consideration and are reviewed at the
appropriate point in the financial calendar.
In the year to 30 September 2016 there were 11 scheduled
Board meetings and a significant number of ad-hoc meetings.
There were also a number of meetings of Board Committees.
The table below shows the Directors’ attendance in the year at
scheduled Board and Committee meetings they were eligible
to attend:
Director
Executive Directors
Bob Holt1
Jeremy Simpson
Michael McMahon
Stuart Black²
Sean Birrane³
Board
scheduled
meetings
2/2
11/11
10/11
7/7
5/5
Non-Executive Directors
Robert Legget4
Andrew Harrison5
Ric Piper6
Steve Rawlings7
Chris Geoghegan8
Jill Ainscough9
Johnathan Ford10
6/6
2/2
6/6
3/4
5/5
8/9
7/8
Audit
Remuneration Nomination
—
—
—
—
—
2/2
1/1
—
0/1
1/1
1/2
2/2
—
—
—
—
—
4/4
2/2
—
1/2
3/3
5/5
4/5
—
—
—
—
—
1/1
—
1/1
0/1
—
1/1
1/1
Notes
1. Bob Holt was appointed as a Director on 21 July 2016.
2. Stuart Black resigned as a Director on 21 April 2016.
3. Sean Birrane resigned as a Director on 8 March 2016.
4. Robert Legget was appointed as a Director on 18 April 2016.
5.
Andrew Harrison was appointed as an Alternate Director on 3 June 2016 and appointed
as a Director on 26 July 2016.
6. Ric Piper was appointed as a Director on 18 April 2016, resigned 30 November 2016.
Steve Rawlings was appointed as a Director on 18 April 2016, Mr Rawlings died
7.
on 23 July 2016.
8. Chris Geoghegan resigned as a Director on 18 April 2016.
9. Jill Ainscough resigned as a Director on 4 July 2016.
10. Johnathan Ford resigned as a Director on 20 June 2016.
All Directors are expected to attend all meetings of the Board
and any Committees of which they are a member and are expected
to devote sufficient time to the Company’s affairs to fulfil their
duties as Directors.
Key Board roles and responsibilities
Whilst the Code recommends that the role of Chairman and
Chief Executive should not be performed by the same individual,
the Board believes that Bob Holt’s expertise and background
in the support services industry, in particular his knowledge,
considerable experience and reputation in the sector and his
track record of turning around under-performing companies
is of considerable benefit to the Group and makes him highly
qualified for the position of Executive Chairman as the Board
seeks to restore value for shareholders.
Senior Independent Director
The Code recommends that the Board of Directors of a
company with a premium listing on the Official List should
appoint one of the Non-Executive Directors to be the Senior
Independent Director to act as a sounding board for the
Chairman and to support him in the delivery of his objectives.
The Senior Independent Director is also responsible for leading
the Non-Executive Directors in monitoring and evaluating the
performance of the Executive Chairman, leading on Corporate
Governance issues and being available to shareholders if they
have any concerns which contact through the normal channels
of the Chairman or the Chief Financial Officer has failed to
resolve or for which such communication is inappropriate.
Robert Legget has been appointed as the Company’s Senior
Independent Non-Executive Director.
Audit Committee
The Audit Committee is comprised of the Non-Executive
Directors. The Interim Chairman of the Audit Committee is
Robert Legget, who was appointed on 20 June 2016.
The main roles and responsibilities of the Audit Committee are
set out in written terms of reference and are available on the
Company’s website at www.lakehouse.co.uk/investors/
corporate-governance/board-and-committee-
terms-reference.
Details of the Audit Committee’s activities can be found in the
Audit Committee Report on pages 49 to 51.
The Remuneration Committee
The Remuneration Committee is comprised of the Non-Executive
Directors. The Chairman of the Remuneration Committee is
Andrew Harrison, who was appointed on 1 August 2016.
The main roles and responsibilities of the Remuneration Committee
are set out in written terms of reference and are available
on the Company’s website at www.lakehouse.co.uk/
investors/corporate-governance/board-and-committee-
terms-reference.
Details of the Remuneration Committee’s activities can be found
in the Remuneration Committee Report on pages 52 to 69.
44
Lakehouse plc Annual Report 2016 The Nomination Committee
The Nomination Committee is comprised of the Non-Executive
Directors and the Executive Chairman. The Nomination Committee
Chairman is Robert Legget, who was appointed on 22 July 2016.
The main roles and responsibilities of the Nomination Committee
are set out in written terms of reference and are available
on the Company’s website at www.lakehouse.co.uk/
investors/corporate-governance/board-and-committee-
terms-reference.
Details of the Nomination Committee’s activities can be found
in the Nomination Committee Report on pages 47 to 48.
Balance and independence
In accordance with the main principle B.1 of the Code, the Board
and its Committees have an appropriate balance of skills, experience
and knowledge of the Group to enable them to discharge their
respective duties and responsibilities effectively. The size and
composition of the Company’s Board is kept under review by the
Nomination Committee and the Board to ensure an appropriate
balance of skills and experience is maintained.
The Code recommends, in the case of a FTSE 350 company, that
at least half the board of directors (excluding the Chairman) should
comprise ‘independent’ non-executive directors. Where a company
is outside the FTSE 350, the Code recommends that the Board
of Directors comprise at least two ‘independent’ Non-Executive
Directors. The Board comprises three Executive Directors, including
the Executive Chairman and two Non-Executive Directors. The
two Non-Executive Directors comprise Robert Legget, Senior
Independent Director, and Andrew Harrison. The Non-Executive
Director Andrew Harrison is an Executor and Trustee of the Estate
of Steve Rawlings. It is the intention of the Board to seek to
appoint an additional Non-Executive Director in due course.
Bob Holt was appointed as Executive Chairman on 21 July 2016
and his appointment was confirmed by shareholders at a General
Meeting of the Company on 9 August 2016. The Board has given
due and careful consideration to any potential conflict of interest
that may arise as a consequence of Bob Holt undertaking the
role whilst retaining his position as Non-Executive Chairman
of Mears Group PLC and his directorships of other companies
listed in the Annual Report. Although the Board recognises
there may be occasions where such conflicts arise the Board
believes that the number and extent of such conflicts is likely
to be minimal as a consequence of there being limited overlap
between the nature of the operations of Mears Group PLC and
other companies of which he is a director and the operations of
Lakehouse. The Board is satisfied that the existing procedures
and processes it has in place are sufficient to ensure that any
such conflicts, should they arise, are appropriately managed.
Commitment
The terms of appointment of the Non-Executive Directors
specify the amount of time they are expected to devote to the
Company’s business. They are currently expected to commit to
a minimum of two days per month, which is calculated based on
the time required to prepare for and attend Board and Committee
meetings and additional duties such as attendance at the AGM
and meetings with shareholders.
Length of appointment
Non-Executive Directors are appointed for terms of three years,
which may be renewed, subject to the particular Director being
re-elected by shareholders, for up to a normal maximum of
three terms (nine years).
Conflicts of interest
The Company’s Articles of Association set out the policy for
dealing with Directors’ conflicts of interest and are in line with
the Companies Act 2006. The Board has a formal system in
place for Directors to declare conflicts of interest and for such
conflicts to be considered for authorisation.
Training and development
Upon their appointment all Directors received an induction
programme arranged by the Company Secretary, including
meetings with key members of senior management in order
to familiarise themselves with the Group.
Information and support
To enable the Board to function effectively and to assist the
Directors in discharging their responsibilities, full and timely
access is given to all relevant information to the Board. In the
case of Board meetings this consists of a formal agenda and
a comprehensive set of papers, including regular business
progress reports. An established procedure is in place to ensure
that such information is provided to Directors in a timely manner
in advance of meetings. Specific business-related presentations
are given by senior management when appropriate.
The Company Secretary works closely with the Chairman and
the chairmen of the Board Committees to ensure that Board
procedures, including setting agendas and the timely distribution
of papers, are complied with and that there are good communication
flows between the Board and its Committees, and between
senior management and Non-Executive Directors. The Company
Secretary is also available to all Directors to provide advice and
support, including facilitating induction programmes. All Directors
are able to take independent professional advice at the Company’s
expense in the furtherance of their duties where
considered necessary.
45
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Corporate Governance report
Re-election of Directors
In accordance with the UK Corporate Governance Code, all
the Directors will stand for re-election at the Annual General
Meeting on 31 March 2017. The Board recommends that all
the Directors be re-elected.
Whistleblowing
The Company has established procedures by which employees
may, in confidence, raise concerns relating to some danger,
fraud, or other illegal or unethical conduct in the workplace.
The whistleblowing policy applies to all employees of the
Group, and also consultants, casual workers and agency
workers. The Audit Committee is responsible for monitoring
the Group’s whistleblowing arrangements and the policy is
reviewed periodically by the Board.
Dialogue with shareholders
In the year to 30 September 2016 the Executive Directors and
members of the Board have met and had dialogue with a large
number of shareholders and investors.
The Company aims to maintain an active dialogue with key
stakeholders, including institutional investors, to discuss issues
relating to the performance of the Group, including strategy and
new developments. As indicated above, the Senior Independent
Director is available to discuss any matter shareholders might
wish to raise and attends meetings with investors as required.
The Company’s website includes a specific investor relations
section containing all RNS announcements, share price
information, annual documents available for download and
similar materials.
Constructive use of the Annual General Meeting
The Company’s Annual General Meeting will take place on
31 March 2017 at the offices of Eversheds LLP, 1 Wood Street,
London EC2V 7WS. A separate notice convening the Annual
General Meeting is being sent out with this Report and financial
statements. Separate votes are held for each proposed resolution.
At the Annual General Meeting, after the formal business has
been concluded, the Chairman will welcome questions from
shareholders. All Directors attend the meeting, at which they
have the opportunity to meet with shareholders. Details of the
resolutions to be proposed at the Annual General Meeting on
31 March 2017 and an explanation of the items of special
business can be found in the circular that contains the notice
convening the Annual General Meeting.
Approved by order of the Board
Bob Holt
Executive Chairman
23 January 2017
46
Lakehouse plc Annual Report 2016 Corporate Governance report
Nomination Committee report
Robert Legget
Chairman of the Nomination Committee
Dear Shareholder,
On behalf of the Board it is my pleasure to present
the Nomination Committee Report for the year to
30 September 2016, having been appointed as
Chairman of the Nomination Committee on 22 July 2016.
Key responsibilities
The key responsibilities of the Nomination Committee are to:
• Review the structure, size and composition of the Board,
including the skills, knowledge, experience and diversity
of Directors
• Give full consideration to succession planning for Directors
and other senior executives
• Keep under review the leadership needs of the organisation
•
Identify and nominate for the approval of the Board
candidates to fill Board vacancies
The terms of reference of the Nomination Committee are available
to view at www.lakehouse.co.uk/investors/corporate-
governance/board-and-committee-terms-reference.
Membership of the Nomination Committee
and attendance during the year
The Nomination Committee comprises the Non-Executive Directors
of the Company and the Executive Chairman. Robert Legget,
Andrew Harrison and Bob Holt are the current members of
the Committee.
The other members of the Committee who served during the
year were Ric Piper (who served as the Chairman of the
Nomination Committee from 19 April 2016 to 22 July 2016),
Chris Geoghegan (who served as the Chairman of the
Committee to 19 April 2016), Jill Ainscough, Stuart Black,
Johnathan Ford and Steve Rawlings.
On 8 March 2016 the Company announced the resignation
of Sean Birrane as Chief Executive Officer and as a Director
of the Company with effect from 14 March 2016. Stuart Black
moved from his role as Executive Chairman to become
Chief Executive Officer and Chris Geoghegan, the Senior
Independent Non-Executive Director became Non-Executive
Chairman of the Company. On 9 March 2016 the Company
announced it had received a notice from shareholders representing
more than 5% of the share capital of the Company requisitioning
a general meeting and proposing resolutions that the three current
Non-Executive Directors of the Company be removed to be
replaced by Steve Rawlings, Ric Piper and Robert Legget.
On 18 April 2016 Chris Geoghegan resigned from the Board with
immediate effect and Steve Rawlings, Ric Piper and Robert Legget
were appointed to the Board as Non-Executive Directors, Ric
Piper was appointed as Chairman and Robert Legget as Senior
Independent Director. Stuart Black resigned as Chief Executive
Officer on 21 April 2016.
Steve Rawlings appointed Andrew Harrison as his Alternate
Director on 3 June 2016.
On 20 June 2016 Johnathan Ford resigned as a Non-Executive
Director and on 4 July 2016 Jill Ainscough announced her
resignation from the Board with immediate effect.
The Company announced the appointment on 21 July 2016
of Bob Holt as Executive Chairman of the Company and that
Ric Piper would step down as Non-Executive Chairman but
would remain as a Non-Executive Director of the Company.
Bob Holt’s appointment as Executive Chairman was approved
by shareholders at a general meeting of the Company on
9 August 2016.
The Non-Executive Director of the Company, Steve Rawlings,
died on 23 July 2016. On 26 July 2016 the Company announced
the appointment of Andrew Harrison as a Non-Executive Director
of the Company.
47
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Corporate Governance report
Nomination Committee report continued
Attendance table
Robert Legget, Chairman1
Ric Piper2
Steve Rawlings3
Johnathan Ford4
Jill Ainscough5
Chris Geoghegan6
Stuart Black7
Bob Holt8
Andrew Harrison9
Committee
meetings
attended
Committee
meetings
eligible to
attend
1
1
0
1
1
0
0
0
0
1
1
1
1
1
0
0
0
0
Action plan for 2016/17
During the year the Board gave consideration to the induction
programme for new Directors. In view of the changes to the
composition and membership of the Board that occurred in the
year the decision was taken to defer a planned Board performance
evaluation. In accordance with the UK Corporate Governance
Code, it is intended the Board will undertake such a performance
review in 2017.
In order to maintain an appropriate balance of Executive and
Non-Executive Directors, Directors will seek to strengthen the
Board with the appointment of an additional Non-Executive
Director in due course.
Approved on behalf of the Board by:
Robert Legget
Chairman of the Nomination Committee
23 January 2017
1.
2.
3.
Robert Legget was appointed as a member of the Nomination Committee on 19 April 2016
and as Chairman of the Nomination Committee on 22 July 2016.
Ric Piper was appointed as Chairman of the Nomination Committee on 19 April 2016 and
resigned from the Nomination Committee on 22 July 2016.
Steve Rawlings was appointed as a member of the Nomination Committee on 19 April
2016. Mr Rawlings died on 23 July 2016.
Johnathan Ford resigned as a member of the Nomination Committee on 20 June 2016.
4.
5. Jill Ainscough resigned as a member of the Nomination Committee on 4 July 2016.
6.
Chris Geoghegan resigned as Chairman and as a member of the Nomination Committee on
18 April 2016.
7. Stuart Black resigned as a member of the Nomination Committee on 20 April 2016.
8. Bob Holt was appointed as a member of the Nomination Committee on 22 July 2016.
9. Andrew Harrison was appointed as a member of the Nomination Committee on 26 July 2016.
The Board acknowledges that diversity extends beyond the
boardroom and supports the management efforts to build a
diverse organisation. The Board believes in promoting diversity
at all levels of the organisation. 20.7% of Lakehouse employees
are women. At present 20.7% of our senior management team
are female. When considering the optimum composition of the
Board, it is believed all appointments should be made on merit,
whilst ensuring an appropriate balance of skills and experience
within the Board.
48
Lakehouse plc Annual Report 2016 Corporate Governance report
Audit Committee report
Robert Legget
Interim Chairman of the Audit Committee
Dear Shareholder,
It is my pleasure to present the Audit Committee
Report for the year ended 30 September 2016.
I was appointed as Interim Chairman of the
Audit Committee on 20 June 2016, succeeding
Johnathan Ford as Audit Committee Chairman.
Committee meetings
The Committee met three times during the year. The meetings
are attended by Committee members and, by invitation, the
Chief Financial Officer, senior management and representatives
from the external and internal auditors. Once a year, the Committee
meets separately with the external auditor without management
being present.
Roles and responsibilities
The primary function of the Audit Committee is to assist the
Board in discharging its responsibilities with regard to financial
reporting and the external and internal controls, including:
• Reviewing and monitoring the integrity of the Group’s annual
and interim financial statements, and accompanying reports
to shareholders and Corporate Governance statements
• Reporting to the Board on the appropriateness of the
accounting policies and practices
•
In conjunction with the Board, reviewing and monitoring
the effectiveness of the Group’s internal control and risk
management systems, including reviewing the process for
identifying, assessing and reporting all key risks (see the
Principal Risks and Uncertainties Review on pages 30 to 33)
• Reviewing the effectiveness of the Group’s internal audit
process and approving the forward audit plan
• To make recommendations to the Board in relation to the
appointment and removal of the external auditor and to
approve their remuneration and terms of engagement
• To review and monitor the external auditor’s independence,
objectivity and the effectiveness of the audit process,
taking into consideration relevant UK professional and
regulatory requirements
• Reviewing and monitoring the extent of the non-audit work
undertaken by the Group’s external auditor, taking into account
relevant professional and regulatory requirements
• Reviewing the adequacy and effectiveness of the
whistleblowing and anti-bribery policy and procedures
The Committee’s terms of reference are available to view at
www.lakehouse.co.uk/investors/corporate-governance/
board-and-committee-terms-reference.
The Committee is comprised of financially literate members with
the requisite ability and experience to enable the Committee to
discharge its responsibilities. Robert Legget and Andrew Harrison
are the current members of the Committee. The Chairman of the
Audit Committee, Robert Legget, is a member of the Institute
of Chartered Accountants of Scotland. Johnathan Ford (who
served as Chairman of the Audit Committee to 20 June 2016)
also had recent relevant financial experience. The other members
of the Committee who served during the year were Steve Rawlings,
Chris Geoghegan and Jill Ainscough.
Activities of the Committee
During the course of the year the Committee undertook the following:
• Reviewed and discussed with the external auditor the key
accounting considerations and judgements reflected in the
Group’s results for the six-month period ended 31 March 2016
• Reviewed and agreed the external auditor’s audit plan in
advance of their audit for the year ended 30 September 2016
• Discussed the report received from the external auditor regarding
their audit in respect of the year ended 30 September 2016,
which includes comments on their findings on internal control
and a statement on their independence and objectivity
• Received the reports from the internal auditor covering various
aspects of the Group’s operations, controls and procedures
and agreed actions for management to take to address
any findings
• Commissioned and received a report from the internal
auditor covering improving the Group’s planning and
forecasting capabilities
• Reviewed and approved the non-audit assignments
undertaken by the external auditor in the year to
30 September 2016
• Reviewed, together with the Board, the Principal Risks
and Uncertainties Review
49
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Corporate Governance report
Audit Committee report continued
Significant accounting matters
The significant issues and accounting judgements considered
by the Committee and discussed with the external auditor
during the year were:
• Revenue recognition, specifically the timing of when to recognise
revenue, given both the length of contracts and any future
contractual obligations
• Accounting for contract work in progress, which is linked to
the judgements taken around revenue recognition on contracts
• The fair value accounting treatment of acquisitions, specifically
focused on the valuation of identified intangible assets and
the valuation of contingent consideration of previously
acquired entities
• The external auditor may also provide tax advisory services in
respect of acquisitions, given its knowledge of the Group’s
activities in the year to 30 September 2016. Such non-audit
services are however assessed on a case-by-case basis to
ensure the best placed adviser is retained. The Audit Committee
monitors the application of the Group’s policy in this regard
and keeps the policy under review
• The Audit Committee reviews all fees paid for the audit and
all non-audit fees with a view to assessing the reasonableness
of fees, and any independence issues that may have arisen
or may potentially arise in the future. From 1 October 2016
the external auditor provided no further tax advisory services
in line with the requirements of the new Ethical Standards for
public interest entities
• Consideration of the impairment of goodwill, other
intangibles and investment balances
• Contract disputes and the provisions taken against receivables
in a small number of contractual settlements on which there
are a range of possible outcomes for the Group in terms of
both cash flow and the impact on the income statement
•
Impairment of goodwill and intangible assets, and in particular
the impairment assessment of the goodwill attributable to the
Foster acquisition and Providor and the Provider customer
intangible asset
• The calculation and disclosure of Exceptional and Other Items,
which include exceptional costs that are not expected to
recur; the valuation and completeness of material liabilities
and losses from activities from which the Company is exiting
The Committee is satisfied that the judgements made are
reasonable and appropriate disclosures have been included
in the accounts.
External auditor
The Group’s external auditor is Deloitte LLP. Deloitte was
first appointed as auditor to Lakehouse Holdings Limited
in 2014 following an external audit tender and subsequently
to Lakehouse plc in March 2015. Deloitte is subject to annual
reappointment by shareholders.
The Board is very aware that the effectiveness and independence
of the external auditor is central to ensuring the integrity of the
Group’s published financial information. During the year the
Audit Committee took the following steps to ensure that auditor
independence was not compromised:
• The Committee annually reviews the Company’s relationship
with its auditor and assesses the level of controls and
procedures in place to ensure the required level of independence
and that the Company has an objective and professional
relationship with Deloitte
• The external auditor’s report to the Directors and the Audit
Committee confirming their independence in accordance
with Auditing Standards. In addition, the Auditing Practices
Board Ethical Standard 3 requires audit partner rotation
every five years for listed companies. The current audit
partner (Paul Schofield) was appointed for the year ended
30 September 2014
•
In order to meet the requirements set by the UK Corporate
Governance Code, the Competition and Markets Authority
and the European Commission the Company will hold an
audit tender at the latest after the current external auditor
has been in place for a period of 10 years
Non-audit services
The Audit Committee has adopted a formal policy Governing
the engagement of the auditor to provide non-audit services.
This policy describes the circumstances in which the auditor
may be engaged to undertake non-audit work for the Group.
The Committee recognises that the auditor may be best placed
to undertake certain non-audit work and engagements for non-audit
services that are not prohibited. These are subject to formal
review by the Audit Committee based on the level of fees involved.
Following the adoption by the UK Financial Reporting Council of
certain parts of the EU Regulation and Directive on Audit Reform
that governs permissible non-audit services provided by the
auditor, the external auditor may not be in a position to provide
such non-audit work in future.
In the year to 30 September 2016, audit fees totalled £324,000
and non-audit fees totalled £70,000. Non-audit fees represented
18% of the total fees paid to the external audit of £394,000.
Non-audit fees in the year to 30 September 2016 are detailed
in the following table:
Nature of service
Audit-related assurance services (including interim
profits verification)
Tax compliance and advice
Total non-audit services
£’000
22
48
70
50
Lakehouse plc Annual Report 2016 Membership of the Audit Committee
The Audit Committee comprises the Non-Executive Directors of
the Company. The Audit Committee is chaired by Robert Legget,
who has recent and relevant financial experience. He is a
member of the Institute of Chartered Accountants of Scotland.
Johnathan Ford, who served as Chairman of the Audit Committee
to 20 June 2016, also had recent and relevant financial experience.
Attendance table
Robert Legget1
Andrew Harrison2
Steve Rawlings3
Johnathan Ford4
Chris Geoghegan5
Jill Ainscough6
Committee
meetings
attended
Committee
meetings
eligible to
attend
2
1
0
2
1
1
2
1
1
2
1
2
1.
Robert Legget was appointed as a member of the Audit Committee on 18 April 2016 and
appointed as Interim Chairman of the Audit Committee on 20 June 2016.
2. Andrew Harrison was appointed as a member of the Audit Committee on 26 July 2016.
3.
4.
Steve Rawlings was appointed as a member of the Audit Committee on 18 April 2016.
Mr Rawlings died on 23 July 2016.
Johnathan Ford resigned as Chairman of the Audit Committee and a member of the
Committee on 20 June 2016.
5. Chris Geoghegan resigned as a member of the Audit Committee on 18 April 2016.
6. Jill Ainscough resigned as a member of the Audit Committee on 4 July 2016.
Following the year end, the Committee has met to approve the
Group’s Annual Report and Financial Statements.
Robert Legget
Interim Chairman of the Audit Committee
23 January 2017
Risk management and internal controls
The Audit Committee is responsible for monitoring the financial
reporting process and for reviewing the effectiveness of the Group’s
system of internal controls. The system of internal controls is
designed to manage, rather than eliminate, the risk of failure
to achieve business objectives and the Board can only
provide reasonable and not absolute assurance against
material misstatement or loss. The Board has established a
clear organisational structure with defined authority levels. The
day-to-day running of the Group’s business is delegated to the
Executive Directors of the Group, who meet with both operational
and finance management in each business area on a monthly
basis. Key financial and operational measurements are reported
on a monthly basis and are measured against both budget
and reforecasts.
The Group maintains a Group risk register and risk registers for
each business within the Group which outline the key risks faced
by the Group, including their impact and likelihood and relevant
mitigation controls and actions. The Group and business
risk registers are reviewed and updated by management on
a semi-annual basis to ensure the key strategic, operational,
financial and accounting risks are captured and prioritised and
to identify the risk management activities for each risk. The risk
registers for each business area are used to update the Group
risk register and a summary of the key risks are presented to the
Audit Committee semi-annually.
The risks and uncertainties which are judged currently to have
the most significant impact on the Group’s long term performance
and prospects are set out on pages 30 to 33.
Internal audit
Internal audit plays an important role in assessing the
effectiveness of internal controls by a programme of reviews
of key business risks across the Group. RSM acts as internal
auditor to the Company. Internal audit are in regular dialogue
with the Chief Financial Officer and Group Financial Controller.
Where control deficiencies are noted, the internal auditor will
perform follow-up reviews.
During the year the Audit Committee approved an internal audit
plan for 2016 and met regularly with RSM to review and progress
the Group’s internal audit plan. The Audit Committee will continue
to monitor the effectiveness of internal audit plans in accordance
with the Group’s ongoing requirements.
51
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Directors’ remuneration report
Remuneration Committee Chairman’s annual statement
• Be straightforward and transparent and support the delivery
of strategic objectives
• Be consistent with the Group’s risk policies and systems
to guard against inappropriate risk taking
Review of 2016
Lakehouse had a disappointing year and significantly under-performed
against market expectations. This led to Board changes, which
have been well publicised. As a consequence, termination
payments were paid to Stuart Black and Sean Birrane, a new
non-executive team was appointed and Bob Holt was
appointed as Executive Chairman in July 2016.
The Board recommended (and the shareholders approved) a
remuneration package for Bob Holt. A Special Incentive Award
Plan, which rewards Bob Holt if the share price rises over the
next two years, was approved by shareholders at a General
Meeting on 9 August 2016.
In addition, the shareholders approved a change to the Directors’
Remuneration Policy.
Outlook for 2017
For the current financial year to 30 September 2017 the
Remuneration Committee is proposing the following elements
for the remuneration of Executive Directors:
• No increase in annual salary is being awarded to the Executive
Directors in their current roles for the new financial year.
There has been no base salary increase for the wider
employee population either
• The annual bonus potential for Executive Directors remains
unchanged. They may earn up to a maximum of 100% of base
salary dependent on key financial performance indicators. These
are clear financial targets based on the achievement of adjusted
profit and return of capital measures. The Committee is satisfied
that these are challenging and, in order for the maximum bonus
to be earned, will demonstrate significant improvement in the
profit performance of the business
•
It is intended that PSP awards in 2016/17 will be made on a
similar basis to the 2015/16 awards, with Michael McMahon
and Jeremy Simpson receiving the equivalent of 100% of
their salary
Approved on behalf of the Board by:
Andrew Harrison
Chairman of the Remuneration Committee
23 January 2017
Andrew Harrison
Chairman of the Remuneration Committee
Dear Shareholder,
This is the Directors’ Remuneration Report for the
year to 30 September 2016, which I make having
been appointed as Chairman of the Remuneration
Committee on 1 August 2016.
The report is in two sections: the Annual Report on Remuneration
and the Directors’ Remuneration Policy Report.
The Annual Report on Remuneration on pages 53 to 60
provides details of each Director’s pay and benefits in the year
to 30 September 2016 and how the Directors’ Remuneration
Policy will apply for the year commencing 1 October 2016. The
Annual Report on Remuneration will be subject to a non-binding
vote at the next Annual General Meeting due to be held on
31 March 2017.
The Directors’ Remuneration Policy Report on pages 61 to 69 sets
out the pay and benefits policy that was approved by shareholders
at a general meeting held on 9 August 2016. We do not propose
to change it for 2017. Accordingly, shareholders will not be
asked to vote on the policy at the Annual General Meeting.
Objectives of the remuneration policy
The Remuneration Committee tries to ensure that a Director’s
remuneration encourages, reinforces and rewards the growth
of shareholder value and promotes the long term success of the
Company. The Directors’ Remuneration Policy for Executive Directors
is intended to support the business needs of the Company and
to ensure it has the ability to attract, motivate and retain senior
leaders of a high calibre, remains competitive and provides
appropriate incentive for good performance. The Executive
Directors’ remuneration should also:
• Align executives with the best interests of the Company’s
shareholders and other relevant stakeholders through a
significant weighting on performance-related pay
• Be consistent with regulatory and Corporate
Governance requirements
52
Lakehouse plc Annual Report 2016 Directors’ remuneration report
Annual report on remuneration
Certain details set out on pages 53 to 60 of this report have been audited by Deloitte LLP.
This section of the Directors’ Remuneration Report sets out details of the remuneration the Executive and Non-Executive Directors
received during the financial year ended 30 September 2016 and details of how we intend to implement the remuneration policy in
the forthcoming year. The Annual Report on Remuneration will, together with the annual statement of the Chairman of the Remuneration
Committee on page 52, be proposed for a single advisory vote by shareholders at the forthcoming Annual General Meeting to be
held on 31 March 2017.
Single total figures of remuneration (audited information)
The tables below report the total remuneration received in respect of qualifying services by each Director during the year.
Pensions
related
benefits
£’000
Total salary
and fees 1
£’000
Taxable
benefits 2
£’000
Annual
bonus 3
£’000
Incentive 4
£’000
Long Term
2016
Executive Directors
Bob Holt5
Jeremy Simpson
Michael McMahon
Stuart Black6
Sean Birrane7
Non-Executive Directors
Robert Legget8
Andrew Harrison9
Ric Piper10
Steve Rawlings11
Chris Geoghegan12
Jill Ainscough13
Johnathan Ford14
13
260
200
158
150
23
8
125
11
43
37
37
—
16
19
12
16
—
—
—
—
—
—
—
—
nil
nil
nil
nil
—
—
—
—
—
—
—
—
n/a
n/a
n/a
n/a
—
—
—
—
—
—
—
—
47
30
33
40
—
—
—
—
—
—
—
Total
£’000
13
323
249
203
206
23
8
125
11
43
37
37
Notes:
1. Total salary and fees — the amount of salary/fees received in the year.
2. Taxable benefits — the taxable value of benefits received in the year (i.e. car allowance and private medical insurance).
3. Annual bonus — the cash value of the bonus earned in respect of the year. A description of performance against the objectives which applied for the year are set out on page 55.
4. Long Term Incentive — There were no long term incentive awards with performance periods vesting in the respective years.
5. Bob Holt was appointed to the Board as Executive Chairman on 21 July 2016.
6.
Stuart Black served as Executive Chairman to 8 March 2016 and as Chief Executive Officer from 8 March 2016 to 21 April 2016. Stuart Black resigned as a Director on 21 April 2016.
7. Sean Birrane served as Chief Executive Officer to 8 March 2016. Sean Birrane resigned as a Director on 14 March 2016.
8. Robert Legget was appointed as a Director on 18 April 2016.
9. Andrew Harrison was appointed as an Alternate Director 3 June 2016 and appointed as a Director 26 July 2016.
10. Ric Piper was appointed as a Director on 18 April 2016 and resigned as a Director on 30 November 2016. Ric Piper served as Non-Executive Chairman from 18 April 2016 to 21 July 2016.
11. Steve Rawlings was appointed as a Director on 18 April 2016. Mr Rawlings died 23 July 2016.
12. Chris Geoghegan was Senior Non-Executive Director of the Company to 8 March 2016 and served as Non-Executive Chairman from 8 March 2016 to 18 April 2016. Chris Geoghegan
resigned as a Director on 18 April 2016.
13. Jill Ainscough resigned as a Director on 4 July 2016.
14. Johnathan Ford resigned as a Director on 20 June 2016.
53
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Directors’ remuneration report
Annual report on remuneration continued
Single total figures of remuneration (audited information) continued
2015
Executive Directors
Bob Holt
Jeremy Simpson
Michael McMahon
Stuart Black
Sean Birrane
Non-Executive Directors
Robert Legget
Andrew Harrison
Ric Piper
Steve Rawlings
Chris Geoghegan
Jill Ainscough
Johnathan Ford
Total salary
and fees 1
£’000
Taxable
benefits 2
£’000
Annual
bonus 3
£’000
Long Term
Incentive 4
£’000
—
218
177
250
246
—
—
—
—
25
25
25
—
14
8
8
20
—
—
—
—
—
—
—
—
245
nil
nil
25
—
—
—
—
—
—
—
—
n/a
n/a
n/a
n/a
—
—
—
—
—
—
—
Pensions
related
benefits
£’000
—
24
29
17
25
—
—
—
—
—
—
—
Total
£’000
—
501
214
275
316
—
—
—
—
25
25
25
Payments for loss of office
Sean Birrane ceased to be a Director of the Company on 14 March 2016. After ceasing to be a Director but while remaining an employee
of the Company between 14 March and 4 September 2016, Sean Birrane received remuneration payments of £161,706 in accordance
with his service agreement dated 18 March 2015. These payments comprised salary and car allowance. The Company made a
termination payment to Sean Birrane of £163,432. This comprised a lump sum payment in lieu of notice in accordance with the
terms of his service agreement.
Stuart Black ceased to be a Director of the Company on 21 April 2016 after giving notice of his resignation. After ceasing to be
a Director but while remaining an employee of the Company in the period to 30 June 2016, Stuart Black received remuneration
payments of £80,208 in accordance with his service agreement dated 8 March 2016. These payments comprised salary, cash
payment in lieu of pension contributions and car allowance. The Company agreed to make Stuart Black a termination payment
of £236,914. This comprised a payment in lieu of six months’ notice calculated in accordance with the terms of Stuart Black’s
service agreement dated 8 March 2016. This payment was payable in two tranches in July and October 2016.
Non-Executive Directors who departed during the year were paid fees up to the date of cessation and received a payment of
one month notice in accordance with the terms of their service agreement.
Total salaries and fees
For the year ended 30 September 2016 (audited information)
Bob Holt is engaged by the Company to act as Executive Chairman and was paid full time for a period of one month from 22 July
to 21 August 2016 and thereafter was paid for three days service a week on the basis of an annual salary of £75,000. In addition
Bob Holt is available to provide consultancy services to the Company and other Group companies on the basis of a daily fee for
such consultancy services at £1,595 plus VAT. Such services are provided for two days per week over 47 weeks at a total cost
of £150,000 p.a. resulting in a consultancy fee of £25,000 for the 2016 financial year.
Stuart Black was engaged by the Company to act as Executive Chairman for three days a week from 1 October 2015 to 8 March 2016
and from 8 March 2016 to 21 April 2016 as Chief Executive Officer.
The fees paid to Chris Geoghegan in the year to 30 September 2016 reflect the additional role undertaken in the period as
Non-Executive Chairman from 8 March 2016 to 18 April 2016.
The fees paid to Ric Piper in the year to 30 September 2016 reflect the additional role undertaken in the period as
Non-Executive Chairman from 18 April 2016 to 21 July 2016. Ric Piper continued to be paid at the rate of £100,000 p.a.
in the period from 21 July 2016 to 30 November 2016.
For the year ended 30 September 2017 (unaudited information)
It is intended there will be no increase in Executive Director salaries awarded for 2016/17 for their current roles. This is in line with
no increase in base salary for the wider employee population. The fees for Non-Executive Directors for their current roles are expected
to remain at the same level as 2015/16.
54
Lakehouse plc Annual Report 2016
Annual bonus
For the year ended 30 September 2016 (audited information)
An annual bonus plan operated for the financial year to 30 September 2016 which was based on EBITA targets (representing 80% of
the maximum opportunity) and individual objectives (representing 20% of the maximum opportunity). No bonuses became payable
in respect of the 2015/16 financial year.
For the year ended 30 September 2017 (unaudited information)
The Committee has agreed that the metrics used to determine the annual bonus for 2016/17 remain unchanged and the maximum
bonus opportunity will remain at 100% of base salary. The bonus will be subject to stretching targets. The Committee believes that
the targets for the financial measures for the forthcoming financial year are commercially sensitive and that to disclose them may
damage the Company’s competitive position. Targets will be published retrospectively in next year’s Directors’ Remuneration Report
or at such point that the Remuneration Committee considers that the performance targets are no longer commercially sensitive.
Long term incentive vesting (audited information)
There were no long term incentive awards capable of vesting in 2015/16.
Long term incentive awards granted in 2015/16 (audited information)
Special Incentive Award Plan (‘SIAP’) approved by shareholders at a General Meeting held on 9 August 2016
The performance measures and targets for the SIAP award granted in the year ended 30 September 2016 are as follows:
Shares
awarded
Performance
metrics
Bob Holt
2,307,6921 The performance condition is measured over a performance period
beginning on the date on which Bob Holt is appointed as Executive
Chairman of the Company and ending on the earlier of 31 January 2019
or the date of announcement of the results for the financial year ending
30 September 2018.
Performance is based on absolute total shareholder return (‘Absolute
TSR’) (calculated as the aggregate of the share price on the last dealing
day of the performance period plus the value of any dividends paid
during the two consecutive financial years of the Company commencing
on 1 October 2016). The same performance target shall apply to all
awards made under the SIAP. The multiplier applying to the award shall
be as follows:
Vesting
period
The award will normally
become capable of exercise
on the day after the first to
occur of (i) 31 January 2019
or (ii) the date that the audited
financial results for the financial
year ended 30 September 2018
are published (‘Vesting Date’)
and will cease to be capable of
exercise (and lapse) on the day
immediately before the second
anniversary of such
Vesting Date.
•
•
•
•
•
•
If Absolute TSR is less than 58.57 pence, the multiplier shall be zero
If Absolute TSR is equal to 58.57 pence, the multiplier shall be 0.6
If Absolute TSR is equal to 78.48 pence, the multiplier shall be 1.3
If Absolute TSR is greater than 58.57 pence but less than 78.48 pence,
the multiplier shall be determined on a straight line basis between 0.6
and 1.3
If Absolute TSR is equal to or greater than 98.4 pence, the multiplier
shall be 2
If Absolute TSR is greater than 78.48 pence but less than 98.4 pence,
the multiplier shall be determined on a straight line basis between 1.3
and 2
The number of shares in respect of which the award may ultimately be exercised
will be dependent upon the extent to which the performance conditions set
out in the plan are satisfied but in all circumstances cannot exceed
4,615,384 shares.
1.
An option over 2,307,692 shares was granted on 31 August 2016. The share price on date of grant was 39.5 pence. The exercise price of the options is £nil.
55
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Directors’ remuneration report
Annual report on remuneration continued
Long-term incentive awards granted in 2015/16 (audited information) continued
Performance Share Plan
The performance measures and targets for the PSP awards granted in the year ended 30 September 2016 are as follows:
Basis of
award
granted
Shares
awarded
Face value
of award1
Percentage
vesting for
threshold
performance
Vesting period
Michael McMahon2100% of salary
Jeremy Simpson2 100% of salary
Stuart Black3
100% of salary
Sean Birrane3
100% of salary
220,580 £200,000 25%
286,754 £260,000 25%
253,667 £230,000 25%
330,870 £300,000 25%
EPS performance measured over the three years ended
30 September 2018. TSR performance measured over
three years commencing on 1 October 2015. Awards will
vest to participants on 31 December 2018.
Notes
1. Face value based on a share price of 90.67p being the share price on the date of grant, 15 December 2015.
2.
With respect to the award granted to Jeremy Simpson, no consideration is payable in order to exercise the awards set out above. In relation to the award granted to Michael McMahon, an
exercise price of 10p per share (being the nominal value of an ordinary share in the capital of the Company) is payable in order to exercise such award. In normal circumstances each award will
not be capable of being exercised prior to the vesting date.
3. PSP awards to Stuart Black and Sean Birrane lapsed on the date they ceased to be employees of the Company.
The PSP award was granted on 15 December 2015 in the form of nil-cost options to Jeremy Simpson and in the form of options
with an exercise price of 10p to Michael McMahon and is subject to two performance conditions, relative total shareholder return
and EPS growth.
Description
Weighting
Target
Earnings per share
Total shareholder return
Notes
66.7%
33.3%
Earnings per share (‘EPS’)1
Relative total shareholder return (‘TSR’)2
1.
2.
The EPS measure, which accounts for 66.7% of the award, is based on EPS compound annual growth as measured by comparing EPS relative to growth in the Retail Price Index over a
three-year performance period to 30 September 2018. None of the award will vest if compound annual growth in EPS is less than the Retail Prices Index in the period plus 4% p.a., 25% will
vest for RPI+4% p.a. growth and 100% will vest for RPI+12% p.a. growth or better.
The TSR target measures the Company’s total shareholder return performance over a three-year performance period commencing on the date of Admission (‘TSR Performance Period’) relative
to the constituents of the FTSE All-Share Business Support Services and of the FTSE All-Share Heavy Construction subsectors (excluding any company which is in the FTSE 100 Index) (the
‘Comparator Group’). For a ranking below median, none of the element of the award will vest. For a median ranking 25% of this element of the award will vest, rising on a straight line basis to full
vesting of this element for a ranking at or above upper quartile.
In addition, SIP awards were granted to Executive Directors and these are disclosed in the summary of share awards section overleaf.
Other directorships
The Executive Chairman, Bob Holt, is also a director of Mears Group PLC, Totally plc and DX (Group) Limited. These appointments
were held prior to Bob Holt joining the Company.
56
Lakehouse plc Annual Report 2016 A summary of SIAP, PSP and SIP share awards granted (audited information)
The table below sets out details of the Executive Directors’ outstanding option awards under the SIAP, PSP and SIP plans.
Name of Director
Scheme
Number of
options at
1 October
2015
Granted
during the
period
Lapsed
during the
period
Exercised
during the
period
Number of
options at
30 September
2016
Date
from which
exercisable
(Note 1)
Expiry
date
(Note 1)
—
—
—
—
—
—
—
—
—
—
Bob Holt
SIAP 1
Total
— 2,307,692
— 2,307,692
Michael McMahon PSP 2
PSP 2
SIP3
224,719
—
199
—
220,580
17
Total
224,918
220,597
PSP 2
PSP 2
SIP 3
292,134
—
199
—
286,754
17
Total
292,333
286,771
PSP 2
PSP 2
SIP 3
258,426
—
199
— 258,426
253,667
216
253,667
17
Total
258,625
253,684 512,309
PSP 2
PSP 2
SIP 3
337,078
—
199
— 337,078
330,870 330,870
216
17
Total
337,277
330,887
668,164
Jeremy Simpson
Stuart Black4
Sean Birrane4
Notes
— 2,307,692
— 2,307,692
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
224,719
23 March 2025
220,580 31 December 2018 31 December 2026
23 March 2018
216
445,515
292,134
23 March 2025
286,754 31 December 2018 31 December 2026
23 March 2018
216
579,104
23 March 2018
0
23 March 2025
0 31 December 2018 31 December 2026
0
0
23 March 2018
0
23 March 2025
0 31 December 2018 31 December 2026
0
0
1.
2.
3.
In relation to the SIAP award granted to Bob Holt no consideration is payable in order to exercise the award as set out above. The award will normally become capable of exercise on the day
after the first to occur of (i) 31 January 2019 or (ii) the date that the audited financial results for the financial year ended 30 September 2018 are published (‘Vesting Date’) and will cease to be
capable of exercise (and lapse) on the day immediately before the second anniversary of such Vesting Date. If the maximum performance is achieved under the SIAP award Bob Holt will be
entitled to acquire 4,615,384 shares.
In relation to the PSP award granted to Jeremy Simpson no consideration is payable in order to exercise the awards set out above. In relation to the award granted to Michael McMahon, an
exercise price of 10p per share (being the nominal value of an ordinary share in the capital of the Company) is payable in order to exercise such award. In normal circumstances each award will
not be capable of being exercised prior to the vesting date.
On 2 April 2015 each of the Executive Directors were granted an award over 199 ordinary shares of the Company under the terms of the Lakehouse plc Share Incentive Plan (‘SIP’). In each
case the award was made as an award of free shares by Yorkshire Building Society in its capacity as the trustee of the SIP. In accordance with the rules of the SIP, no consideration was
payable for the award of free shares granted to them. In the year to 30 September 2016 an additional award of 17 shares was made to Jeremy Simpson and Michael McMahon following the
reinvestment of the Company’s 2015 final dividend and 2016 interim dividend.
4. The options held by Stuart Black and Sean Birrane lapsed on them ceasing to be an employee of the Company.
57
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016
Directors’ remuneration report
Annual report on remuneration continued
Statement of Directors’ shareholding and share interests (audited information)
Directors’ interests in shares of the Company (audited information)
The table below sets out the Directors’ share interests in the ordinary shares of the Company as at 30 September 2016 for those
Directors who held office in the year:
Michael McMahon
Jeremy Simpson
Steve Rawlings
Stuart Black
Sean Birrane
Chris Geoghegan
Johnathan Ford
Beneficial/
non-beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
At 1 October
2015
(or date of
appointment)
7,892,460
271,616
24,409,196
5,463,684
4,734,684
56,179
33,707
Movement At 30 September
2016
in year
At 30 September
2016
Percentage
71,430
70,990
7,963,890
342,606
— 24,409,196
5,535,114
4,806,114
56,179
83,707
71,430
71,430
—
50,000
5.06%
0.22%
15.50%
3.51%
3.05%
0.04%
0.05%
The Remuneration Committee has approved share ownership guidelines whereby Executive Directors are expected to accumulate
and maintain a holding of ordinary shares in the Company equivalent to not less than 200% of salary.
Michael McMahon, Jeremy Simpson, Stuart Black, Sean Birrane and the Estate of Steve Rawlings’ shares in the Company are
subject to an orderly market arrangement with the Company’s broker, expiring on the day after publication of the Company’s pre-close
trading statement in connection with publication of the Company’s interim results for the six-month period ending 31 March 2017.
Non-Executive Directors’ interest in shares of the Company
Non-Executive Directors
Robert Legget
Andrew Harrison
As at
30 September
2016
—
—
Implementation of policy in 2015/16
The following table summarises how remuneration arrangements will be operated from 2015/16.
Salary and benefits
It is intended there will be no increase in Executive Directors’ salaries awarded for 2016/17 for their current roles. This is in line with
no increase in base salary for the wider employee population.
The table below sets out the annual salary of each of the Executive Directors in the year to 30 September 2016 and the proposed
2016/17 salary for each for their current roles.
Bob Holt
Michael McMahon
Jeremy Simpson
2015/16
salary
2016/17
salary
% change
£75,000
£75,000
£200,000 £200,000
£260,000 £260,000
0%
0%
0%
In addition to a salary of £75,000, Bob Holt is available to provide consultancy services to the Company and other Group companies.
These services are provided by a consultancy company of which Bob Holt is a shareholder. Such services are provided for two days
per week over 47 weeks per year at a total cost of £150,000 p.a. (plus VAT).
Benefits paid to Michael McMahon and Jeremy Simpson include car allowance, private healthcare and life assurance. Company
contributions to the Executive Directors’ retirement benefits remain at a rate equivalent to 15% of salary. In the year to 30 September 2016
the Board agreed that Executive Directors and other senior employees may elect to receive the retirement benefit as an additional
salary payment in lieu.
58
Lakehouse plc Annual Report 2016 Performance graph and table (unaudited)
The chart opposite illustrates Lakehouse plc’s TSR performance
against the FTSE Small Cap index (excluding investment trusts).
This index was chosen as Lakehouse is a constituent of the index.
Lakehouse plc vs FTSE Small Cap excluding investment
trusts total shareholder return index
140
120
100
80
60
40
20
0
)
d
e
s
a
b
e
r
(
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
23 Mar 15
30 Sep 15
30 Sep 16
Lakehouse
FTSE Small Cap excluding Investment Trusts
Note
This graph shows the value, by 30 September 2016, of £100 invested in Lakehouse plc at the
start of the day on 23 March 2015, compared with that of £100 invested in the FTSE Small
Cap excluding investment trusts.
The table below shows the single figure values for the Executive
Chairman over the last two financial years together with bonus
and LTIP vesting percentages. There was no bonus awarded to
the Executive Chairman in 2015/16 and there have been no option
awards capable of vesting in either of the years being reported.
(For the year ended 30 September)
Single total figure
% bonus payable
% SIAP vesting
2015
n/a
n/a
n/a
2016
£13,000
0
0
Shareholder dilution
In accordance with the investor guidelines and the rules of the
Company’s share schemes, the Company can issue a maximum
of 10% of its issued share capital in a rolling 10-year period to
employees to satisfy vesting under all its share plans. In addition,
of this 10% the Company can issue 5% to satisfy awards under
discretionary or Executive plans such as the Performance Share
Plan. Lakehouse operates all its share plans within these guidelines.
Annual bonus
The maximum opportunity for Michael McMahon and Jeremy Simpson
will be 100% of salary.
The performance measures in respect of the 2016/17 bonus
will be based on:
EBITA
Individual objectives
80%
20%
The detail of targets for the forthcoming year is commercially
sensitive. However, the Committee will aim to provide appropriate
explanation of bonus outcomes following the end of the bonus year.
Recovery and withholding provisions apply to the 2016/17 bonus.
PSP
It is intended that Executive Directors will receive PSP awards
in 2016/17 with a face value of 100% of base salary. Awards
will vest in three years’ time subject to performance targets
being met and continued employment. For the 2016/17 awards,
66.7% will be subject to earnings per share growth targets and
33.3% subject to a relative TSR condition against target as set
out below.
Earnings per share (‘EPS’) target
The EPS measure, which accounts for 66.7% of the award, is
based on EPS compound annual growth as measured by
comparing EPS relative to growth in the Retail Price Index over
a three-year performance period to 30 September 2019. None
of the award will vest if compound annual growth in EPS is less
than the Retail Prices Index in the period plus 4%, 25% will vest
for RPI+4% growth and 100% will vest for RPI+12% p.a.
growth or better.
Relative total shareholder return (‘TSR’) target
The TSR target will measure the Company’s total shareholder
return performance over a three-year performance period
commencing on the date of grant (‘TSR Performance Period’)
relative to the constituents of the FTSE All-Share Business
Support Services and of the FTSE All-Share Heavy
Construction subsectors (excluding any company which is in
the FTSE 100 Index) (the ‘Comparator Group’). For a ranking
below median, none of the element of the award will vest. For a
median ranking 25% of this element of the award will vest, rising
on a straight line basis to full vesting of this element for a
ranking at or above upper quartile.
Non-Executive Directors (unaudited)
The current fees payable to the Non-Executive Directors are
as follows:
Role
Fee
Basic fee for Non-Executive Directors
Additional fee for Senior Independent Director
Additional fee for chairing of Board Committees
£40,000
£5,000
£5,000
No increase in fees payable to Non-Executive Directors was
awarded for 2016/17.
59
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016
Directors’ remuneration report
Annual report on remuneration continued
Percentage change in remuneration
of the Executive Chairman (unaudited)
The table below illustrates the percentage change in salary,
benefits and annual bonus for the Executive Chairman as
against all other employees.
% change in
base salary
% change in
benefits
% change in
annual bonus
Executive Chairman
appointed 21 July 2016
All employees
No increase
for 2015/16
0
n/a
0
n/a
0
Note
The change in base salary for employees represents the average increase implemented as part
of the Company’s annual pay review in September 2016.
Relative importance of spend on pay
(unaudited information)
The table below illustrates the year on year change in the total
remuneration costs for all employees against the Company’s key
performance metric of EBITA.
Total remuneration
EBITA
Distributions to shareholders
by way of dividend
2016
£m
85.83
10.91
4.57
2015
£m
58.24
22.22
% change
47.4
(50.9)
During the year New Bridge Street acted for the Committee as
their advisers. NBS received fees of £43,131 for advice to the
Committee on a time and materials basis. NBS is a member of the
Remuneration Consultants Group and complies with its Code
of Conduct. The Committee is satisfied that the advice it has
received has been objective and independent.
Details of attendance at meetings of the Committee are set out
in the table below:
Andrew Harrison, Chairman1
Robert Legget2
Steve Rawlings3
Jill Ainscough4
Johnathan Ford5
Chris Geoghegan6
Committee
meetings
attended
Committee
meetings
eligible to
attend
2
4
1
5
4
3
2
4
2
5
5
3
1.
2.
Andrew Harrison was appointed as a member of the Remuneration Committee on
26 July 2016 and as Chairman of the Remuneration Committee on 1 August 2016.
Robert Legget was appointed as a member of the Remuneration Committee on 19 April
2016 and was Interim Chairman of the Remuneration Committee from 4 July 2016 to 1
August 2016.
3.
Steve Rawlings was appointed as a member of the Remuneration Committee on
19 April 2016. Mr Rawlings died on 23 July 2016.
4.
Jill Ainscough resigned as Chair and as a member of the Remuneration Committee on 4 July 2016.
0
—
5. Johnathan Ford resigned as a member of the Remuneration Committee on 20 June 2016.
6. Chris Geoghegan resigned as a member of the Remuneration Committee on 18 April 2016.
Details of the Remuneration Committee,
advisers to the Committee and their fees
(unaudited information)
The Remuneration Committee is responsible for reviewing and
making recommendations to the Board regarding the remuneration
policy of the Group and for reviewing compliance against the
policy. The Remuneration Committee comprises the Non-Executive
Directors of the Company. Andrew Harrison and Robert Legget
are the current members of the Committee. The Chairman of the
Remuneration Committee is Andrew Harrison. Robert Legget was
Interim Chairman of the Remuneration Committee from 4 July 2016
to 1 August 2016.
The other members of the Remuneration Committee who served
during the year are Jill Ainscough (who served as Chair of the
Remuneration Committee from 1 October 2015 to 4 July 2016),
Johnathan Ford, Chris Geoghegan and Steve Rawlings.
The Executive Chairman and other senior executives attend meetings
of the Remuneration Committee by invitation. The Company
Secretary acts as the Committee’s secretary. No individual is
present when their own remuneration is being determined.
The terms of reference of the Remuneration Committee are available
to view at www.lakehouse.co.uk/investors/corporate-
governance/board-and-committee-terms-reference.
60
Statement of voting at general meeting
(unaudited information)
At the Annual General Meeting held on 5 February 2016 the
Annual Report on Remuneration received the following votes
from shareholders:
Annual Report on Remuneration
Total number of
shares
% of
votes cast
For
Against
Total shares cast (for and against)
Votes withheld
68.18
31.82
90,244,563
42,122,563
132,367,126
10,408
Total votes (including withheld votes) 132,377,534
At the General Meeting held on 9 August 2016 the Directors’
Remuneration Policy received the following votes from shareholders:
% of
votes cast
Directors’ Remuneration Policy
Total number of
shares
For
Against
Total shares cast (for and against)
Votes withheld
98.99
1.01
83,008,013
850,696
83,858,709
650
Total votes (including withheld votes)
83,859,359
Andrew Harrison
Chairman of the Remuneration Committee
23 January 2017
Lakehouse plc Annual Report 2016
Directors’ remuneration report
Directors’ remuneration policy report
This part of the Directors’ Remuneration Report sets out the Remuneration Policy of the Company. The remuneration policy was put
to a binding shareholder vote at the General Meeting of the Company on 9 August 2016. No changes have been made to the policy
since this approval. It is currently proposed that the policy will apply for a three-year period following approval.
The table below and accompanying notes summarises the key elements of the Directors’ Remuneration Policy.
Operation
Maximum opportunity Performance metrics
Purpose and
link to strategy
Base salary
A competitive base
salary is essential to
recruit and retain
Executives.
Reflects an individual’s
experience, role,
competency and
performance.
Salaries are paid monthly. They are normally
reviewed annually and fixed for 12 months
commencing 1 October.
Decisions on changes to salaries are
influenced by a variety of factors including:
• The commercial need to do so
• The role, experience, responsibility
and performance (of both the individual
and Company)
•
Increases applied to the broader workforce
• Periodic benchmarking of similar roles in
broadly similar UK-listed companies and
companies of a similar size
• Bob Holt is permitted to provide
consultancy services to the Company
and other Group companies in relation
to advice about the turnaround
management strategy of the Group
Benefits
The Company offers
competitive and
cost-effective benefits
to help recruit and
retain Executives.
Certain benefits such
as medical cover are
provided to minimise
disruption to the
day-to-day operation
of the business.
Benefits include, but are not limited to, the
provision of a company car (or cash
allowance in lieu), fuel, life assurance and
family private medical cover.
Relocation or other related expenses may
be offered, as required.
Executive Directors may participate in the
all-employee HMRC-approved Sharesave
(‘SAYE’ scheme), Share Incentive Plan
(‘SIP’) and Company Share Option
Plan (‘CSOP’).
The general policy is to pay
around mid-market levels with
annual increases typically in
line with the wider
workforce. There is no
obligation on the Company
to award an annual salary
increase and any base salary
increases awarded will be at
the Company’s discretion.
Increases beyond those
granted to the workforce
may be awarded in certain
circumstances, such as
where there is a change in
the individual’s responsibility
or where the salary set at
initial appointment was
below the level expected
once the individual gains
further experience. An above
market positioning may be
appropriate in exceptional
circumstances to reflect the
criticality of the role and
experience and performance
of the individual.
The cost of providing market
competitive benefits may vary
from year to year depending
on the cost to the Company
from third-party providers.
Participation in
HMRC-approved plans
will be subject to the individual
limits as prescribed by HMRC
at the time of grant.
No formal metrics apply, although individual
and Company performance is taken into
account when determining any
annual increase.
No performance metrics apply.
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Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Directors’ remuneration report
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Purpose and
link to strategy
Operation
Retirement benefits
Maximum opportunity Performance metrics
The Company may provide a contribution
to a personal or company-operated
defined contribution pension plan or a
cash allowance in lieu of pension.
The Company’s contribution
to defined contribution plans
or salary supplement in lieu
of pension may be made up
to the value of 15% of salary.
No performance metrics apply.
To provide a
market-competitive,
cost-effective
contribution
towards post
retirement benefits.
Annual bonus
To motivate Executives
and incentivise the
achievement of annual
financial and/or
strategic targets.
Bonus payments are determined by the
Committee after the year end, based on
performance against the targets set.
Targets are reviewed annually at the
start of the financial year.
Bonus deferral in
shares provides a
retention element and
extra alignment with
shareholders.
At least half of any bonus is payable in cash
and the remainder is deferred into shares
for up to three years under the Deferred
Share Bonus Plan. Deferred Share Bonus
Plan awards are not subject to any further
performance criteria.
Bonus payments in respect of the financial
year 2015/16 onwards and Deferred Share
Bonus Plan awards granted from 2015/16
can be clawed back or reduced if the
Committee determines within three years
of the payment or grant date that there has
been a material misstatement of financial
results, a miscalculation in the grant or
assessment of performance conditions
or where serious misconduct has
been discovered.
An additional payment (in the form of
cash or shares) may be made in respect
of shares that vest to reflect the value of
dividends that would have been paid on
those shares during the vesting period.
The maximum opportunity
under the annual bonus
scheme is 100% of salary.
The bonus may be based on the
achievement of an appropriate mix
of challenging financial, strategic or
individual targets.
Financial measures which will typically
account for the majority of the bonus
opportunity may include measures such
as (Group or business unit) profit or cash
flow taking into account the strategic
objectives of the business from time
to time.
For financial metrics, a range of targets is
set by the Committee, taking into account
factors such as the business outlook for
the year.
The level of payment for achieving threshold
performance may vary depending on the
financial measure chosen, with pay-outs from
0%. Full vesting requires outperformance
of objectives.
Individual measures may include health
and safety performance, order book and
strategic initiatives or any other appropriate
objective aligned with the key short term
priorities of the Group. Where possible a
performance range will be set, although
this will depend on the measure chosen.
The detail of the measures, targets and
weightings may be varied by the
Committee year on year based on the
Company’s strategic goals1. The specific
performance metrics to be used are
commercially sensitive and disclosure of
actual performance metrics will be made
retrospectively (year on year) when
bonuses are awarded.
Annual bonus performance metrics
1. The annual bonus measures are reviewed annually and reflect the key financial, strategic and operational priorities of the Group. Stretching financial targets are set by the Committee by taking
account of the Company’s business plan and external expectations for the next 12 months.
62
Lakehouse plc Annual Report 2016 Purpose and
link to strategy
Operation
Performance Share Plan
The PSP incentivises
the Executive Directors
and selected employees
to achieve demanding
financial and superior
long term shareholder
returns.
Retains key
Executives over the
medium term.
Aligns the interests
of the Executives and
shareholders through
the requirement to
build up a substantial
shareholding.
Awards are granted annually in the form of
either nominal or nil-cost options under the
Performance Share Plan and vest after
three years.
Stretching performance conditions
measured over a period of three years
determine the extent to which awards vest.
Quantum is reviewed annually (subject to
the PSP individual limit) taking into account
matters such as market practice, overall
remuneration, the performance of the
Company and the Executive being made
the award.
Vested awards may be clawed back and
subsisting awards may be reduced if within
three years of vesting there has been a
material misstatement of financial results,
a miscalculation in the grant or assessment
of performance conditions or where serious
misconduct has been discovered.
Dividends payable during the vesting period
may accrue on vested shares.
Maximum opportunity Performance metrics
The maximum annual award
under the PSP that may be
granted to an individual in
any financial year is 150%
of salary.
The exercise of awards is conditional
upon the achievement of one or more
challenging performance targets set by the
Remuneration Committee at the time of
grant and measured over a three-year
period. Measures may include:
The Company’s total shareholder return
(‘TSR’) performance over a three-year
performance period compared to a
comparator Group determined at grant.
For a ranking below median, none of this
part of the award will vest; for a median
ranking, 25% vests; and 100% vesting for
upper quartile performance or better. For
performance between median and upper
quartile, the award vests on a straight line
basis. For this part of the award, no vesting
can occur unless the Committee considers
that the underlying financial performance
of the Company has been satisfactory.
A sliding scale of earnings per share
(‘EPS’) growth targets. None of this part
of the award shall vest if growth is below
a threshold level of growth; 25% vests
for achieving the threshold level; and
full vesting for achieving the maximum
performance target or better. For
performance between these points,
vesting is on a straight line basis.
In determining the target range for any
financial measures that may apply, the
Committee ensures they are challenging
by taking into account current and
anticipated trading conditions, the long
term business plan and external
expectations while remaining motivational
for management.
TSR and EPS or financial metric
performance periods will usually
commence from the start of the financial
year in which the award is made.
The Committee retains the flexibility to vary
the mix of metrics for each year’s award in
light of the business priorities at the time.
The Committee may introduce other
measures either to support or in place of
TSR and EPS which support the long term
business strategy.2
Performance Share Plan metrics
2. Relative TSR provides a measure of the long term success of the Company relative to appropriate peer comparators. EPS growth is a measure of the overall profitability of the business for
investors over the long term and therefore helps align the interests of management with shareholders. If the Committee decides to choose alternative measures, they will be selected to ensure
that they incentivise Executive Directors to deliver long term sustainable returns for our shareholders.
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Directors’ remuneration policy report continued
Purpose and
link to strategy
Operation
Special Incentive Award Plan
Maximum
opportunity
Performance metrics
To provide alignment
with the short term
interests of
shareholders in
relation to restoring
value over the period
to January 2019.
To retain the services
of the Executive
Chairman and to
incentivise other
Executive Directors,
if appropriate,
selected at the
discretion of the
Remuneration
Committee.
Only Directors of the Company may
be granted awards under the SIAP
and no individual may be granted
more than one award under the SIAP.
Awards will take the form of nil-cost
options and no award may be
granted on or after the first anniversary
of the date of adoption of the SIAP.
Awards will vest subject to
performance and may only be
exercised after the day immediately
following the end of the performance
period. The performance period ends
on the earlier of 31 January 2019 or
the date of publication of the results
announcement for the 2018/19
financial year.
Dividends will not accrue on vested
shares but will be taken into
account when assessing the
performance condition.
Bob Holt may not be
granted an award in
excess of 2,307,692
Lakehouse Shares under
the SIAP.
Any other Director may
not be granted an award
which has an aggregate
market value in excess of
£675,000 (measured at
the date of grant of the
award concerned).
The number of shares
in respect of which an
award may be exercised
shall be determined
by a multiplier based
on absolute TSR
performance. The
multiplier is capped at 2.
The performance condition is measured over
a performance period beginning on the date on
which Bob Holt is appointed as Executive Chairman
on the Company and ending on the earlier of
31 January 2019 or the date of announcement of the
results for the financial year ending 30 September 2018.
Performance is based on absolute total shareholder
return (‘Absolute TSR’) (calculated as aggregate of
the share price on the last dealing day of the
performance period plus the value of any dividends
paid during the two consecutive financial years of the
Company commencing on 1 October 2016). The
same performance target shall apply to all awards
made under the SIAP. The multiplier applying to the
award shall be as follows:
If Absolute TSR is less than 58.87 pence,
the multiplier shall be zero
If Absolute TSR is equal to 58.57 pence,
the multiplier shall be 0.6
If Absolute TSR is equal to 78.48 pence,
the multiplier shall be 1.3
If Absolute TSR is greater than 58.57 pence
but less than 78.48 pence, the multiplier shall
be determined on a straight line basis between
0.6 and 1.3
If Absolute TSR is equal to or greater than
98.4 pence, the multiplier shall be 2
If Absolute TSR is greater than 78.48 pence
but less than 98.4 pence, the multiplier shall be
determined on a straight line basis between 1.3 and 2
Notwithstanding the determination of the multiplier,
in the event that the Company undertakes a variation
of share capital at any time during the performance
period, which in the opinion of the Committee materially
affects the share price, the Committee may, in its sole
discretion, reduce the multiplier to such level (including
to zero) as it deems appropriate.
If any event occurs which causes the Remuneration
Committee reasonably to consider that a different or
an amended condition would be a fairer measure of
performance, the Remuneration Committee may,
acting fairly and reasonably, amend the performance
condition in such manner as it deems appropriate
provided that any such amended condition is not
materially less challenging to achieve than the original
performance condition would have been to achieve
prior to such amendment.3
Special Incentive Plan metrics
3. Absolute TSR provides direct alignment with shareholders’ interests through share price growth and return of cash through dividends.
64
Lakehouse plc Annual Report 2016 Purpose and
link to strategy
Operation
Non-Executive Directors’ fees
Maximum
opportunity
Performance metrics
To attract and retain
high quality and
experienced
Non-Executive
Directors.
The fees of the Non-Executive Directors are
determined by a subcommittee of the Board
comprising the Executive Chairman and
other Executive Directors. Fees are
reviewed periodically.
The Company’s Articles
of Association set an
aggregate fee level of
£500,000 p.a.
No performance metrics apply.
Non-Executive Directors receive a fee
for carrying out their duties, together
with additional fees for those who chair
the primary Board Committees, the
Senior Independent Director and the
Deputy Chairman.
The level of fees of the Non-Executive
Directors reflects the time commitment
and responsibility of their respective roles.
Their fees are reviewed from time to time
against broadly similar UK-listed companies
and companies of a similar size.
Non-Executive Directors do not participate
in any incentive arrangements and they
do not receive a pension contribution.
Non-Executives do not receive any
benefits but they may be reimbursed for
the grossed-up cost of travel, overnight
accommodation or other reasonable
expenses incurred in carrying out their
duties which are deemed taxable by HMRC.
Share ownership policy
To align interests of
management and
shareholders and
promote a long term
approach to
performance and risk
management.
Executive Directors are expected to build up
a shareholding in the Company equal to at
least 200% of salary.
Only shares owned outright by Executive
Directors (or connected persons) are
included in the guideline.
The Committee will review progress annually
with an expectation that Executive Directors
will make progress towards the achievement
of the shareholding policy guideline each year.
At its discretion and where appropriate the
Committee may permit the sale of shares by
an Executive Director with a shareholding in
the Company of less than 200% of salary.
Not applicable.
No performance metrics apply.
65
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Directors’ remuneration report
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Incentive plan discretions
The Committee will operate the annual bonus plan, the Deferred
Share Bonus Plan, the Performance Share Plan, the Special
Incentive Award Plan and the HMRC-approved share schemes
according to their respective rules and the policy set out above.
The Committee, consistent with market practice, retains discretion
over a number of areas relating to the operation and administration
of these plans. These include, but are not limited to, the following:
— Who participates in the plan
— The timing of grant and/or payment
— The size of an award and/or a payment
— The choice of performance measures and targets for each
incentive plan in accordance with the policy set out above
and the rules of each plan (including, for example, the treatment
of delisted companies for the purpose of the TSR comparator
Group and any adjustments required to EPS to make it a
fairer measure of performance)
— The ability to vary any performance conditions if circumstances
occur which cause the Remuneration Committee to determine
that the original conditions have ceased to be appropriate
provided that any change is fair and reasonable and in the
Committee’s opinion, not materially less difficult to satisfy
than the original condition
— Discretion relating to the measurement of performance in
the event of a change of control or reconstruction
Illustrations of application of remuneration policy
The Lakehouse remuneration arrangements have been designed
to ensure that a significant proportion of pay is dependent on the
delivery of short term and long term goals that are aligned with
the Company’s key strategic objectives and the creation of
sustainable returns to shareholders.
0
0
0
£
’
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
£1,583
£833
£627
£225
£508
£313
Below
target
Target Max Below
target
Target Max
£638
£388
Target Max
£238
Below
target
Bob Holt
Jeremy Simpson
Michael McMahon
Fixed Pay
Bonus
SIAP / LTIP
The Committee has considered the potential amount payable
to Executive Directors in different performance scenarios and is
comfortable that the amounts payable are appropriate in the context
of the performance delivered and the value added for shareholders.
— Determination of a good leaver (in addition to any specified
Notes
categories) for incentive plan purposes based on the rules of
each plan and the appropriate treatment under the plan rules
Any use of the above discretions would, where relevant, be
explained in the Annual Report on Remuneration and may, as
appropriate, be the subject of consultation with the Company’s
major shareholders.
Legacy arrangements
For the avoidance of doubt, any remuneration or for loss of office
payments that are not in line with this policy may be made if the
terms were agreed before the approval of this policy. In addition,
authority is given to the Company to honour any commitments
entered into at a time when the relevant employee was not a
Director of the Company.
The chart above assumes Jeremy Simpson and Michael McMahon participate in the PSP
and Bob Holt participates in the SIAP.
Below target: Values are for fixed pay only. We have assumed £225,000 for Bob Holt
(with no pension or benefits) and salaries of £260,000 for Jeremy Simpson and £200,000
for Michael McMahon (plus 15% pension and the value of benefits for Jeremy Simpson and
Michael McMahon).
Target: For Jeremy Simpson and Michael McMahon, we have assumed fixed pay as above,
bonus based on 50% of salary payout and PSP vesting at 25%. For Bob Holt, we have
assumed participation in the SIAP only, being an award over 2,307,692 Lakehouse shares
with a multiplier of 0.6.
Maximum: For Jeremy Simpson and Michael McMahon, we have assumed fixed pay as above,
full bonus and 100% PSP vesting. For Bob Holt, we have assumed participation in the SIAP
only, being an award over 2,307,692 Lakehouse shares with a multiplier of two.
The above does not take into account any increase in the price of Lakehouse shares.
Approach to recruitment remuneration
The section below sets out the Remuneration Committee’s
approach to the recruitment remuneration of Executive Directors.
In setting the remuneration for a new Executive Director, the
Remuneration Committee will take into account the calibre of
the individual, market data and the remuneration arrangements
for current Directors. The remuneration package for a new Director
will be set in accordance with the Company’s approved policy.
66
Lakehouse plc Annual Report 2016 Fixed pay
Salary levels for Executive Directors will be set in accordance
with the Company’s policy, taking into account the experience
and calibre of the individual and his or her existing remuneration
package. Where it is appropriate to offer a lower salary initially
(for either an internal or external recruit), a series of increases to
the desired salary positioning may be made over subsequent
years subject to individual performance and development in the
role. Benefits will generally be provided in line with those offered
to other Executive Directors, with relocation or other expenses
provided for if necessary.
Variable pay
The structure of variable pay — the annual bonus, PSP and
SIAP participation — will be in accordance with the Company’s
approved policy detailed above. The maximum opportunities are
100% of salary bonus, performance shares with a face value of
150% of salary and a SIAP award over 2,307,692 Lakehouse
shares for Bob Holt and a SIAP Award over £675,000 worth of
Lakehouse shares for Executive Directors of the Company other
than Bob Holt (in each case, with a potential multiplier of up to
two times). Different performance measures may be set initially
for the annual bonus, taking into account the responsibilities of
the individual, and the point in the financial year that he or she
joined the Board.
Buy-out awards
In the case of an external hire, if it is necessary to buy-out
incentive pay or benefit arrangements which would be forfeited
on leaving the previous employer, this would be provided for
taking into account the form (cash or shares), timing and expected
value (i.e. likelihood of meeting any existing performance criteria)
of the remuneration being forfeited. The principle will be that any
replacement awards will be of broadly comparable value to what
the Executive has left behind. Replacement share awards, if
used, may be granted using the Company’s existing share plans
to the extent possible, although awards may also be granted
outside of these schemes if necessary and as permitted under
the LSE Listing Rules (9.4.2).
In the case of an internal hire/promotion, any legacy variable pay
awarded in relation to the previous role will be allowed to pay
out according to its terms of grant. Similarly, if an Executive
Director is appointed following a merger or acquisition of another
company, any legacy pay arrangements may be honoured.
Fees for Non-Executive Directors will be set in line with the
approved policy.
Service contracts and letters of appointment
The table below summarises the service contracts of the
Executive Directors and Non-Executive Directors.
Date of
contract/letter
of appointment
Notice period
by Company
Name
Notice period
by Director
Executive Director
Bob Holt
6 months
Michael McMahon 17 February 2015 12 months
17 February 2015 12 months
Jeremy Simpson
21 July 2016
6 months
6 months
6 months
Non-Executive Director
Robert Legget
Andrew Harrison
19 April 2016
26 July 2016
1 month
1 month
1 month
1 month
The section below sets out the Remuneration Committee’s
approach to service contracts and policy on termination payments.
Bob Holt
Bob Holt has entered into a service agreement under which he
is employed as a Director and Executive Chairman. Bob Holt
does not receive any pension or other benefits under his service
agreement and he is not eligible for any annual incentive award.
Bob Holt is also available to provide consultancy services to the
Company and other Group companies. These services will be
provided by a consultancy company of which he is a shareholder.
Bob Holt’s service agreement may be terminated by either party
giving to each other six months’ notice. His service agreement
may be terminated immediately if he commits any material or
continued breach or gross misconduct. The Company may, at
its discretion, terminate Bob Holt’s service agreement by paying
him six months’ salary in lieu of notice. The payment may, at the
Company’s discretion, be paid in equal monthly instalments.
Where it elects to pay in instalments, the Company may reduce
any instalment by the amount that Bob Holt has earned or is
expected to earn in the six month period following termination.
As Bob Holt already has a number of other outside interests,
only replacement income that he earns from his employment
with the Company may be offset against instalments and not
income he would have received in any other event.
The consultancy agreement under which Bob Holt’s consultancy
services will be provided may be terminated by either party giving
to each other six months’ notice. The Company may terminate
the consultancy agreement immediately in the event of a serious
or continuing breach. The Company may, at its discretion, terminate
the consultancy agreement under which Bob Holt’s consultancy
services will be provided by paying his consultancy company an
amount equal to the minimum daily fees that would be received
by the consultancy company during the notice period. The
payments may, at the Company’s discretion, be paid in equal
monthly instalments and may be reduced by other replacement
fees earned by the consultancy company during the six months
following termination.
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Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Directors’ remuneration report
Directors’ remuneration policy report continued
Service contracts and letters of
appointment continued
Other Executive Directors
Under their service agreements, 12 months’ notice of
termination of employment is required by the Company and
six months by the Executive Director. The Executive Chairman’s
service agreement will be terminable by either party on six months’
notice. The Company’s policy for any new Executive Directors is
that 12 months’ notice of termination of employment is required
by the Company and at least up to 12 months (but no less than
six months) is required by the Executive Director.
The Company may terminate an Executive Directors’ employment
immediately by paying an amount in lieu of notice equal to base
salary, employer pension contributions and the cost of benefits
for the unexpired period of notice. The Company may pay statutory
claims. Reasonable costs of legal expenses incurred by the
Director may be reimbursed by the Company by making direct
payment to the professional adviser.
For existing Executive Directors, the payment at the Company’s
discretion may be paid in two equal instalments, the first within
28 days of written notice and the second after six months. In the
case of new Executive Directors the Company’s policy is that
such payments may be in equal monthly instalments over the
unexpired period of notice. If the payment is paid in instalments,
the remaining payment(s) may at the discretion of the Company
be reduced by the amount the Executive has earned or is expected
to receive in the 12 months following termination. In the case of
the Executive Chairman who works three days per week, only
replacement earnings from his employment with the Company
are set off against PILON instalments and not any other income
that he may have received in any event.
Service agreements will be terminable with immediate effect
without notice in certain circumstances, including where the
Executive Director commits any material or continued breach of
the service agreement or in the case of gross misconduct.
Treatment of bonus and PSP awards
There is no entitlement to cash bonus paid (or associated deferred
shares) following notice of termination by either the employee or
Company on cessation of employment and ‘bad leavers’ will not
receive any bonus in such circumstances. However, where the
individual is considered a ‘good leaver’ (in the event of death,
injury, ill health, disability, retirement with the agreement of his
employer, sale of employing company or business out of the
Group or for any other reason at the discretion of the Committee),
the Company’s normal policy is that a performance-related
bonus will be payable at the normal time on the proportion of
the bonus year for which the individual was employed. Any
bonus earned in the year of cessation shall be paid in cash.
Any outstanding share awards held by a departing Director
will be treated in accordance with the relevant plan rules.
The default treatment under the Deferred Share Bonus Plan
and Performance Share Plan is that any outstanding awards
will lapse on cessation of employment.
However, in certain prescribed ‘good leaver’ circumstances
(as set out earlier) and in any other circumstances at the
discretion of the Committee:
• Deferred Share Bonus Plan awards will become exercisable
at cessation or such later date (up to the original vesting
date). Awards will be pro-rated for time unless, at the
Committee’s discretion, it decides to pro rate to a lesser
extent or not at all
• PSP awards will continue to be held post cessation and
will vest at the normal vesting date unless the Committee
determines that they may vest earlier, from the date of
cessation. In either case, the number of awards capable
of being exercised will be determined by reference to the
satisfaction of performance criteria and reduced pro-rata
for time (unless the Committee determines that pro-rating
should apply to a lesser extent or not at all)
• Treatment of SIAP awards
If an award holder ceases to be employed within the Group
prior to the vesting date by reason of his death, injury, ill health
or disability (evidenced to the satisfaction of the Remuneration
Committee), redundancy or upon the sale or transfer out of the
Group of the Company or undertaking employing him or in any
other circumstances determined to be good leaver circumstances
at the discretion of the Remuneration Committee (‘good leaver
circumstances’), then the SIAP award holder will be entitled to
retain his award following the cessation of his employment. In
these circumstances, the retained award will ordinarily be capable
of exercise at any time during the period of 12 months following
the vesting date and, to the extent not exercised by the end of
this period, will lapse. In such a case, the number of Lakehouse
shares over which the award may ultimately be exercised shall
be determined by reference to the extent to which the performance
condition is satisfied at the end of the performance period and
by pro-rating down the number of Lakehouse shares in respect
of which the award is capable of exercise (determined in
accordance with the performance condition) to reflect the part
of the vesting period (being the period commencing on the date
of grant of the award and ending on the vesting date relating
to such award (‘vesting period’)) which has elapsed up to and
including the date of the cessation of employment, unless the
Remuneration Committee exercises its discretion so that no
such pro-rating should apply to the award in question or that
pro-rating should be applied to some lesser extent.
68
Lakehouse plc Annual Report 2016 When setting the policy for the remuneration of the Executive
Directors, the Committee has regard to the pay and employment
conditions of employees within the Group. However, the
Committee does not use comparison metrics or consult directly
with employees when formulating the remuneration policy for
Executive Directors. The Committee reviews salary increases
and pay conditions within the business as a whole to provide
context for decisions in respect of Executive Directors.
Shareholder engagement
We are committed to active engagement with our shareholders.
As and when necessary, the Committee will consult with leading
shareholders prior to any material change in the way we operate
the Directors’ Remuneration Policy or when a new policy is
being proposed.
If an award holder ceases to be employed within the Group before
the vesting date, in any circumstances other than those described
as good leaver circumstances above, his award shall lapse
immediately and in full on the date of cessation of employment.
If an award holder ceases to be employed within the Group on
or after the vesting date of the award for any reason, his award
will normally be capable of exercise for a period of 12 months
following the cessation of employment, unless it lapses earlier
under some other provision of the SIAP.
Awards shall become capable of exercise earlier than the
Vesting Date in the event of a takeover of the Company, a
scheme of arrangement under Part 26 of the Companies Act
2006 relating to the Company being sanctioned by the court or
the voluntary winding up of the Company (each a ‘Corporate
Event’). In any such case, the number of Lakehouse shares over
which an award may be exercised will normally also be pro-rated
down to reflect the amount of the vesting period that has
elapsed prior to the relevant Corporate Event. However, the
Remuneration Committee has a discretion to ignore such
prescribed pro-rating of the Lakehouse shares over which an
award may be exercised, or to pro-rate to such lesser extent as
it may decide.
Non-Executive Directors
All Non-Executive Directors have letters of appointment with the
Company for an initial period of three years, subject to annual
reappointment at the AGM. Appointments are terminable by
either party on one month’s written notice. The appointment
letters for the Non-Executive Directors provide that no
compensation is payable on termination, other than accrued
fees and expenses.
All Executive Directors’ service agreements and Non-Executive
Directors’ letters of appointment are available for inspection at
the Company’s registered office at 1 King George Close,
Romford, Essex RM7 7LS.
Remuneration in the wider Group
Throughout the Group, base salary and benefit levels are set
taking into account prevailing market conditions. Differences
between Executive Director pay policy and other employee
terms reflect the seniority of the individuals and the nature of
responsibilities. The key difference in policy is that for Executive
Directors a greater proportion of total remuneration is based on
performance-related incentives. The Committee has oversight of
incentive plans operated throughout the Group. The long term
incentive arrangements for the senior management immediately
below Board level align with the long term interests of the business
and, where appropriate, objectives may be tailored to individual
business areas.
69
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Directors’ report
The Directors present their Annual Report and the audited
Financial Statements for the Group for the year ended
30 September 2016. The Directors’ Report comprises pages
70 to 71 and the sections of the Annual Report incorporated
by reference are set out below which, taken together, contain
the information to be included in the Annual Report, where
applicable, under Listing Rule 9.8.4.
Board membership
Dividends
Directors’ long term incentives
Corporate Governance Report
Future developments of the business
of the Group
Employee equality, diversity and involvement
Post balance sheet events
Information to the independent auditor
Subsidiaries
pages 40 and 41
page 70
page 57
pages 42 to 51
Our strategy
(pages 10 to 13)
page 71
page 115
page 71
page 102
General information
The Company was incorporated as a public company limited by
shares in England and Wales on 28 January 2015 with registered
number 9411297. It is domiciled in the UK. The Company is premium
listed on the London Stock Exchange. The Company’s registered
address is 1 King George Close, Romford, Essex RM7 7LS.
Directors and Directors’ interests
The present membership of the Board is set out on pages 40
and 41, which includes brief biographical details. In line with
current practice, all of the Directors will retire and, being eligible,
offer themselves for re-election at the AGM on 31 March 2017.
The individuals listed below served as Directors of the Company
in the year to 30 September 2016. Changes to the membership
of the Board in the year to 30 September 2016 and in the period
to the date of publication of the Annual Report and Financial
Statements are as follows:
Jill Ainscough
Resigned 4 July 2016
Sean Birrane¹
Resigned 14 March 2016
Stuart Black²
Resigned 21 April 2016
Johnathan Ford
Resigned 20 June 2016
Chris Geoghegan³ Resigned 18 April 2016
Andrew Harrison
Appointed as an
Alternate Director 3 June 2016,
appointed as a Director 26 July 2016
Bob Holt4
Appointed 21 July 2016
Robert Legget
Appointed 18 April 2016
Michael McMahon
Ric Piper5
Appointed 18 April 2016,
resigned 30 November 2016
Steve Rawlings
Appointed 18 April 2016, died 23 July 2016
Share capital
Details of the Company’s share capital are set out on page 107.
Jeremy Simpson
Notes
Employee share schemes
Details of the Company’s employee share schemes are set out
on pages 107 to 109.
Results and dividends
The results for the year are set out in the Consolidated
statement of comprehensive income on page 82. The Directors
recommend the payment of a final dividend of 0.5 pence per
share on 6 April 2017 subject to approval at the Annual General
Meeting on 31 March 2017 with a record date of 10 March 2017.
1. Sean Birrane served as Chief Executive Officer to 8 March 2016.
2. Stuart Black served as Executive Chairman to 8 March 2016 and as Chief Executive Officer
from 8 March 2016 to 21 April 2016.
3.
Chris Geoghegan was senior Non-Executive Director of the Company from 1 October 2015
to 8 March 2016 and Non-Executive Chairman from 8 March 2016 to 18 April 2016.
4. Bob Holt was appointed as Executive Chairman on 21 July 2016.
5. Ric Piper served as Non-Executive Chairman from 18 April 2016 to 21 July 2016.
The remuneration of the individuals who served as Directors
of the Company in the year is set out in the Report on Directors’
Remuneration on pages 53 to 60. Details of the current Directors’
service contracts and letters of appointment and interests in
the share capital of the Company are shown in the Report
on Directors’ Remuneration on pages 53 to 60.
70
Lakehouse plc Annual Report 2016 Substantial interests
As at 19 January 2017, the following interests in 3% or more
of the Company’s ordinary share capital had been notified to
the Company:
Number
of shares
Percentage
held (%)
Estate of Steve Rawlings
Michael McMahon
Nortrust Nominees Limited
Paul King
Stuart Black
BBHISL Nominees Limited
Securities Services Nominees Limited
Kennedy Saunders
Sean Birrane
Lydia Graham
24,409,196
7,963,890
7,644,505
5,951,840
5,535,114
5,337,929
5,000,000
4,955,836
4,806,114
4,720,950
15.50
5.06
4.85
3.78
3.51
3.39
3.17
3.15
3.05
3.00
Directors’ indemnity
The Company’s Articles of Association provide, subject to the
provisions of UK legislation, an indemnity for Directors and officers
of the Company and the Group in respect of liabilities they may
incur in the discharge of their duties or in the exercise of their
powers, including any liability relating to the defence of any
proceedings brought against them which relate to anything
done or omitted, or alleged to have been done or omitted, by
them as officers or employees of the Company and the Group.
Directors’ and officers’ liability insurance cover is in place in
respect of all the Company’s Directors.
Directors’ powers
As set out in the Company’s Articles of Association, the
business of the Company is managed by the Board who may
exercise all powers of the Company.
Our people
The Group’s policy is to consider all job applications on a fair
basis free from discrimination in relation to age, sex, race, ethnicity,
religion, sexual orientation or disability not related to job performance.
Every consideration is given to applications for employment from
disabled persons, where the requirement of the job may be
adequately covered by a disabled person. Where existing
employees become disabled, it is the Group’s policy wherever
practicable to provide continuing employment under normal
terms and conditions and to provide training and career
development wherever appropriate.
The Group places considerable value on the involvement of its
employees and encourages the development of employee
involvement in each of its operating companies through formal
and informal meetings. It is the Group’s policy to ensure that all
employees are made aware of significant matters affecting the
performance of the Group through the operation of employee
forums, information bulletins, informal meetings, team briefings,
internal newsletters and the Group’s website and intranet.
Key performance indicators
Details of the Group’s key performance indicators can be found
on pages 14 and 15.
Risks and uncertainties
Details of the risks and uncertainties faced by the Group can be
found in the Strategic Review on pages 30 to 33.
Financial instruments
An explanation of the Group’s treasury policies and existing
financial instruments are set out in Note 31 of the
Financial Statements.
Donations
The Group made charitable donations in the year of £36,000.
Information on the Group’s resources, relationships and
sustainability are set out on pages 34 to 38. The Group
made no political donations during the year.
Annual General Meeting
A separate notice convening the Annual General Meeting
of the Company to be held at the offices of Eversheds LLP,
One Wood Street, London EC2V 7WS on 31 March 2017 will
be sent out with this Annual Report and Financial Statements.
Corporate Governance
The Company’s statement on Corporate Governance can be
found in the Corporate Governance Report on pages 39 to 46.
The Corporate Governance Report forms part of this Directors’
Report and is incorporated into it by cross-reference.
Independent auditors
The auditor, Deloitte LLP, have indicated their willingness under
section 489 of the Companies Act 2006 to continue in office
and a resolution that they be reappointed will be proposed at
the Annual General Meeting.
Each of the persons who is a Director at the date of approval
of this Annual Report confirms that:
•
In so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware
• The Director has taken all the steps that he ought to have
taken as a Director in order to make himself aware of any
relevant audit information and to establish that the
Company’s auditor is aware of that information
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
By the order of the Board
Simon Howell
Company Secretary
23 January 2017
71
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
the Group financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the
European Union and Article 4 of the IAS Regulation and have
also chosen to prepare the parent Company financial statements
in accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework. 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 Company
and of the profit or loss of the Company for the period.
In preparing the parent 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
• State whether Financial Reporting Standard 101 Reduced
Disclosure Framework has been followed, subject to
any material departures disclosed and explained in the
financial statements
• Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
• Properly select and apply accounting policies
• Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information
• Provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial position
and financial performance
• Make an assessment of the Company’s ability to continue
as a going concern
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
• The financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole
• The Strategic Report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face
• The Annual Report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s performance, business model and strategy
This responsibility statement was approved by the Board of
Directors on 23 January 2017 and is signed on its behalf by.
By order of the Board
Bob Holt
Executive Chairman
Jeremy Simpson
Chief Financial Officer
72
Lakehouse plc Annual Report 2016 Independent auditor’s report
To the members of Lakehouse plc
Opinion on financial statements of Lakehouse plc
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
30 September 2016 and of the group’s loss for the year then ended
• The group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(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, including FRS 101 “Reduced Disclosure Framework”
• The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the group financial statements, Article 4 of the IAS Regulation
The financial statements that we have audited comprise:
• The Consolidated Statement of Comprehensive Income
• The Consolidated and Parent Company Statements of Financial Position
• The Consolidated Statement of Cash Flows
• The Consolidated and Parent Company Statements of Changes in Equity
• The related Notes 1 to 46
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the
parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice), including FRS 101 “Reduced Disclosure Framework”.
Summary of our audit approach
Key risks
The key risks that we identified in the current year were:
• Long-term contract revenue recognition and valuation of contract work in progress
• Acquisition fair value accounting and contingent consideration
• Consideration of goodwill and intangible asset impairment
• Provisions for contract disputes
Materiality
Scoping
The materiality that we used in the current year was £1 million which was determined based
on a review of a number of the Group’s financial metrics, including a number of its profit metrics
and a consideration of its net assets.
Full scope and specified audit procedures performed across the Group provided coverage of 96%
of loss before tax, 92% of revenue and 92% of net assets. The remainder of the Group was subject
to analytical review procedures.
Significant changes
in our approach
The current year risk entitled “Acquisition fair value accounting and contingent consideration”
has been adapted to reflect the acquisitions of Aaron and Precision. The Group reconstruction risk
specific to the IPO in the prior year is no longer relevant for the current year and has been removed
from our key risks.
73
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Independent auditor’s report continued
To the members of Lakehouse plc
Going concern and the directors’ assessment of the
principal risks that would threaten the solvency or liquidity of the group
We confirm that we have nothing material to add
or draw attention to in respect of these matters.
We agreed with the directors’ adoption of the going
concern basis of accounting and we did not identify
any such material uncertainties. However, because not
all future events or conditions can be predicted, this
statement is not a guarantee as to the group’s ability
to continue as a going concern.
As required by the Listing Rules we have reviewed the directors’
statement regarding the appropriateness of the going concern basis
of accounting contained within Note 2 to the financial statements and
the directors’ statement on the longer-term viability of the group
contained within the strategic report on page 29.
We are required to state whether we have anything material to add
or draw attention to in relation to:
• The directors’ confirmation on page 29 that they have carried out a
robust assessment of the principal risks facing the group, including
those that would threaten its business model, future performance,
solvency or liquidity
• The disclosures on pages 30 to 33 that describe those risks and
explain how they are being managed or mitigated
• The directors’ statement in Note 2 to the financial statements about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them and their identification of any
material uncertainties to the group’s ability to continue to do so over
a period of at least twelve months from the date of approval of the
financial statements
• The directors’ explanation on page 29 as to how they have assessed
the prospects of the group, over what period they have done so and
why they consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the group
will be able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications
or assumptions
Independence
We are required to comply with the Financial Reporting Council’s
Ethical Standards for Auditors and confirm that we are independent
of the group and we have fulfilled our other ethical responsibilities
in accordance with those standards.
We confirm that we are independent of the group and
we have fulfilled our other ethical responsibilities in
accordance with those standards. We also confirm
we have not provided any of the prohibited non-audit
services referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the efforts of the engagement team.
The current year risk entitled “Acquisition fair value accounting and contingent consideration” has been adapted to reflect the
acquisitions of Aaron and Precision in the current year and to incorporate our assessment of judgements required to be made
in respect of the fair value of contingent consideration from previous acquisitions. There was also additional work to assess
the goodwill and intangible asset impairments recorded by management.
The risk entitled ‘Provisions for Contract Disputes’ considers matters related to the legacy contract and customer issues
described in the risk entitled ‘Provisions for contract losses’ in the prior year.
The Group reconstruction risk specific to the IPO in the prior year is no longer relevant for the current year and has been
removed from our key risks.
74
Lakehouse plc Annual report 2016 Long term contract revenue recognition and valuation of contract work in progress
Risk description
The Group had total recognised revenue of £333.8 million during the year (2015: £340.2 million).
How the scope of
our audit responded
to the risk
The Construction division, where the Group predominately operates under long-term fixed price
contracts, had recognised revenue of £52.1 million (2015: £73.4 million). The Property Services
(formerly Regeneration) division, where the Group recognises revenue based on a valuation of the
work in progress with reference to a contracted schedule of rates, had recognised revenue of
£98.1 million (2015: £161.7 million).
The recognition of revenue on long-term contracts and the valuation of contract work in progress
requires significant judgement by management. This includes the determination of estimated costs
to complete, amount of margin to be recognised and the percentage of completion of the work
in progress.
Further detail on the Group’s revenue recognition policy is set out within the significant accounting policies
in Note 2 and the associated key judgements involved are set out in the critical accounting judgements
and key sources of estimation uncertainty in Note 3 to the financial statements. This is outlined as a
significant accounting matter also considered by the Audit Committee, as noted on page 50.
We performed focused testing of long-term contracts in the Construction division and contract
valuation reports in the Property Services division. We held discussions with operational management
across the Group and reviewed underlying contracts to understand and challenge the nature of the
revenue streams and the revenue recognition policies applied. Our work assessing and challenging
the key judgements made by management included:
• Testing historic forecasting accuracy of estimating contract costs, to provide assurance over
estimates made around costs to complete projects
• Reviewing and challenging changes to margin assumptions on contracts made from year to year
with reference to actual 2016 results to assess that they reflect current views on the expected
project outturn and aren’t indicative of a heightened risk of the contract becoming loss-making
• Agreeing a sample of underlying costs incurred to third party invoices and quotes
• Discussing the contract valuation report assumptions with operational management and agreeing
the valuation amounts through to the third party customer-approved valuations of the work in progress
• Agreeing margin recognised to date through to the contract valuation reports, challenging key
assumptions used with the internal quantity surveyors, and agreeing future expected cost
assumptions through to sub-contractor quotes and project budgets
75
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Independent auditor’s report continued
To the members of Lakehouse plc
Acquisition fair value accounting and contingent consideration
Risk description
The Group acquired 100% of the issued share capital of Aaron and Precision during the year
for a total consideration of £16.7 million, including £3.3 million of contingent consideration.
The total fair value of the identifiable net assets acquired was £9.5 million, of which £7.7 million
related to management’s assessment of the fair value of the separately identifiable intangible assets
acquired, excluding goodwill. Total goodwill recognised on these acquisitions was £7.3 million.
The total year-end provision for contingent consideration payable in respect of both current and
prior year acquisitions is £4.2 million (2015: £6.7 million), which is after management’s assessment
of a reduction in fair value of £2.3 million. As described in Note 35, the total amount of contingent
consideration payable could vary between £3.5 million and £6.5 million depending on the underlying
trading performance of the associated businesses.
The valuation of the separately identified intangible assets and the contingent consideration required
significant judgement and estimation, primarily around the cash flows assumed for the newly and
historically acquired businesses, the customer retention rates applied and the discount rate used.
Details of these acquisitions are provided in the Strategic Review, on pages 1 to 38. Note 2 to the
financial statements sets out the Group’s accounting policy for business combinations and Note 3
discusses the critical accounting judgements and key sources of uncertainty in respect of the fair
valuation of identifiable net assets acquired. Note 34 to the financial statements outlines details of
the acquisitions and the key assumptions in determining fair value of the acquired intangible assets.
This is outlined as a significant accounting matter also considered by the Audit Committee, as
noted on page 50.
How the scope of
our audit responded
to the risk
We tested and challenged the fair valuation of the intangible assets and the contingent consideration.
This included, but was not limited to:
•
In conjunction with our valuation specialists, recalculating an appropriate discount rate with
reference to market data and comparing that to the rate used by management
• Discussing the underlying business forecasts used with operational management at each business,
challenging forecast cash flows and customer retention rates with reference to historical evidence
of renewal and current sales to those customers
• Assessing and challenging the overall allocation between goodwill and intangible assets by
validating the benefits associated with each acquisition through review of public announcements
and discussion with senior management and comparing to the determined allocation to assess
whether the nature of the acquisitions supported the quantum of the goodwill recognised
• Agreeing the underlying earn out calculations to the terms of the SPAs and challenging the
assumptions made over the future expected earnings of the acquired businesses with contingent
consideration amounts outstanding at year-end
• Agreeing any amendments to contingent consideration terms and conditions to correspondence
with the relevant beneficiaries and lawyers, where relevant
• Validating earn out conditions not met to actual performance achieved
•
In conjunction with our valuation specialists, ensuring the discount rate used for the contingent
consideration net present value calculation was appropriate
76
Lakehouse plc Annual report 2016 Consideration of goodwill and intangible asset impairment
Risk description
At 30 September 2016 the Group had goodwill totalling £47.3 million (2015: £56.3 million) and
intangible assets totalling £21.9 million (2015: £27.2 million), relating to the ten previous acquisitions
made since 2011.
Goodwill was assessed for impairment by management using a discounted cash flow model to determine
value in use. This involved the use of a number of key assumptions and judgements, including the
forecast cash flows for the individual businesses, assumed margin levels post-integration with
Lakehouse, a long-term growth rate and the discount rate applied. In the case of the impairment
review for the Foster Property Maintenance business, management identified an impairment of
goodwill of £17.4 million.
Intangibles assets were assessed for impairment where there existed indicators of impairment, such
as the cessation of customer contracts that had been fair valued on acquisition or where the contract
had been renewed at a lower level than previously valued. This involves both a judgemental qualitative
and quantitative assessment of customer relationships and contracts, including forecast future cash
flows and assumed margins from those customers. In the case of Providor management identified a
£1.8 million impairment in respect of a customer contract intangible for a major metering customer.
Note 2 to the financial statements outlines the Group’s accounting policy for testing goodwill for
impairment on an annual basis and note 3 to the financial statements outlines the critical accounting
judgements and key sources of estimation uncertainty relating to management’s review of goodwill,
tangible and intangible assets for impairment. Note 14 to the financial statements outlines the key
assumptions relating to the goodwill impairment review performed. Note 15 to the financial statements
outlines the nature of the intangible asset impairment. This is outlined as a significant accounting
matter also considered by the Audit Committee, as noted on page 50.
How the scope of
our audit responded
to the risk
Our procedures for challenging management’s methodology and assumptions for goodwill
impairment included:
• Validating the integrity of the impairment models via reperformance of the calculations
• Performing sensitivity analysis to identify the assumptions which had the biggest impact on the
discounted cash flow model
• Understanding the underlying process used to determine the risk adjusted cash flow projections
and challenging them with reference to historical forecasts, actual performance and expected
future changes to the business, including testing of the future order book
• Working with our valuation specialists to benchmark the discount rates and perpetuity growth rates
applied to external macro-economic and market data
• Reviewing trading, including post period end trading, to verify that it supported the forecast cash
flows used in the impairment testing
• Assessing the appropriateness of the disclosures included in the financial statements
Our procedures for assessing management’s impairment assessment of intangible assets included:
• Detailed review and assessment of the underlying intangible assets in the context of business
developments during the year and future expected performance of customer contracts and relationships
• Challenge of future forecast income from customer contracts and relationships with reference to
actual results in 2016 to assess whether the recoverable amount exceeded the carrying value
• Assessing the appropriateness of the disclosures included in the financial statements
77
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Independent auditor’s report continued
To the members of Lakehouse plc
Provisions for contract disputes
Risk description
The company continues to manage a number of potential risks and uncertainties, including customer
and sub-contractor contractual claims and disputes which could have a material impact on short and
longer term performance.
At 30 September 2016 the Group recognised legal and other provisions of £4.9 million (2015: £5.3 million).
In addition, total provisions of £2.6 million against contract receivables have been recognised in the year.
Assessing the likely outcome of claims and disputes, including threatened and actual litigation,
requires significant levels of judgement. Judgement is required in both the quantum of any provision
to record but also in concluding on the nature of the associated disclosures to provide, including for
risk items where no provision has been recognised.
Pages 30 to 33 sets out details of the potential risks facing the business. Notes 7 and 24 to the
financial statements provide details of amounts provided for in respect of legal and other provisions
and specific contract receivables. This is outlined as a significant accounting matter also considered
by the Audit Committee, as noted on page 50.
How the scope of
our audit responded
to the risk
We held discussions with operational management responsible for managing these contracts as well
as divisional management, group management and the board of directors in understanding and
challenging the key judgements and estimations in the provisions recognised.
We performed focused testing of each provision calculation and assessed each claim or dispute item.
Our work assessing and challenging the key judgements made by management included:
• Discussing and challenging cost estimations with the quantity surveyors by comparing the costs
incurred to date and assessing the key judgements in their determination of the expected costs to
come where remediation work was being carried out or where valuations were yet to be agreed
• Agreeing amounts to third party documentation prepared by the quantity surveyors
• Reviewing customer and legal correspondence associated with disputes and claims
• Holding discussions with the Group’s external legal counsel, where necessary
• Obtaining legal confirmations from the Group’s lawyers dealing with the associated claims
and disputes
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.
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 both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
£1 million (2015: £1 million).
Basis for determining
materiality
Materiality was determined based on a review of a number of the Group’s financial metrics, including
a number of its profit metrics and a consideration of its net assets.
The determined level of materiality represents approximately 9% of normalised loss before tax
(“NLBT”), 3% of loss before tax (“LBT”), 2% of net assets and 0.3% of revenue.
NLBT excludes the impact of the goodwill and intangible asset impairment along with the exceptional
costs and income to reflect the underlying trading performance of the Group.
78
Lakehouse plc Annual report 2016 Rationale for the
benchmark applied
Due to the significant change in the Group’s performance from a PBT of £3.2 million in 2015 to a LBT
of £33.3 million in 2016 and the volatility caused by both underlying and one-off non-recurring items,
we considered a broader range of income statement metrics in the current year to determine an appropriate
level of materiality. Whilst the Group has moved into a significantly loss-making position in the year,
the overall size of the Group by revenue has remained broadly consistent (£333.8 million in 2016 versus
£340.2 million in 2015) so this was also considered as a relevant benchmark, along with NLBT, LBT
and EBITA. Profit-based metrics were considered appropriate benchmarks for determining materiality
because the profit performance of the Group is the main item focused on by analysts and investors, as
is typical for a listed company.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £20,000
(2015: £20,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group level.
The group’s accounting process is structured around local finance functions. Each local finance function reports into the central
Group finance function based at the Group’s head office. Based on our assessment of the Group, we focused our group audit
scope primarily on a significant business in each of the four divisions (construction, compliance, energy and property services).
All of these businesses were subject to a full audit performed by other Deloitte UK component audit teams. The Group audit
team also performed the audit work on the main trading entity in the Group, Lakehouse Contracts Limited. This includes the
entire construction division and the majority of the property services division. Audit work on the significant businesses in the
compliance and energy services divisions, along with the remaining business in property services, was performed by UK
component audit teams. We directed their audit work through issuance of referral instructions, regular status calls, site visits
and a review of their final working papers.
In addition, two other businesses were subject to specific audit procedures on material account balances, where the extent of
our testing was based on our assessment of the risks of material misstatement and of the materiality of the Group’s operations
at those businesses. The specific audit procedures were performed by other Deloitte UK component audit teams. We directed
and supervised their work in the same way as detailed above.
Our audit testing of full scope and specified balances accounted for 96% of the Group’s normalised PBT, 92% of revenue
and 92% of net assets.
The remaining entities were subject to analytical review by the Group team or other Deloitte UK component audit teams.
These entities accounted for 4% of the Group’s normalised PBT, 8% of revenue and 8% of net assets. Where newly acquired
businesses were subject to analytical review work, in addition substantive work was performed on the opening balance sheets
and acquisition fair value adjustments. Audit and analytical review work on these entities was performed at lower levels of
materiality determined by reference to the relative scale of the entity concerned. These component materiality levels were
between £400,000 and £700,000.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006
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
•
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have
not identified any material misstatements in the Strategic Report and the Directors’ Report.
79
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Independent auditor’s report continued
To the members of Lakehouse plc
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• We have not received all the information and explanations we require for our audit
We have nothing to report in respect
of these matters.
• 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
• The parent company financial statements are not in agreement with the
accounting records and returns
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of directors’ remuneration have not been made or the part
of the Directors’ Remuneration Report to be audited is not in agreement with
the accounting records and returns.
We have nothing to report arising from
these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the Corporate
Governance Statement relating to the company’s compliance with certain
provisions of the UK Corporate Governance Code.
We have nothing to report arising from
our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required
to report to you if, in our opinion, information in the annual report is:
• Materially inconsistent with the information in the audited financial statements
• Apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the group acquired in the course of performing our audit
• Otherwise misleading
In particular, we are required to consider whether we have identified any inconsistencies
between our knowledge acquired during the audit and the directors’ statement that
they consider the annual report is fair, balanced and understandable and whether the
annual report appropriately discloses those matters that we communicated to the
audit committee which we consider should have been disclosed.
We confirm that we have not
identified any such inconsistencies
or misleading statements.
80
Lakehouse plc Annual report 2016 Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). We also comply
with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality
control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional
standards review team and independent partner reviews.
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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and
have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information
in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that
is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Paul Schofield, FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Cambridge, United Kingdom
24 January 2017
81
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Consolidated statement of
comprehensive income
For the year ended 30 September 2016
Revenue
Cost of sales
Gross profit
Other operating expenses
Share of results of joint venture
Operating profit before Exceptional and Other Items
Exceptional costs
Exceptional income
Impairment of goodwill and intangible assets acquired
Amortisation of acquisition intangibles
Operating (loss)/profit
Finance expense
Investment income
(Loss)/profit before tax
Taxation
Underlying
results
before
exceptional
and other
items
2016
£’000
Exceptional
and other
items
(see Note 7)
2016
£’000
Underlying
results
before
exceptional
and other
items
2015
£’000
Exceptional
and other
items
(see Note 7)
2015
£’000
2016
£’000
2015
£’000
305,787
(265,724)
28,051
(34,335)
333,838 336,633
(300,059) (290,671)
3,565
(6,089)
340,198
(296,760)
40,063
(29,691)
537
(6,284)
(2,865)
—
(9,149)
10,909
(5,742)
—
—
2,672
— (19,204)
— (11,156)
10,909
(1,070)
46
(42,579)
(587)
—
33,779
(32,556)
537
1,760
(5,742)
2,672
(19,204)
(11,156)
(31,670)
(1,657)
46
45,962
(23,738)
—
22,224
—
—
—
—
22,224
(639)
20
(2,524)
43,438
— (23,738)
—
—
(2,524)
(8,656)
—
—
(6,465)
(17,645)
(758)
—
19,700
(8,656)
—
—
(6,465)
4,579
(1,397)
20
3,202
(816)
4
11
9,885
(1,707)
(43,166)
5,720
(33,281)
4,013
21,605
(4,116)
(18,403)
3,300
Notes
4
17
7
7
7
7
4
8
8
(Loss)/profit for the year attributable to the
equity holders of the Group
8,178
(37,446)
(29,268)
17,489
(15,103)
2,386
(Loss)/earnings per share
Basic
Diluted
Underlying earnings per share
Basic
Diluted
13
13
13
13
5.2p
5.1p
(18.6p)
(18.6p)
1.9p
1.7p
13.7p
12.3p
The accompanying notes are an integral part of this consolidated statement of comprehensive income.
82
Lakehouse plc Annual report 2016
Consolidated statement
of financial position
At 30 September 2016
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in joint venture
Trade and other receivables
Current assets
Inventories
Amounts due from customers under construction contracts
Trade and other receivables
Corporation tax receivable
Deferred tax asset
Cash and cash equivalents
Total assets
Current liabilities
Amounts due to customers under construction contracts
Trade and other payables
Loans and borrowings
Finance lease obligations
Provisions
Net current assets
Non-current liabilities
Trade and other payables
Loans and borrowings
Finance lease obligations
Provisions
Deferred tax liability
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Share-based payment reserve
Own shares
Merger reserve
Retained earnings
Equity attributable to equity holders of the Company
Notes
2016
£’000
2015
£’000
14
15
16
17
20
18
19
20
25
19
21
22
26
24
21
22
26
24
25
47,338
21,947
2,826
537
1,359
56,267
27,199
3,126
—
1,131
74,007
87,723
5,187
3,161
65,633
1,451
229
—
4,635
2,053
77,538
1,683
—
6,934
75,661
92,843
149,668 180,566
690
65,801
71
222
1,904
574
80,344
—
403
3,279
68,688
84,600
6,973
8,243
6,236
20,586
164
2,974
—
5,013
—
340
3,170
1,979
29,960
10,502
98,648
95,102
51,020
85,464
27
29
28, 29
29
29
15,753
25,314
776
(290)
20,067
(10,600)
15,753
25,314
709
(290)
20,067
23,911
51,020
85,464
The Financial Statements of Lakehouse plc (registered number 09411297) were approved by the Board of Directors and
authorised for issue on 23 January 2017. They were signed on its behalf by:
J J C Simpson
Director
The accompanying notes are an integral part of this consolidated statement of financial position.
83
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Consolidated statement
of changes in equity
For the year ended 30 September 2016
At 1 October 2014
Profit for the period
Conversion of share options
Group restructuring
Issue of share capital
Share-based payment charge
Purchase of own shares
Current tax – Excess tax deductions
related to share-based payments
Deferred tax
At 30 September 2015
Loss for the period
Dividends paid (Note 12)
Share-based payment charge
Current tax – Excess tax deductions
related to share-based payments
At 30 September 2016
Share
capital
£’000
—
—
—
12,382
3,371
—
—
—
—
15,753
—
—
—
Share
premium
account
£’000
31,820
—
628
(32,448)
25,314
—
—
—
—
25,314
—
—
—
—
—
15,753
25,314
Share-
based
payment
reserve
£’000
1,068
—
(1,205)
—
—
846
—
—
—
709
—
—
67
—
776
Own
shares
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
1
—
—
—
—
—
— 20,066
—
—
—
—
—
(290)
48,806
15,917
2,386
2,386
1,205
628
—
—
— 28,685
—
846
—
(290)
—
—
(290)
—
—
—
—
—
2,506
1,897
2,506
1,897
20,067
23,911
— (29,268)
(4,568)
—
(67)
—
85,464
(29,268)
(4,568)
—
—
—
(608)
(608)
(290)
20,067
(10,600)
51,020
84
Lakehouse plc Annual report 2016 Consolidated statement of cash flows
For the year ended 30 September 2016
Cash flows from operating activities
Cash (used in)/generated from operations
Interest paid
Interest received
Taxation
Net cash (used in)/generated from operating activities
Cash flows from investing activities
Purchase of shares in subsidiary, net of cash acquired
Purchase of property, plant and equipment
Purchase of intangible assets
Sale of property and equipment
Loan to associate
Disposal of subsidiary business
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from issue of pre-existing shares
Dividend paid to shareholders
Proceeds from bank borrowings
Repayment of bank borrowings
Repayments to finance lease creditors
Purchase of own shares
Finance issue costs
Share issue costs paid
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an integral part of this consolidated statement of cash flows.
Notes
33
2016
£’000
2015
£’000
(3,014)
(808)
46
(268)
19,099
(460)
11
(1,903)
(4,044)
16,747
(17,672)
(819)
(291)
160
(250)
—
(29,745)
(1,169)
(491)
328
—
40
(18,872)
(31,037)
— 30,000
—
975
(4,568)
—
21,000
—
— (11,667)
(237)
(290)
(472)
(1,315)
(357)
—
(164)
—
15,911
16,994
(7,005)
6,934
2,704
4,230
(71)
6,934
85
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016
Notes to the consolidated financial statements
For the year ended 30 September 2016
General information
Lakehouse plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office
is 1 King George Close, Romford, Essex RM7 7LS.
The consolidated Financial Statements are presented in Pounds Sterling because that is the currency of the primary economic
environment in which the Group operates.
1. Basis of preparation
Basis of accounting
The Group’s consolidated Financial Statements have been prepared and approved by the Directors in accordance with
International Financial Reporting Standards (‘IFRS’) as adopted by the European Union. The Financial Statements have been
prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange
for goods and services. The principal accounting policies adopted are set out below.
The following accounting policies have been applied consistently in dealing with items which are considered material in relation
to the Group’s Financial Statements except as noted below.
Adoption of new and revised standards
The accounting policies adopted are consistent with those of the previous financial year except for the following new and revised
Standards and Interpretations which have been adopted in the current year. Their adoption has not had any significant impact on
the amounts reported in these Financial Statements.
• Amendments to IFRS 10, IFRS 12 and IAS 28 Investment entities
• Amendments to IAS 1 Disclosure Initiative
• Amendments to IAS 27 Equity Method in Separate Financial Statements
• Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation
• Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations
• Amendments to IAS 16 and IAS 41 Bearer Plants
• Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
New standards and interpretations not applied
The International Accounting Standards Board and the International Financial Reporting Interpretations Committee (IFRIC) have
issued the following standards and interpretations for annual periods beginning on or after the effective dates as noted below:
IAS/IFRS standards
IFRS 9
IFRS 14
IFRS 15
Financial Instruments
Regulatory Deferral Accounts
Revenue from Contracts with Customers
IFRS 16 (issued on 13 January 2016)
Leases
Effective for accounting
periods starting on or after
1 January 20181
1 January 20161
1 January 20181
1 January 20191
Amendments to IAS 12 (issued on 19 January 2016) Recognition of Deferred Tax Assets for Unrealised Losses
1 February 20171
Amendments to IAS 7 (issued on 29 January 2016) Disclosure Initiative
Amendments to IFRS 2 (issued on 20 June 2016)
Classification and Measurement of Share-based
Payment Transactions
Amendments to IFRS 4
(issued on 12 September 2016)
Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts
1 February 20171
1 February 20171
1 February 20171
1. The mandatory adoption under EU adopting regulations has not yet been confirmed.
The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements
of the Group in future periods, except as noted below:
•
•
IFRS 15 may have an impact on revenue recognition and related disclosures
IFRS 16 will have a material impact on the reported assets, liabilities, Statement of Comprehensive Income and cash flows
of the Group. Furthermore, extensive disclosure requirements will be required by IFRS 16
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until
a detailed review has been completed.
86
Lakehouse plc Annual report 2016 2. Significant accounting policies
Basis of consolidation
The combined financial information incorporates the assets,
liabilities, income and expenses of the Group. The financial
information of the subsidiaries are prepared for the same
financial reporting period as the Company. 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. Intercompany transactions, balances and unrealised
gains and losses transitions between Group companies are
eliminated on consolidation.
As a consolidated statement of comprehensive income is
published, a separate profit and loss account for the parent
Company is omitted from the Group Financial Statements by
virtue of section 408 of the Companies Act 2006.
Going concern
The Directors have a reasonable expectation that the Company
and the Group have adequate resources to continue in operational
existence for the foreseeable future. The Directors regard the
foreseeable future as no less than 12 months following publication
of its annual Financial Statements, so in practical terms, 16 months
from the statement of financial position date. The Directors
have considered the Group’s working capital forecasts and
projections, taking account of reasonably possible changes in
trading performance and the current state of its operating
market, and are satisfied that the Group should be able to
operate within the level of its current facilities and in compliance
with the covenants arising from those facilities. Accordingly,
they have adopted the going concern basis in preparing the
financial information. Please see further information in the
strategic report on page 29.
Operating segments
The Directors regard the Group’s reportable segments
of business to be Compliance, Energy Services, Property
Services and Construction. Costs are allocated to the
appropriate segment as they arise with central overheads
apportioned on a reasonable basis. Operating segments
are presented in a manner consistent with internal reporting;
with inter-segment revenue and expenditure eliminated
on consolidation.
Business combinations
Acquisitions of subsidiaries are accounted for using the
acquisition method. The consideration transferred in a
business combination is measured at fair value, which is
calculated as the sum of the acquisition-date fair values of
assets transferred by the Group, liabilities incurred by the
Group to the former owners of the acquired company and the
equity interest issued by the Group in exchange for control of
the acquired company. Acquisition-related costs are recognised
as non-trading exceptional costs in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and
liabilities assumed are recognised at their fair value at the
acquisition date. Goodwill is measured as the excess of the
sum of the consideration transferred over the net of the
acquisition-date amounts of the identifiable assets acquired
and liabilities assumed. If, after reassessment the net of the
acquisition-date amounts of the identifiable assets acquired
and liabilities assumed exceeds the sum of the consideration
transferred, the excess is recognised immediately in profit or
loss as a bargain purchase gain.
When the consideration transferred by the Group in a business
combination includes an asset or liability resulting from a contingent
consideration arrangement, the contingent consideration is
measured at its acquisition-date fair value and included as
part of the consideration transferred in a business combination.
Changes in fair value of the contingent consideration that
qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against
goodwill. Measurement period adjustments are adjustments
that arise from additional information obtained during the
‘measurement period’ (which cannot exceed one year from
the acquisition date) about facts and circumstances that
existed at the acquisition date.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent consideration
is classified. Contingent consideration that is classified as equity
is not re-measured at subsequent reporting dates and its
subsequent settlement is accounted for within equity.
Contingent consideration that is classified as an asset or
liability is re-measured at subsequent reporting dates in
accordance with IAS 39 or IAS 37 as appropriate, with the
corresponding gain or loss being recognised in profit or loss.
Acquisition costs
Whilst the Group remains in its growth phase, management
believes that acquisition costs are exceptional in nature and
classifies them as such, so as not to distort presentation of
the underlying performance of the Group.
Goodwill
Goodwill is initially recognised and measured as set out above.
Goodwill is not amortised but is reviewed for impairment at
least annually. For the purpose 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 the 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. An impairment loss
recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit or loss on disposal.
87
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and any recognised impairment loss.
Depreciation is calculated so as to write off the cost of a tangible
asset, less its estimated residual value, over the estimated
useful economic life of that asset on the following bases:
Leasehold improvements — over the period of the lease
Plant and equipment
— 15% to 33% p.a.
Fixtures and fittings
Motor vehicles
on a straight line basis
— 20% to 33% p.a.
on a straight line basis
—
25% p.a. on a
straight line basis
The estimated useful lives, residual values and depreciation methods
are reviewed at the end of each reporting period, with the effect
of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or,
where shorter, over the term of the relevant lease.
An item of property, plant and equipment is de-recognised
upon disposal, or when no future economic benefits are expected
to arise from the continued use of the asset. The gain or loss
arising on the disposal or scrappage of an asset is determined
as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.
Exceptional and Other Items
Items which are significant by their size and nature require
separate disclosure and are reported separately in the
Statement of Comprehensive Income.
In the event that material costs or losses are included as a
consequence of undertaking a new activity within the Group,
this may be highlighted as an other item reflecting its one off
nature. This classification would apply until such reasonable
time as the activity reached a stable operating phase.
Details of Exceptional and Other Items are explained in Note 7.
Contract losses on businesses being exited
Where a business activity is being exited and, due to legacy
issues, losses are incurred in closing out contracts, management
consider such losses should be highlighted separately as
being unrelated to the ongoing activity of the Group as they
would otherwise distort the underlying earnings. Revenue and
costs associated with the business activity being exited are
presented separately from the underlying results of the Group
on the face of the statement of comprehensive income with
further details provided in Note 7.
2. Significant accounting policies continued
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortisation
and accumulated impairment losses. Amortisation is recognised
on a straight line basis over their useful lives. The estimated
useful life and amortisation method are reviewed at the end of
each reporting period, with the effect of any changes in estimate
being accounted for on a prospective basis. The estimated
useful life for each asset type is set out below.
Computer software — Three years
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and
recognised separately from goodwill are initially recognised
at their fair value at the acquisition date (which is regarded as
their cost). Intangible assets are recognised if they are separable
from the acquired entity or give rise to other contractual/legal
rights. The amounts ascribed to such intangibles are arrived at
by using suitable valuation techniques.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same
basis as intangible assets that are acquired separately.
The estimated useful economic lives and the methods used
to determine the cost of intangibles acquired in a business
combination are as follows:
Intangible asset
Useful economic life
Valuation method
Contracted customer
order book
Customer
relationships
Non-compete
agreements
Remaining period of
the contract
Six years
Five years
Expected cash
flows receivable
Expected cash
flows receivable
With or without
method
De-recognition of intangible assets
An intangible asset is de-recognised on disposal, or when no
future economic benefits are expected from use or disposal.
The gain or loss from de-recognition of an intangible asset,
measured as the difference between the net disposal proceeds
and the carrying amount of the asset; is recognised in profit or
loss when the asset is de-recognised.
88
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016
2. Significant accounting policies continued
Impairment of tangible and intangible assets
excluding goodwill
At each statement of financial position date, the Group reviews
the carrying amounts of tangible and intangible assets to determine
whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated to determine the extent of the
impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit
to which the asset belongs. When a reasonable and consistent
basis of allocation can be identified, corporate assets are also
allocated to individual cash-generating units, or otherwise they are
allocated to the smallest group of cash-generating units for which
a reasonable and consistent allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for
impairment at least annually and whenever there is an
indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted. If the
recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to
its recoverable amount. An impairment loss is recognised
immediately in profit or loss, unless the relevant asset is
carried at a revalued amount, in which case the impairment
loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to
the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior years.
A reversal of an impairment loss is recognised immediately in
profit or loss, unless the relevant asset is carried at a revalued
amount, in which case the reversal of the impairment loss is
treated as a revaluation increase.
Revenue
Revenue and profit are recognised as follows:
(a) Service contracts
Revenue is recognised when the outcome of a job or contract
can be estimated reliably; revenue associated with the transaction
is recognised by reference to the stage of completion of work
at the statement of financial position date. The outcome of the
transaction is deemed to be able to be estimated reliably when
all of the following conditions are satisfied:
• The amount of revenue can be measured reliably
•
It is probable that the economic benefits associated with
the transaction will flow to the Group
• The costs incurred for the transaction and the costs to
complete the transaction can be measured reliably
The Group has recognised revenue dependent on the nature
of transactions in line with IAS 18 ‘Revenue’. There are a range
of contractual arrangements that require consideration:
(i) Schedule of Rates (‘SOR’) contracts
SOR contracts are set based on predetermined rates for a list
of services and duties required by the customer. The billing
arrangements can range from an all-encompassing price for
each direct works, including an element of local site overhead,
central overhead and associated profit; to the price of the direct
works alone, with (where relevant) a separately agreed annual
fee for local site and central overheads. The quantum of work
performed in each period is captured and valued either against
the agreed contract terms or with reference to costs incurred
to date as a percentage of total expected costs, and the
resulting revenue is recognised.
(ii) Fixed price (or lump sum) service contracts
Certain contracts, in particular for gas servicing and maintenance,
are procured on a fixed price basis. Revenue for maintenance/
reactive activities is recognised on a straight line basis over the
life of the contract. Revenue for servicing activities is recognised
when the service is performed; however when it is impractical
for the customer and householder to sign off every job sheet,
revenue is recognised on a straight line basis. Where the
contract contains servicing and maintenance/reactive elements
and the revenue cannot be split reliably between each element
of the contract, it is recognised on a basis that most closely
reflects the phasing of the servicing provision. Costs are
recognised as incurred.
(iii) Formula based income
When income is subject to formulaic valuation, revenue is
recognised either when the valuation has been submitted to,
and agreed by, the client; or where there are time constraints
with the process for receiving agreement from the client,
revenue can be recognised if prior experience shows that
agreement will be received within one month of providing a
valid submission and invoice.
(b) Construction contracts
Revenue arising from construction contracts is recognised in
accordance with IAS 11 ‘Construction contracts’. When the
outcome can be assessed reliably, contract revenue is recognised
by reference to the stage of completion of the contract activity
at the statement of financial position date. The stage of completion
of the contract at the statement of financial position date is
assessed with reference to the costs incurred to date as a
percentage of the total expected costs.
89
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 2. Significant accounting policies continued
Revenue continued
(b) Construction contracts continued
Margin on contracts is calculated in accordance with accounting
standards and industry practice. Industry practice is to assess
the estimated final outcome of each contract and recognise
the revenue and margin based upon the stage of completion
of the contract at the statement of financial position date. The
assessment of the final outcome of each contract is determined
by regular review of the revenues and costs to complete that
contract. Consistent contract review procedures are in place
in respect of contract forecasting.
The gross amount receivable from customers for contract work
is presented as an asset for all contracts in progress for which
costs incurred, plus recognised profits (or less recognised
losses), exceed progress billings.
The gross amount repayable to or paid in advance by customers
for contract work is presented as a liability for all contracts in
progress for which progress billings exceed costs incurred
plus recognised profits (less recognised losses). Full provision
is made for losses on all contracts in the year in which the loss
is first foreseen.
(c) Other income
(i) Contract variations
Margin associated with contract variations is only recognised
when the outcome of the contract negotiations can be reliably
estimated. Costs relating to contract variations are recognised
as incurred. Revenue is recognised up to the level of the costs
which are deemed to be recoverable under the contract.
(ii) Preliminaries income and pre-contract costs
All costs relating to pre-commencement and mobilisation are
written off as they are incurred. However where there is a
contracted element within the preliminaries income to cover
such costs, revenue and margin can be recognised in line with
the contractual terms.
In the event that mobilisation costs are incurred in a new and
material activity, market and/or territory, such costs will be
highlighted on the face of the Statement of Comprehensive
Income, until such point as we achieve ‘business as usual’. This
will typically be defined as the point at which we cease hiring a
series of net new staff for the activity and reach a sustainable
level of output from those staff we have trained.
(iii) Energy brokering services
Revenue associated with the provision of energy brokering
services is provided in line with our performance obligations
to the customer over the term of the energy agreement.
Employee benefits
Retirement benefit costs
The Group contributes to the personal pension plans of certain
employees of the Group. The assets of these schemes are held in
independently administered funds. The pension cost charged
in the Financial Statements represents the contributions
payable by the Group in accordance with IAS 19.
Share-based payments
The Company has issued equity-settled share-based awards
and free shares to certain employees. The fair value of
share-based awards with non-market performance conditions
is determined at the date of the grant using a Black-Scholes
model. The fair value of share-based awards with market-related
performance conditions is determined at the date of grant using
the Monte Carlo model. Share-based awards are recognised
as expenses based on the Company’s estimate of the shares
that will eventually vest, on a straight line basis over the vesting
period, with a corresponding increase in the share option reserve.
At each statement of financial position date the Company
revises its estimates of the number of options that are expected
to vest based on service and non-market performance conditions.
The amount expensed is adjusted over the vesting period for
changes in the estimate of the number of shares that will eventually
vest. The impact of the revision of the original estimates, if any,
is recognised in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment
to equity reserves. Options with market-related performance
conditions will vest based on total shareholder return against
a selected group of quoted market comparators. Following the
initial valuation, no adjustments are made in respect of market
based conditions at the reporting date.
Employee Benefit Trust
The Company established an Employee Benefit Trust upon IPO,
whose remit is to hold Lakehouse plc shares on behalf of its
employees. The trust is wholly funded by the Group and although
legally independent is deemed to be controlled by the Group
as the trust relies on it for funding and the Company is able to
remove and appoint the trustees. The assets and liabilities of
the trust are therefore consolidated with those of the Group.
Finance income and costs
Interest receivable and payable on bank balances is credited or
charged to the statement of comprehensive income as incurred.
Finance arrangement fees and issue costs are capitalised and
netted off against borrowings. Construction borrowing costs
are capitalised where the Group constructs qualifying assets.
All other borrowing costs are written off to the statement of
comprehensive income as incurred. Notional interest payable,
representing the unwinding of the discount on long term liabilities,
is charged to finance costs and recognised as an other item on
the face of the statement of comprehensive income.
90
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 2. Significant accounting policies continued
Costs incurred in raising finance
Costs incurred in raising finance are capitalised and amortised
through the Statement of Comprehensive Income over the term
of the funding as a trading item. In the event that the associated
finance product is refinanced prior to its expiring, the unamortised
costs are treated as an other item on the face of the statement
of comprehensive income, to the extent that they are replaced
with fees and costs associated with raising the new finance.
Taxation
The tax expense represents the sum of the tax currently
payable and deferred tax.
The current tax payable is based on taxable profit for the year.
Taxable profit differs from net profit as reported in the 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 asset for current tax is calculated using tax
rates prevailing at the year end.
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the Financial Statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the statement of financial position liability method.
Deferred tax liabilities are generally recognised for all taxable
temporary differences; deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised.
Such 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 taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each
statement of financial position date and reduced to the extent
that it is no longer probable that sufficient taxable profits will
be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that have been enacted
or substantively enacted at the statement of financial position
date. Deferred tax is charged or credited in the statement of
comprehensive income, except when it relates to items charged
or credited in other comprehensive income, in which case the
deferred tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in
which the Group expects, at the end of the reporting period,
to recover or settle the carrying amount of its assets and
liabilities. Deferred tax assets and liabilities are offset when
there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income
taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the
current and deferred tax are also recognised in other comprehensive
income or directly in equity, respectively. When current tax or
deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the
business combination.
Inventories
Inventories and work in progress, are stated at the lower of
cost and net realisable value. Cost comprises direct materials
and, where appropriate, labour and overheads which have
been incurred in bringing the inventories and work in progress
to their present location and condition. Net realisable value
represents the estimated selling price less all estimated costs
of completion and costs to be incurred in marketing, selling
and distribution. Provision is made, where appropriate, to
reduce the value of inventory to its net realisable value.
Property in the course of development and completed units are
stated at the lower of cost and net realisable value. Direct cost
comprises the cost of land, raw materials and development
costs but excludes indirect overheads.
Joint venture
Under IFRS 11 we account for joint ventures under the equity
method of accounting. Loans receivable and investments in joint
venture entities are reviewed for impairment at each year end.
Provisions
Provisions are recognised when the Group has a present legal
or constructive obligation as a result of a past event, and where
it is probable that the Group will be required to settle that
obligation and the amount can be reliably estimated. The
amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
statement of financial position date, taking into account the
risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle
the present obligation, its carrying amount is the present value
of those cash flows (when the time value of money is material).
Contingent liabilities acquired in a business combination are
initially valued at fair value at the acquisition date. At the end
of subsequent reporting periods, such contingent liabilities are
measured at the higher of the amount that would be recognised
in accordance with IAS 37 and the amount initially recognised.
91
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance (d) Trade and other payables
Trade and other payables are not interest bearing and are stated
initially at fair value and subsequently held at amortised cost.
(e) Bank and other borrowings
Interest-bearing bank and other loans are recorded at the fair
value of the proceeds received, net of direct issue costs. Finance
charges, including premiums payable on settlement or redemption
and direct issue costs, are accounted for at amortised cost
and on an accruals basis in the statement of comprehensive
income using the effective interest method. Interest is added
to the carrying value of the instrument to the extent that they
are not settled in the period in which they arise.
(f) Derivative financial instruments
Derivatives are initially recognised at fair value on the date that
the contract is entered into and subsequently re-measured
in future periods at their fair value. They are held at fair value
through profit or loss and are re-measured at each reporting
date with the movement being recognised in the statement of
comprehensive income.
(g) Financial liabilities and equity
Financial liabilities and equity are classified according to the
substance of the financial instrument’s contractual obligations
rather than the financial instrument’s legal form. An equity
instrument is any contract that evidences a residual interest
in the assets of the Group after deducting all of its liabilities.
(h) Equity instruments
Equity instruments issued by the Company are recorded
at the proceeds received, net of direct issue costs.
Operating leases
Amounts due under operating leases are charged to
the statement of comprehensive income in equal annual
instalments over the period of the lease.
Finance leases
Assets held under finance leases are recognised as assets of
the Group at their fair value or, if lower, at the present value of
the minimum lease payments, each determined at the inception
of the lease. The corresponding liability to the lessor is included
in the statement of financial position as a finance lease obligation.
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. Finance
charges are charged directly against income, unless they are
directly attributable to qualifying assets, in which case they are
capitalised in accordance with the Group’s general policy on
borrowing costs.
2. Significant accounting policies continued
Financial instruments
Financial assets and financial liabilities are recognised on the
Group’s statement of financial position when the Group becomes
a party to the contractual provisions of the instrument. The
principal financial assets and liabilities of the Group are as follows:
(a) Loans and receivables
Trade receivables, loans and other receivables that have fixed
or determinable payments that are not quoted in an active market
are classified as loans and receivables. Trade receivables do
not carry any interest and are stated at their initial value reduced
by appropriate allowances for estimated irrecoverable amounts.
Provisions against trade receivables and amounts recoverable
on contracts are made when objective evidence is received
that the Group will not be able to collect all amounts due to
it in accordance with the original terms of those receivables.
The amount of the write down is determined as the difference
between the assets carrying amount and the present value of
estimated future cash flows. Individually significant balances
are reviewed separately for impairment based on the credit
terms agreed with the customer. Other balances are reviewed
in aggregate.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with a maturity of three months or less. Bank overdrafts
are presented as current liabilities to the extent that there is no
right of offset with cash balances.
(c) Investments
Investments in subsidiary undertakings are stated at cost less
any provision for impairment. Any contingent consideration is
recognised as an accrual at the acquisition date and is measured
at the present value of the expected settlement using a pre-tax
discount rate that reflects current market assessment of the
time value of money. The increase in the accrual due to the
passage of time is recognised as a non-trading interest expense.
Any change to the value of contingent consideration identified
within 12 months of the acquisition date is reflected in the
original cost of the investment. Subsequent changes to the
value of contingent consideration are reflected in the statement
of comprehensive income.
The Company assesses investments for impairment whenever
events or changes in circumstances indicate that the carrying
value of an investment may have suffered an impairment loss.
If any such indication exists, the Company makes an estimate
of the recoverable amount. The recoverable amount is the higher
of fair value less costs to sell and value in use. Value in use
represents the discounted net present value of expected future
cash flows. If the recoverable amount is less than the value of
the investment, the investment is considered to be impaired
and is written down to its recoverable amount, and an impairment
loss is recognised immediately in the statement of comprehensive
income of the Company.
92
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 2. Significant accounting policies continued
Nature and purpose of each reserve in equity
Share capital is determined using the nominal value of shares
that have been issued.
Share premium represents the difference between the nominal
value of shares issued and the fair value of the total
consideration receivable at the issue date.
Equity-settled share-based employee remuneration is credited
to the share-based payment reserve until the related share
options are exercised. Upon exercise the share-based payment
reserve is transferred to retained earnings.
The merger reserve has been created in relation to the
Group reorganisation under IFRS 3, in which Lakehouse plc
replaced Lakehouse Holdings Limited as the Group’s ultimate
parent Company.
3. Critical accounting judgements
and key sources of uncertainty
In the application of the Group’s accounting policies, which are
described in Note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amount of assets
and liabilities that are not readily apparent from other sources.
These estimates and associated assumptions are based on
historical experience and other factors that are considered
to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects
only that period, or if the period of the revision and future periods
if the revision affects both current and future periods.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty at the statement of financial position
date, that may have a significant risk of causing material
adjustment to the carrying amounts of assets and liabilities
within the next financial year, are discussed below.
(i) Fair value of identifiable net assets acquired
Upon acquisition of a business, its identifiable assets and
liabilities are assessed to determine their fair value. The values
attributed to assets and liabilities as part of this process are,
where appropriate, based on management’s experience and
assessments including comparison to the carrying value of
assets of a similar condition and age in the existing business.
The accounting for the acquisitions in the period and the
comparative period involved identifying and determining the
fair values to be assigned to the identifiable assets, liabilities
and contingent liabilities acquired and the cost of acquisition.
The determination of fair values involved some key judgements
and estimates, particularly in relation to the fair value of work
in progress, other intangibles and deferred consideration.
The key judgements and estimates made in determining the fair
value of other intangibles were:
• An estimation of cash arising from future revenues and profit
derived from the asset where this method is used to assess
the fair value of the asset. The estimate will itself depend on
key assumptions
• The appropriate discount factor to apply to cash flows
to determine the net present value of the cash flows
•
Identification of and judgements around the uncertainties
of the valuation model and its sensitivity to error in its
key assumptions
The key judgements and estimates made in determining the fair
value of deferred consideration were:
• The appropriate discount factor
• An estimation of future revenues and profit of the related
businesses which determine the amount of the future
consideration to be paid
•
Identification of and judgements around the uncertainties
of the valuation model and its sensitivity to error in its
key assumptions
(ii) Impairment of goodwill, tangible and intangible assets
The Group reviews the valuation of goodwill, other intangibles
and tangible assets for impairment annually or if events and
changes in circumstances indicate that the carrying value may
not be recoverable. The recoverable amount is determined based
on value-in-use. See Notes 14 and 15 for key assumptions used
in performing these impairment reviews in the current year.
(iii) Fair valuation of contingent consideration payable
on acquisitions
At the point of acquisition and at each subsequent period end,
management determines the fair value of contingent consideration
payable. This requires a number of judgements around:
• An appropriate discount rate to use
• An estimation of future profits of the related businesses,
as it impacts the calculation of the contingent consideration
set out in the sale and purchase agreement
Note 35 sets out further details of the range of potential estimation
uncertainty that exists in respect of contingent consideration.
Critical accounting judgements
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately above),
that the Directors have made in the process of applying the
Group’s accounting policies and that have the most significant
effect on the amounts recognised in the Financial Statements.
(i) Revenue and profit recognition
Revenue is recognised based on the stage of completion of job
or contract activity. Certain types of service provision pricing
mechanisms require minimal judgement; however, service
provision lump sum construction and construction-type contracts
do require judgements and estimates to be made to determine
the stage of completion and the expected outcome for the
individual contract.
93
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance • Energy Services: we offer a range of services in the energy
efficiency sector, including external, internal and cavity wall
insulation, loft insulation, gas central heating and boiler
upgrades. The services are offered under various energy
saving initiatives including the Energy Company Obligation
(“ECO”) and the Scottish Government’s HEEPS (“Home
Energy Efficiency Programme for Scotland”) Affordable
Warmth programme. Clients include housing associations,
social landlords, local authorities and private householders
and we have trading relationships with the “big six” utility
and other leading utility suppliers. We also provide renewable
technologies, metering services and energy advisory and
brokerage services to customers throughout the UK
• Property Services: formerly called “Regeneration” and
focused on planned and responsive maintenance services
for social housing. A significant part of our services is the
project managing delivery and ongoing resident liaison in
delivering planned services such as new kitchens, bathrooms,
roofs and windows. The segment also has a small responsive
maintenance business. We contract with customers
predominantly under framework agreements, where the
number of suppliers will vary from one to a small group.
The segment formerly included a directly delivered
‘externals’ business that the Board decided to close in 2016
• Construction: focused on small to medium sized building
projects, normally under framework agreements with an
emphasis on the education sector. The business targets
refurbishment projects for public buildings with a typical
value of £3.5m to £4.0m and tends to avoid large scale
building projects. The segment also formerly included a
social housing development business, which we exited in
2015 and in relation to which, contract losses were disclosed
separately so as not to distort the underlying trading
position of the Group and the Construction segment
The accounting policies of the reportable segments are the
same as those described in the accounting policies section.
All revenue and profit is derived from operations in the
United Kingdom only.
The profit measure the Group used to evaluate performance is
underlying EBITA. Underlying EBITA is defined as operating
profit before deduction of Exceptional and Other Items, as
outlined in Note 7 and on the face of the statement of
comprehensive income.
The Group accounts for inter-segment trading on an arm’s length
basis. All inter-segment trading is eliminated on consolidation.
3. Critical accounting judgements and key
sources of uncertainty continued
Critical accounting judgements continued
(ii) Valuation of accrued revenue and amounts recoverable
under construction contracts
The key judgements and estimates in determining the
recoverable amounts of accrued revenue arising from
construction and non-construction contracts were:
• An estimation of work completed by subcontractors,
as yet unbilled
• An estimation of costs to complete
• An estimation of remaining revenues
(iii) Valuation of contract disputes
We continue to manage a number of potential risks and
uncertainties, including claims and disputes, which are
common to other similar businesses which could have a
material impact on short and longer term performance.
The Board remains focused on the outcome of a number
of contract settlements on which there is a range of
outcomes for the Group in terms of both cash flow and
impact on the Statement of Comprehensive Income.
In quantifying the likely out turn for the Group, the key
judgements and estimates will typically include:
• An estimation of liability based on commercial and/or
legal assessment
• Fair value assessment of Statement of Financial Position item
• A commercial assessment of potential further liabilities
These assessments include a degree of uncertainty and therefore
if the key judgements change, further adjustments of recoverable
amounts may be necessary.
4. Operating segments
The Group’s chief operating decision maker is considered to
be the Board of Directors. The Group’s operating segments
are determined with reference to the information provided to
the Board of Directors in order for it to allocate the Group’s
resources and to monitor the performance of the Group.
The Board of Directors has determined an operating management
structure aligned around the four core activities of the Group,
with the following operating segments applicable:
• Compliance: focused on gas, fire, electrics, air and water
and lift compliance activities, where we contract
predominantly under framework agreements. Services
comprise the following:
•
Installation, maintenance and repair-on-demand of gas
appliances and central heating systems
• Compliance services in the areas of fire protection
and building electrics
• Air and water hygiene solutions
• Service, repair and installation of lifts
94
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 4. Operating segments continued
The following is an analysis of the Group’s revenue and
underlying EBITA by reportable segment:
5. (Loss)/profit before taxation
(Loss)/profit on ordinary activities before taxation is stated after
charging/(crediting):
Revenue
Compliance
Energy Services
Property Services
Construction
Total segment revenue
Inter-segment elimination
Total underlying revenue
Mobilisation of smart metering
Contract revenue on businesses
being exited
2016
£’000
2015
£’000
91,023
67,436
98,143
52,051
36,625
68,047
161,733
73,439
308,653 339,844
(3,211)
(2,866)
305,787 336,633
2,803
—
25,248
3,565
Revenue from external customers
333,838
340,198
Intra segment trading comprises services provided by the
Compliance segment for the Property Services segment and
are charged at prevailing market prices.
Reconciliation of underlying EBITA to (loss)/profit
before taxation
2016
£’000
2015
£’000
2016
£’000
2015
£’000
63,258
Amount of inventories recognised as
an expense
Depreciation of property, plant
and equipment
1,222
– owned
371
– held under finance leases
Amortisation of intangible assets (Note 15) 11,508
Impairment of goodwill and intangible
assets acquired (Note 14 and 15)
Staff costs (Note 9)
Equity-settled share-based payments
(Note 9)
Operating lease rentals:
– land and buildings
– other
Profit on disposal of property, plant
and equipment
19,204
85,828
1,354
2,276
—
(95)
42,984
786
231
6,841
—
57,392
846
900
1,140
(99)
6. Auditor’s remuneration
The analysis of the auditor’s remuneration is as follows:
2016
£’000
2015
£’000
Underlying EBITA by segment
Compliance
Energy Services
Property Services
Construction
Central
6,169
8,026
780
3,606
(7,672)
10,909
Total underlying EBITA
(2,493)
Mobilisation of smart metering contracts
Contract losses on businesses being exited (6,656)
(5,742)
Exceptional costs
2,672
Exceptional income
Impairment of goodwill and
intangible assets acquired
Amortisation of acquisition intangibles
(19,204)
(11,156)
Operating (loss)/profit
Finance costs
Investment income
(31,670)
(1,657)
46
4,509
9,570
10,510
4,838
(7,203)
22,224
—
(2,524)
(8,656)
—
—
(6,465)
4,579
(1,397)
20
Fees payable to the Company’s auditor
and their associates for audit services to
the Group:
– The audit of the Company’s
annual accounts
– The audit of the Company’s subsidiaries
Total audit fees
Fees payable to the Company’s auditor
and their associates for other services to
the Group:
– Taxation compliance services
– Taxation advisory services (corporate tax
and indirect tax)
– Other assurance services
(interim review)
– Corporate finance services (IPO)
(Loss)/profit before taxation
(33,281)
3,202
Total non-audit fees
The improvement to IFRS 8 issued in April 2009 clarified that
a measure of segment assets should be disclosed only if that
amount is regularly provided to the chief operating decision
maker. Only the Group consolidated statement of financial
position is regularly reviewed by the chief operating decision
maker and consequently no segment assets or liabilities are
disclosed here under IFRS 8.
None of the Group’s major customers accounted for more
than 10% of Group revenue for 2016 or 2015.
55
269
324
—
48
22
—
70
50
236
286
40
226
29
830
1,125
95
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 7. Exceptional and other items, including
amortisation of acquisition intangibles
Contract losses on businesses being exited
Smart metering mobilisation costs
Total ‘Other Items’
Acquisition costs
Contract costs
Impairment of receivables
Restructuring
IPO costs
Total exceptional costs
Release of deferred consideration
Total exceptional costs, net of
exceptional income
Impairment of goodwill and
intangible assets acquired
Amortisation of acquisition intangible assets
Unamortised financing costs
included in finance expense
Unwinding discount of deferred consideration
Loss before taxation
Taxation
Loss after taxation
2016
£’000
6,656
2,493
9,149
642
—
2,567
2,533
—
5,742
(2,672)
2015
£’000
2,524
—
2,524
803
2,891
—
832
4,130
8,656
—
3,070
8,656
19,204
11,156
—
6,465
42,579
17,645
—
587
355
403
43,166
(5,720)
18,403
(3,300)
37,446
15,103
Exceptional and other items in the year reduced the Group’s
profit after tax by £37.5m and relate to the following items:
Contract losses on businesses being exited
At the half year, we highlighted operational challenges in
our directly delivered externals business managing growth
in this work, in particular inventory, staff and site contractors.
This business comprised two departments – Roofing and
Energy South (managed by the Lakehouse Property Services
team, but reported in 2015 segmentally as part of Energy
Services). In May 2016, we instigated an operational
improvement programme, focused on managing a balanced
position of risk and return on capital. The conclusion was to
close both departments as the risks of delivering this work
directly were too great and, following the operational review,
it was determined by the Board to exit these operations.
The total losses on the contracts within these businesses are
expected to amount to £6.6m pre-tax (on revenues of £25.3m),
which have been excluded from the underlying result and reported
as Other Items. These activities made a £2.4m profit on revenues
of £28.4m in 2015, when they were included within the underlying
results. The comparative figure for 2015 was £2.5m, representing
further costs incurred on certain legacy contracts of our now
ceased social housing development business (reported under
the Construction division).
Smart metering mobilisation costs
Smart metering mobilisation costs of £2.5m (revenue of £2.8m)
(2015: £nil) represent costs associated with training and retaining
engineers, along with mobilisation complexities to do with
planning work, documenting installations, inventory management
and systems development. These are very significant in the context
of the profits of the Energy Division and are non-recurring
costs to be incurred at the start of the contract, as such; they
have been separately highlighted as an ‘Other Item’.
Exceptional costs and income
Acquisition costs comprise legal, professional and other expenditure
in relation to acquisition activity during the year and amounted
to £0.6m (2015: £0.8m).
Contract costs of £nil (2015: £2.9m) relate to exceptional
remediation expenses associated with the resolution of historic
matters on a specific contract (‘The Contract’).
Impairment of receivables of £2.6m (2015: £nil) reflects
the provision taken against receivables in relation to a small
number of contract settlements on which there is a range of
possible outcomes for the Group in terms of both cash flow
and impact on the Statement of Comprehensive Income.
This predominantly relates to a sum receivable within Property
Services relating to The Contract, discussed above. This is a
matter that has been ongoing since 2014 and does not reflect
underlying trading in the year. A small element related to the
withdrawal from industrial & commercial metering activities,
discussed above in the Energy Services operational review.
The provisions were made in line with the Group’s accounting
policy for receivables, but highlighted as an exceptional item in
light of their unusual nature. Management will continue to seek
a full and advantageous settlement for the Group.
We incurred a £2.5m charge in relation to restructuring and
EGM costs in the year. In May 2016, we indicated an operational
improvement programme would be initiated by the Board to
focus initially on the Property Services Division, in which we
made significant progress during the second half of the year.
The Group recorded a £1.0m exceptional cost to cover the costs
of redundancy for over 100 staff associated with this exercise,
which included the rationalisation of certain central functions.
There has also been a great deal of change at Board level this
year and the Group took a charge of £1.5m associated with the
departure of former directors, the two Extraordinary General
Meetings held during the year and other one-off expenses. The
prior year item of £0.8m related to the write-off of certain fixed
assets and legal fees in relation to reshaping the Group structure.
IPO costs of £nil (2015: £4.1m) comprise legal, professional
and incidental expenditure incurred in relation to the IPO.
Release of deferred consideration of (£2.6m) (2015: £nil) relates
to the renegotiation of sums due to the former owners of H2O
Nationwide Limited (£0.6m) and no further sums being due
to the former owners of Providor Limited (£1.5m) and Sure
Maintenance Limited (£0.5m), in light of the requisite
performance conditions under the Sale and Purchase
Agreement not being met.
96
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 7. Exceptional and other items, including
amortisation of acquisition intangibles continued
Impairment of goodwill and intangible assets acquired
Impairment of goodwill and intangible assets acquired was
£19.2m for the year (2015: £nil) relating to the write-off of £17.4m
of goodwill in relation to Foster Property Maintenance Limited
and £1.8m in relation to the contract a major industrial and
commercial customer, previously recognised in acquisition
intangibles associated with Providor Limited. Further background
is provided in the Financial review in Notes 14 and 15.
Amortisation of acquisition intangibles
Amortisation of acquisition intangibles was £11.2m for the year
(2015: £6.5m), with the increase reflecting a full year impact of
H2O Nationwide, Providor, Orchard Energy and Sure Maintenance
together with the acquisitions of Aaron Services and Precision
Lift Services during the year.
Accelerated amortisation of financing costs
Finance costs of £nil (2015: £0.4m) represent the write off of
unamortised costs on the term loan we replaced with a new
revolving credit facility in December 2014, ahead of the IPO.
Unwinding discount of deferred consideration
Unwinding discount of deferred consideration reflects the present
value of deferred sums. Contingent consideration is discounted
at a post-tax rate of 8.5%, due on outstanding payments for
acquisitions. Non-contingent deferred cash consideration is
discounted at a post-tax rate of between 2% and 3%.
The costs discussed above are considered non-trading because
they are not part of the underlying trading of the Group and
in the case of exceptional items, impairment of goodwill and
accelerated amortisation of finance costs are not expected to
recur year to year. Contract losses on businesses being exited
relates to departments that have been closed and in the case
of smart metering mobilisation costs reflect the one off nature
of mobilizing our new domestic smart metering programme.
Risk Management
We continue to manage a number of potential risks and
uncertainties, including claims and disputes, which are common
to other similar businesses which could have a material impact
on short and longer term performance. The Board remains focused
on the outcome of a number of contract settlements on which
there is a range of outcomes for the Group in terms of both cash
flow and impact on the Statement of Comprehensive Income.
In quantifying the likely out turn for the Group, the key
judgements and estimates will typically include:
• An estimation of liability based on commercial and/or
legal assessment
• Fair value assessment of a Statement of Financial Position item
• A commercial assessment of potential further liabilities
8. Investment income and expenditure
Investment income
Bank interest receivable
Fair value gain on interest rate
hedge arrangement
Other interest receivable
Finance expenses
Interest payable on bank overdrafts and loans
Unwinding of discount on financial liabilities
Fair value loss on interest rate
hedge arrangement
Other interest payable
2016
£’000
2015
£’000
4
—
42
46
11
9
—
20
(1,014)
(587)
(986)
(411)
(42)
(14)
—
—
(1,657)
(1,397)
9. Information relating to employees
The average number of employees, including Directors,
employed by the Group during the year was:
Direct labour and contract management
Administration and support
The aggregate remuneration was as follows:
Wages and salaries
Social security
Pension costs — defined contribution plans
Equity-settled share-based payments
2016
Number
1,393
1,003
2,396
2016
£’000
76,976
7,706
1,146
—
2015
Number
1,022
853
1,875
2015
£’000
51,638
5,087
667
846
85,828
58,238
10. Retirement benefit obligations
The Group contributes to the personal pension plans of
certain employees of the Group and to a workplace pension
scheme for other employes, in compliance with automatic
enrolment legislation. The assets of these schemes are held
in independently administered funds. The Group paid
£1,146,000 in the year ended 30 September 2016
(2015: £667,000). At the reporting date, £165,970 of
contributions was payable to the funds (2015: £88,505).
97
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 11. Tax on (loss)/profit on ordinary activities
Current tax
Current year
Current tax – prior year adjustment
Total current tax
Deferred tax (Note 25)
2016
£’000
2015
£’000
151
(173)
(22)
(3,991)
2,200
(324)
1,876
(1,060)
12. Dividends
The proposed final dividend for the year ended 30 September
2016 of 0.5 pence per share amounting to £0.8m and representing
a total dividend of 1.5 pence for the full year (2015: 1.9 pence
per share), will be paid on 6 April 2017 to the shareholders
on the register at the close of business on 10 March 2017.
The proposed final dividend is subject to approval by shareholders
at the Annual General Meeting and has not been included as
a liability in these financial statements.
Total tax on (loss)/profit on ordinary activities
(4,013)
816
The tax assessed for the year is lower/higher than the standard rate
of corporation tax in the UK. The differences are explained below:
13. Earnings per share
The calculation of the basic and diluted earnings per share
is based on the following data:
2016
£’000
2015
£’000
2016
Number
2015
Number
Weighted average number of
ordinary shares for the purposes
of basic loss/earnings per share
Diluted
Effect of dilutive potential
ordinary shares:
Share options
Weighted average number of
ordinary shares for the purposes
of diluted loss/earnings per share
157,527,103
127,776,310
2,897,178
14,122,892
160,424,281 141,899,202
(Loss)/earnings for the purpose of
basic and diluted earnings per share
being net profit attributable to the
owners of the Company (£’000)
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Earnings for the purpose of
underlying earnings per share being
underlying net profit attributable to
the owners of the Company (£’000)
Adjusted basic earnings per share
Adjusted diluted earnings per share
(29,268)
(18.6p)
(18.6p)
2,386
1.9p
1.7p
8,178
5.2p
5.1p
17,489
13.7p
12.3p
The number of shares in issue at 30 September 2016
was 157,527,103.
The weighted average number of Ordinary shares in issue
during the year excludes those accounted for in the own
shares reserve (Note 29).
(33,281)
3,202
(Loss)/profit before tax
Effective rate of corporation tax in the UK 20.00% 20.50%
(Loss)/profit before tax at the effective rate
of corporation tax
Effects of:
Expenses not deductible for tax purposes
Adjustment of deferred tax to closing tax rate
Current tax — prior year adjustment
Deferred tax — prior year adjustment
Deferred tax asset not recognised
3,043
(268)
(173)
(154)
195
419
35
(324)
29
—
(6,656)
657
Tax (credit)/charge for the year
(4,013)
816
In addition to the amounts charged to the consolidated
statement of comprehensive income, the following amounts
relating to tax have been recognised directly in equity:
Current tax — excess deductions related to
share-based payments on exercised options
Deferred tax (Note 25)
2016
£’000
2015
£’000
—
(608)
2,506
1,897
Changes in estimated excess tax deductions
relating to share based payments
(608)
4,403
Factors that may affect future charges
The Finance (No 2) Act 2015, which provides for reductions
in the main rate of corporation tax from 20% to 19% effective
from 1 April 2017 and to 18% effective from 1 April 2020, was
substantively enacted on 26 October 2015. Subsequently, the
Finance Act 2016, which provides for a further reduction in the
main rate of corporation tax to 17% effective from 1 April 2020,
was substantively enacted on 6 September 2016. These rate
reductions have been reflected in the calculation of deferred
tax at the statement of financial position date.
The closing deferred tax asset at 30 September 2016 has
been calculated at 17% reflecting the tax rate at which the
deferred tax asset is expected to be utilised in future periods.
98
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 14. Goodwill
At 1 October 2015
Recognised on acquisition of Aaron Heating Services Limited (Note 34)
Recognised on acquisition of PLS Holdings Limited (Note 34)
Impairment of Foster Property Maintenance Limited
Adjustment to goodwill of Providor Limited
Adjustment to goodwill of Orchard (Holdings) UK Limited
Adjustment to goodwill of Sure Maintenance Group Limited
At 30 September 2016
£’000
56,267
3,667
3,626
(17,421)
446
602
151
47,338
Goodwill arising on consolidation represents the excess of the fair value of the consideration transferred over the fair value of the
Group’s share of the net assets of the acquired subsidiary at the date of acquisition.
The adjustments relating to businesses acquired in the previous year relate to finalisation of fair value accounting within 12 months
of being acquired.
Goodwill is not amortised but is reviewed for impairment on an annual basis or more frequently if there is an indication that goodwill
may be impaired. Goodwill acquired in a business combination is allocated to cash-generating units (‘CGUs’) according to the
level at which management monitors that goodwill.
Goodwill is carried at cost less accumulated impairment losses.
The carrying value of goodwill is allocated to the following CGUs:
CGU
K&T Heating Services Limited
Allied Protection Limited
Foster Property Maintenance Limited
Everwarm Ltd
H2O Nationwide Limited
Providor Limited
Orchard (Holdings) UK Limited
Sure Maintenance Group Limited
Aaron Heating Services Limited
PLS Holdings Limited
Segment
Compliance
Compliance
Property Services
Energy Services
Compliance
Energy Services
Energy Services
Compliance
Compliance
Compliance
2016
£’000
3,774
3,717
—
17,476
2,209
3,037
5,607
4,225
3,667
3,626
2015
£’000
3,774
3,717
17,421
17,476
2,209
2,591
5,005
4,074
—
—
47,338
56,267
An asset is impaired if its carrying value exceeds the unit’s recoverable amount which is based upon value in use. At each reporting
date impairment reviews are performed by comparing the carrying value of the CGU to its value in use. At 30 September 2016
the value in use for each CGU was calculated based upon the cash flow projections of the latest Board approved three-year
forecasts together with a further two years estimated and an appropriate terminal value based on perpetuity. This is discussed
further below.
Future budgeted and forecast profits are estimated by reference to detailed bottom-up budgeting process undertaken by the Group.
The estimated growth rates are based on past experience and knowledge of the individual sector’s markets. The Directors
believe that the Group’s core markets of social housing, public buildings, education and energy services, underpinned by
Government policy, will continue to present strong growth opportunities for the CGUs outlined above respectively. Management
believe that future growth in these markets is underpinned by a number of factors including:
• A pipeline of new tenders
• Further opportunities to work with other Group companies
• Client demand for safe buildings
• Adjacent market opportunities
99
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 14. Goodwill continued
The assumptions used in the impairment reviews at 30 September 2016 are outlined below:
For years one to three the value in use calculation is based on the latest board approved three-year forecasts, which are adjusted
for non-cash items. The growth rates applied in these first three years varies by business, but sit in a range between 1% and
29% for revenue growth. The growth rate applied to the cash flows in years four and five was 2% (2015: 2%). A terminal growth
rate of 1% (2015: 1%) was applied. The pre-tax discount rate applied was 11.4% (2015: 10.3%), with the post-tax discount rate
being 9.5% (2015: 8.5%). A sensitivity analysis has been completed; this was based on a reduction in revenue of 20% per year,
a reduction in operating profit margin of between 1% and 3% and an increase in the discount rate of 1%. The directors consider
that reasonably possible changes in the key assumptions would not cause the carrying amount to exceed its recoverable amount.
As outlined in our trading statement of 1 February 2016, the Group is operating against a backdrop of active cost reductions
taking place within client organisations, resulting in part from a requirement for social landlords to reduce rents by 1% p.a. for the
next four years. This was particularly felt within the Property Services division. Despite our success in securing positions on key
frameworks, including resecuring Eastern Procurement, the expected level of tenders from these frameworks has not materialised
at the rate previously expected. On reviewing the expected cash flows for Foster Property Maintenance, management concluded
that they were not sufficient to maintain any Goodwill. There was no Goodwill elsewhere in the Property Services division.
Following a detailed review, and based on the latest board approved three-year forecasts (which assume modest revenue growth
of approximately 1% per year and some marginal EBITA improvement) and a growth rate in EBITA of 1.5% in years four and five
with a terminal growth rate of 0.75% the goodwill in Foster Property Maintenance was written off in the year, resulting in a charge
of £17.4m; the determined remaining recoverable amount of CGU was £2.9m which was determined with reference to a ‘value
in use’ basis. The pre-tax discount rate used was 12.5% (2015: 10.3%), reflecting the increased level of risk associated with the
forecast trading position. A 100 basis point increase in the discount rate would reduce the value in use by 8%, whereas a 50 basis
point adjustment to the years four to five growth rates or the terminal growth rate would have a 3% impact on the value in use.
Acquisition intangibles
Computer
software
£’000
Contracted
customer
order book
£’000
Customer
relationships
£’000
Non-
compete
agreements
£’000
1,322
—
291
(2)
24,338
2,212
—
—
13,772
4,588
—
—
2,508
950
—
—
Total
£’000
41,940
7,750
291
(2)
1,611
26,550
18,360
3,458
49,979
702
352
—
—
9,818
6,616
1,783
—
1,054
18,217
4,045
3,663
—
—
7,708
176
877
—
—
14,741
11,508
1,783
—
1,053
28,032
557
620
8,333
10,652
2,405
21,947
14,520
9,727
2,332
27,199
15. Other intangible assets
Cost
At 1 October 2015
Recognised upon acquisition
Additions
Disposals
At 30 September 2016
Amortisation
At 1 October 2015
Amortisation charge
Impairment
Disposals
At 30 September 2016
Carrying value
At 30 September 2016
At 30 September 2015
100
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 15. Other intangible assets continued
Contracted customer order book
The value placed on the order book is based upon the cash flow projections over the contracts in place when a business is acquired.
Due to uncertainties with trying to forecast revenues beyond the contract term, the Directors have valued contracts over the
contractual term only. The value of the order book is amortised over the remaining life of each contract which typically range
from one to five years.
As we outlined in our trading statement of 2 August 2016, the Group’s former major metering customer, in the industrial
and commercial sector, decided to take installation in house during the year, following a number of acquisitions among our
competitors. The customer contract had been valued at £1.8m within the contracted customer order book in Providor Limited
and in light of the customer’s actions, this sum was impaired during the year, in light of no further cash flows being anticipated
to arise from this arrangement.
Customer relationships
The value placed on the customer relationships are based upon the non-contractual expected cash inflows forecast on the base
business over and above contracted revenues. The value of customer relationships is amortised over five years.
Non-compete agreement
The value placed on the non-compete agreements are based upon the non-compete clause and knowledge and know-how
of the former owners of the acquired businesses. The value of non-compete is amortised over five years.
The annual post-tax discount rate employed in the calculation of the acquisition intangibles is 13.00% (2015: 13.00%) which
is higher than the Group WACC used for impairment purposes to reflect the added risks associated with the valuation of an
intangible asset in isolation from a business.
16. Property, plant and equipment
Leasehold
improvements
£’000
Plant &
equipment
£’000
Fixtures and
fittings
£’000
Motor
vehicles
£’000
Cost
At 1 October 2015
Acquisition in the year
Additions
Disposals
At 30 September 2016
Depreciation
At 1 October 2015
Charge for the year
Disposals
At 30 September 2016
Net book value
At 30 September 2016
At 30 September 2015
1,076
125
211
—
1,412
219
241
—
460
952
857
468
254
128
(1)
849
189
141
(1)
329
520
279
Total
£’000
4,871
535
819
(475)
1,512
138
364
(32)
1,815
18
116
(442)
1,982
1,507
5,750
730
563
(27)
607
648
(386)
1,745
1,593
(414)
1,266
869
2,924
716
782
638
1,208
2,826
3,126
Included within the net book value of tangible fixed assets is £763,000 (2015: £837,000) in respect of assets held under finance
leases. Depreciation for the year on these assets was £371,000 (2015: £231,000).
101
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 17. Group entities
Subsidiaries
The Group’s subsidiary undertakings are:
Aaron Heating Services Limited
Aaron Services Limited
Allied Protection Limited
Bury Metering Services Limited
Everwarm Ltd
F J Jones Holdings Limited
F J Jones Heating Engineers Limited
Foster Property Maintenance Limited
H2O Nationwide Limited
K & T Heating Services Limited
Lakehouse Compliance Services Limited
Lakehouse Construction Services Limited
Lakehouse Contracts Limited2
Lakehouse Design and Build Limited
Lakehouse Energy Services Limited2
Lakehouse Holdings Limited1
Lakehouse Property Investments Limited2
Orchard Energy Limited
Orchard (Holdings) UK Limited
Orchard Utilities Limited
Orchard Water Limited
Precision Lift Services Limited
PLS GRP Limited
PLS Holdings Limited
PLS Industries Limited
Providor Limited
Smart Metering Limited
Smart Metering Commercial Installations Limited
Smart Metering Domestic Installations Limited
Smart Metering Modules Limited
Speedfit Limited
Sure Maintenance Limited
Country of
incorporation
England
England
England
England
Scotland
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Class of
capital
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Sure Maintenance Group Limited
England
Ordinary
1 Directly held investment.
2
Investment held by Lakehouse Holdings Limited.
Joint ventures
The Group’s joint ventures are:
%
Principal activity
100
100
Intermediate holding company
Maintenance and installation
of gas heating systems
Fire and electrical engineers
100
Non-trading
100
Energy and insulation services
100
Non-trading
100
Non-trading
100
Property maintenance
100
Air and water hygiene
100
Plumbing and heating engineers
100
Intermediate holding company
100
100
Non-trading
100 Construction and property services
100
Construction
Intermediate holding company
100
Intermediate holding company
100
Non-trading
100
Energy procurement
100
Intermediate holding company
100
Non-trading
100
100
Non-trading
Lift installation, modernisation and
100
maintenance services
Intermediate holding company
Intermediate holding company
Non-trading
Smart metering
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Maintenance and installation
of gas heating systems
Intermediate holding company
100
100
100
100
100
100
100
100
100
100
100
Warmworks Scotland LLP
Scotland
Ordinary
33.33
Energy and insulation services
Country of
incorporation
Class of
capital
%
Principal
activity
102
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 17. Group entities continued
Joint ventures continued
Details of Warmworks
Group share of profit of joint venture
2016
£’000
537
2015
£’000
—
Warmworks, a joint venture with Changeworks and the Energy
Saving Trust, commenced trading in September 2015, the
accumulated income of £537,000 until 30 September 2016
was recognised. Under IFRS 11, no share of the initial loss
associated with the mobilisation costs (estimated at £165,000)
was recognised in the prior year.
20. Trade and other receivables
2016
£’000
2015
£’000
Current
Trade receivables
Construction contract retentions receivable
Related party loans receivable
Social security and other taxes
Other receivables
Prepayments
Accrued income
24,259
3,139
—
665
6,000
2,283
29,287
35,114
3,489
381
379
4,323
2,011
31,841
18. Inventories
Raw materials and consumables
Other work in progress
Non-current
Construction contract retentions receivable
Related party loans receivable
Other receivables
2016
£’000
3,462
1,725
5,187
2015
£’000
3,739
896
4,635
There are no inventories at 30 September 2016 or
30 September 2015 carried at fair value less costs to sell.
The Directors consider that the replacement value of inventories
is not materially different from their carrying value. There was
no security held at any reporting date over inventory.
19. Amounts due from and to customers under
construction contracts
2016
£’000
2015
£’000
Contracts in progress at the reporting date:
Contract costs incurred plus recognised
profits less recognised losses to date
Less: progress billings
Amounts due from construction
contract customers
Amounts due to construction
contract customers
218,476
273,051
(216,005)
(271,572)
2,471
3,161
1,479
2,053
(690)
(574)
2,471
1,479
Details of retentions held by customers for performance
under construction contracts are disclosed in Note 20. As at
30 September 2016 there were no advances received from
customers for work performed under construction contracts
(2015: £nil).
65,633
77,538
338
150
871
266
150
715
1,359
1,131
2016
£’000
2015
£’000
19,849
2,280
1,455
336
1,144
26,884
5,230
2,150
705
1,122
Trade receivables
Trade receivables not due
Trade receivables past due 1–30 days
Trade receivables past due 31–60 days
Trade receivables past due 61–90 days
Trade receivables past due over 90 days
Gross trade receivables
25,064
36,091
Provision for bad debt brought forward
Debtor provision recognised upon acquisition
Amounts written off receivables ledger
Debtor provision credited to profit or loss
in the year
Provision for bad debt carried forward
(977)
(28)
18
182
(805)
(938)
(309)
14
256
(977)
Net trade receivables
24,259
35,114
The entire provision for bad debts of £805,000 (2015: £977,000)
is past due over 90 days.
Included in related party loans receivable is an amount of £nil
owed by La Maison Du Lac Limited to Lakehouse Contracts
Limited (2015: £381,143). The loan is unsecured and interest
free. Messrs S Rawlings, P King and P Broider are shareholders
and directors of La Maison du Lac Limited. Steve Rawlings
was appointed as a Director of Lakehouse plc on 18 April 2016.
Steve Rawlings died on 23 July 2016.
103
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 20. Trade and other receivables continued
Included in related party loans receivable is an amount of £150,000
owed by the former owners of Everwarm (2015: £150,000).
The Directors consider that the carrying amount of trade
receivables approximates to their fair value. Debts provided
for and written off are determined on an individual basis and
included in administrative expenses in the Financial Statements.
The Group’s maximum exposure on credit risk is fair value on
trade receivables as presented above. The Group has no
pledge as security on trade receivables.
At the end of the year no customers represented more than 5%
of the total balance of trade receivables, (2015: £3,028,000
– one customer).
21. Trade and other payables
Current
Trade payables
Sub-contract retentions
Accruals
Deferred income
Social security and other taxes
Other payables
Non-current
Sub-contract retentions
Accruals
2016
£’000
2015
£’000
23,810
4,343
28,504
2,600
6,092
452
30,459
3,830
36,184
3,727
5,656
488
65,801
80,344
421
5,815
6,236
282
4,731
5,013
The Directors consider that the carrying amount of trade
payables approximates to their fair value for each reported
period. Trade payables are non-interest bearing. Average
settlement days are 34 days (2015: 38 days).
Included in accruals is deferred consideration arising from
business combinations analysed as follows:
Current
Non-current
2016
£’000
757
5,155
5,912
2015
£’000
4,928
4,293
9,221
The fair value of deferred consideration has been assessed in
accordance with the applicable sale and purchase agreements.
The non-current element of the expected settlement has been
discounted using a post-tax discount rate of 2.68% (2015: 2.68%)
that reflects the time value of money. £4,289,000 of the deferred
consideration is contingent using a post-tax discount rate of
8.5%, which is reflective of the underlying risks associated
with the business cash flows.
22. Borrowings
Bank loans and credit facilities at
amortised cost:
Current
Non-current
Maturity analysis of bank loans and credit
facilities falling due:
In one year or less, or on demand
Between one and two years
Between two and five years
After more than five years
2016
£’000
2015
£’000
71
20,586
20,657
71
—
20,586
—
20,657
—
—
—
—
—
—
—
—
In December 2014, the Group renegotiated its bank facilities to
provide an overdraft facility of £5m together with a Revolving
Credit Facility (“RCF”) of £30m, which was extended to £45m
in December 2015. The Group agreed a variation to the RCF in
January 2017 with Royal Bank of Scotland to reduce the RCF
to £40m and further reduce the facility to £35m in April 2017.
The variation to the RCF included a revision to the banking
covenants, which reflect the lower earnings expectations of the
Group, and a higher rate of interest.
23. Net debt
(Overdraft)/cash and cash equivalents
Bank loans and credit facilities
Unamortised finance costs
(included in other receivables)
Unamortised finance costs
(included in borrowings)
Finance lease obligations
2016
£’000
(71)
(20,586)
2015
£’000
6,934
—
414
418
—
(386)
—
(743)
(20,629)
6,609
104
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 24. Provisions
At 1 October 2015
Identified on acquisition
Additional provision
Utilised in the year
At 30 September 2016
Current provisions
Non-current provisions
Property
development
£’000
Legal and
other
£’000
1,100
—
—
(1,100)
—
—
—
5,349
762
885
(2,118)
4,878
1,904
2,974
Total
£’000
6,449
762
885
(3,218)
4,878
1,904
2,974
Property development
Property development costs represent sums due to the former owners of the land relating to the Manor Road housing
development under the terms of the sale. This sum was paid in October 2015.
Legal and other
Other costs relate to property dilapidation obligations, potential contract settlement costs and other potential legal settlement
costs. The largest figure relates to the potential contract settlement costs which have been made on management review of
contractual obligations faced on legacy contracts and include The Contract costs referred to in Note 7. These are expected to
result in an outflow of economic benefit over the next one to three years.
The Group continue to manage a number of potential risks and uncertainties, including claims and disputes, which are common to
other similar businesses which could have a material impact on short and longer term performance. The Board remains focused on
the outcome of a number of contract settlements on which there is a range of outcomes for the Group in terms of both cash flow
and impact on the Statement of Comprehensive Income.
In quantifying the likely out turn for the Group, the key judgements and estimates will typically include:
• An estimation of liability based on commercial and/or legal assessment
• Fair value assessment of Statement of Financial Position item
• A commercial assessment of potential further liabilities
25. Deferred taxation
The following are the deferred tax assets/(liabilities) recognised by the Group and movements thereon during the period:
Asset/(provision) brought forward as at 1 October 2014
Acquired in the year
On intangible assets identified on acquisition
Credit/(charge) to profit or loss
(Charge)/credit to equity
(Provision)/asset brought forward as at 30 September 2015
Acquired in the year
On intangible assets identified on acquisition
Credit/(charge) to profit or loss
Charge to equity
Asset/(provision) carried forward as at 30 September 2016
Accelerated
capital
allowances
£’000
Short term
timing
differences
£’000
30
(45)
—
8
—
(7)
78
—
195
—
266
138
85
—
16
—
239
205
—
522
—
966
Share-
based
payments
£’000
1,464
—
—
(257)
(1,168)
39
—
—
(3)
—
36
Acquisition
intangibles
£’000
Unutilised
losses
£’000
(3,445)
—
(3,163)
1,293
—
(5,315)
—
(1,458)
3,137
—
—
—
—
—
3,065
3,065
—
—
140
(608)
Total
£’000
(1,813)
40
(3,163)
1,060
1,897
(1,979)
283
(1,458)
3,991
(608)
(3,636)
2,597
229
105
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 25. Deferred taxation continued
There is a further deferred tax asset of £219k (£1,292k – gross) of short term timing differences that have not been recognised
in Lakehouse plc entity, as it is not considered probable that there will be future tax profits in this entity.
Accelerated
capital
allowances
£’000
Short term
timing
differences
£’000
Share-
based
payments
£’000
Acquisition
intangibles
£’000
Unutilised
losses
£’000
At 30 September 2016
Deferred tax asset element
Deferred tax liability element
Net deferred tax asset/(liability)
At 30 September 2015
Deferred tax asset element
Deferred tax liability element
Net deferred tax (liability)/asset
266
—
266
—
(7)
(7)
966
—
966
239
—
239
36
—
36
39
—
39
Total
£’000
3,865
(3,636)
229
—
(3,636)
(3,636)
2,597
—
2,597
—
(5,315)
3,065
—
3,343
(5,322)
(5,315)
3,065
(1,979)
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The analysis above shows
the gross position on deferred tax which has been offset in the statement of financial position.
26. Finance lease obligations
These comprise legacy lease arrangements that were in place with an acquisition that occurred in 2011 and lease arrangements
entered into by subsidiaries acquired in the year.
Future
minimum
lease
payments
£’000
884
95
(510)
469
Future
minimum
lease
payments
£’000
271
198
469
471
413
884
Interest
£’000
(141)
(11)
69
(83)
Interest
£’000
(49)
(34)
(83)
(68)
(73)
(141)
At 1 October 2015
New obligations
Repayments
At 30 September 2016
Future lease payments are due as follows:
Less than one year
Between two and five years
At 30 September 2016
Less than one year
Between two and five years
At 30 September 2015
106
Present
value of
minimum
lease
payments
£’000
743
84
(441)
386
Present
value of
minimum
lease
payments
£’000
222
164
386
403
340
743
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 27. Called up share capital
Allotted, called up and fully paid:
2016
2015
Number
Number
157,527,103 157,527,103
Ordinary shares of £0.10 each
Details of options granted under the Group’s share scheme are contained in Note 28.
2016
£
2015
£
15,752,710
15,752,710
Voting rights
The holders of ordinary shares are entitled to receive notice of, attend or participate in any general meeting of the Company and
to receive any notice of a written resolution proposed to be passed by the Company.
On a show of hands at a meeting the holders of any such shares shall be entitled to one vote for all such shares held.
On a poll at a meeting, for a written resolution, the holder of such shares shall be entitled to such number of votes as corresponds
to the nominal value (in pence) or the relevant shares held.
28. Share-based payments
The Company has established a Share Incentive Plan (SIP), Sharesave Scheme (SAYE), Company Share Option Plan (CSOP),
Performance Share Plan (PSP), Deferred Share Bonus Plan (DSBP) and a Special Incentive Award Plan (SIAP) in the year
ended 30 September 2016.
The net charge recognised for share-based payments in the year was £nil (2015: £846,000).
Share Incentive Plan (SIP)
The SIP is an HMRC-approved scheme plan open to all UK employees at the date of the IPO, 23 March 2015. Each employee
was given £200 of free shares; there were no performance conditions apart from remaining in employment for three years from
the date of award. Shares totalling 325,842 were transferred directly to the SIP trust and on 29 April 2015, 236,213 shares
allotted in relation to the initial award of shares under the SIP. No further awards have been made under the SIP.
Sharesave Scheme (SAYE)
The SAYE is open to all employees who satisfy certain criteria, particularly relating to period of employment. The exercise price is
equal to the average of the closing quoted market price for the preceding three days less a discretionary discount approved by
the Board of not less than 80% of the market value of a share. The scheme is for three years, during which the holder must
remain in the employment of the Group, and the shares can be exercised within six months from the maturity of the scheme.
Company Share Option Plan (CSOP)
The CSOP is open to all employees at the discretion of the Remuneration Committee. The exercise price is equal to the average
of the closing quoted market price at the date of grant. The vesting period is for three years, during which the holder must remain
in the employment of the Group and is conditional on the achievement of a mix of market and non-market performance conditions
from the date of granting the option to the date of potential exercise.
Performance Share Plan (PSP)
The PSP is open to certain employees at the discretion of the Remuneration Committee at a limit not exceeding 150% of the
individual’s base salary at the date of grant. The exercise price is £nil with the exception of the PSP award to Michael McMahon,
which has an exercise price of 10 pence per share (being the nominal value of a share in the capital of the Company). The vesting
period is for three years, during which the holder must remain in the employment of the Group and is conditional on the achievement
of a mix of market and non-market performance conditions from the date of granting the option to the date of potential exercise.
Deferred Share Bonus Plan (DSBP)
The DSBP will be operated in conjunction with the Company’s (and its subsidiaries’) annual discretionary bonus arrangements
from time to time and will provide a means by which a proportion of an employee’s annual discretionary non-contractual bonus can
be deferred. The number of shares placed under an award granted will be such number of shares as has a market value (measured
at the grant date) as near to, but not exceeding, the amount of bonus that has been granted under such award. No award was
made under the DSBP in the year.
Special Incentive Award Plan (SIAP)
Awards granted under the SIAP take the form of options to acquire Lakehouse Shares for nil consideration. The awards will have
no beneficial tax status. Only employees who are also Directors of the Company may be granted an award under the SIAP. The
Remuneration Committee will have absolute discretion to select the persons to whom awards may be granted and in determining
the number of Lakehouse Shares to be subject to each award. One employee is currently participating in the SIAP.
107
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 28. Share-based payments continued
SIP
SAYE
CSOP
PSP
DSBP
SIAP
Number
At 1 October 2015
Granted
Lapsed
Forfeited
Exercised
236,213 1,853,785
—
(1,237,377)
—
—
—
(39,903)
—
—
536,653
794,088
—
—
—
1,687,521
1,691,607
—
—
—
—
—
— 4,615,385
—
—
—
—
—
—
At 30 September 2016
196,310
616,408
1,330,741
3,379,128
— 4,615,385
Weighted average exercise price (p)
At 1 October 2015
Granted
Lapsed
Forfeited
Exercised
Outstanding at 30 September 2016
Exercisable at 30 September 2016
Outstanding at 30 September 2015
Exercisable at 30 September 2015
Fair value of options granted
Weighted fair value of one option
Assumptions used in estimating the fair value
Share price at date of grant
Exercise price
Expected dividend yield
Risk-free rate
Expected volatility
Expected life
0.00p
—
0.00p
—
—
0.00p
—
0.00p
—
81.74p
—
81.74p
—
—
81.74p
—
81.74p
—
93.17p
90.67p
—
—
—
91.68p
—
93.17p
—
0.00p
0.00p
—
—
—
0.00p
—
0.00p
—
87.61p
24.9p
15.91p
64.65p
99.75p
95.50p
—
81.74p
4.60%
2.69%
1.21%
0.94%
30.12%
40.37%
3 years 3.25 years
91.87p
91.68p
5.08%
1.41%
30.06%
3 years
89.38p
0.00p
5.11%
0.77%
28.38%
3 years
—
—
—
—
—
—
—
—
—
—
—
0.00p
—
—
—
—
—
—
—
0.02p
—
23.50p
—
0.00p
—
6.66%
—
0.13%
—
42.17%
— 2.36 years
In the year ended 30 September 2016, options were granted in December 2015 in respect of the PSP, CSOP and July 2016
in respect of the SIAP.
The weighted average remaining contractual life of outstanding options at 30 September 2016 was 2.6 years. The aggregate
of the estimated fair values of options granted on the above dates was £3.0m.
The SIP and SAYE were valued using a Black-Scholes model and the CSOP and PSP a combination of Black-Scholes and
Monte Carlo models, weighted according to the performance conditions of both.
108
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 28. Share-based payments continued
The inputs into the Black-Scholes model are as follows:
Share price (p)
Exercise price (p)
Expected volatility (%)
Expected life (years)
Risk-free rate (%)
Expected dividends (%)
2016
2015
89.75
0.00–90.67
23.1
3.00
1.6
5.4
89.00–99.75
0.00–93.17
30.1–40.4
3.00–3.25
0.9–1.2
2.7–4.8
The inputs into the Monte Carlo model are as follows:
Share price (p)
Exercise price (p)
Expected volatility (%)
Expected life (years)
Risk-free rate (%)
Expected dividends (%)
2016
2015
23.5–89.75
0.00–90.67
23.1–42.2
2.36–3.00
0.1–1.6
5.4–6.7
89.00–95.00
0.00–93.17
33.7–40.4
3.00
0.6–1.2
4.6–4.8
Expected volatility was based upon the historical volatility over
the expected life of the schemes. The expected life is based
upon scheme rules and reflect management’s best estimates
for the effects of non-transferability, exercise restrictions and
behavioural considerations.
29. Reserves
Share premium reserve
The share premium account represents amounts received in
excess of the nominal value of shares on issue of new shares,
net of the direct costs associated with issuing those shares.
Issue costs in relation to the issue of shares on IPO of £1,315,000
have been charged to the share premium account.
Merger reserve
On 23 March 2015 Lakehouse plc was listed on the premium
listing segment of the Official List and trading on the Main Market
of the London Stock Exchange. As part of a restructuring
accompanying the Initial Public Offering (‘IPO’) of the Group
on 23 March 2015, Lakehouse plc replaced Lakehouse
Holdings Limited as the Group’s ultimate parent company by
way of a share exchange agreement. Under IFRS 3 this was
accounted for as a group reconstruction under merger accounting.
These consolidated Financial Statements have been prepared
as a continuation of the existing Group.
Merger accounting principles for this combination gave rise
to a merger reserve of £20,067,000.
Own shares reserve
At IPO, each employee was given £200 of free shares, to
be held for their benefit in an Employee Benefit Trust. Shares
totalling 325,842 were transferred directly to the Employee
Benefit Trust on 23 March 2015. The own shares reserve
at 30 September 2016 represents the cost of £325,842
(2015: £325,842) shares in Lakehouse plc, with a weighted
average of 196,310 (2015: 169,187) shares during the year.
30. Guarantees and contingent liabilities
The Company and certain subsidiaries have, in the normal course
of business, given guarantees and performance bonds relating
to the Group’s contracts totalling £9,561,513 (2015: £11,265,498).
A subsidiary of the Group has provided a guarantee of £750,000
(2015: £750,000) to the Warmworks joint venture.
31. Financial instruments
Financial instruments comprise both financial assets and
financial liabilities. The carrying value of these financial assets
and liabilities are assumed to approximate their fair values.
The principal financial assets in the Group comprise trade,
loans and other receivables, cash and cash equivalents, and
investments in subsidiaries. The principal financial liabilities in
the Group comprise borrowings which are categorised as debt
at amortised cost, together with trade and other payables, other
long term liabilities and provisions for liabilities, which are
classified as other financial liabilities.
Financial risk management
The Group’s objectives when managing finance and capital are
to safeguard the Group’s ability to continue as a going concern
in order to provide returns to shareholders and benefits to other
stakeholders and to maintain an optimal capital structure to
reduce the cost of capital. The Group is not subject to any
externally imposed capital requirements.
The main financial risks faced by the Group are liquidity risk,
credit risk and market risk (which includes interest rate risk).
Currently the Group only operates in the UK and only transacts
in Sterling. It is therefore not exposed to any foreign currency
exchange risk. The Board regularly reviews and agrees policies
for managing each of these risks.
109
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 31. Financial instruments continued
Categories of financial instruments
Financial assets
Current financial assets
Trade receivables, loans and
other receivables
Cash and cash equivalents
Income tax receivable
Financial assets held at fair value
through profit and loss
Interest rate cap agreement
Financial liabilities
Current financial liabilities
Trade and other payables
Borrowings
Finance lease obligations
Loans and receivables
2016
£’000
2015
£’000
63,350
75,527
—
1,451
6,934
1,683
—
42
64,801
84,186
Financial liabilities
measured at amortised cost
2016
£’000
2015
£’000
Market risk
As the Group only operates in the UK and only transacts
in Sterling, the Group’s activities expose it primarily to the
financial risks of changes in interest rates only.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with
the Board, which has established an appropriate liquidity risk
management framework for the management of the Group’s
short, medium and long term funding and liquidity management
requirements. The Group’s policy on liquidity is to ensure that
there are sufficient committed borrowing facilities to meet the
Group’s long to medium term funding requirements.
The Group manages liquidity risk by maintaining adequate
reserves, banking facilities and reserve borrowing facilities, by
continuously monitoring forecast and actual cash flows, and by
matching the maturity profiles of financial assets and liabilities.
A maturity analysis of bank borrowings at each period end is
contained in Note 22.
63,201
71
222
76,617
—
403
(a) Interest rate of borrowings
The interest rate exposure of the Group’s borrowings is
shown below:
Total current financial liabilities
63,494
77,020
Non-current financial liabilities
Trade and other payables
Borrowings
Finance lease obligations
6,236
20,586
164
5,013
—
340
Floating rate Sterling borrowings
with uncapped interest rate
Floating rate Sterling borrowings
with a capped interest rate
2016
£’000
2015
£’000
—
20,657
—
—
Total non-current financial liabilities
26,986
5,353
90,480
82,373
The Directors consider that the carrying amounts of financial
assets and financial liabilities recorded at amortised cost in the
Financial Statements approximate their fair values.
Credit risk
Credit risk refers to the risk that a counterparty will default on
its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with
creditworthy counterparties and obtaining sufficient collateral
where appropriate, as a means of mitigating the risk of financial
loss from defaults. The Group does not enter into derivatives to
manage its credit risk.
The maximum exposure to credit risk at the reporting date is
represented by the carrying value of the financial assets in the
statement of financial position. The Group does not have any
significant credit risk exposure to any single counterparty or
any group of counterparties having similar characteristics.
There has been a minimal history of bad debts as the majority
of its sales are to local Government councils or housing trust
partnerships and as a consequence the Directors do not
consider that the Group has a material exposure to credit risk.
At 30 September 2016, the Group had the following interest
rate caps in place:
• A cap of 2.5% on up to £10.0m of debt (2015: £6.7m),
rising by £0.8m per quarter up to £12.5m on 30 June 2017,
then to £15.0m on 29 December 2017 and expiring on
9 December 2018
• A cap of 2.00% on up to £5.0m of debt (2015: £8.3m),
falling at a rate of £0.8m per quarter and expiring on
18 October 2017
(b) Interest rate risk
Due to the floating rate of interest on the Group’s principal
borrowings, the Group is exposed to interest rate risk, which
is partially mitigated by financial instruments in place to cap
the interest exposure.
(c) Interest rate sensitivity analysis
The Group’s principal borrowings attract floating rate interest.
On a weighted average of £24.6m of debt in the year, a half
per cent increase in the floating interest rate would have been
below the interest rate cap and increased annual interest
payable by £123,000 (2015: £44,000). If the floating interest
rate had increased to the capped rate, interest payable on the
weighted average of £24.6m of debt would have increased by
£431,000 (2015: £136,000).
110
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 32. Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Within one year
Between two and five years
Over five years
2016
2015
Land and
buildings
£’000
1,000
2,266
333
3,599
Other
items
£’000
1,916
1,678
—
Land and
buildings
£’000
913
2,157
224
3,594
3,294
Other
items
£’000
1,246
1,338
—
2,584
At 30 September 2016 the Company has no operating lease commitments (2015: £nil).
Operating lease payments represent rentals payable by the Group for its properties and equipment. For property, leases are
negotiated for an average term of five years and rentals are fixed for an average of five years, with an option to extend for a further
period at the then prevailing market rate. For equipment, leases are negotiated for a term of between three and four years and on
completion the equipment is returned to the lessor.
33. Cash (used in)/generated from operations
Operating (loss)/profit
Adjustments for:
Depreciation
Amortisation of intangible assets
Impairment of goodwill and intangible assets acquired
Equity-settled share based payments
Profit on disposal of property, plant and equipment
Change in provisions
Changes in working capital:
Inventories
Amounts owed by customers under construction contracts
Amounts owed to customers under construction contracts
Trade and other receivables
Trade and other payables
Cash (used in)/generated from operations
Underlying operating cash conversion calculation
Cash (used in)/generated from operations
Cash impact of Exceptional Other Items in the period
Underlying cash generated from operations
Underlying operating profit before exceptional items and amortisation of acquisition intangibles
Underlying cash conversion
Statutory operating cash conversion calculation
Cash (used in)/generated from operations
Statutory operating profit before exceptional items and amortisation of acquisition intangibles
Statutory cash conversion
2016
£’000
2015
£’000
(31,670)
4,579
1,621
11,479
19,204
—
(95)
(2,334)
478
(1,108)
116
16,706
(17,411)
1,017
6,841
—
846
(98)
(1,037)
2,166
1,194
(1,736)
1,692
3,635
(3,014)
19,099
(3,014)
16,226
19,099
6,540
13,212
25,639
10,909
22,224
121%
115%
(3,014)
19,099
1,760
19,700
(171%)
97%
111
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance Contingent deferred consideration has been calculated based
on the expectations of future performance in the Group’s
three-year plan compared to the calculation methodology set
out in the Share Purchase Agreement. The contingent deferred
consideration may vary depending on the underlying trading
performance of the businesses.
The Aaron Heating Services Limited intangible assets are
recognised and valued at £3.7m. This represents the expected
value to be derived from the acquired customer-related contracts,
acquired customer relationships and the value placed on
the non-compete agreement. The value placed on these
customer-related contracts and relationships is based on the
expected post-tax cash inflows over the estimated remaining
life of each contract. The cash flows are initially reduced by
10% after year 1 with further deductions thereafter which the
Directors consider is commensurate with the risks associated
with capturing returns from the customer relationships, and
then discounted using a post-tax discount rate of 13%.
The estimated life for customer contracts is assumed to
be the remaining life of each contract, and the customer
relationships are estimated to have a life of six years.
The Directors consider the value assigned to goodwill represents
the workforce acquired, expected synergies to be generated,
and access to adjacent business activities as a result of this
acquisition. It is not expected that any goodwill will be deductible
for tax purposes. All costs of the acquisition have been
recognised as an exceptional expense in the statement of
comprehensive income in the period in which it was incurred,
the total cost recognised is £239,000.
Post-acquisition results
The results for Aaron Heating Services Limited since
the acquisition date, included within the consolidated
statement of comprehensive income for the period ended
30 September 2016, are:
(3,265)
(3,339)
17
(3,248)
Revenue
(134)
(3,473)
Profit from operations
Interest
Profit before tax
Taxation
Profit for the period
£’000
24,395
1,122
—
1,122
(227)
895
34. Business combinations
2016 acquisitions:
Aaron Heating Services Limited
On 2 November 2015 the Group acquired the entire share
capital of Aaron Heating Services Limited for consideration
as detailed below. Aaron Heating Services Limited’s principal
activity is that of installation and maintenance of plumbing
and heating systems.
The acquisition of Aaron Heating Services complemented the
Group’s existing Gas Compliance businesses: K&T Heating,
which operates in London and the South East, and Sure
Maintenance, which operates in the North of England and the
Midlands. The acquisition will allow Lakehouse to extend its
geographic footprint in the gas servicing and maintenance
market to provide national coverage to key clients, as well as
provide opportunities for adjacent services.
The effect of the acquisition on the Group’s assets and
liabilities were as follows:
Book value
£’000
Fair value
adjustments
£’000
Provisional
fair value
£’000
Assets
Non-current
Property, plant and equipment
Current
Inventories
Trade and other receivables1
Cash and cash equivalents
Total assets
Liabilities
Non-current
Deferred tax
Provisions
Current
Trade and other payables
Total liabilities
Net assets acquired
Intangibles acquired
Deferred tax recognised in
respect of intangibles capitalised
Goodwill capitalised
Satisfied by:
Cash consideration
Contingent deferred
consideration
632
(130)
502
1,436
4,431
293
6,792
(598)
(17)
—
(745)
838
4,414
293
6,047
(74)
—
—
(151)
(74)
(151)
3,453
(879)
2,574
3,679
(699)
3,667
9,221
6,975
2,246
9,221
1.
Gross contractual receivables invoiced to the customer at the date of acquisition
was £1,877,000.
112
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 34. Business combinations continued
PLS Holdings Limited
On 8 December 2015 the Group acquired the entire share
capital of PLS Holdings Limited for consideration as detailed
below. PLS Holdings Limited’s principal activity is providing lift
installation, modernisation and maintenance services.
The acquisition of PLS Holdings provided a complimentary
service offering to the Group’s existing Compliance businesses.
The acquisition will create new opportunities for collaboration
and the cross-selling of additional and more comprehensive
compliance services to local authorities and housing associations.
The effect of the acquisition on the Group’s assets and liabilities
were as follows:
Assets
Non-current
Property, plant and equipment
Current
Inventories
Trade and other receivables1
Cash and cash equivalents
Total assets
Liabilities
Non-current
Provisions
Current
Trade and other payables
Total liabilities
Net assets acquired
Intangibles acquired
Deferred tax recognised in
respect of intangibles capitalised
Goodwill capitalised
Satisfied by:
Cash consideration
Contingent deferred
consideration
Book
value
£’000
Fair value
adjustments
£’000
Provisional
fair value
£’000
60
(26)
34
341
1,975
506
2,882
(148)
(148)
—
193
1,827
506
(322)
2,560
—
(182)
(182)
(1,689)
(1,689)
(7)
(1,696)
(189)
(1,878)
1,193
(511)
682
3,996
(759)
3,626
7,545
6,484
1,061
7,545
1.
Gross contractural receivables invoiced to the customer at the date of acquisition
was £1,112,000.
Contingent deferred consideration has been calculated based
on the expectations of future performance in the Group’s
three-year plan compared to the calculation methodology set
out in the Share Purchase Agreement. The contingent deferred
consideration may vary depending on the underlying trading
performance of the businesses.
The PLS Holdings Limited intangible assets are recognised
and valued at £4.0m. This represents the expected value to be
derived from the acquired customer-related contracts, acquired
customer relationships and the value placed on the non-compete
agreement. The value placed on these customer-related contracts
and relationships is based on the expected post-tax cash inflows
over the estimated remaining life of each contract. The cash flows
are initially reduced by 10% after year 1 with further deductions
thereafter which the Directors consider is commensurate with
the risks associated with capturing returns from the customer
relationships, and then discounted using a post-tax discount
rate of 13%. The estimated life for customer contracts is assumed
to be the remaining life of each contract, and the customer
relationships are estimated to have a life of six years.
The Directors consider the value assigned to goodwill
represents the workforce acquired, expected synergies to be
generated, and access to additional customers and markets as
a result of this acquisition. It is not expected that any goodwill
will be deductible for tax purposes. All costs of the acquisition
have been recognised as an exceptional expense in the statement
of comprehensive income in the period in which it was
incurred, the total cost recognised is £253,000.
Post-acquisition results
The results for PLS Holdings Limited since the acquisition
date, included within the consolidated statement of comprehensive
income for the period ended 30 September 2016, are:
Revenue
Profit from operations
Interest
Profit before tax
Taxation
Profit for the period
£’000
7,277
183
—
183
(18)
165
Results of all business combinations
occurring during the year
Assuming the acquisition date for all business combinations
that occurred during the year had been 1 October 2015,
the consolidated statement of comprehensive income for
Lakehouse plc for the year ended 30 September 2016,
would have been:
Revenue
Loss from operations
Interest
Loss before tax
Taxation
Loss for the period
£’000
337,633
(31,507)
(1,635)
(33,142)
3,985
(29,157)
113
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance 35. Summary of consideration paid and payable in respect of acquisitions
The sums below represent sums paid and payable in respect of acquisitions in the year:
Allied
Protection
Limited
£’000
H2O
Nationwide
Limited
£’000
3,267
2,384
Providor
Limited
£’000
1,497
Orchard
(Holdings)
UK Limited
£’000
Sure
Maintenance
Limited
£’000
1,562
511
Aaron
Heating
Services
Limited
£’000
—
PLS
Holdings
Limited
£’000
—
Bury
Metering
Services
Limited
£’000
Total
£’000
—
9,221
At 1 October 2015
Total discounted
consideration payable for
additions in the year ended
30 September 2016
Revaluation of deferred
consideration
Unwinding of discount
Paid in year
—
—
—
—
13
(2,990)
(607)
(3)
(442)
(1,504)
107
(100)
—
408
163
—
—
9,221
7,545
75
16,841
(561)
50
—
—
163
(8,368)
—
94
(6,498)
—
—
(75)
—
(2,264)
587
(18,473)
5,912
At 30 September 2016
290
1,332
—
2,133
—
1,016
1,141
The fair value of the consideration has been assessed in accordance with the Sale & Purchase Agreements and expected future
trading performance. The non-current element of the expected settlement has been discounted using a pre-tax discount rate that
reflects the time value of money.
The total deferred consideration may vary between £3.5m and £6.5m depending on the underlying trading performance of
the businesses.
36. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated
on consolidation and are not disclosed in this note.
Trading transactions
In the period from October 2015 to February 2016 the Group leased its head office premises at 1 King George Close, Romford,
Essex, from La Maison du Lac Limited. In February 2016 La Maison du Lac Limited sold the freehold of 1 King George Close,
Romford, Essex RM7 7LS to AMNT Properties Limited. Steve Rawlings and Paul King were directors and shareholders of
La Maison du Lac Limited. Steve Rawlings was a shareholder of Lakehouse plc and was a Director of Lakehouse plc from
18 April 2016 until his death on 23 July 2016. Paul King is a shareholder and employee of Lakehouse plc. The lease with
La Maison du Lac Limited was on arm’s length terms and the annual rent payable in respect of the premises was determined
based on an independent rental valuation. The Company’s subsidiary Lakehouse Contracts Limited, incurred rent charges
on a property owned by La Maison du Lac Limited at an annual rate of £38,275 (2015: £112,880).
As at 30 September 2016 La Maison Du Lac Limited had a loan owed to Lakehouse Contracts Limited amounting to £nil
(2015: £381,143). The loan was unsecured, interest free and repayable in 2015 following a listing of the Group.
Steve Rawlings was appointed as a Director of Lakehouse plc on 18 April 2016. Steve Rawlings died on 23 July 2016. In the
period to 23 July 2016 Steve Rawlings was a director of Building Lives for the Future, which in the year to 30 September 2016
had a commercial relationship with the Lakehouse Group. At 30 September 2016 Building Lives owed the Group £nil (2015: £46,636)
for services provided which was repayable on normal commercial terms. The total value of services provided by the Group to
Building Lives was £10,674 (2015: £775,832).
Andrew Harrison was appointed as Alternate Director of Lakehouse plc for Steve Rawlings on 3 June 2016. Andrew Harrison
was appointed as a Director of Lakehouse plc on 26 July 2016. Following Steve Rawlings’ death on 23 July 2016 Andrew Harrison
was appointed as a Trustee of the Estate of Steve Rawlings.
The Company’s subsidiary, Everwarm, leases premises in Bathgate, West Lothian, from Xafinity Pension Trustees Limited
(as corporate trustee of the Everwarm Group SIPP). Michael McMahon, a Director of the Company, is a beneficiary of the
Everwarm Group SIPP. The lease was set up on an arm’s length basis with annual rentals determined based on an independent
rental valuation. £156,956 of rents were paid by the Group in 2016 (2015: £75,000). The lease terminates in eight years.
The Company entered into an Extension and Variation Agreement with the Everwarm SIPP with respect to the lease in
August 2016.
114
Lakehouse plc Annual report 2016Notes to the consolidatedfinancial statements continuedFor the year ended 30 September 2016 36. Related party transactions continued
Trading transactions continued
Johnathan Ford was a Non-Executive Director of Lakehouse plc and Chairman of the Audit Committee in the period from
1 October 2015 to 20 June 2016, when he resigned as a Director of Lakehouse plc. During that period Mr Johnathan Ford
was an Executive Director of Homeserve plc. The Company’s subsidiary undertaking, Sure Maintenance Group Limited, provided
services to Homeserve plc in the period from 1 October 2015 to 20 June 2016 valued at £484,603 (11 September 2015
to 30 September 2015: £85,332).
The Company’s subsidiary, Everwarm Limited, provides services to Warmworks, a joint venture with Everwarm. £3,883,331
of services were provided in 2016 (2015: £124,000), £246,770 was charged to Everwarm Limited from Warmworks for services
provided in 2016 (2015: £nil).
As at 30 September 2016 Warmworks had a loan owed to Everwarm Limited amounting to £250,000 (2015: £nil). As at
30 September 2016 Everwarm Limited had a receivable owing from Warmworks amounting to £593,908 (2015: £124,000).
Bob Holt was appointed as Executive Chairman on 22 July 2016. Bob Holt provides consultancy services to Lakehouse plc
and other Group companies in relation to advice about the turnaround management strategy of the Group. These consultancy
services are provided by a consultancy company of which he is a shareholder. The daily fee payable for such consultancy
services is £1,595 plus VAT. Such services are provided for two days per week over 47 weeks per year at a total cost of
£150,000 per annum (plus VAT). The total value of services provided to the Group was £25,000 (2015: £nil).
Remuneration of key management personnel
The remuneration of the Directors and members of the Board, together with other key management personnel of the Group, is set
out below in aggregate for each of the categories specified in IAS 24 – Related Party Disclosures. The key management personnel
are the members of the Group Management Board. Further information about the remuneration of individual Group Directors is
provided in the audited part of the remuneration report:
Number of members of the Group Management Board at each year end
Short term employee benefits
Post-employment benefits
Fees payable
Share-based payments
2016
Number
9
2016
£’000
2,102
217
—
—
2,319
2015
Number
13
2015
£’000
2,591
202
135
348
3,276
37. Events after the reporting date
The Group agreed a variation with Royal Bank of Scotland in January 2017 to reduce the RCF to £40m and further reduce the
facility to £35m in April 2017. The variation to the RCF included a revision to the banking covenants, which reflect the lower
earnings expectations of the Group, and a higher rate of interest.
Since the 30 September 2016 there has been a subsequent agreement to adjust the deferred consideration, in regards
to Orchard (Holdings) UK Limited, from £2.1m to £1.8m, which will be paid by 28 February 2017.
115
Lakehouse plc Annual Report 2016Strategic reviewFinancial statementsGovernance Company balance sheet
At 30 September 2016
Fixed assets
Interests in subsidiaries
Current assets
Debtors – due within one year
Debtors – due after more than one year
Income tax receivable
Creditors: Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Provisions for liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Own shares
Share-based payment reserve
Profit and loss account
Shareholders’ funds
Notes
2016
£’000
2015
£’000
40
12,392
12,392
41
41
42
42
43
44
45
46
491
47,477
922
41
40,592
421
48,890
(3,011)
41,054
(5,469)
45,879
35,585
58,271
47,977
(2,030)
(946)
(2,004)
(200)
55,295
45,773
15,753
25,314
(290)
616
13,902
15,753
25,314
(290)
549
4,447
55,295
45,773
The Financial Statements of Lakehouse plc (registered number 09411297) were approved by the Board of Directors and
authorised for issue on 23 January 2017. They were signed on its behalf by:
J J C Simpson
Director
The accompanying notes are an integral part of this company balance sheet.
116
Lakehouse plc Annual report 2016 Company statement of changes in equity
For the year ended 30 September 2016
Issue of share capital
Profit for the period
Share based payment charge
Purchase of own shares
At 1 October 2015
Profit for the period
Dividends paid
Share-based payment charge
At 30 September 2016
Share
capital
£’000
15,753
—
—
—
15,753
—
—
—
Share
premium
account
£’000
25,314
—
—
—
25,314
—
—
—
15,753
25,314
Share-
based
payment
reserve
£’000
—
—
549
—
549
—
—
67
616
Own
shares
£’000
—
—
—
(290)
(290)
—
—
—
Profit and
loss
account
£’000
—
4,447
—
—
4,447
14,090
(4,568)
(67)
Total
equity
£’000
41,067
4,447
549
(290)
45,773
14,090
(4,568)
—
(290)
13,902
55,295
117
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Notes to the Company financial statements
For the year ended 30 September 2016
Company only
The following Notes 38 to 46 relate to the Company only
position for the year ended 30 September 2016.
38. Accounting policies
Statement of compliance and basis of preparation
The separate Financial Statements of the Company are presented
as required by the Companies Act 2006. The Company meets
the definition of a qualifying entity under FRS 100 (Financial
Reporting Standard 100) issued by the Financial Reporting
Council. Accordingly the Financial Statements have been
prepared in accordance with FRS 101 (Financial Reporting
Standard 101) ‘Reduced Disclosure Framework’ as issued by
the Financial Reporting Council.
As permitted by FRS 101, the Company has taken advantage
of the disclosure exemptions available under that standard in
relation to share-based payment, financial instruments, capital
management, presentation of a cash flow statement and
certain related party transactions.
Where required, equivalent disclosures are given in the
consolidated Financial Statements.
As a consolidated statement of comprehensive income is published,
a separate statement of comprehensive income for the parent
Company is omitted by virtue of the exemption available in
section 408 of the Companies Act 2006. The Company’s
profit for the year was £14,090,000 (2015: £4,447,000).
The Financial Statements have been prepared on the historical
cost basis. The principal accounting policies adopted are the
same as those set out in Note 2 to the consolidated Financial
Statements except as noted below:
Investments
Investments in subsidiary undertakings are stated at cost less
any provision for impairment.
Cost is defined as the consideration transferred and is
measured at fair value. Fair value is calculated as the sum of
the acquisition-date fair values of assets transferred by the
Company, liabilities incurred by the Company to the former
owners of the acquired company and the equity interest issued
by the Company in exchange for control of the acquired
company. Acquisition-related costs are recognised in profit or
loss as incurred.
When the consideration transferred by the Company includes
an asset or liability resulting from a contingent consideration
arrangement, the contingent consideration is measured at its
acquisition-date fair value and included as part of the
consideration transferred. Changes in fair value of the
contingent consideration are adjusted when identified with
corresponding adjustments dependent upon on how the
contingent consideration is classified. Where contingent
consideration is classified as equity any change in fair value is
accounted for within equity. Contingent consideration that is
classified as an asset or liability is re-measured at subsequent
reporting dates in accordance with IAS 39: Financial instruments,
or IAS 37: Provisions, contingent liabilities and contingent
assets, as appropriate, with the corresponding gain or loss
being recognised in profit or loss.
Impairment of investments
At each balance sheet date, the Company tests the carrying
amounts of investments to determine whether those investments
have suffered an impairment loss. The recoverable amount of
the asset is estimated to determine the extent of the impairment
loss (if any). Where the asset does not generate cash flows
that are independent from other assets, the Group estimates
the recoverable amount of the cash-generating unit to which
the asset belongs. When a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated
to individual cash-generating units, or otherwise they are allocated
to the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less
than its carrying amount, the carrying amount of the asset is
reduced to its recoverable amount. An impairment loss is
recognised immediately in profit or loss, unless the relevant
asset is carried at a revalued amount, in which case the
impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the
asset in prior years. A reversal of an impairment loss is recognised
immediately in profit or loss, unless the relevant asset is carried
at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase.
39. Critical accounting judgements
and key sources of uncertainty
Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with
IFRSs requires the use of certain critical accounting estimates
and assumptions that affect the reported amounts of assets
and liabilities at the date of the Financial Statements and the
reported amounts of revenues and expenses during the
reporting period.
118
Lakehouse plc Annual report 2016 39. Critical accounting judgements
and key sources of uncertainty continued
Critical accounting estimates and judgements continued
Estimates and judgements are continually made and are based
on historic experience and other factors, including expectations
of future events that are believed to be reasonable in the
circumstances. As the use of estimates is inherent in financial
reporting, actual results could differ from these estimates.
(i) Assessment of investment cost
The key judgements and estimates made in determining the fair
value of the consideration transferred were:
• The valuation of equity and equity based financial instruments
issued by the Company as part of the consideration transferred
• The appropriate discount factor to be applied to any future
consideration to be paid
• An estimation of future revenues and profit of the related
businesses which determine the amount of the future
consideration to be paid
•
Identification of and judgements around the uncertainties of
the valuation model and its sensitivity to error in its key assumptions
(ii) Impairment of investments
The Company reviews the valuation of all its investments for
impairment annually or if events and changes in circumstances
indicate that the carrying value may not be recoverable. The
recoverable amount is determined based on value-in-use
calculations. The use of this method requires the estimation of
future cash flows and the choice of a suitable discount rate in
order to calculate the present value of these cash flows. See
Note 14 for further information.
The Directors consider that the carrying amount of trade
receivables approximates to their fair value. There is no
provision against amounts receivable and no amounts are past
due or are impaired.
42. Creditors
Creditors: Amounts falling due within
one year
Bank loans and overdrafts
Trade creditors
Amounts owed to Group undertakings
Accruals and deferred income
Social security and other taxes
Other creditors
Creditors: Amounts falling due after
more than one year
Amounts owed to Group undertakings
43. Provisions for liabilities
At 1 October 2015
Additional provision
At 30 September 2016
Further information is provided in Note 24.
2016
£’000
2015
£’000
5
232
788
1,888
82
16
3,011
4,367
63
—
951
73
15
5,469
2,030
2,004
Legal and
other
£’000
200
746
946
40. Investment in subsidiaries
Investment in subsidiaries
Cost
At 1 October 2015 and 30 September 2016
Net book value
At 1 October 2015 and 30 September 2016
Further information is provided in Note 17.
41. Debtors
Amounts falling due within one year
Amounts owed by Group undertakings
Prepayments
Other debtors
Amounts falling due after more than one year
Amounts owed by Group undertakings
Other debtors
2016
£’000
2015
£’000
412
33
46
491
—
—
41
41
47,474
3
40,589
3
47,477
40,592
£’000
44. Share capital
Allotted, called up and fully paid
Number
£
Ordinary shares of £0.10 each
157,527,103
15,752,710
12,392
12,392
Details of the movements in share capital together with the key
rights and preferences of the share capital are disclosed in
Note 27.
45. Share premium account
The share premium account represents amounts received in
excess of the nominal value of shares on issue of new shares,
net of the direct costs associated with issuing those shares.
46. Share-based payments
During the period ended 30 September 2016 the Company
had five share-based payment arrangements, which are
described in Note 28.
119
Strategic reviewFinancial statementsGovernanceLakehouse plc Annual Report 2016 Corporate Directory
Company registration number
9411297
Directors
Bob Holt OBE (Executive Chairman)
Michael McMahon (Executive Director)
Jeremy Simpson (Chief Financial Officer)
Robert Legget (Non-Executive Director
and Senior Independent Director)
Andrew Harrison (Non-Executive Director)
Corporate calendar
Annual General Meeting
31 March 2017
Announcement of Interim Results
May 2017
Announcement of Final Results
January 2018
Company Secretary
Simon Howell
Registered office:
1 King George Close
Romford
Essex RM7 7LS
Independent auditors
Deloitte LLP
Deloitte House
Station Place
Cambridge CB1 2FP
Principal bankers
Royal Bank of Scotland
280 Bishopsgate
London EC2M 4RB
Legal advisers to the Company
Eversheds LLP
1 Wood Street
London EC2V 7WS
Financial adviser and stockbroker
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
120
Lakehouse plc Annual Report 2016
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Lakehouse plc
1 King George Close
Romford
Essex
RM7 7LS
Tel: 01708 758 800
www.lakehouse.co.uk