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2017
Lakehouse plc
Annual Report
Lakehouse plc
1 King George Close
Romford
Essex
RM7 7LS
Tel: 01708 758 800
www.lakehouse.co.uk
_1_LHS_AR17_Cover_[MD_SR].indd 1-3
05/02/2018 3:51 pm
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 and public
and commercial buildings.
Lakehouse at a glance
Our long term approach is reflected in the strength
and depth of the relationships we develop with our
clients, customers, communities, financial partners,
people, shareholders and suppliers, and the quality
of our work across the social housing, public buildings,
education and energy services markets.
Number of
offices
29
Number of
employees
2,300
Compliance
A provider of gas servicing, maintenance and installations
in southern England
A provider of gas servicing, maintenance and installations
in eastern England
A provider of gas servicing, maintenance and installations
in northern and western England and Wales
Specialists in fire safety, servicing and planned works
A water and air hygiene specialist
A lift installation and maintenance company
Energy Services
A leading energy services provider
One of the UK’s leading smart metering specialists
Property Services
A housing services specialist providing construction,
renovation and maintenance
Providing planned maintenance services for social
housing clients
Construction
Offering refurbishment and small to medium-sized
public building works, predominantly for local authority
clients in the education sector
2017 highlights
Operational highlights
• Review of strategy and operations complete
• Strong performance with underlying EBITA of
£9.5m (£7.3m from continuing and £2.2m from
discontinued operations)
• Compliance, Energy Services and Construction are
well established, excellent businesses with a clear
vision and together recorded revenue growth of 21%
• Operational improvement plan conducted
through the year
• New management in Property Services and
problem externals departments closed
• Ongoing focus on mobilising smart metering
• Excellent underlying cash conversion of 169%
• Sale of Orchard Energy for £12.4m
• Year-end net debt of £1.3m significantly
ahead of expectations
Financial highlights
Underlying2 revenue
£290.3m
Underlying EBITA1
£7.3m
Revenue
£299.5m
Operating Loss
£(1.1)m
Underlying2 profit before tax
Profit after tax
£5.6m
Underlying EBITA1 margin
2.5%
£10,000
Basic EPS
0.0p
Underlying cash conversion3
169%
Net debt
£(1.3)m
Full year dividend
0.5p
Strategic review
S
Governance
G
Financial statements
F
2017 highlights
01
02 Our four divisions
03
Five-minute read
04 Chairman’s statement
06 Market overview
08
Business model
10 Our strategy
12
14 Operational review
20
Financial review
26
Principal risks and uncertainties
30 Corporate Social Responsibility
Key performance indicators
34 Chairman’s Corporate
Governance report
Board of Directors
36
38 Corporate Governance report
39
Nomination Committee report
40
Audit Committee report
42
Directors’ remuneration report
42
Remuneration Committee Chairman’s
annual statement
Directors’ remuneration policy report
Directors’ report
Statement of Director’s responsibilities
46
52
55
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 Notes 4 and 7 and on the face of the consolidated
statement of comprehensive income. Underlying EBITA is the same as ‘Operating profit before Exceptional and Other
Items’ on the face of the consolidated statement of comprehensive income, but used as terminology in light of being a key
performance measurement for management in the Group.
As set out in the consolidated statement of comprehensive income, other underlying numbers are stated before
Exceptional and Other Items (discussed further in Note 7). Underlying profit after tax and underlying earnings per share
are net of an imputed tax charge.
Underlying operating cash conversion is operating cash flow, plus the cash impact of Exceptional and Other Items
(discussed further in Notes 7 and 34), as a percentage of underlying EBITA.
3.
2.
Independent auditor’s report
56
59 Consolidated statement of
comprehensive income
60 Consolidated statement of financial position
61 Consolidated statement of changes
in equity
62 Consolidated statement of cash flows
63
Notes to the consolidated
Financial Statements
87 Company balance sheet
88 Company statement of changes in equity
89
Notes to the Company
Financial Statements
91 Corporate directory
92
Notes
01
SGFLakehouse plc Annual report 2017 Our four divisions make an impact through
deeper relationships
Our customers know
us and trust us, and
making a difference
to them makes
our day.”
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.
2017 underlying revenue
£104.3m
36%
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
Energy Services
Energy Services provides a range of energy efficiency measures
primarily to 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 to customers throughout
the UK and is one of the country’s leading independent installers.
2017 underlying revenue
£79.0m
27%
Key business drivers
• Fuel poverty
• Understanding subsidy regimes
• Compliance with claims
submission process
• Scheduling of manpower,
especially smart metering
• Responsiveness to market
changes and opportunities
• Client service
Property Services
Property Services provides planned and responsive maintenance
and project works 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,
windows and small projects. We contract with customers predominantly
under framework agreements, where the number of suppliers will
vary from one to a small group.
2017 underlying revenue
£47.0m
16%
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
Construction
Construction offers refurbishment and small to medium-sized public
building works, predominantly for local authority clients. The division
delivers works to a range of public buildings, with a focus on
clients in the education sector.
2017 underlying revenue
£61.8m
21%
Key business drivers
• Ability to be selective in
taking work
• 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
02
Lakehouse plc Annual Report 2017
Five-minute read
Bidding success
We had an outstanding year in bidding,
securing £580m in new wins. These
successes were reflected in the value of
our frameworks, which increased by 22%,
from £1.6bn to £1.9bn and our order book
(a subset of frameworks), which rose 19%,
from £532m to £631m. As a Group, we are
perhaps less vocal about our successes
than many market peers. This reflects our
inherent conservatism and a desire to
manage expectations in what remains a
market capable of surprise. What is beyond
doubt is that we have punched above our
weight this year, winning market share and
further enhancing the Group’s reputation.
Admission to
trading on AIM
As part of its wide-ranging operational
review, the Board considered during the year
the structure of the Group, its businesses and
operations. We wanted to identify the most
effective strategy to enable the Group to
continue to deliver a quality service to its
customers, whilst building a platform for more
consistent performance and sustainable
growth. This review included consideration
of the most appropriate trading environment
for the Group’s shares on an ongoing basis.
Given the Group’s size and profile,
the Board concluded that there would be
significant benefits from the move to AIM,
which would enable the Group to more
effectively deliver value to all its stakeholders,
including shareholders. The move to AIM
was met positively by our stakeholders and
the Board is satisfied that this represents
a more suitable platform for the business
to grow, develop and deliver improved
shareholder value.
A focus on
operational
performance
The Board recognised over the past 24 months
that to recover, the Group had to improve its
performance significantly. We undertook a
wholesale review of operational performance
during the year, reducing cost, adopting a more
disciplined approach to risk, focusing on
workstreams and clients where we can earn an
acceptable return and continuing to invest where
we saw growth opportunity or identified need for
improvement. We are proud of the operational
turnaround achieved by the Property Services
team in the past year and believe we now have a
base upon which to build for the future. We have
withstood numerous challenges in the recent
past – some fair, some unfair and some outwith
our control – regardless, we will make the most
from these experiences not simply to fix what is
broken, but to become a better, class-leading
business across all our divisions.
Overview of underlying Group profitability
Underlying EBITA: excluding Property Services
Underlying EBITA: Property Services
Group underlying EBITA
Underlying EBITA: discontinued activities (Orchard)
Underlying EBITA from continuing and discontinued activities
2017
£m
9.0
(1.7)
7.3
2.2
9.5
2016
£m
7.7
0.8
8.5
2.4
10.9
A valuable
core with strong
growth potential
The Group is a market leader in compliance,
energy efficiency and smart metering, most
notably Gas, where we are the number one in
our market. Our Compliance division posted an
underlying EBITA of £8m on underlying revenues
of £104m and our Energy Services division an
underlying EBITA of £4m on underlying revenues
of £79m, having absorbed £1.3m of smart
metering mobilisation costs. These two divisions
offer significant growth opportunity for the
Group, with predictable revenues in a market
experiencing increased regulatory compliance
obligations. We believe these businesses
are significantly undervalued by the market
and will continue to outline their merits to
existing and new investors.
Disposal of
Orchard Energy
On 2 October 2017, we announced
the sale of Orchard Energy (Holdings)
Limited (‘Orchard’), our energy brokerage
business, with an effective completion date of
29 September 2017. The proceeds of £12.4m
were used to reduce Group indebtedness.
The sale of Orchard, a white-collar business,
will allow the Group to concentrate on its
operatives-focused activities within its
Compliance and Energy Services divisions.
03
SGFLakehouse plc Annual report 2017 Chairman’s statement
Our Energy Services
and Compliance
divisions both
had excellent
performances.”
Bob Holt,
Chairman
Our investment case
Differentiated through our service offering
Strong performance in core business activities
Geographical footprint and continual expansion
of our core activities
Well positioned in attractive markets
Reshaping Property Services into profitable
work streams
Strong brands and established reputation
04
Lakehouse plc Annual Report 2017
Introduction
I am pleased with the progress made in
the year, following a significant restructuring
of the Group at the end of 2016. We have
continued to focus on building our core
growth activities within Energy Services and
Compliance, together with maintaining
a cautious approach to Construction.
Having downsized our Property Services
businesses to manage exposure to risk,
we took the opportunity to reduce central
costs. I am happy to confirm that we now
have a streamlined business that is both fit
for purpose and appropriate for a Group
of our size.
Our Energy Services and Compliance
divisions both had excellent performances,
which is a credit to those management teams
which contributed to provide the top-line
sales growth and profitability in line with
or ahead of expectations across the eight
companies concerned.
The sector had challenges in the year following
the Grenfell tragedy, as highlighted in the
Operational Review. This necessitated that
clients refocus their budgeted spends on areas
of high risk within their property portfolios.
The Group saw some benefit arising from those
changes in spend pattern, both from existing
clients and through contract awards from new
clients. However, margins saw some localised
pressure. The recent demise of Carillion brings
further uncertainty to the sector. For our part,
we will continue to invest in our people, focus
on quality of service delivery and target those
sectors and clients where we believe we can
earn an acceptable return.
Significant contract awards were gained
in the period and we experienced like for like
sales growth of 21% collectively in Compliance,
Energy Services and Construction. Our order
book grew 19% from £532m in 2016 to £631m
as at 30 September 2017. Similarly, our value
of frameworks (of which the order book is a
subset) increased by 22%, from £1.6bn to
£1.9bn, underpinning the confidence we
have in the future potential of the Group.
The now leaner central services team also
contributed to the successes in the year, as we
maintained the highest standards of reporting,
health and safety compliance, procurement
savings and bid performance. I am pleased to
report that the key non-operational functions of
the business are all functioning well.
Our cash management in the period was
good, where we were able to demonstrate
that excellent operational service levels can
expect above average cash receipts.
Divestiture
On 2 October 2017, we were able to announce
the divestment of our white-collar energy
consultancy business, Orchard Energy
(Holdings) Limited (‘Orchard’). The Group
acquired Orchard in 2015 and saw an opportunity
to divest at a significant premium to the cost
of acquisition. Orchard was the only part of
the Group which provided pure consultancy
services and therefore the divestment was
easy to extract with no upheaval and little effect
on the other trading entities. The sale had an
effective completion date of 29 September 2017
and realised £12.4m, representing a gain on
sale of £5.4m, which was used to pay down
the Group’s debt with the Royal Bank of Scotland.
As mentioned previously, this cash repayment
alongside our good cash collection saw the
Group end the period with a very low net debt
of £1.3m against a figure of £20.6m at the
corresponding period in 2016. This reflected
a terrific effort from a number of people.
Trading performance
The details of our financial performance for
the year are set out in the Operating Review.
I was pleased with an underlying EBITA of
£9.5m (comprising £7.3m from continuing
activities (2016: £8.5m) and £2.2m from
Orchard (2016: £2.4m), which was reported
as a discontinued activity). Our performance
was in line with market expectations and
provides a strong base upon which to move
forward. Our profit for the year attributable to
equity holders of the Group was significantly
impoved at £10,000, compared to a £29.3m
loss in the prior year.
Strategy
We have outlined our strategy on pages
10 and 11, which remains:
• Developing key markets: utilising our strong
presence in social housing, public buildings,
energy and education to grow both
geographically and across service lines
• Focused divisions: sticking to what we are
good at within our core activities of gas,
fire and electrical, air and water, lifts, energy
efficiency, smart meters and construction,
whilst stabilising Property Services
• Working together: capitalising on our strong
national base to collaborate in expanding
our activities within existing markets
To which we have added a fourth category:
• Operational performance: we are proud
of the operational turnaround achieved
to date by the Property Services team in
the past year, given past failures elsewhere
in the sector – we must build on these
experiences not simply to fix what is broken,
but to become a better, class-leading
business across all our divisions
I have been delighted
by the commitment and
passion shown across
our workforce of more
than 2,300.”
Dividend
The Board is looking to maintain a dividend,
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 2018 to shareholders on the register
at 2 March 2018. This represents a total
dividend of 0.5 pence per share for the year
(2016: 1.5 pence).
People
The Board was strengthened recently with
the appointment of Derek Zissman, who
brings a wealth of experience to the Group,
most notably from 35 years at KPMG, where
he was a Founding Partner of their Corporate
Finance and Private Equity Groups. We are
delighted that Derek has agreed to take over
the Chairmanship of the Audit Committee.
I look forward to the continued maintenance
of our high standards of Corporate
Governance with Derek’s support.
I should like to thank all employees of
the Group for their commitment during a
challenging but exciting period and I look
forward to bringing news of further success
to all stakeholders of the Group.
Outlook
We have taken significant steps forward
this year, expanding our activities within
Energy Services and Compliance, taking
a steady approach in Construction and
downsizing and repairing Property Services.
Our focus remains on operational improvement
within the Group, but we can now start to
consider strategic development. We do not
expect to return to a significant acquisition
strategy, albeit we can never rule out the right
deal, instead focusing on organic growth in
our core growth markets within Energy
Services and Compliance, which have
considerable bandwidth.
We have a settled and committed Board,
a strong leadership base in each of our
businesses and a great workforce in which
we continue to invest. We therefore look
to the future with optimism.
I have been delighted by the commitment
and passion shown across our workforce of
more than 2,300, in what has been a difficult
period. We have come out of this stronger,
leaner and, in our target markets, bigger.
However, our achievements will count for
nothing without our reputation for delivering
a high quality service to our clients and
wider stakeholders, whilst ensuring our
environments remain safe and secure.
Bob Holt
Chairman
22 January 2018
05
SGFLakehouse plc Annual report 2017 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, energy services and
education markets. 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 an expanding
presence among industrial and commercial customers, with
a national footprint. Our Gas Compliance business is the
leading one of its type and we believe our wider compliance
business to be the strongest in our core markets
• 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. This business
has the ability to open doors in the energy market and play a
full role in the further development of the sector
• 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.
Our Foster business has a strong regional brand and offers a
broad range of property services that provide the opportunity
to evolve with and adapt to market demand
• Construction: education customers predominantly in London
and the South East, as well as the Ministry of Defence, Metropolitan
Police, NHS and other public building owners. Lakehouse
Construction remains a niche player and well placed to grow
cautiously in a market with foreseeable demand
H2O Nationwide provides clients with comprehensive water and
air hygiene services, undertaking initial assessments to ensure full
compliance with the latest regulations, as well as regular monitoring
and testing to make sure clients’ properties are maintained to
approved standards.
06
Lakehouse plc Annual Report 2017What drives our markets?A number of important factors create demand for our services.Market outlookCustomers 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 must comply with regulationsWe expect a continued increase in demand from our client base for our services, driven by regulation and legislation which will only increase given the pressures following the Grenfell Tower tragedy. 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 targetsEnergy 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 Programmes for Scotland, a key policy programme of the Scottish Government. The national smart meter rollout is an £11bn programme to install 53m meters in UK households. 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 clients improve their properties’ environmental performance, installs smart meters to enable clients to monitor consumption and advises clients on energy efficiency.Customers have environmental targetsOur core source of funding comes from the ECO scheme, which was extended to September 2018 in March 2017 and is expected to run to 2022, although direction on eligibility and delivery schemes is still unclear. Carbon prices though were stable during FY17. We are also on national and regional programmes with the Scottish Government’s flagship Home Energy Efficiency Programmes for Scotland (‘HEEPS’) programme, which runs to between 2020 and 2022. The smart meter rollout is due to be completed in 2020, but is running significantly behind schedule and we expect will be extended, not least because the newer ‘SMETS2’ meter technology has yet to be introduced. We are confident in the future of our markets, as demand is there and funding in place — however, enactment of and consistency in Government Energy policy is making the market ever more challenging.Growing demand for educationThe 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.Growing demand for educationThe pressure on school places provides strong predictability of demand in this market, which allows us to plan well into the long term. We found short term disruption in light of a change in client preference for procurement from a single stage to two stages in FY16, but this largely settled down in FY17. We 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 housingA 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. The 2017 Autumn Budget suggested that a further 300,000 homes need to be built nationally every year, which will increase pressures among social housing providers to offer creative solutions and make the most of existing properties. A growing crisis in social housingNotwithstanding 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 through to March 2020. 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 compliance services and energy efficiency funding is a particular differentiator as clients seek ways of maintaining and improving their housing stock. We may also assess whether our project skills should be turned to housebuilding programmes, where we can do so at low risk.
Our longstanding customer
relationships and successful
reputation are testament
to the hard work and
professionalism of
our employees.”
Lakehouse plc Annual report 2017
07
SGFWhat drives our markets?A number of important factors create demand for our services.Market outlookCustomers 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 must comply with regulationsWe expect a continued increase in demand from our client base for our services, driven by regulation and legislation which will only increase given the pressures following the Grenfell Tower tragedy. 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 targetsEnergy 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 Programmes for Scotland, a key policy programme of the Scottish Government. The national smart meter rollout is an £11bn programme to install 53m meters in UK households. 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 clients improve their properties’ environmental performance, installs smart meters to enable clients to monitor consumption and advises clients on energy efficiency.Customers have environmental targetsOur core source of funding comes from the ECO scheme, which was extended to September 2018 in March 2017 and is expected to run to 2022, although direction on eligibility and delivery schemes is still unclear. Carbon prices though were stable during FY17. We are also on national and regional programmes with the Scottish Government’s flagship Home Energy Efficiency Programmes for Scotland (‘HEEPS’) programme, which runs to between 2020 and 2022. The smart meter rollout is due to be completed in 2020, but is running significantly behind schedule and we expect will be extended, not least because the newer ‘SMETS2’ meter technology has yet to be introduced. We are confident in the future of our markets, as demand is there and funding in place — however, enactment of and consistency in Government Energy policy is making the market ever more challenging.Growing demand for educationThe 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.Growing demand for educationThe pressure on school places provides strong predictability of demand in this market, which allows us to plan well into the long term. We found short term disruption in light of a change in client preference for procurement from a single stage to two stages in FY16, but this largely settled down in FY17. We 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 housingA 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. The 2017 Autumn Budget suggested that a further 300,000 homes need to be built nationally every year, which will increase pressures among social housing providers to offer creative solutions and make the most of existing properties. A growing crisis in social housingNotwithstanding 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 through to March 2020. 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 compliance services and energy efficiency funding is a particular differentiator as clients seek ways of maintaining and improving their housing stock. We may also assess whether our project skills should be turned to housebuilding programmes, where we can do so at low risk. 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.
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.
cial h o u
o
S
s i n g
Public b
u
il
d
i
n
g
s
Working
together
E
d
u
c
atio
n
E n ergy
Methods of
assessment:
Return on capital
Risk management
Cash conversion
Future visibility
Working together
Offer a route into the industrial
and commercial sector
Metering
(Providor)
Air & Water
(H2O)
Energy
Efficiency
(Everwarm)
Gas
businesses
(Sure, K&T,
Aaron)
Lifts
(Precision)
Construction
Fire & Electric
(Allied)
National gas footprint
a base for growth
Focus on operational
improvement
Property
Services
Foster
Property
Maintenance
08
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 supply chain partners to deliver
a number of our services and for high quality
materials. We build long term relationships
with them, so they deliver consistently and
benefit from our growth. A reliable supply
chain is key to achieving high levels of
customer service.
Lakehouse plc Annual Report 2017
Methods of
assessment:
Investing in our
growth strategy
Differentiation
through
our service
offering
Do business
the right way
Focus on
operational
excellence
The outcomes we aim to generate
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.
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 businesses, by developing
a strong relationship with an expanding group.
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.
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.
09
SGFLakehouse plc Annual report 2017 Our strategy
Our strategic priorities
Operational excellence
How we will deliver
Progress in 2017
Deliver a high quality
service on time and
to budget.
Invest in our leaders, people and
the technology that allows them
to deliver.
• New leadership in Property Services
• Expanded Lakehouse Training Academy
•
Launched development of a common Compliance
operations platform
Developing key markets
The chart below shows
how the Group’s
businesses work.
Each business will be empowered
to operate in a self-contained
entrepreneurial manner, supported
by the Group Executive
Management Team.
• Significant wins in core businesses
• Growth of Commercial Gas operations
• Geographic expansion in Compliance
and smart metering
Education
Public
buildings
Social
housing
Private
housing
Energy
Industrial and
Commercial
Geography
Compliance: Gas
Compliance: Fire
Compliance: Lifts
Compliance: Water
Compliance: Air
Energy Services: Metering
Energy Services: Everwarm
Property Services: Foster
Property Services: Lakehouse
Construction: Lakehouse
National
National
National
National
National
National
Regional/
National
Regional
Regional
Regional
Focused divisions
We will have a clear
purpose for each division.
Each business will have a
specific role to play within the
Group. This will involve refining
targets and market ambitions to
ensure they are realistic, attainable
and offer an acceptable return on
financial and human capital.
• Sale of Orchard Energy
• Smaller and more focused Property
Services business
• Expansion of Compliance and smart metering
activities within core customer base
Working together
Cross-selling to
deliver comprehensive
client services.
10
Group-wide initiatives, particularly
in bidding and use of technology
to improve efficiency.
Investing in our people.
• Secured a series of major and national contracts
• Secured major new contracts in Everwarm
and Allied (fire) where we were able to
demonstrate a broader service line with
existing clients
• Significant expansion of public sector client
base within H2O Nationwide (air and water),
which had historically been focused
predominantly on Industrial and Commercial
customers — the challenge is to ensure this
works both ways
Lakehouse plc Annual Report 2017 Case studies
• Significant wins in core businesses
• Growth of Commercial Gas operations
• Geographic expansion in Compliance
and smart metering
Fleet efficiency translates to significant cost savings
In the past year we have reviewed our fleet suppliers and manufacturers and
aligned historic contracts to enhance the level of support we receive, including
payment profiles, discounts, rebates and additional benefits. We introduced
a Group-wide Fleet Management and Vehicle Tracking system, enabling us to
capture everything digitally, enhancing our reporting capabilities and enabling
us to effectively manage all aspects of our fleet, control our costs and
ensure compliance.
£39m metering contract in the West Midlands with Scottish Power
The Group won a £39m metering contract requiring the installation of
some 400,000 meters over four years, comprising both smart meters and
‘business as usual’ installations, and covering the West Midlands. The contract
is in addition to our £37m domestic smart meter contract with Scottish Power
across Northern Scotland, Wales and North West England, announced on
2 August 2016.
K&T Heating win five year commercial heating contract with L&Q
K&T Heating have won a five year commercial heating contract with L&Q, with
an estimated annual value of £750k per year. The contract entails servicing,
maintenance and responsive repair services for communal heating and hot
water systems to over 170 residential blocks. The service area covered includes
Hemel Hempstead through to the South East London and Dartford areas.
Major contract win with Aberdeenshire Council
Everwarm are to deliver a contract with Aberdeenshire Council up to the value
of £44m over a four-year duration. Beginning in 2018, services will cover every
facet of housing improvement upgrades, including external upgrades, internal
refurbishments, domestic heating programmes and renewable energy installations.
Lakehouse Training Academy established
As part of the Lakehouse Training Academy, Allied Protection initiated a three-year
training course, in partnership with industry leading fire safety equipment and
tool manufacturing businesses, to train college leavers in Fire Safety. Combining
in-lesson learning, theory and site based practical experience, and on-the-job
mentoring, the course is designed to build a workforce that operates to the
highest standards and tackles a serious skills shortage in the fire industry.
K&T Heating and Sure Maintenance working for Guinness Trust
Sure Maintenance has retained a contract with Guinness Partnership for
a further four years, worth between £2.0m and £3.0m per annum, and has
also won a second contract worth £1.0m providing gas services to properties
in the South West. Building on the Group’s comprehensive service delivery,
K&T Heating has been awarded a £2.0m-£3.0m p.a. contract to maintain
c15,000 properties for Guinness across the South of England.
11
SGFLakehouse plc Annual report 2017 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 both to grow and
manage risk within the Group, predominantly through organic
means, but where relevant through carefully targeted acquisitions
and disposals.
Performance
Underlying revenue decreased by 3.0% to £290.3m (2016: £299.1m),
reflecting a risk reduction exercise within Property Services, whose
underlying revenues fell 52.1% to £47.0m (2016: £98.1m). Underlying
revenues excluding Property Services grew 21% to £243.3m
(2016: £201.0m).
Relevance to strategy
The increase or decrease in underlying EBITA demonstrates our
ability to grow our profitability, manage risk, deliver operational
improvement and expand our margins.
Performance
Underlying EBITA fell by 14.2% to £7.3m (2016: £8.5m), reflecting
the downsizing of Property Services as part of our operational
improvement programme, resulting in a £1.7m underlying EBITA
loss (2016: £0.8m profit). Underlying EBITA excluding Property
Services rose 15.8% to £9.0m (2016: £7.7m).
Underlying revenue
decrease: Group
(3.0)%
Underlying revenue
increase: excluding
Property Services
21.0%
Underlying EBITA
decrease: Group
(14.2)%
Underlying EBITA
increase: excluding
Property Services
15.8%
Order book
The order book comprises 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 foreseeable.
Relevance to strategy
The order book measures our success at securing the long term
contracts and frameworks we bid for and makes our future revenue
more predictable.
Performance
The order book increased 19% to £631m (2016: £532m),
principally reflecting the significant successes experienced by
Compliance and Energy Services this year.
We currently have 84% visibility for the year to 30 September 2018
(like for like prior year: 87%).
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 34) as a percentage of underlying EBITA.
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
169% (2016: 127%). Cash conversion on a statutory basis was
an inflow of 248% (2016: outflow of 493%).
We continue to target average cash conversion of 80% over the
long term.
Order book at 30 September 2017
Underlying operating cash conversion
£631m
12
169%
Lakehouse plc Annual Report 2017 Non-financial indicators
Accident incident rate (‘AIR’)
During the year, we refined our calculation of AIR to consider two
measures: seven-day RIDDORs and all accidents. The figures are
calculated on the basis of the number of seven-day reportable injuries,
specified injuries and reportable cases of ill health (as applicable),
multiplied by the number of employees (including subcontractors)
and divided by the average hours worked.
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 2016 and 30 September 2017. This is based
on weighted average.
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 (RIDDORS) stood at 0.18, substantially below the
Group target of 0.80. The AIR (all accidents) stood at 2.85,
again substantially below the Group target of 5.00.
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 66% (2016: 69%),
which is below our target of 85%. This reflects the ongoing operational
improvement actions taken during the year. We will be assessing
stability, which we believe better represents retention of core senior
staff members.
Accident incident rate
(‘AIR’) RIDDORS
Accident incident rate
(‘AIR’) all accidents
Management retention rate
0.18
2.85
66%
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 12,282 tonnes of CO2, a rise of 37% on
the 8,951 tonne usage in 2016. This is equivalent to 41.0 tonnes
per £m of revenue (2016: 26.8 tonnes).
We continued to improve data collection through the year and feel
this is the first true representation of every company in the Group.
With this data in place and use of our energy performance indicators,
we are targeting improvements of at least 2% per annum moving forward.
Carbon usage
12,282 tonnes
13
SGFLakehouse plc Annual report 2017 Operational review
Our value of frameworks
increased by 22%, from
£1.6bn to £1.9bn, underpinning
the confidence we have
in the future potential of
the Group.
Financial performance
The Group had a strong year, posting an
underlying EBITA of £9.5m, comprising £7.3m
from continuing activities (2016: £8.5m) and
£2.2m from Orchard (2016: £2.4m), which
was reported as a discontinued activity.
Underlying revenue from continuing activities
was 3% lower at £290.3m (2016: £299.1m)
and underlying EBITA from continuing
activities declined by 14.2% to £7.3m from
£8.5m in the prior year, representing a margin
of 2.5% (2016: 2.9%). We have previously
discussed the challenges faced by our
Property Services business, and excluding
these operations, underlying revenues grew
21.0% from £201.0m to £243.3m, with
underlying EBITA rising 15.8% from £7.7m
to £9.0m, which included absorbing some
£1.3m of meter mobilisation costs within our
underlying performance. Property Services
revenues fell 52.1% from £98.1m to £47.0m,
posting an underlying EBITA loss of £1.7m
(2016: profit of £0.8m).
Statutory revenue was 8.5% lower at
£299.5m (2016: £327.2m), reflecting the
withdrawal from our ‘externals’ activities
within Property Services announced in the
prior year. Operating losses were much
improved at £1.1m (2016: £34.0m), after
Other Items of £1.9m (2016: £9.1m), a net
exceptional gain of £4.0m (2016: loss of
£3.1m, together with a £19.2m impairment
charge) and amortisation of acquisition
intangibles of £10.5m (2016: £11.2m), which
are discussed further in the Financial Review
below and Note 7.
Underlying profit before tax from continuing
activities was £5.6m (2016: £7.5m) and
underlying profit after tax from continuing
activities was £4.2m (2016: £6.3m), resulting
in underlying basic earnings per share of
3.7 pence (2016: 5.2 pence). The statutory
loss from continuing operations before tax
was £3.1m (2016: £35.7m) and loss after
tax was £1.7m (2016: £31.1m).
Profit after tax from discontinued activities
was £1.7m (2016: £1.9m), resulting in a profit
for the year attributable to the equity holders
of the Group of £10,000 (2016: loss of
£29.3m) and basic earnings per share of
0.0 pence (2016: loss of 18.6 pence).
14
Our Compliance,
Energy Services and
Construction divisions
have all delivered
strong growth in
the year.”
Looking forward
During the year, we saw very strong underlying
growth in our Compliance (underlying revenues
up 14.6%) and Energy Services (underlying
revenues up 29.9%) divisions and we will
continue to focus on both moving forward.
Construction underlying revenues grew
18.7%, which, whilst pleasing, came from
a low base in FY16. This remains a good
business but unpredictable both in terms
of timing of client procurement and project
management and we are planning for
modest future growth.
Property Services had a difficult first half of
the year, losing an underlying £1.1m, and we
saw an improvement in the second half, with
losses falling to £0.6m, resulting in an overall
loss for the year of £1.7m. Underlying revenues
declined 52.1% as we sought to reduce risk
and we matched this with a reduction in the
cost base. We expect these activities to
improve returns in the future, possibly on
revenues slightly lower than FY17.
With this in mind, we are pleased to have
visibility over 84% of forecast revenues for the
current year (as at November 2017), compared
to 87% at the same point in FY16.
The Group’s order book stood at £631m at
30 September 2017, an increase of 19% on
the prior year of £532m, reflecting significant
gains in Compliance and Energy Services. Our
value of frameworks (of which order book is a
subset) also increased by 22%, from £1.6bn
to £1.9bn, underpinning the confidence we
have in the future potential of the Group.
Our Compliance, Energy Services and
Construction divisions have all delivered
strong growth in the year and we remain
confident in the exciting prospects for each.
Property Services has been in a turnaround
situation during FY17, but new management
have stabilised operations, reviewed risks and
provided a base upon which we can build in
the future.
Lakehouse plc Annual Report 2017 Compliance
(36% of Group Underlying Revenue)
Compliance:
year ending 30 September
Underlying revenue (£m)
17
16
Underlying EBITA (£m)
17
16
104.3
91.0
+14.6%
8.0
6.2
+29.5%
Underlying EBITA margin (%)
17
16
7.7
6.8 +90ppt
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, underlying revenue increased by 14.6%
to £104.3m (2016: £91.0m). Underlying EBITA
increased 29.5% to £8.0m (2016: £6.2m),
resulting in an underlying EBITA margin of
7.7%, up by 90ppt, reflecting the increased
critical mass of the business, especially
as regards procurement. The year on year
annualised impact of Aaron Heating Services
(acquired November 2015) and Precision Lift
Services (acquired in December 2016) was
£4.8m in revenues and less than £0.2m
in EBITA.
Gas Compliance
The three Gas Compliance businesses
(Sure, Aaron and K&T) make up 75% of
divisional revenues and built on the progress
made in FY16 with another excellent year.
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 historically enjoyed larger margins
as a result of higher engineer efficiency and
procurement leverage. We carried this experience
over into Sure and Aaron during 2017, with
a resultant improvement in margins.
We have continued to expand the reach of each
of the Gas businesses during the year, as we
seek to provide both nationwide coverage and
a broader range of related services, particularly
in commercial gas (being boiler plant rooms
and the like). Sure expanded into the South
West with Guinness Trust and the Midlands,
with Derbyshire County Council. Aaron expanded
into the Home Counties with Central Beds.
K&T developed its commercial gas offering in
securing a £7m programme with London &
Quadrant, along with completing a national
offering with Sure for Guinness Trust, as we
won all three geographic lots on this £5m per
annum programme during the year.
The business has further capacity to fill in
geographic gaps and expand its range of
services, building on the successes of 2017.
We are also investigating the investment
required in systems development, with
the aim to improve engineer planning and
utilisation, without compromising the quality
of service offered by a local presence. There
are further gains to be made in fleet management
and procurement, albeit as we identify in the
risk section on pages 26 to 29 we will keep
a close watch over commodity prices as the
Brexit process advances, in particular metals
such as steel and copper, which are a core
component of boilers. Whilst price rises are
possible in the long term, we are committed
to mitigating, wherever possible, the impact
on client budgets and as such need to ensure
our procurement leverage relative to our
competitors allows us to maintain and
develop our competitive advantage.
During the year, Gas Compliance secured a
number of notable further wins, with a £6.1m
heating service and maintenance contract with
Places for People, a £1.6m boiler replacement
programme with Corby Borough Council, a
£5m two-year heating services contract with
Moat Housing and a £4.9m heating service
and maintenance contract with Southern
Housing Group over four years. In addition, we
secured places on the Eastern Procurement
framework (potentially worth £1.6m per annum)
and two places on Sanctuary Housing’s
commercial heating installations framework,
all key and important. We were also highly
successful in resecuring a number of existing
contracts with clients such as Whitefriars and
Charnwood Housing Associations.
Building Compliance
Our Building Compliance businesses
comprise Allied Protection (fire and electrical),
H2O Nationwide (air and water) and
Precision Lift Services (lifts).
H2O Nationwide had another superb year, as
we further developed its footprint in both the
social housing and industrial and commercial
sectors. During the year, the business secured
a £0.5m water hygiene maintenance contract
with the London Borough of Ealing, a £0.6m
water compliance contract with Homes For
Haringey, a £0.6m framework with Procurement
for All and a £0.7m water hygiene framework
with Fusion21. There is significant strategic
bandwidth in this business, individually and
together in water and air hygiene services, as
well as further development in the Industrial and
Commerical market and we are excited about
the future value that can be generated.
With new management in place, Allied turned
a small FY16 EBITA loss into a healthy EBITA
profit in FY17 through a focus on operational
improvement. This was really pleasing after a
difficult FY16, where we saw a significant
drop-off in project works. The Grenfell Tower
tragedy has focused the attention of clients
on the non-discretionary nature of fire protection
and we expect this market to develop further
in the future. It is too early to determine quite
how these developments may progress as
there are a range of potential solutions, but
we invested during the second half in our
central team to ensure we are best placed to
respond to client requests and, importantly,
provide them with the documentary reassurance
they need to remain compliant. Allied was
engaged by Kensington and Chelsea in
January 2017 to certify the appropriate
Works involving the replacement of lifts in residential
blocks, an essential means of access for residents,
makes it very important to involve residents in a period
of consultation, allowing us to better understand the
needs of those whose lives will be impacted.
15
SGFLakehouse plc Annual report 2017 Operational review continued
excessive numbers of new wins, as headline
client names and quantum of frameworks do
not always lead to material levels of new work.
In reflecting a near doubling of our number of
frameworks and increase in value by one-third,
we have exercised our normal levels
of conservatism.
We regard Lakehouse to be the market
leaders in the compliance sector, with a true
national reach. We believe we have built the
strongest compliance business of its type,
well positioned to grow further in what is a
fragmented and regional market. The division
stands alone and each of the six business
Managing Directors is encouraged to think
and act as an entrepreneur, whilst operating
within the governance boundaries of a plc.
Energy Services
(27% of Group Underlying Revenue)
Energy Services:
year ending 30 September
Underlying revenue (£m)
17
16
Underlying EBITA (£m)
17
16
79.0
60.8
+29.9%
4.0
-29.0%
5.7
-420ppt
9.3
Underlying EBITA margin (%)
17
16
5.1
Underlying EBITA excluding the
impact of smart metering (£m)
17
16
5.3
-5.8%
5.7
Energy Services provides a range of energy
efficiency services, including insulation,
heating and renewable technologies 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. The division
offers smart metering services through
Providor and has a small but developing
presence in the installation of electrical
vehicle charging points.
Underlying revenue increased by 29.9% to
£79.0m (2016: £60.8m). These figures reflect
our energy efficiency and metering activities
following the sale of Orchard in September 2017,
which has been treated as a discontinued
activity and therefore excluded from the above
figures. Top-line growth was very much driven
by our new contracts with Scottish Power as
the metering business continued to mobilise
in the year.
Underlying EBITA decreased by 29.0% to
£4.0m (2016: £5.7m). As we highlighted in
FY16 would be the case, the Providor metering
business continued to mobilise during the year
and we felt as a continuing activity it was
therefore right to include the performance
within trading, whereas as a new activity it
had been taken to ‘Other Items’ in the prior
year. The costs of mobilisation amounted to
£1.3m (2016: £2.5m reported within ‘Other
Items’), which were slightly higher than the
£1.0m we had previously indicated, due to
the inefficiencies created by continued delays
in the programme. This is discussed further
below and accounted for the bulk of the
movement in underlying divisional EBITA
year on year.
Everwarm
We saw Everwarm’s business model continue
to evolve during the year, creating a wider and
more balanced portfolio of activities, particularly
in heating, renewables and comprehensive
property services, all of which performed well
during the year. We were delighted to announce
a £44m four-year contract with Aberdeenshire
Council, which underpins this development.
Insulation remains the most significant part
of Everwarm’s business and in the year, whilst
the carbon rates that underpin energy subsidy
funding remained stable at a macro-level,
we experienced some localised examples of
price fluctuations, mainly one-off offerings
for smaller volumes and shortened timeframes
based on specific requirements among energy
suppliers. Our strategic approach to relationships
with energy suppliers secures us higher
volume commitments over longer durations,
which saw less volatility, and we currently
have committed volumes to June 2018. In
addition, the ECO2 transition (‘ECO2t’)
model has seen a move to deemed scoring
measures, aimed to simplify the procedures.
While the headline carbon rates associated
with ECO2t have increased, on average the
new scoring approach has maintained overall
funding levels per property, so we see no
margin benefit. There remain challenges
around lead generation and compliance;
Compliance continued
Building Compliance continued
working of its installed fire safety systems at
Grenfell Tower and is satisfied the system was
maintained in accordance with the requirements.
All evidence presented to date indicates that
the system performed as it was designed to
do and there has been no inference of any
contractual shortcomings on Allied’s part.
Allied was not responsible for the specification
or installation of the system.
A particular challenge in the current market
is retaining good fire engineers and we
expanded the Lakehouse Academy during
FY17 to train apprentices in-house, thereby
providing a steady stream of engineers trained
to the standards we expect. Allied had a good
year for new wins with a £1m fire equipment
service and maintenance contract with
Shepherds Bush Housing Association, a
four-year fire safety programme with Fusion21
worth £2.7m and a four-year, £2.4m fire safety
improvement works programme with Paragon
Housing Association. Allied also achieved
successful geographic expansion, including a
two-year contract with Coventry City Council
and a £1.6m passive protection contract with
Wythenshawe Council, courtesy of a
pre-existing relationship with Sure.
We decided during the year to bring a new
management team into Precision Lift Services,
in place of the former owner and Managing
Director. We expect the change to bring
the drive necessary to deliver growth in a
commercial environment. The former team
built an excellent and strong business, which
was evidenced by a number of great wins in
the year, including a 10-year £27m lift service
repair and refurbishment programme with
Westminster City Council, a £1.6m lift
modernisation programme with the London
Borough of Hammersmith and Fulham, a
£0.9m lift modernisation programme with
Brent Housing Partnership, a £0.9m lift
refurbishment programme with each of Hyde
Housing Association and the London Borough
of Newham and a £1.2m four-year framework
with Eastern Procurement. We also successfully
resecured significant contracts with Tower
Hamlets Housing Association and
Wandsworth Council.
Looking forward
Compliance now includes 204 frameworks,
up from 108 at 30 September 2016, with
an aggregate potential value of £608m
(30 September 2016: £447m). We have
been cautious during the year about announcing
16
Lakehouse plc Annual Report 2017 Everwarm secured a first ranked place in
28 out of 32 areas on the multi-million pound
Scotland Excel framework in the year, from
which we have already obtained our first contract
win (£4m for Renfrewshire Council). This was
in addition to our first non-domestic contract
with North Ayrshire (£1m), for which work is
progressing well. We continue to see a strong
volume of new opportunities to secure our
pipeline and remain interested in the Welsh
Government Warm Homes (Arbed) tender, as
a means to increase our footprint outside of
Scotland and take advantage of our years of
industry experience.
Looking forward
Energy Services is now on 54 frameworks,
up from 36 at 30 September 2016,
with an aggregate value of £468m
(30 September 2016: £427m), providing an
encouraging future pipeline of opportunity.
Discontinued activities
Orchard Energy
At the end of the financial year, we disposed
of Orchard Energy, our energy procurement
and advisory services business. Orchard
recorded an operating profit of £2.2m, some
10% down on the prior year (2016: £2.4m).
The sale of Orchard, a white-collar business,
will allow the Group to concentrate on our
operatives-focused activities within
Compliance and Energy Services.
however, our core strengths play well to the
latter and leave us extremely well placed to
deliver a class-leading service. ECO2t has
been extended to September 2018, prior to
the proposed introduction of a fuel poverty-
focused scheme thereafter. Our belief continues
to be that insulation offers a low cost and
highly effective means of reducing energy
consumption and alleviating fuel poverty.
As we discussed at the half year, margins in
the insulation market remain challenging, but
we saw improvements in heating, renewables
and comprehensive property services through an
improved activity mix and scale in our activities.
The Group holds a one-third share in
the Warmworks joint venture, along with
Changeworks and the Energy Saving Trust.
Warmworks operates the Scottish Government’s
flagship Home Energy Efficiency Programme
for Scotland (‘HEEPS’), which performed
exceptionally well, albeit with the expected
plateau and then slight decrease in volumes
during the second half of the year, in light of
funding availability. A decision around further
funding is expected in early 2018, which will
guide us further, although committed volumes
reduce any exposure we have here. We continue
to explore options for the development of the
business model, including areas such as
water efficiency and advisory services.
The recent tragic events with Grenfell Tower
have no direct bearing on Everwarm, as the
business has not engaged in either aluminium
cladding or refurbishment of tower blocks.
However, the insulation sector remains
under-represented in Westminster and these
events have introduced further uncertainty
into the market. We nevertheless remain
optimistic of the long term need for energy
efficiency measures, given the large volume
of energy inefficient homes in England and
Wales, but this will require a flexible model
that responds to the solutions that arise,
which could involve development of new
technology. Given the breadth of the wider
Group, we believe the business is well
placed to respond accordingly.
Providor Metering
We were delighted to announce in March 2017
the award of a £39m contract with Scottish
Power, covering the installation of some
400,000 meters in the West Midlands. This
contract is mobilising and we continue to
work well with Scottish Power, with client
data indicating we are now established as
one of the highest performing meter
installers in the industry.
We noted at the half year that we are now
having to review pricing, as the complexities
of the smart meter installation programme
become more apparent. If anything, these
complexities have increased as the year has
progressed. A particular difficulty is that the
new ‘SMETS2’ smart meter standard has yet
to be introduced. This means that suppliers
continue to install less advanced ‘SMETS1’
smart meters. The UK Government has granted
an exclusive licence to DCC Limited (‘DCC’),
a data communications company entrusted
to manage the data and communications network
to connect smart meters to the business systems
of energy suppliers, network operators and
other authorised service users of the network.
The introduction of this network is three years
behind schedule and there is no guarantee
that SMETS1 meters will communicate with
the DCC. This means that suppliers are
understandably holding back in the introduction
of smart meters, making the installation
process less efficient as a consequence. The
UK Government has set a July 2018 backstop
date for introduction of SMETS2 (albeit with
a flexibility for minor slippage), but this focuses
on the interests of suppliers – as installers,
we are concerned about a significant dip in
installations up to this period and then a huge
surge in demand afterwards. This would
create significant difficulties in the installation
sector, with engineer churn a particular challenge.
We continue to review our forecasts every
month and work with our customer base to
manage the programme as efficiently and
profitably as possible.
Providor is one of only a handful of operators
capable of managing a national rollout of smart
meter installations and we are confident that
we have built a strong market position with
future opportunity for growth through partnership
with the leading energy utilities. To this end,
we will ensure our concerns are registered
with both energy suppliers and the Government.
Divisional contract position
FY17 has been a successful bidding period
for the division, winning a variety of projects
spread across new and existing clients. Securing
Everwarm’s position on the Aberdeenshire
£44m HIP framework was a key victory with
an existing partner, in addition to significant
External Wall wins for West Dunbartonshire
(£2.1m) as a new client, West Lothian Council
(£2m) and Almond Housing Association
(£1.4m). Providor won a £4m managed
service contract with Scottish Power in
addition to the installation contracts
previously announced.
17
SGFLakehouse plc Annual report 2017 Operational review continued
Property Services
(16% of Group Underlying Revenue)
Property Services:
year ending 30 September
Underlying revenue (£m)
17
16
47.0
-52.1%
98.1
Underlying EBITA (£m)
17
(1.7)
-312.1%
16
0.8
Underlying EBITA margin (%)
17
(3.5)
-430ppt
16
0.8
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: operates
in London and the South East, focusing
on planned maintenance activities
Foster Property Maintenance (‘Foster’):
operates in East Anglia and has a broad
reach, encompassing planned and
reactive maintenance, project works and
energy efficiency measures
We discussed last year that we had launched
an operational improvement programme aimed
at improving returns in Property Services.
This involved challenging the return on capital
at a client level and focusing on those
relationships where we can earn an acceptable
return, matching the cost base accordingly.
The turnaround of this business meant that
FY17 was a transitional year for Property
Services and we ended the year a great deal
stronger and leaner than when it started.
Property Services underlying revenue was
£47.0m in the year, down 52.1% (2016: £98.1m).
This decline reflected our previously stated
intention to manage risk in the business and,
to this end, the significant efforts of the
Lakehouse Property Services team in closing
out legacy issues in the business (reported
within Other Items and discussed below).
We needed to go through this process before
taking on new work, which became a focus
towards the end of the year.
Revenues of £9.3m (2016: £25.2m) relating
to businesses being exited and reported within
Other Items reflect the residual contracts
completed in the year, relating to the exit
from our directly delivered externals business
announced in FY16. We finished all contracts
in relation to this business in October 2017.
The business posted an underlying EBITA
loss of £1.7m (2016: profit of £0.8m), which
was below expectations, but improved
significantly as the year progressed. Given
the focus on clearing up legacy issues we saw
a lack of margin-earning work that meant the
business overall made a loss. This was
exacerbated by a frustrating inconsistency
in workflows from certain key clients and
although our primary response was to work
with clients on planning out their needs, there
were instances where we had to walk away.
As part of this exercise, we continued to
review the cost base throughout the year,
not only in headcount, but in other operating
expenditure such as premises, fleet and
inventory management. The actions contributed
to an improvement in returns as the year
progressed and we expect to return to
profitability over the medium term.
Lakehouse Property Services
Our new leadership team spent most of the
year stabilising Lakehouse Property Services
after an exceptionally difficult FY16. We managed
to close out the legacy ‘roofing’ contracts during
the year, with the operations concluding with
the final project in October 2017. Lakehouse
has always delivered on its promises,
frustratingly at times, irrespective of cost.
This, however, means that clients know they
can rely on Lakehouse to deliver works to the
highest standard, focused always on
compliance with contractual terms and the
needs and safety of residents. When things
go wrong, as they can in this industry, we
ensure issues are resolved in a timely fashion
and where they turn out not to be our fault, we
work with clients in a constructive fashion.
It is for these reasons that we have sought
during the year to focus on working with
those clients with whom we can forge a
relationship of cooperation and fair approach
to sharing risk and reward. This is not a quick
process, which is why bidding remained
secondary to operational improvement during
the year, but the balance shifted as the year
progressed and we have gone into FY18 with
a number of opportunities that we are confident
will ultimately deliver growth and profitability.
It is a particular testament to the new team
and its resilience that we managed to deliver
on this difficult turnaround programme.
We secured our first works order under the
new four-year planned maintenance framework
with Network Homes, valued at £1.5m, to
install new windows, doors, kitchens and
bathrooms. We were also pleased to secure
positions on the Redbridge housing capital
delivery and London and Quadrant internal
works frameworks. As we enter FY18, we are
seeing a number of opportunities crystallise
within our core client base that we are confident
will underpin an improvement year on year.
Foster
Foster faced inconsistent client volumes on
its core planned maintenance activities through
the year. We responded by reducing staffing
levels, along with our number of premises,
vans and volume of stores. This is, however,
not enough to preserve Foster’s future, so we
took the tough decision during the year to exit
certain planned maintenance contracts and
seek a broader base of work for the business.
Foster has historically earned good returns
from project work, essentially small-scale
construction contracts, which we grew during
the year among a core group of clients with
whom we could develop a regular flow of
work and, importantly, earn a satisfactory
return. We were also pleased to see an
improvement in fortunes in the responsive
maintenance business, which went from
being loss making in FY16 to break even in
the year. Given its unique geographic focus
on East Anglia and regional brand strength,
Foster has traditionally turned its hand to a
wide range of activities, including renewables,
energy efficiency and certain compliance
activities. We therefore entered FY18 as
a broader business, which we believe will
largely maintain or even slightly reduce
revenues, but improve returns.
Foster had a number of encouraging
wins during the year, including repair and
maintenance contracts for Hastoe Group
and Colchester Borough Homes (together
worth £3.7m over the next three to four years),
planned maintenance contracts with Havebury
Housing Partnership (£1.8m over three years)
and Cambridge City Council (£3m p.a. over
five years), and the £4m St Luke’s Primary
School Sensory Room Works project with
Cambridgeshire County Council.
18
Lakehouse plc Annual Report 2017 Looking forward
Property Services is now on 70 frameworks
(2016: 71), a small fall by number but with a
higher aggregate value of £442m (2016: £370m).
With a strong base of frameworks, a settled
leadership team and a firm policy of managing
risk/reward, we are confident in the turnaround
of Property Services and its future prospects.
Construction
(21% of Group Underlying Revenue)
Construction:
year ending 30 September
Underlying revenue (£m)
17
16
61.8
52.1
+18.7%
Underlying EBITA (£m)
17
16
2.0
Underlying EBITA margin (%)
17
16
3.2
-44.9%
3.6
-370ppt
6.9
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.
Underlying revenue increased by 18.7% to
£61.8m (2016: £52.1m). Underlying EBITA
decreased by 44.9% to £2.0m (2016: £3.6m).
This resulted in an underlying EBITA margin of
3.2%, around half of the margin experienced
in the prior year (2016: 6.9%).
Although we were pleased to see revenues
increase, these arose largely as a consequence
of FY16 delays coming through in the year. The
market is becoming ever more challenging,
particularly as clients are becoming increasingly
contractual and able to provide less visibility
over project timing, in light of the nature of
two-stage procurement. This was particularly
apparent in closing out final accounts and
general negotiation with clients in the year
and the lower margins reflected a series of
settlements that were less favourable than
expected, where we may have expected a
better outcome in the past. We conducted a
significant review of all contracts at year end,
which contributed to the lower margin. As we
discuss on page 31, we will be further
investing in training our teams this year on
contractual understanding, to ensure we
present clear and robust claims for payment.
The division continually looks to innovate
and is participating in Built2Spec, part of the
EU-funded research and innovation project
Horizon 20/20, which aims to secure Europe’s
global competitiveness. Built2Spec’s objective
is to reduce the ‘performance gap’ in new
buildings, being the difference between the
expected energy performance of a building at
design stage and the actual energy performance
of that building once it is built and being
used. The performance gap can potentially
mean up to double the expected energy
usage after a building has been finished, a
significant challenge to the UK construction
industry. Built2Spec addresses this challenge
by supporting the development of systems to
check the efficiency of the building at all stages
of the build process, ensuring delivery of
the building is exactly as specified at the
design stage.
Built2Spec has access to €5.5m in funding
across 20 construction partners from eight
countries and these partners are undertaking
research in new onsite techniques in several
key areas: thermal imaging, internal air quality,
air tightness testing, acoustic tools, 3D imagining
tools and smart building sensors. Each of
these areas can significantly improve the
process of ensuring the building’s efficiency
is as it should be.
Lakehouse Construction has been working
alongside a mixture of partners including VRM
Technology, the Building Services Research
and Information Association (‘BSRIA’) and
the University of Nottingham, conducting
research and development in the area of air
tightness testing within buildings. Lakehouse
Construction and its partners are involved in
the project in the following ways:
• Nottingham University is developing new
air testing equipment called the pulse unit
• BSRIA is testing thermal imaging cameras
from Flir 1 that can be used with iPhones and
developing software so this can be utilised
on site checks of thermal performance
• VRM is developing its Refurbify app
software for the Virtual Construction
Management Platform (‘VCMP’)
• Lakehouse is to work with these partners
by providing sites for testing, carrying out
the pulse unit testing against blower door
test equipment and developing the VRM
software and overall training plans
The results of the development work will be
brought together in one overall cloud-based,
Building Information Modelling integrated,
construction management platform. This
cloud-based platform will also incorporate
site quality management systems through
mobile devices. The full suite of tests will
then be piloted across all regions. Over the
course of FY18 Lakehouse will be conducting
long term live testing of the air tightness
equipment and VCMP.
The Construction team has maintained a
disciplined approach to bidding through the
year and seen considerable success, securing
a number of important wins, including a
£6.1m contract with Uxendon Manor Primary
School, a £2.7m contract for Harris Academy,
an £8.9m contract for Hackbridge School, a
£3.3m contract for Colville School, a £3.8m
contract for Galleywall Primary School, a
£5.1m contract for West Hatch High School
and, most recently, a £2.1m contract for
Millbrook Combined School High Wycombe.
Whilst education remains our core focus,
we secured a number of frameworks with
other parts of the public sector during the year,
including the Met Police Minor and Intermediate
framework and the Capital Works framework
– Sussex Partnership NHS, where we secured
our first project shortly after year end. During
FY17, we also gained our first project at
Bulford Garrison, a £1.5m project under the
Aspire Defence Partnership arrangement.
Looking forward
The number of frameworks declined to
23 from 29 as at 30 September 2016,
albeit aggregate value rose 20% to £424m
(30 September 2016: £353m). These
frameworks provide significant opportunity
for the Construction division to continue
to grow, whilst maintaining an acceptable
rate of return. We remain positive about
the prospects for Construction in a market
with challenges, but strong underlying
growth fundamentals.
Michael McMahon
Chief Operating Officer
22 January 2018
19
SGFLakehouse plc Annual report 2017 Financial review
The sale of
Orchard
allowed the
Group to pay
down its debt.”
20
The Operational review provides
a detailed overview of our trading
performance during the year. This
Financial review therefore covers
other aspects of the consolidated
statements of comprehensive income,
financial position and cash flows.
Trading overview
The Group had a strong year, posting an underlying EBITA of
£9.5m, comprising £7.3m from continuing activities (2016: £8.5m)
and £2.2m from Orchard (2016: £2.4m), which was reported as
a discontinued activity.
Group underlying revenue from continuing operations in the year
decreased by 3.0% to £290.3m (2016: £299.1m). We have previously
discussed the challenges faced by Property Services and excluding
these operations, underlying revenues grew 21.0% to £243.3m
(2016: £201.0m). Property Services saw revenues fall 52.1% to
£47.0m in the year (2016: £98.1m).
Underlying EBITA from continuing operations decreased to £7.3m
(2016: £8.5m). Property Services saw a FY16 profit of £0.8m slip to
a £1.7m loss in the year. Again, excluding Property Services, we saw
underlying EBITA grow 15.8% to £9.0m (2016: £7.7m). We took the
full £1.3m cost of mobilising smart metering within underlying EBITA
in the year, reflecting its continuing nature, whereas we took the
corresponding charge of £2.5m to ‘Other Items’ in FY16, given this
was a new activity in the prior year.
We exclude Exceptional and Other Items in calculating underlying EBITA
to provide a more appropriate view of underlying operating performance.
Underlying operating expenses fell 1% to £25.5m in the year
(2016: £25.8m) reflecting reductions in the cost base of Property
Services and investment in mobilising new contracts within Compliance
and Energy Services. Central costs fell by 34.7% to £5.0m (2016: £7.7m),
reflecting the cost reduction programme outlined last year.
Statutory revenue from continuing operations was 8.5% lower
at £299.5m (2016: £327.2m), reflecting the withdrawal from our
‘externals’ activities within Property Services announced in the prior
year. We reported an operating loss from continuing operations of
£1.1m (2016: £34.0m), reflecting £1.9m of Other Items (2016: £9.1m), a
£4.0m net exceptional gain (2016: £3.1m loss together with a £19.2m
impairment charge) and a £10.5m charge for amortisation of acquisition
intangibles (2016: £11.2m). Interest expense was £2.0m (2016: £1.6m),
taxation a £1.4m credit (2016: £4.5m) and Orchard recorded a post-tax
profit within discontinued operations of £1.7m (2016: £1.9m). The
statutory profit after tax was £10,000 (2016: loss of £29.3m).
Lakehouse plc Annual Report 2017 Exceptional and Other Items, including
amortisation of acquisition intangibles
Exceptional and Other Items in the year reduced the Group’s profit
before tax by £8.7m (2016: £43.2m) and related to the following items:
2016
£m
2017
£m
Contract losses on businesses being exited
Smart metering mobilisation costs
Total Other Items
Exceptional Items:
Acquisition costs
Final account provisions
Impairment of receivables
Restructuring EGM and other costs
Total exceptional costs
Release of deferred consideration
Profit on sale of Orchard (Holdings) UK Limited
Total net Exceptional Items
Impairment of goodwill and intangible
assets acquired
Amortisation of acquisition intangible assets
Unwinding discount of deferred consideration
Total Exceptional and Other Items
1.9
—
1.9
—
0.9
(0.5)
2.6
3.0
(1.6)
(5.4)
(4.0)
—
10.5
8.4
0.3
8.7
6.6
2.5
9.1
0.6
—
2.6
2.5
5.7
(2.6)
—
3.1
19.2
11.2
42.6
0.6
43.2
Contract losses on businesses being exited
The Group continues to redefine its service offering and the Board
has taken the decision to reduce its exposure to risky and unprofitable
activities, particularly within Property Services, with the closure and
downsizing of non-profitable operations. Following the announcement
in FY16 that we would be exiting our directly delivered externals business
within Property Services, we undertook an operational improvement
programme during the year, focused on managing a balanced position
of risk and return on capital.
As we highlighted in October 2017, we conducted a wide-ranging
review of legacy contracts at year end, which resulted in a £1.9m charge
(2016: £6.6m) relating to the finalisation of our exit from the directly
delivered externals business within Property Services. This process
finished in October 2017 on completion of the final outstanding contract.
Smart metering mobilisation costs
We incurred a charge of £2.5m within ‘Other Items’ in FY16 relating
to the costs associated with training and retaining smart metering
engineers, along with mobilisation complexities to do with planning
work, documenting installations, inventory management and systems
development. A sum of £1.3m has been incurred in FY17 and reported
within underlying profit, in light of the continuing nature of our smart
metering activities. This is discussed further within the Operational
review on page 17.
Exceptional Items
Acquisition costs comprise legal, professional and other expenditure
in relation to acquisition activity and amounted to £nil (2016: £0.6m).
Final account provisions of £0.9m (2016: £nil) relate to the operational
improvement programme highlighted above and the exit of our Kent office.
Impairment of receivables, representing an income of £0.5m
(2016: cost of £2.6m), reflected the successful outcome of a series
of adjudications associated with the resolution of historic matters on
a specific contract (‘the Contract’) with Hackney Council where a
charge had been taken at 30 September 2016, further details of which
are outlined in Note 7 of our Annual Report and Accounts for the year
ending 30 September 2016.
Restructuring EGM and other costs of £2.6m (2016: £2.5m) reflect
the costs of our move to AIM in May 2017, managing the impact of media
reports, investigating potential strategic options for the Group as part
of our operational improvement programme and restructuring and other
costs during the period. We also announced in September 2017 our
intention to exit Lakehouse’s head office in Romford, which is now too
large for our needs and the charge includes the write-off of leasehold
improvements made to the building. At the time of writing, we had
agreed head of terms for the assignment of the lease to a third party.
Release of deferred consideration of £1.6m (2016: £2.6m) reflects
the expected settlement of the final deferred consideration due to
Aaron Heating Services Limited, H2O Nationwide and a wider review
of remaining outstanding balances.
Profit on sale of Orchard of £5.4m (2016: £nil) relates to the
sale of Orchard to World Fuel Services Europe, Ltd with an effective
date of 29 September 2017. Lakehouse received a cash consideration
on completion of £12.4m, with a further sum of £1.9m to be held in
escrow against potential claims under the Sale and Purchase Agreement,
to be released in equal instalments on the first and second anniversaries
of Completion. We attributed a fair value of £12.4m to the consideration
and recognised a gain on book value of £5.4m.
Impairment of goodwill and intangible assets acquired
Impairment of goodwill and intangible assets acquired was £nil
(2016: £19.2m).
Amortisation of acquisition intangibles
Amortisation of acquisition intangibles was £10.5m for the period
(2016: £11.2m). The £0.7m reduction reflected the fact that we have
taken charges in prior periods, meaning we are amortising a reduced
base of intangible assets. We expect a steeper reduction in this
charge in future years.
Unwinding discount of deferred consideration
Unwinding discount of deferred consideration of £0.3m (2016: £0.6m)
reflects the present value of deferred sums, discounted at a post-tax rate
of 2.7% due on outstanding payments for acquisitions.
21
SGFLakehouse plc Annual report 2017 Financial review continued
Exceptional Items continued
Accounting treatment
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 (aside from amortisation of acquisition intangibles
and unwinding discount of deferred consideration) 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 in FY16, which have been reflected within underlying
operating profit in FY17, in light of their continuing nature.
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 £1.7m (2016: £1.0m).
The total finance expense of £2.0m (2016: £1.6m) included the
unwinding of discounts on deferred consideration figure of £0.3m
(2016: £0.6m) discussed above and treated as a non-operating item.
Tax
The tax charge on underlying profit before tax was £1.4m (2016: £1.2m),
representing an effective rate of 24.9%, which compares with the
statutory corporation tax rate of 19.5%. The difference was due to
a combination of permanent differences together with prior year tax
adjustments. A tax credit of £2.8m (2016: £5.7m) was recognised
in relation to Exceptional and Other Items, resulting in a statutory tax
credit for the year of £1.4m (2016: £4.5m).
The effective tax rate on the statutory loss before tax for the year was
44.9%, which is higher than the UK statutory corporation tax rate of
19.5% mainly due to permanent differences together with prior year tax
adjustments. The decrease in gross permanent differences from £15.2m
to a credit of £5.0m (to which a tax rate of 19.5% should be applied) is
mainly due to the £5.4m profit on sale of Orchard should and non-taxable
income of £1.6m relating to a release of deferred consideration.
Our net cash tax receipt for the year was £0.7m for continuing
operations (2016: net cash payment of £0.3m). During the year, the
Group has received the anticipated cash tax refund from HMRC which
formed the corporation tax receivable on the 30 September 2016
balance sheet. The Group has also made tax payments on account
during the year.
The net deferred tax asset as at 30 September 2017 was £2.1m
(2016: £0.2m), with the movement mainly relating to acquisition
intangibles and the disposal of Orchard. Further details are set
out in Note 26.
In the year, the Group maintained a deferred tax asset in respect of tax
losses at £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 remaining tax credit relates to three 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 ended 30 September (£m)
Underlying EBITA
Less:
Exceptional and Other Items
Finance expense
Tax
Discontinued activities
2017
£m
7.3
(8.4)
(2.0)
1.4
1.7
2016
£m
8.5
(42.6)
(1.6)
4.5
1.9
Profit/(loss) for the year attributable to the
equity holders of the Group
—
(29.3)
Earnings per share
Underlying basic earnings per share from continuing and discontinued
operations were 3.7 pence (2016: 5.2 pence), based on underlying
earnings of £5.9m (2016: £8.2m). Underlying earnings are stated
after adding back £5.9m (2016: £37.4m) of Exceptional and Other
Items (after tax).
Our statutory profit for the year was £10,000 (2016: loss of £29.3m).
Based on the weighted average number of shares in issue during the
year of 157.5m, this resulted in basic earnings per share of 0.0 pence
(2016: loss of 18.6 pence).
Further details are contained in Note 14.
Dividend
The Board has proposed a final dividend for the year of 0.5 pence
per share. This represents a total dividend payable for the year of
0.5 pence (2016: 1.5 pence).
Subject to approval at the AGM on 28 March 2018, the final dividend
will be paid on 6 April 2018 to shareholders on the register at the
close of business on 2 March 2018.
Cash flow performance
Our underlying operating cash flow for the year was an inflow of
£12.4m (2016: £10.9m), discussed in Note 34 and reflecting a strong
underlying cash conversion of 169% (2016: 127%). We calculate
underlying operating cash conversion as cash generated from
continuing 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 inflow of
£13.4m (2016: outflow of £3.0m), representing a cash conversion
of 248% (2016: outflow of 493%).
As we highlighted last 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.
The value of net ‘unbilleds’ is a particular feature of our industry,
being accrued income, prepaid expenses and accrued project costs.
The management of these items, together with debtors and creditors
represented a challenge in the year, resulting in a series of working
capital peaks and troughs, particularly in Construction and Property
Services. We managed these comfortably within our banking facilities
and a significant push on cash at year end contributed to our excellent
performance for the year as a whole. However this represents a
snapshot in time and a normalised year-end debt position would
have been some £10m higher.
22
Lakehouse plc Annual Report 2017 Net current liabilities (excluding cash) stood at £1.4m
(2016: asset of £7.0m), reflecting a hard push on working
capital management towards the end of the year, which as
discussed above, produced results significantly above expectations.
Deferred consideration on acquisitions is analysed below.
Provisions
Provisions as at 30 September 2017 stood at £4.0m (2016: £4.9m).
During the year, we utilised £2.2m of provisions in line with our
expectations, relating predominantly to the Contract, discussed above
and in Note 7 and the costs of our industrial and commercial metering
business as discussed in our 2016 accounts. We provided a further
£1.5m in relation to specific risks and adjusted £0.1m in relation to
the sale of Orchard.
Further details are set out in Note 25.
Acquisitions and disposals
The Group made no acquisitions in the year. On 2 October 2017,
we announced the sale of Orchard, which had an effective date
of 29 September. Lakehouse received a net cash consideration
on completion of £12.4m, with a further sum of £1.9m to be held
in escrow against potential claims under the Sale and Purchase
Agreement, to be released in equal instalments on the first and
second anniversaries of Completion. We attributed a fair value
of £12.4m to the consideration, representing a gain on book
value of £5.4m.
Notwithstanding the turbulence in Property Services and Construction,
we expect to continue to target an average annual operating cash
conversion of 80% over the long term.
Net debt
Our net debt balance was improved significantly at £1.3m at
30 September 2017 (2016: £20.6m). The decrease over FY16
related predominantly to the £12.4m proceeds from the sale of
Orchard, recognised as at 29 September 2017. Net debt was
nevertheless significantly ahead of expectations, with much of the
inflow occurring in September 2017 as a result of a significant
improvement in working capital. We would expect year end net
debt to be some £10m higher on a steady run rate.
Banking arrangements
We had drawn £27.5m under our revolving credit facility at the year
end. At the date of issuing this report we had drawn £17m, as we used
the Orchard sale proceeds to pay down debt. Royal Bank of Scotland
(‘RBS’) continue to be an excellent and supportive partner. As with last
year, we continue to show our commitment to managing our banking
arrangements and, on the sale of Orchard, requested that RBS reduce
our Revolving Credit Facility (‘RCF’) from £35m to £25m, which took
effect on 2 October 2017 and removes an expensive non-utilisation
charge of some £0.2m per annum. We retain a £5m overdraft facility.
We extended the term of the RCF after year end to February 2019
and expect to renew the facility during FY18. We are confident that
our banking facilities provide sufficient support in managing our
corporate affairs and provide sufficient capacity 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
2017
£m
30 September
2016
£m
Goodwill and intangibles
Tangible and other fixed assets
Total non-current
Other current assets
(Debt)/cash
Other current liabilities
Net current assets
Non-current liabilities
Debt
Net assets
Net current assets/(liabilities) (excluding cash)
Net debt
51.4
5.6
57.0
70.4
25.9
(71.8)
24.5
(4.1)
(27.2)
50.2
(1.4)
(1.3)
69.3
4.9
74.2
75.4
(0.3)
(68.4)
6.7
(9.2)
(20.7)
51.0
7.0
(20.6)
The principal movement in net assets reflected a reduction of £17.9m in
goodwill and intangibles, due to £10.5m in amortisation of acquisition
intangibles and £7.8m in relation to the sale of Orchard, discussed
above and in Notes 7, 15 and 16.
23
SGFLakehouse plc Annual report 2017 Financial review continued
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.
At 1 October 2016
Revaluation of deferred consideration
Unwinding of discount
Paid in year
At 30 September 2017
Allied
Protection
Limited
£m
H2O
Nationwide
Limited
£m
Orchard
(Holdings) UK
Limited
£m
Aaron Heating
Services
Limited
£m
PLS Holdings
Limited
£m
0.3
—
—
(0.3)
—
1.3
0.1
0.1
(0.5)
1.0
2.2
(0.4)
—
(1.8)
—
1.0
(0.8)
0.1
—
0.3
1.1
(0.6)
0.1
—
0.6
Total
£m
5.9
(1.7)
0.3
(2.6)
1.9
The sums due in relation to H20 Nationwide Limited and Aaron Heating Services Limited were settled in full after year end.
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 26 to 29 below. We 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.
As we discussed above in Exceptional and Other Items, the Group continues to redefine its service offering and the Board has taken the
decision to reduce its exposure to risky and unprofitable activities, particularly within Property Services, with the closure and downsizing of
non-profitable operations. Following the announcement in FY16 that we would be exiting our directly delivered externals business within
Property Services, we undertook an operational improvement programme during the year, focused on managing a balanced position of risk
and return on capital.
This process has progressed well in the year and the Board continues to focus 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. Most notably, the
£6.9m claim from Harvil Roofing discussed in section 7.3 of the Appendix to our Schedule One AIM Announcement found in our favour, with no
liability due. We believe we head into FY18 with an ever more balanced risk position.
Our year-end review included an assessment of unbilled balances, which as a Group we review regularly for impairment. ‘Unbilleds’ represent
the significant balance sheet risk in our industry and we continue to ensure a balanced approach between risk and possible outcome on final
account settlements is taken, rather than defer decisions until the final outcome is achieved, which can be months or years.
Going concern statement
The Directors acknowledge the Financial Reporting Council’s ‘Guidance on the going concern basis of accounting and reporting on solvency
and liquidity risks’ issued in April 2016. The Group’s business activities, together with factors likely to affect its future development, performance
and position are set out in the Strategic Report as referred to on pages 1 to 33. 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 Report, on pages 1 to 33. In addition, Note 32 to the
consolidated Financial Statements within the 2017 Annual Report includes details of the Group’s approach to financial risk management, 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 16 months following year end, 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 our commitment to managing banking arrangements within our means, we requested that RBS reduce our RCF from £35m to £25m
following the sale of Orchard, with an effective date of 2 October 2017. We also agreed an extension with RBS of the facility from December 2018
to February 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.
24
Lakehouse plc Annual Report 2017 Longer term outlook
Taking account of the Group’s current position, prospects and
principal risks, the Directors 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 2020. A three-year
period is considered appropriate in light of the lifecycle of the Group’s
order book, itself a function of Government procurement and funding
cycles, 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 Group employed a dedicated Internal
Auditor during the year, who, as part of the year-end process, conducted
a bottom-up review of risk with the CFO and business Managing Directors.
The conclusions of this review were reported to the Audit Committee.
We are therefore confident that all matters of significance were
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 its direct control,
such as Government policy and programme management, client
procurement policies and potential claims and disputes brought
against the Group by others. Sensitivities are also tested against
available banking facilities to ensure we have sufficient headroom and
remain compliant with banking covenants. In this assessment, we
have assumed that RBS agrees to a renewal of our banking facilities
in February 2019 and the extension above should be viewed positively
in this regard.
Jeremy Simpson
Chief Financial Officer
22 January 2018
Continued expansion of our gas businesses
during the year has furthered plans to provide
nationwide service coverage, with significant
wins in new geographical areas.
25
SGFLakehouse plc Annual report 2017
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. 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 schematic sets out each potential
impact of each risk on our business prior to mitigation, its likelihood
of occurring and the change in these factors during the year.
Risk
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 the UK, devolved national and
local Governments. In particular, Energy Services may be
susceptible to changes in Government policy, and Property
Services and Construction 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 and
Property Services businesses operate under long term fixed-price
contracts (subject to agreed variations) and value 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.
B2
B1
B8
B5
B6
G2
G1
B4
B7
B3
t
c
a
p
m
I
Likelihood
‘B’ items represent business risks
‘G’ items represent general corporate risks
Green items represent existing risks
Grey items represent new risks
More information about how we manage risk can be found
in the Corporate Governance Report on pages 34 to 38.
26
Explanation of risk
Mitigation
Significant changes to policy, particularly in Energy Services around
Our diverse business has enabled us to manage the risks
carbon pricing, could have a material impact on our results.
and focus our efforts on those markets where we feel there
Policy, however, extends beyond legislation into client
is the opportunity of earning a more predictable return.
procurement methods and available budgets. There is also
We recognise the importance of operational delivery in giving
governmental focus on the housebuilding and a post-Grenfell
confidence to clients and maintain high standards of service
prioritisation of budgets on infrastructure and remedial works.
that allow us to set ourselves apart.
As a UK-focused business, we are not exposed to the trade
We have also continued to invest in business development,
risks of international businesses, but there is a potential Brexit
through talented senior managers and experienced local
impact around the increases in commodity prices as suppliers
leaders, aimed at building sustainable relationships with
pass on the costs of a weakened pound.
clients and securing long term contracts.
Beyond changes in procurement trends, we are experiencing
We recognise the challenges faced by our clients and seek
the knock-on effects of challenges faced by our clients. This
to work with those where we can deliver a high standard
includes the sudden withdrawal of confirmed budgets, changes
of service, whilst generating a reasonable return on capital.
in client staffing leading to alterations in priorities and difficulties
We are proactive in seeking affordable solutions to budget
in settling disputes and accounts for payment. In addition,
challenges that enable us to work with clients to help them
there appears to be inconsistencies amongst clients’
deliver the services expected of them.
prioritisation of remediation works post-Grenfell.
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
standard to make it easier for clients to work with us and invested
common to other similar businesses which could have a
in an internal Legal Counsel to drive further improvements.
We have reviewed our internal operational procedures in the year
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
consolidated 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.
This is an inherent business risk and if we do not compete
Our commitment to health and safety and a responsible business
effectively we may not be able to win enough work or retain
model and our focus on operational delivery are key to ensuring
existing contracts, affecting our revenues, profits and cash.
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.
and specific guidelines on contract valuations. We have refreshed
the talent in the Property Services division to ensure high
quality standards are delivered, and all the contracts are
closely monitored for the best results.
Our principal focus is to ensure our consolidated statement of
financial position reflects a realistic assessment of recoverable
sums when considered in light of the risks faced.
We have multiple contracts that are the subject of such
Each contract is staffed by a proven team of operators, partnered
judgement, and an error could lead to a material misstatement
by experienced quantity surveyors who follow a set of clear
of both revenue and profit.
In particular ‘unbilled’ sums sitting within the consolidated
statement of financial position reflect amounts that are as
yet to reach a point of invoice and involve the highest levels
of judgement.
In addition, the impact of revised accounting standard IFRS 15
‘Revenue from Contracts with Customers’, effective for
accounting periods commencing on or after 1 January 2018,
is being considered by management.
Lakehouse plc Annual Report 2017 Risk
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 the UK, devolved national and
local Governments. In particular, Energy Services may be
susceptible to changes in Government policy, and Property
Services and Construction 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 and
Property Services businesses operate under long term fixed-price
contracts (subject to agreed variations) and value 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.
Explanation of risk
Significant changes to policy, particularly in Energy Services around
carbon pricing, could have a material impact on our results.
Policy, however, extends beyond legislation into client
procurement methods and available budgets. There is also
governmental focus on the housebuilding and a post-Grenfell
prioritisation of budgets on infrastructure and remedial works.
Mitigation
Our diverse business has enabled us to manage the risks
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.
As a UK-focused business, we are not exposed to the trade
risks of international businesses, but there is a potential Brexit
impact around the increases in commodity prices as suppliers
pass on the costs of a weakened pound.
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. 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. In addition,
there appears to be inconsistencies amongst clients’
prioritisation of remediation works post-Grenfell.
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
consolidated 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 enable us to work with clients to help them
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 and invested
in an internal Legal Counsel to drive further improvements.
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.
This is an inherent business risk and if we do not compete
effectively we may not be able to win enough work or retain
existing contracts, affecting our revenues, profits and cash.
Our commitment to health and safety and 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.
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 refreshed
the talent in the Property Services division to ensure high
quality standards are delivered, and all the contracts are
closely monitored for the best results.
Our principal focus is to ensure our consolidated statement of
financial position reflects a realistic assessment of recoverable
sums when considered in light of the risks faced.
27
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 within the consolidated
statement of financial position reflect amounts that are as
yet to reach a point of invoice and involve the highest levels
of judgement.
In addition, the impact of revised accounting standard IFRS 15
‘Revenue from Contracts with Customers’, effective for
accounting periods commencing on or after 1 January 2018,
is being considered by management.
SGFLakehouse plc Annual report 2017 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 New Technology
Understanding and using new technology to our advantage is
an important part of our strategy. We need to ensure that through
investing in technology, we can gain competitive advantage
whilst satisfying the needs of clients and wider stakeholders.
By failing to innovate and make proper use of new available
technologies, we may not be able to secure the potential
market opportunities and achieve further business growth.
We see this as a new risk and included it in our risk
assessment this year.
B8 Major health and safety incident
We provide our services in a range of potentially high risk
environments: in homes, in public buildings, at height, with
water, in lifts, with electrical and gas services and as lone
operatives in vans.
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, typically in the winter and around the timing of work
instructed by our clients and/or arising from the circumstances
of our contracts, which require short term funding.
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.
We are also faced with a significant rise in the perceived risk
of the construction sector, with an increased nervousness of
the insurance market around social housing contracting.
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.
28
We mitigate this risk by having qualified, trained managers and operatives who are experienced in their roles. We closely monitor
quality, progress and service using industry standard products and 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 and ensuring rapid resolution of issues as they arise.
We have continued to focus on improving the performance of Property Services through the year, where legacy issues were still
affecting the day to day operational business. Management has strengthened the delivery team, and is committed to taking on
new projects with an improved risk vs reward balance, whilst maximising efficiencies for existing projects.
We invest significant resources in developing our managers and training our employees including through the Lakehouse Training
Academy. 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.
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 continually assessing the Group’s service capabilities and its internal systems to adapt to the changing needs of the business
and clients. We empower divisional management to innovate and deliver business improvement through the use of advances
in technology. Clearly systems development is not without risk and potential disruption, so any implementation would require
careful planning and risk assessment.
We recognise that investing and expanding into new available technology such as smart grid technology, electric vehicle charging
points, smart buildings and the Internet of Things may enable us to grow the business and move it forward. However, there will
also be failures and commercial limitations, so careful selection is key.
We review continually our investment in high quality staff and performance of health and safety reviews and the AIR 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 which has 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 which monitors and
maintains training standards and is 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 and 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. Our revolving credit facility of £25m has been further extended to February 2019 and the disposal of
Orchard for £12.4m improved the debt position during the year.
We continue to maintain contact with a number of bonds providers to ensure we are in a position to satisfy the contractual needs
of clients.
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 and supports the business strategic direction.
We invest in resource and technology to ensure that the Group is protected, such as back-up and disaster recovery processes
to ensure minimum disruption. The systems are reviewed continually and processes are audited on a regular basis.
We have a dedicated security team in place to not only prevent the potential loss or misuse of data, but also to ensure compliance
with the new General Data Protection Regulations.
Lakehouse plc Annual Report 2017 Risk
Explanation of risk
Mitigation
B5 Poor operational delivery
Poor operational performance leads to reputational loss and
Poor operational delivery could lead to a local loss in trust and
weaker financial performance.
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.
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 New Technology
Understanding and using new technology to our advantage is
an important part of our strategy. We need to ensure that through
investing in technology, we can gain competitive advantage
whilst satisfying the needs of clients and wider stakeholders.
By failing to innovate and make proper use of new available
technologies, we may not be able to secure the potential
market opportunities and achieve further business growth.
We see this as a new risk and included it in our risk
assessment this year.
B8 Major health and safety incident
We provide our services in a range of potentially high risk
environments: in homes, in public buildings, at height, with
water, in lifts, with electrical and gas services and as lone
operatives in vans.
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, typically in the winter and around the timing of work
instructed by our clients and/or arising from the circumstances
of our contracts, which require short term funding.
G2 ICT failure
and service.
Our business is 24/7 and relies on a robust ICT infrastructure
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.
We are also faced with a significant rise in the perceived risk
of the construction sector, with an increased nervousness of
the insurance market around social housing contracting.
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.
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 mitigate this risk by having qualified, trained managers and operatives who are experienced in their roles. We closely monitor
quality, progress and service using industry standard products and 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 and ensuring rapid resolution of issues as they arise.
We have continued to focus on improving the performance of Property Services through the year, where legacy issues were still
affecting the day to day operational business. Management has strengthened the delivery team, and is committed to taking on
new projects with an improved risk vs reward balance, whilst maximising efficiencies for existing projects.
We invest significant resources in developing our managers and training our employees including through the Lakehouse Training
Academy. 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.
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 continually assessing the Group’s service capabilities and its internal systems to adapt to the changing needs of the business
and clients. We empower divisional management to innovate and deliver business improvement through the use of advances
in technology. Clearly systems development is not without risk and potential disruption, so any implementation would require
careful planning and risk assessment.
We recognise that investing and expanding into new available technology such as smart grid technology, electric vehicle charging
points, smart buildings and the Internet of Things may enable us to grow the business and move it forward. However, there will
also be failures and commercial limitations, so careful selection is key.
We review continually our investment in high quality staff and performance of health and safety reviews and the AIR 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 which has 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 which monitors and
maintains training standards and is 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 and 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. Our revolving credit facility of £25m has been further extended to February 2019 and the disposal of
Orchard for £12.4m improved the debt position during the year.
We continue to maintain contact with a number of bonds providers to ensure we are in a position to satisfy the contractual needs
of clients.
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 and supports the business strategic direction.
We invest in resource and technology to ensure that the Group is protected, such as back-up and disaster recovery processes
to ensure minimum disruption. The systems are reviewed continually and processes are audited on a regular basis.
We have a dedicated security team in place to not only prevent the potential loss or misuse of data, but also to ensure compliance
with the new General Data Protection Regulations.
29
SGFLakehouse plc Annual report 2017 Corporate Social Responsibility
Resources, relationships and sustainability
We seek to invest in our business and people, building a reputation
as a responsible and trustworthy partner to all stakeholders.
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.
Health, safety and the environment
Health and safety
Protecting the health and safety of our people, customers, suppliers
and members of the public adjacent to our sites remains the core
priority for the Board. We report across a number of matrices and
discuss health and safety performance monthly at Board meetings.
During the year, we reviewed closely the Group’s health and safety
performance reporting to ensure we continue to be best in class in
the sectors in which we operate. As such, we refined our calculation
of Accident Incident Reporting (‘AIR’) to consider two measures:
seven-day RIDDORs and all accidents. The figures are calculated
on the basis of the number of seven-day reportable injuries, specified
injuries and reportable cases of ill health (as applicable), multiplied by
the number of employees (including subcontractors) and divided by
the average hours worked. The AIR (RIDDORS) stood at 0.18 for the
year, substantially below the Group target of 0.80. The AIR (all accidents)
stood at 2.85, again substantially below the Group target of 5.00.
We have a training programme within our ‘Lakehouse World’ intranet
site, 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.
Following the decentralisation of the Safety, Health, Environment and
Quality (‘SHEQ’) function in 2016, we convened the SHEQ forum
during the year, involving SHEQ leaders from across the Group whose
aim and focus remains on making a difference at the front line and on
continual improvement of the SHEQ performance of the Group.
Our health and safety champions now sit within each division, where
they are better equipped to coordinate employee consultations and
communication across the Group. They use forums such as our
‘Lakehouse World’ intranet and the SHE network to discuss safety
strategy, review health and safety projects and reflect on industry and
regulatory changes. Our champions remain instrumental in raising the
profile of health and safety within the Group and making sure it is part
of the Group’s DNA.
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 aspects and 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 to
all. 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 is
communicated to all employees.
Group energy consumption
A core element of our environmental strategy is to drive and improve
where possible our Group carbon footprint in order to ensure a
sustainable business. As a Group we have a commitment to implement
and maintain an effective Energy Management System as part of our
ISO:50001 accreditation, which takes into consideration growth
and external factors but drives carbon reductions where possible.
This enables us to monitor energy use on a monthly basis and assess the
results in both kWh and CO2e. Every year, an in-depth energy review is
undertaken which analyses energy use and consumption, opportunities for
improvement and EPIs (energy performance indicators) and sets energy
targets and objectives. We review this periodically in our management
review meetings and provide training to all applicable staff.
Our Group carbon emissions in 2017 were 12,282 tonnes of CO2e
(2016: 8,951 tonnes). We continued to improve data collection
through the year and feel this is the first true representation of every
company in the Group. Approximately 90% of current energy use
across the Group relates to the operation of vehicles and fleet, which,
given the growth in fleet intensive activities within Compliance and
smart metering, has also contributed to the increase in emissions.
With this data now in place and use of our EPIs, we are targeting
improved efficiencies both in terms of fleet numbers and volume
of wasted or inefficient journeys.
With a comprehensive base of data and the Energy Management
System in place, we can set effective targets for 2018 and begin
to implement and discuss reduction strategies within each division.
Waste management
Due to the type of works we undertake as a Group, effective waste
management is vital for ensuring that we do not negatively impact our
surrounding environments. We aim to divert at least 90% of waste away
from landfill and therefore promote recycling and reuse of materials
throughout all stages of our works. We only use licensed waste removal
partners which are committed to diverting high levels of waste from landfill.
In the year, we have achieved an average recycling and diversion
from landfill rate of 98% (2016: 96%), maintaining our consistently
high level of performance.
This year the Group celebrated the winners of the inaugural Steve Rawlings
Apprentice of the Year Awards, highlighting the amazing work done by many
young people across all our businesses. The winners were welcomed by
Mrs Miren Rawlings and congratulated on their conscientiousness, determination,
professionalism, and passion. The winners were Tom Williamson (Central Services),
Courtney-Jean Heath (Construction), Lilly Bosworth (Property Services),
Kyle Paton (Energy Services), Jack Dykes (Compliance) and Emma Stones (Foster).
30
Lakehouse plc Annual Report 2017 People
Our culture
Every employee and wider stakeholder in our business is integral to
advancing the aims of the organisation, at the heart of which ‘doing
business the right way’ is not about compliance, but culture.
More than two-thirds of our workforce perform a highly skilled
engineering service in the homes of customers. This is a valuable and
trusted role and, as such, our people are at the heart of everything we do.
We focus on training, communication and quality of service delivery
and expect the highest standards of all of our engineers accordingly.
These front-line teams are supported by a large number of customer
service, supervisory, commercial and back office staff, together with
a supply chain that we trust and regard as partners. We place a great
emphasis on teamwork and we are fortunate to have a strong and
experienced group of managers in place who have coordinated the
successes and improvements in the business in the year.
We believe in being transparent and are grateful to our clients and
financial partners, who have worked with us through good times and
bad and are now seeing the benefits of this collaboration.
We recently updated the Group Code of Conduct. Formerly
an internal document, the Code is available on our website and
communicates clearly how we will engage internally and externally
with all stakeholders.
Invariably in our challenging and technical markets, mistakes are
made – we learn from these in a drive to improve service, quality and
responsiveness. We believe this to be a continual ongoing process.
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
Training is a key component to the success of our business. We have
increased our investment this year, most notably in smart metering,
where we took a £1.3m charge through the trading line.
During the year, we have seen our Group Learning Management
System (‘LMS’) develop in both content and recognition across the
Group. Our Lakehouse Academy team undertook an LMS Roadshow
to each business, discussing and promoting the benefits of the
Group-wide learning model. With mobile technology very much a
part of our everyday lives, we look forward to the development of our
learning app, which will move us away from web browser learning,
especially for those in the field. We see this as a big step forward in
accessibility and connectivity to our learning and we believe that 2018
will see the LMS become an integrated part of the learning portfolio of
every business in the Group.
We have embraced the introduction of the Apprenticeship Levy and
target our investment in training to exceed the levy imposed.
Board
Leadership team
Employees
Our investment in training in 2018 will focus on the following areas:
Total
• Expand the Lakehouse Academy to focus on in-house training
of our engineers. This will build on our successful apprenticeship
schemes in the Gas businesses and expand the scope to fire and
electrical engineers, to serve a market that we expect both to grow
and increase in complexity in 2018. We are also investigating
potential synergies with our smart meter training programmes,
which embrace similar gas and electrical skills
• Continued evolution of LMS as part of a continuous training plan
•
Increase the focus on contractual understanding. Our operational
improvement programme highlighted certain of the problems
in Property Services in the prior year which arose from a lack of
appreciation of the detailed technicalities of certain contracts.
We have addressed this in refreshing the team and bringing on
board an in-house Legal Counsel. We will seek to reinforce core
skills through targeted training in all individual contract terms to
ensure we are always on a sound footing in seeking to enforce
our entitlements
Recruitment and retention
The labour market continues to be challenging, especially in growing
markets with high demand, such as fire and smart metering. We seek
to address this in the following ways:
•
Investment in training, to bring engineers through from an early
stage and allow them to grow with our business. This provides
a continual flow of staff to mitigate churn
• An in-house recruitment team works with each business to gain a
detailed understanding of its needs, thereby ensuring we target the
most suitable external hires. This has the added benefit of saving
on the fees of external agencies
• Maintenance of packages to retain staff and reward for performance,
so their success is matched to that of the organisation
Our human resources function has continued to develop during
the year as we seek to focus on our core base of directly employed
engineers and their needs, particularly considerations such as lone
working and time spent driving.
The management retention rate for the year was 66% (2016: 69%),
which is below our target of 85%. This reflects the ongoing
operational improvement actions taken during the year. We will be
assessing during FY18 a revised method of performance based on
management stability, which we believe better represents retention
of core senior staff members.
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 principal male and
female clusters:
At 30 September 2017
At 30 September 2016
Male
Female
Male
Female
6
49
1,672
1,727
—
13
401
414
6
90
1,701
1,797
—
25
445
470
31
SGFLakehouse plc Annual report 2017 Corporate Social Responsibility continued
People continued
Employee representation
Lakehouse has an Employee Representative Council (‘ERC’) made up
of elected employees from across the Group. The ERC offers a voice
direct to the senior management of the Group in all workplace matters.
We held elections this year and each business nominated a representative
to serve a three-year term.
The ERC is chaired by the Chairman and aims to encourage employee
engagement and involvement, gather views and comments so that
employees have a say on Group 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
continues to be very important as we develop and reshape the Group.
Human rights
Lakehouse is committed to upholding the human rights of our
employees and wider stakeholders, including our supply chain.
We have detailed policies, which extend to:
• Providing a safe working environment for all employees and contractors
• Respecting the rights of the individual with zero tolerance of any
form of discrimination, harassment or bullying
• Providing training and development programmes to our workforce
• Not employing underage or illegal labour
• Acting with honesty and integrity with all our business partners
• Adopting an open and inclusive management style
The Group’s employees come from many different backgrounds and
cultures. The Group values the diversity of its employees and respects
their right to work in a safe environment of mutual respect, free from
harassment and which ensures equal opportunity. Harassment in any
form creates a hostile and abusive work environment and will not be
tolerated in the Group.
We published our Modern Slavery Statement during the year and as
part of a zero-tolerance policy, not only for slavery, but wider abuses
of human rights, we have incorporated a series of measures to promote
compliance, safety and respect at work through our internal policies,
including recruitment, our Code of Conduct and procurement. Training
is being developed through the LMS to be delivered to all staff in the
businesses and will be made readily available to our supply chain partners.
Supply chain and procurement
Our supply chain is crucial to our business. We deliver a broad range
of services through subcontractors, the quantum of which will vary with
seasonal influences. 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.
We had considerable success in the year in delivering cost savings
through the leverage that our wider Group can bring. Moving forward,
we have identified that Brexit may bring a significant risk to material
pricing and have seen movement in specific commodities during the
year to push up prices of certain product lines. We will clearly seek to
pass on such price increases where possible, but it is also incumbent
on us to use our negotiation strength to seek mitigating savings and
continue to enhance margins through improved efficiencies.
Our clients view us as their partners and therefore it is incumbent
on us to negate price increases where possible.
32
Fleet continues to be a particular area of focus, and during the year
we aligned the majority of our vehicles onto a single telemetry platform.
This allows us to understand driver behaviour, track vehicle movements
and analyse utilisation. This data is fed into our Fleet Check software
platform that maintains vehicle and driver information and enables us
to assess usage. Our aim is to deliver savings in vehicle numbers, fuel
consumption and vehicle damage and repair costs, which we expect
to deliver significant savings to an annual cost that exceeds £10m.
Community
Lakehouse applies socially responsible principles to its business
strategy. We respect local communities and are sensitive to any
concerns they may have.
We seek to invest in our business and people, building a reputation
as a responsible and trustworthy partner. As such, 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 Group Responsible Business Lead, 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 which deliver our day to
day services. This creates local accountability for delivering social
value through our projects.
Our community activities are focused around our four key community
development themes:
• Education and young people – delivering mentoring programmes
and education partnerships and working strategically with local
schools to provide support and increase the educational
aspirations and skills of young people
• Employment and skills – supporting the delivery of apprenticeships,
employment and skills development for our local residents and the
communities in which we work
• Developing social impact and supporting community infrastructure
– championing and supporting community-led initiatives that tackle
key social issues
• Strategic employee volunteering – encouraging each of our
employees to donate their time and expertise during work hours
to tackling local social issues. We aim to ensure that all of our
employee volunteering is focused on our key community
development themes
Leadership and governance
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
Lakehouse plc Annual Report 2017 West Ham Church School opens to teachers and pupils
Lakehouse Construction has completed work at the West Ham Church
School in Newham following just over a year of work, which included
a local labour and apprenticeships initiative and a host of educational
events, fund-raisers and community engagement programmes.
The new two-storey extension which replaced mobile classrooms,
and now provides 10 new state of the art learning areas for pupils,
incorporates class-based teaching spaces, a teaching group room
and kitchenette facilities, toilets, entrance and circulation spaces
together with external hard landscaping for business access.
At the handover in September site staff were delighted to receive
a presentation by the school children of a special poem written by
head teacher Paulette Bailey to commemorate the work.
‘This is the School…’
Adapted from the original (‘This is the
house that Jack built’) by Paulette Bailey
This is the school that Lakehouse built.
These are the children
that learn in the school that Lakehouse built.
These are the parents,
that brought the children
that learn in the school that Lakehouse built.
This is the staff,
that welcomed the parents,
that brought the children
that learn in the school that Lakehouse built.
This is the head,
who worked with the staff,
that welcomed the parents,
that brought the children
that learn in the school that Lakehouse built.
These are the mobiles all tattered and torn,
that puzzled the head,
who worked with the staff,
that welcomed the parents,
that brought the children
that learn in the school that Lakehouse built.
This is Mike and this is Shane,
who called from the lane,
that puzzled the head,
who worked with the staff,
that welcomed the parents,
that brought the children
that learn in the school that Lakehouse built.
These are the architects from Rivington Street,
that met Mike and Shane, and the whole fleet
who called about designing the school,
that puzzled the head,
who worked with the Bursar and the staff,
that welcomed the parents,
that brought the children
that learn in the school that Lakehouse built.
This is the Mayor of Newham Borough,
who passed the plans from Rivington Street,
that met Mike and Shane, and the whole fleet
who called about designing the school,
that puzzled the head,
who worked with the Bursar and the staff,
that welcomed the parents,
that brought the children,
that learn in the school that Lakehouse built.
These are the meetings with Hazel and Joy
who petitioned the Mayor of Newham Borough,
who passed the plans from Rivington Street,
that met Mike and Shane, and the whole fleet
who called about designing the school,
that puzzled the head,
who worked with the Bursar and the staff,
that welcomed the parents,
that brought the children
that learn in the school that Lakehouse built.
These are the governors, elated and pleased,
who heard the great news from Hazel and Joy
who petitioned the Mayor of Newham Borough,
who passed the plans from Rivington Street,
that met Mike and Shane, and the whole fleet
who called about designing the school,
that puzzled the head,
who worked with the Bursar and the staff,
that welcomed the parents,
that brought the children
that learn in the school that Lakehouse built.
Systems governance
Technology is fast moving and has an increasing influence on our
operations. This year, we have focused on two areas:
• Data security – the General Data Protection Regulations (‘GDPR’)
will come into force in May 2018 and will impact every business.
We have an obligation to ensure our approach to service quality is
matched in the treatment of the data associated with this process
and recruited a Data Security Officer during the year to develop
the Group’s data security policies and procedures. The Data
Security Officer is working with every business in the Group
to ensure we are ready for GDPR
• Systems development – in the short term, our ICT development
team has been focused on the smart meter rollout, which is a
technically complex programme and far more so than originally
expected. We anticipate smart meter development will continue
during 2018, albeit at a lesser pace. We intend turning our
attentions to developing a single operating platform across
our direct engineer-based activities, which we believe will help
drive a competitive advantage through higher service quality,
together with cost efficiencies
Return on capital
In order to maintain client service, we have to earn an adequate return
on capital. We have determined that an acceptable threshold return
on capital is 50%, with a target of 100%.
We were pleased to see Compliance, Energy Services and Construction
all achieve satisfactory returns, albeit with an increasing level of variability
of returns through the year. In particular, cash management in Construction
has been tough, in light of the challenges around account settlements
faced during the year and discussed further in the operating review;
we now work far harder to get paid by public sector clients than in
the recent past.
Property Services continued to draw capital through the year, in light
of its loss-making position.
Cash generation continues to be a core focus for the Group,
notwithstanding the pleasing cash conversion achieved for FY17.
Much of this came towards the end of the year and the challenge is to make
cash flow more even, rather than a seasonal event. This requires strong
attention to detail on contracts and a proactive relationship with clients,
which we are working hard with the team to embed into our culture.
Jeremy Simpson
Chief Financial Officer
22 January 2018
33
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06/02/2018 6:04 pm
SGFLakehouse plc Annual report 2017 Chairman’s Corporate
Governance report
Audit Committee
The Audit Committee is responsible for reviewing and monitoring the
integrity of the Company’s financial statements and significant financial
reporting issues. It also ensures an effective system of internal controls
and risk management systems is maintained. Full terms of reference
for the Committee may be found on the Company’s website at
www.lakehouse.co.uk/investors/corporate-governance.
The Audit Committee is comprised of the Non-Executive Directors.
The Interim Chairman of the Audit Committee was Robert Legget,
who was appointed on 20 June 2016, and held office for the period
of these financial results. Derek Zissman, who was appointed to
the Board on 27 November 2017, became Chairman of the
Audit Committee from that date.
Details of the Audit Committee’s activities can be found in the
Audit Committee Report on pages 40 and 41.
Bob Holt
Chairman
The Board recognises that good Corporate 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.
Accordingly, whilst the UK Corporate Governance Code does
not apply to AIM Companies, the Board continues to observe the
requirements of the Corporate Governance Code for Small and
Mid-Size Quoted Companies (‘the Code’) published by the Quoted
Companies Alliance (‘QCA’) as far as they are relevant in the context
of the Group’s size, stage of development and resources.
Remuneration Committee
The Remuneration Committee is responsible for determining and
agreeing with the Board the framework for the remuneration of Board
members and other designated senior executives. Within the agreed
framework, the Committee will determine the total individual remuneration
packages including where appropriate, bonuses, incentive payments
and share options or other share awards.
Full terms of reference for the Committee are available on the Company’s
website at www.lakehouse.co.uk/investors/corporate-governance.
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.
Details as to how the Group has applied the principles of the Code
are set out below.
Details of the Remuneration Committee’s activities can be found
in the Remuneration Committee Report on pages 42 to 51.
Board
The Board is responsible for the overall management of the Group
including the approval and implementation of the Group’s objectives
and strategy, budgets, operational performance along with the maintenance
of sound internal control and risk management procedures. Whilst the
Board may delegate certain matters there is a formal schedule of
matters reserved for the Board.
The Board comprises of a Chairman, two further Executive Directors
and three Non-Executive Directors. After a period of significant
management change within the Group, the last financial year has
seen a period of stability within the Board composition.
There are three Board Committees all with formally delegated powers
– an Audit Committee, a Remuneration Committee and a Nominations
Committee. All are chaired and comprise of the Non-Executive Directors.
Each of the Directors is subject to either an Executive Service
agreement or a letter of appointment. The Company’s Articles of
Association require all of the Directors to retire at every Annual
General Meeting.
Details of each of the directors, their appointment date, committee
membership, key strengths and experience are shown on pages 36
and 37.
Nomination Committee
The Nomination Committee is comprised of the Non-Executive
Directors and the 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 available on the Company’s website at
www.lakehouse.co.uk/investors/corporate-governance.
Board balance and Independence
The Code recommends a balance between Executive and
Non-Executive Directors. The Company has three Executive Directors,
including the Chairman, and three Non-Executive Directors, thus
providing balance within the Board. Derek Zissman was appointed
as the third Non-Executive Director after the end of the financial year.
The Directors consider all Non-Executive Directors to be independent.
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).
The table below shows the Directors’ attendance in the year at scheduled
Board and Committee meetings they were eligible to attend:
34
Lakehouse plc Annual Report 2017 Director
Executive Directors
Bob Holt
Jeremy Simpson
Michael McMahon
Board
scheduled
meetings
13/14
14/14
13/14
Non-Executive Directors
Robert Legget
Ric Piper1
Andrew Harrison
Derek Zissman2
10/10
2/2
10/10
n/a
Audit Remuneration
Nomination
—
—
—
2/2
—
2/2
—
—
—
5/5
—
5/5
1/1
—
—
1/1
—
1/1
Notes
1. Ric Piper resigned on 30 November 2016.
2. Derek Zissman was appointed as a Director on 27 November 2017.
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.
Share Dealing Code
The Company has adopted a share dealing code for the Directors
and applicable employees of the Group for the purpose of ensuring
compliance by such persons with the provisions of the AIM rules relating
to dealings in the Company’s securities (including, in particular, Rule 21
of the AIM rules). The Directors consider that this share dealing code
is appropriate for a company whose shares are admitted to trading
on AIM.
Information, meetings and attendance
The Board met regularly throughout the year and has a full programme
of Board meetings planned for the coming financial year.
To enable the Board to function effectively and 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.
Whistleblowing
The Company has established procedures by which employees may,
in confidence, raise concerns relating to 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.
Relations with shareholders
In the year to 30 September 2017 the Executive Directors and
members of the Board 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. 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.
Board Evaluation
It is anticipated that the Board will review its performance, and that of
its committee’s during the current financial year. This will be led by the
Senior Independent Director, together with external support as required.
Compliance with laws
The Group has systems in place designed to ensure compliance with
all relevant laws and regulations and all relevant codes of business
practice. This includes:
• Taking all appropriate steps to comply with the provisions of the
Market Abuse Regulation
• A copy of the Group’s Anti-Slavery and Human Trafficking policy
statement in relation to the Modern Slavery Act 2015, can be found
on the Company website
• The Company issued a revised Code of Conduct after the end of
the financial year
• An Anti-Corruption policy and Group Whistle Blowing policy, both
of which relate to compliance with the Bribery Act 2010 can also
be found on the Company website
• The Group is taking steps to provide statutory information relating
to the Gender Pay Gap legislation within the appropriate deadlines
Approved by order of the Board
Bob Holt
Chairman
22 January 2018
35
SGFLakehouse plc Annual report 2017 Board of Directors
Bob Holt OBE
Chairman
Michael McMahon
Chief Operating Officer
Jeremy Simpson
Chief Financial Officer
Appointment
Bob was appointed as a Director and
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 Totally plc.
Bob was awarded an OBE in January 2016.
Appointment
Michael joined the Group in April 2014 following
its acquisition of Everwarm and was appointed
Chief Operating Officer in February 2017.
Appointment
Jeremy joined Lakehouse in April 2014 as
Chief Financial Officer.
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.
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 Gingerbread,
the charity for one parent families.
36
Lakehouse plc Annual Report 2017 Robert Legget
Senior Independent Director
Andrew Harrison
Non-Executive Director
Appointment
Robert was appointed to the Board
of Lakehouse in April 2016.
Committee membership
Chairman of the Nomination Committee
and a member of the Audit and
Remuneration Committees.
Key strengths
Robert has extensive business and
finance 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.
Appointment
Andrew was appointed to the Board as
an Alternate Director in June 2016 and
as a Director in July 2016.
Committee membership
Chairman of the Remuneration Committee
and a member of the Audit and
Nomination Committees.
Key strengths
Andrew has extensive business and
legal experience.
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, the founder of Lakehouse and a
substantial shareholder of the Group.
Derek Zissman
Non-Executive Director
Appointment
Derek was appointed to the Board
of Lakehouse in November 2017.
Committee membership
Chairman of the Audit Committee.
Key strengths
Derek has extensive business and
finance experience.
Experience, skills
and qualifications
Derek is currently a director at a number of
businesses, but spent most of his career with
KPMG where he was a founding partner of
KPMG’s UK Private Equity Group, was a
Vice Chairman of KPMG UK and latterly
created the firm’s US Private Equity Group.
Derek is a Fellow of the Institute of Chartered
Accountants in England and Wales.
37
SGFLakehouse plc Annual report 2017 Corporate Governance report
The Board
Leadership, strategy and development, controls, risk and values
Nomination Committee
Audit Committee
Remuneration Committee
Chairman
Robert Legget
Members
Andrew Harrison
Bob Holt
Derek Zissman
Chairman
Derek Zissman
Members
Andrew Harrison
Robert Legget
Chairman
Andrew Harrison
Members
Robert Legget
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
Reviewing and monitoring the integrity
of the Financial Statements.
Ensuring an effective system of internal
controls is maintained.
Monitoring accounting policies.
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
Nomination Committee Report,
page 39.
More information
Audit Committee Report,
pages 40 and 41.
More information
Remuneration Committee Report,
pages 42 to 51.
Executive
Management
Team
Key responsibilities
Assist the 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.
Members
• Chairman
• Chief Operating Officer
• Chief Financial Officer
• Managing Directors of Compliance,
Property Services and Construction
• Company Secretary
38
Lakehouse plc Annual Report 2017 Corporate Governance report
Nomination Committee report
Robert Legget
Senior Independent Director
Chairman of the Nomination Committee
This is the Nomination Committee Report for the year
to 30 September 2017.
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.
Membership of the Nomination Committee
and attendance during the year
The Nomination Committee comprises of Non-Executive Directors
of the Company and the Chairman. Robert Legget, Andrew Harrison
and Bob Holt are the current members of the Committee. Details
of attendance record during the period can be found on page 35.
The Board composition has been stable during the year with all
Executive and Non-Executive Directors serving throughout the
financial year.
On 13 February 2017 the Company announced the appointment
of Michael McMahon as Chief Operating Officer of Lakehouse plc.
Michael had previously served as an Executive Director and
Managing Director of Lakehouse’s Energy Services Division.
The Committee had announced last year its intention to review the
appropriate balance of Executive and Non-Executive Directors on the
Board, with the intention of seeking to strengthen the Board with the
appointment of an additional Non-Executive Director in due course.
The Committee interviewed a number of candidates during the year and
on 27 November 2017, post the end of the financial year, announced the
appointment of Derek Zissman as a Non-Executive Director.
Biographical details for Derek are available to view at
https://www.lakehouse.co.uk/about-us/board-directors.
The Board acknowledges that diversity extends beyond the boardroom
and supports the management efforts to build a diverse organisation.
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.
Action Plan for 2017/18
The focus for the Committee during the coming financial year will be:
• To undertake the Board evaluation detailed in the Chairman’s
Corporate Governance Report
• To review succession planning within the Company
Approved on behalf of the Board by:
Robert Legget
Senior Independent Director
Chairman of the Nomination Committee
22 January 2018
39
SGFLakehouse plc Annual report 2017 Corporate Governance report
Audit Committee report
• Reviewing the adequacy and effectiveness of the whistleblowing
and anti-bribery policy and procedures
• Reviewing the Group’s risk management procedures and
monitoring actions taken in the year
The Committee’s terms of reference are available to view at
www.lakehouse.co.uk/investors/corporate-governance.
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 were the members
of the Committee during the period under review. The Chairman of the
Audit Committee during this period, Robert Legget, is a member of
the Institute of Chartered Accountants of Scotland.
Activities of the Committee
During the course of the year the Committee undertook the following:
• Reviewed the key accounting considerations and judgements
reflected in the Group’s results for the six-month period ended
31 March 2017
• Undertook a tender process for the appointment of external
auditors, following the Company’s move from the Main List to
AIM. As a result of the tender process RSM UK Audit LLP were
appointed as the Company’s independent external auditor
• Reviewed and agreed the external auditor’s audit plan in advance
of their audit for the year ended 30 September 2017
• Discussed the report received from the external auditor regarding
their audit in respect of the year ended 30 September 2017, which
includes comments on their findings on internal control and a
statement on their independence and objectivity
Derek Zissman
Non-Executive Director
Chairman of the Audit Committee
This is the Audit Committee Report for the year ended 30 September 2017.
Derek Zissman was appointed as Chairman of the Audit Committee on
his appointment to the Board on 27 November 2017. For the financial
year under review the Committee was chaired on an interim basis by
Robert Legget, Senior Independent Director.
Committee meetings
The Committee met twice 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:
• Worked with the Chief Financial Officer to agree the appointment
of a new internal auditor role within the Company focussing on
various aspects of the Group’s operations, controls, procedures
and risk management
• Reviewing and monitoring the integrity of the Group’s annual
and interim financial statements and accompanying reports to
shareholders and Corporate Governance statements
• Received the reports from the internal auditor covering risk
management procedures within the business and a detailed
review of the Risk Registers
• Reporting to the Board on the appropriateness of the accounting
policies and practices
• Reviewed and approved the non-audit assignments undertaken
by the external auditor in the year to 30 September 2017
• Considered, together with the Board, the Principal Risks and
Uncertainties Review
•
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 26 to 29)
• 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
40
Lakehouse plc Annual Report 2017 External auditor
The Group appointed a new independent external auditor during the
year – RSM UK Audit LLP – following a detailed tendering process.
RSM 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:
Internal audit
During the course of the year an internal auditor was appointed,
reporting to the Chairman of the Audit Committee.
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. Internal audit is 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.
• 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 RSM
Following the year end the Audit Committee approved an internal audit
plan for 2017/18. The Audit Committee will continue to monitor the
effectiveness of internal audit plans in accordance with the Group’s
ongoing requirements.
Following the year end, the Committee has met to approve the
Group’s Annual Report and Financial Statements.
Also following the year end, Derek Zissman has been appointed as
a Non-Executive Director of the Company and as Chairman of the
Audit Committee. Derek is a Fellow of the Institute of Chartered
Accountants in England and Wales.
Derek Zissman
Chairman of the Audit Committee
22 January 2018
• 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
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 financial
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 26 to 29.
41
SGFLakehouse plc Annual report 2017 Directors’ remuneration report
Remuneration Committee Chairman’s annual statement
Membership of the Committee
Membership of the Committee during the financial year comprised two
Non-Executive Directors:
• Andrew Harrison
• Robert Legget
The Committee met five times during the year with both members
attending each meeting. As the members of the Committee are the
Independent Non-Executive Directors, they are recognised by the
Board as bringing independent judgement to the matters considered
by the Committee.
This report is split into:
• Components of Executive remuneration for 2016/17
• Proposed remuneration for 2017/18
• Details of the Company’s remuneration policy
Components of Executive Remuneration
The following section summarises how remuneration arrangements
operated during the 2016/17 financial year.
Salary and Benefits
The table below sets out the annual salary of each of the Executive Director’s
in the year to 30 September 2017 and the proposed 2017/2018 salary
for each of their current roles.
Bob Holt1
Michael McMahon2 3
Jeremy Simpson3
2016/17
salary
2017/18
salary
% change in
basic salary
£75,000
£75,000
£238,625 £260,000
£278,000 £296,000
0%
0%
0%
1.
2.
3.
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 up to £150,000 p.a. 0% (plus VAT),
which was the sum paid in the year.
On 13 February 2017 the Company announced the appointment of Michael McMahon
as Chief Operating Officer of Lakehouse plc. Michael had previously served as an
Executive Director and Managing Director of Lakehouse’s Energy Services Division.
His base salary was increased from £200,000 p.a. to £260,000 p.a.
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 fixed rate equivalent to 15% of salary. In the year to 30 September 2017
the Board agreed that Executive Directors and other senior employees may elect to receive
the retirement benefit as an additional salary payment in lieu. Jeremy Simpson elected
during the year to take £18,000 of retirement benefit as additional salary, with an
annualised impact of £36,000.
Andrew Harrison
Non-Executive Director
Remuneration Committee Chairman
This is the Directors’ Remuneration Report for the year to
30 September 2017.
The Annual Report on Remuneration on pages 42 to 51 provides details
of each Director’s pay and benefits in the year to 30 September 2017.
Responsibilities and role
of the Remuneration Committee
The primary function of the Remuneration Committee is to review the
remuneration of the Executive Directors and to monitor the remuneration
of the Group’s senior managers. The remuneration strategy and policy
for all staff is also reviewed annually by the Committee.
The full terms of reference of the Committee are available on the
Company website.
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
• 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
The Committee reviews the Company’s executive remuneration
arrangements taking external advice on current market practice, as
appropriate, and implements incentive arrangements to align the
interests of executives with shareholder value.
42
Lakehouse plc Annual Report 2017 Annual bonus
A Performance bonus of £25,000 was paid to each of Michael McMahon and Jeremy Simpson in respect of performance relating to financial year
2016/17, although the actual bonus was paid after the end of the financial year.
The bonus reflected both achievement of consensus city targets and the successful disposal of the Orchard Energy business.
Performance Share Plan (‘PSP’) and Share Incentive Plan (‘SIP’)
No awards were made to Executive directors under the PSP or SIP schemes during the financial year.
Special Incentive Award Plan (‘SIAP’)
Awards to both Michael McMahon and Jeremy Simpson under the SIAP Scheme were made after the end of the financial year. Both Michael McMahon
and Jeremy Simpson were awarded options over 500,000 Ordinary shares structured as a nil-cost option, and subject to the terms of the
Lakehouse plc Special Incentive Award Plan (SIAP). If all performance conditions set out in the Plan are satisfied then the maximum award
to Michael McMahon and Jeremy Simpson would be 1,000,000 shares each.
All terms and conditions for the award mirror those put in place for Bob Holt in August 2016 and full details may be found at page 49.
A summary of SIAP, PSP and SIP share awards granted to Executive Directors
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
2016
Granted
during the
period
Lapsed
during the
period
Bob Holt
Michael McMahon
Jeremy Simpson
Notes
SIAP 1 2,307,692
Total 2,307,692
PSP 2
PSP 2
SIP 3
224,719
220,580
216
Total
445,515
PSP 2
PSP 2
SIP 3
292,134
286,754
216
Total
579,104
—
—
—
—
3
3
—
—
3
3
—
—
—
—
—
—
—
—
—
—
Number of
options at
Exercised
during the 30 September
2017
period
— 2,307,692
— 2,307,692
—
—
—
—
—
—
—
—
224,719
220,580
219
445,518
292,134
286,754
219
579,107
Date
from which
exercisable
(Note 1)
Expiry
date
(Note 1)
23 March 2018
31 December 2018
(Note 3)
23 March 2025
31 December 2026
(Note 3)
23 March 2018
31 December 2018
(Note 3)
23 March 2025
31 December 2026
(Note 3)
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 2017 an additional award of 3 shares was made to Jeremy Simpson and Michael McMahon
following the reinvestment of the Company’s 2016 final dividend (2016: 17 shares).
Proposed Remuneration for 2018
For the current financial year to 30 September 2018 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
• The annual bonus potential for Executive Directors remains unchanged
The maximum opportunity for Michael McMahon and Jeremy Simpson will be 100% of salary.
The performance measures in respect of the 2017/18 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 will apply to the 2017/18 bonus.
43
SGFLakehouse plc Annual report 2017 Directors’ remuneration report
Remuneration Committee Chairman’s annual statement continued
Proposed Remuneration for 2018 continued
• 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 Executive Directors may be awarded PSP awards in 2017/18 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 2017/18 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
Single total figures of remuneration (audited information)
The table below report the total remuneration received in respect of qualifying services by each Director during the year.
2017
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
Notes:
Total salary
and fees 1
£’000
Taxable
benefits 2
£’000
Annual
bonus 3
£’000
Long Term
Incentive 4
£’000
Pensions
related
benefits
£’000
75
278
239
—
—
50
45
17
—
—
—
—
—
17
17
—
—
—
—
—
—
—
—
—
—
25
25
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
21
35
—
—
—
—
—
—
—
—
—
2016
Total
remuneration
£’000
13
323
249
203
206
23
8
125
11
43
37
37
Total
£’000
75
341
316
—
—
50
45
17
—
—
—
—
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 47.
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 Chairman on 21 July 2016. 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 up to £150,000 p.a. (plus VAT), which was the sum paid in the year.
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.
44
Lakehouse plc Annual Report 2017 Payment for loss of office
Ric Piper was paid £40,000 for loss of office in the year to 30 September 2017, which took the form of a charitable contribution on his behalf.
Long term incentive vesting
There were no long term incentive awards capable of vesting in 2016/17.
Other directorships
The Chairman, Bob Holt, is also a director of Mears Group PLC and Totally plc. These appointments were held prior to Bob Holt joining the Company.
Performance graph and table
The chart below illustrates Lakehouse plc’s TSR performance against the FTSE Small Cap index (excluding investment trusts). This index was
chosen as Lakehouse was a constituent of the index until May 2017.
Note
This graph shows the value, by 30 September 2017, 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.
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. 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.
45
SGFLakehouse plc Annual report 2017 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.
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.
Operation
Maximum opportunity
Performance metrics
No formal metrics apply, although
individual and Company performance is
taken into account when determining
any annual increase.
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
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.
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 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 performance metrics apply.
46
Lakehouse plc Annual Report 2017 Purpose and
link to strategy
Retirement benefits
To provide a
market-competitive,
cost-effective
contribution towards
post retirement
benefits.
Annual bonus
Operation
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 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 2016/17 onwards and Deferred Share
Bonus Plan awards granted from 2016/17
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.
47
SGFLakehouse plc Annual report 2017 Directors’ remuneration report
Directors’ remuneration policy report continued
Purpose and
link to strategy
Operation
Performance Share Plan
The PSP incentivises
the Executive
Directors and
selected employees
to achieve demanding
financial targets 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.
48
Lakehouse plc Annual Report 2017 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 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 financial year
ending 30 September 2018.
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 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 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 2017).
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.
49
SGFLakehouse plc Annual report 2017 Directors’ remuneration report
Directors’ remuneration policy report continued
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 Chairman and
other Executive Directors. Fees are
reviewed periodically.
The Company’s Articles
of Association set an
aggregate fee level of
£500,000 per annum.
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 cost of travel, overnight
accommodation or other reasonable
expenses incurred in carrying out
their duties.
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.
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.
Any use of the above discretions would, where relevant, be explained in the Directors’ Remuneration Report and may, as appropriate, be the
subject of consultation with the Company’s major shareholders.
50
Lakehouse plc Annual Report 2017 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.
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.
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.
Service contracts and letters of appointment
The table below summarises the service contracts of the Executive Directors and Non-Executive Directors.
Name
Executive Directors
Bob Holt
Michael McMahon
Jeremy Simpson
Non-Executive Directors
Robert Legget
Andrew Harrison
Derek Zissman
Date of
contract/letter
of appointment
21 July 2016
17 February 2015
17 February 2015
19 April 2016
26 July 2016
27 November 2017
Notice period
by Company
Notice period
by Director
6 months
12 months
12 months
1 month
1 month
1 month
6 months
6 months
6 months
1 month
1 month
1 month
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.
When setting the policy for the remuneration of the Executive Directors, the Committee pays 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.
Andrew Harrison
Chairman of the Remuneration Committee
22 January 2018
51
SGFLakehouse plc Annual report 2017 Directors’ report
The Directors present their Annual Report and the audited Financial Statements for the Group for the year ended 30 September 2017.
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 listed on the AIM market of the London Stock Exchange. The Company’s registered address is
1 King George Close, Romford, Essex RM7 7LS.
Principal activities
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.
Results and dividends
The results for the year are set out in the consolidated statement of comprehensive income on page 59. The Directors recommend the payment of
a final dividend of 0.5 pence per share on 6 April 2018 subject to approval at the Annual General Meeting on 28 March 2018 with a record date
of 2 March 2018.
Directors and Directors’ interests
The Directors who held office during the year and to date were as follows:
Bob Holt
Michael McMahon
Jeremy Simpson
Andrew Harrison
Robert Legget
Ric Piper (Resigned 30 November 2016)
Derek Zissman (Appointed 27 November 2017)
Biographical details and committee membership details for directors appears on pages 36 and 37.
All Directors are required to retire annually, in line with the Articles of Association.
The Directors who held office during the financial year had the following interests in the shares of the Company:
Michael McMahon
Jeremy Simpson
Bob Holt
Robert Legget
Andrew Harrison
Beneficial/
non-beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Non-beneficial
At 1 October
2016
(or date of
appointment)
7,963,890
342,606
—
—
24,409,196
Movement At 30 September
2017
in year
(2,500,000)
—
—
—
—
5,463,890
342,606
—
—
24,409,196
At 30 September
2017
Percentage
3.47%
0.22%
0.00%
0.00%
15.50%
Details of Directors’ emoluments and interests in share options are disclosed in the report of the Board to the shareholders on Directors’
remuneration on pages 43 and 44.
No Director has had a material interest in any contract of significance in relation to the business of the Company, or any of its subsidiary
undertakings, during the financial year or had as such at the end of the financial year.
52
Lakehouse plc Annual Report 2017 Substantial shareholdings and share capital
As at 15 January 2018, being the latest practical date prior to the publication of this document, the Company has been advised of the following
interests in 3% or more of the Company’s ordinary share capital.
Harwood Capital
Estate of Steve Rawlings
Slater Investments
Legal & General Investment Management
Michael McMahon
Carol King
Sean Birrane
Number
of shares
Percentage
held (%)
27,165,000
24,409,196
11,355,000
8,825,898
5,463,890
5,337,929
4,806,114
17.24
15.50
7.21
5.60
3.47
3.39
3.05
The Company has one class of share in issue, being ordinary shares with a nominal value of 10p each. As at 30 September 2017, there were
157,527,103 shares in issue.
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 12 and 13.
Risks and uncertainties
Details of the risks and uncertainties faced by the Group can be found in the Strategic Review on pages 26 to 29.
Financial instruments
An explanation of the Group’s treasury policies and existing financial instruments are set out in Note 32 of the Financial Statements.
53
SGFLakehouse plc Annual report 2017 Directors’ report continued
Donations
The Group made charitable donations in the year of £nil. Information on the Group’s resources, relationships and sustainability are set out
on pages 30 to 33. 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 28 March 2018 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 34 to 38. The Corporate
Governance Report forms part of this Directors’ Report and is incorporated into it by cross-reference.
Independent auditor
The auditor, RSM UK Audit LLP, has indicated its 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 order of the Board:
John Charlton
Group Company Secretary
22 January 2018
54
Lakehouse plc Annual Report 2017 Statement of Directors’ responsibilities
in respect of the Annual Report and the
Financial Statements
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
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 22 January 2018 and is signed on its behalf by
Bob Holt
Chairman
Jeremy Simpson
Chief Financial Officer
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
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 Group and Company and of the
profit or loss of the Group 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 Group’s financial position and financial performance
• Make an assessment of the Group’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 Group and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company and
enable them to ensure that the Financial Statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Group and 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.
55
SGFLakehouse plc Annual report 2017 Independent auditor’s report
To the members of Lakehouse plc
Opinion
We have audited the Financial Statements of Lakehouse plc (the
‘parent company’) and its subsidiaries (the ‘Group’) for the year
ended 30 September 2017 which comprise the consolidated
statement of comprehensive income, the consolidated statement
of financial position, the consolidated statement of changes in equity,
the consolidated statement of cash flows, the parent company
balance sheet, the parent company statement of changes in equity
and the Notes to the Financial Statements, including a summary of
significant accounting policies. The financial reporting framework that
has been applied in the preparation of the Group Financial Statements
is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the parent
company Financial Statements is applicable law and United Kingdom
Accounting Standards including FRS 101 “Reduced Disclosure
Framework” (United Kingdom Generally Accepted Accounting Practice).
In our opinion:
•
•
•
•
the Financial Statements give a true and fair view of the state of the
Group’s and of the parent company’s affairs as at 30 September 2017
and of the Group’s profit for the year then ended;
the Group Financial Statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
the parent company Financial Statements have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
the Financial Statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities
for the audit of the Financial Statements section of our report. We are
independent of the Group and parent Company in accordance with the
ethical requirements that are relevant to our audit of the Financial Statements
in the UK, including the FRC’s Ethical Standard, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you where:
the Directors’ use of the going concern basis of accounting in the
preparation of the Financial Statements is not appropriate; or
the Directors have not disclosed in the Financial Statements any
identified material uncertainties that may cast significant doubt
about the Group’s or the parent company’s ability to continue to
adopt the going concern basis of accounting for a period of at
least twelve months from the date when the Financial Statements
are authorised for issue.
•
•
56
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the Financial Statements
of the current period and include the most significant assessed risks
of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on the overall audit
strategy, the allocation of resources in the audit and directing the
efforts of the engagement team. These matters were addressed in
the context of our audit of the Financial Statements as a whole, and
in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Construction contracts
The Group recognises significant revenues arising from long term
contracts. As described in Note 3 of the consolidated Financial
Statements, accounting for construction contracts requires
management to make judgements when assessing the stage of
completion and overall margins anticipated on completion of individual
contracts. There is a risk that revenue could be misstated as a result of
these judgements and that provisions may be understated and income
and costs recognised in the wrong periods.
Our response to the risk included;
• Selection of a sample of contracts to check that revenue and profit
was appropriately recognised based on the stage of completion,
as determined by management
• Meetings held with quantity surveyors and attendance at CVR
meetings to challenge assumptions made regarding the assessed
stage of completion and contract margin applied
• Comparison of the estimated and actual costs and margin across a
sample of contract lifecycles and discussion of these with management
where significant variances were noted
• Corroboration of a sample of costs incurred to contract invoices.
Revenue recognition
Revenue recognition accounting policies are described in Note 2
in the consolidated Financial Statements. The policies and associated
audit risks vary by division and sector and depending on how the
various businesses in the Group contract with their customers.
There is a risk that the Financial Statements could be misstated if the
appropriate revenue recognition policies are not selected and applied
appropriately and consistently.
Our response to the risk included:
• Audit of revenue recognition policies and discussion of the policies
with management to check that they are appropriate based on the
service supplied, contractual terms and relevant accounting standards
• Performance of analytical review procedures and corroboration
of material movements outside of expected trends
• Selection of a sample of revenue transactions and verification
to supporting documentation
• Specific testing of cut-off through the selection of a sample of
revenue transactions recognised either side of the year end and
corroboration of the period in which the service was provided.
Lakehouse plc Annual Report 2017 Disposal of Orchard Energy
On 29 September 2017, the Group completed the disposal of
Orchard Energy (Holdings) Limited and its subsidiary undertakings
(collectively ‘Orchard’). The disposal, which is disclosed in Notes 7
and 11 in the consolidated Financial Statements, meets the definition
of a discontinued operation under IFRS 5 and has a material impact
on the consolidated statement of comprehensive income.
Our response to the risk included:
• Audit of the completion date through corroboration to the sale
and purchase agreement and verification of the receipt of funds
to supporting documentation
• Audit of management’s estimate of the fair value of the
consideration received and challenge of the assumptions
adopted and judgements applied
• Audit of the disclosure of Orchard as a discontinued operation and
management’s application of the requirements of IFRS 5
Goodwill and intangible asset impairment
At 30 September 2017, the Group had goodwill totalling
£42.2 million (2016: £47.3 million) and intangible assets totalling
£9.2m (2016: £21.9 million) as disclosed in Notes 15 and 16 in the
consolidated Financial Statements. Management assess goodwill for
impairment using discounted cash flow (DCF) models to estimate
the value in use of the Group’s cash-generating units (CGUs) and
compare this to the goodwill, acquisition intangibles and other assets
of the relevant CGU. The use of DCFs involves a significant degree
of management judgement, including forecasts of revenue and
profitability and application of appropriate discount rates.
Our response to the risk included:
• Audit of management’s sensitivity analysis and check
of model arithmetic
• Corroboration of inputs to the DCF models to relevant financial
information and challenge of management assumptions
• Comparison of forecast financial performance to post-year-end
trading to assess reliability of forecasting
• Comparison of growth and discount rate assumptions
to comparable companies
• Audit of the disclosures in the Financial Statements
and consideration of their appropriateness
Provisions for contract disputes and legal claims
The Financial Statements include provisions for legal and other costs
of £4.0 million (2016: £4.9 million), as disclosed in Note 25 in the
consolidated Financial Statements. The amounts provided and the
completeness of provisions are areas that involve a high degree
of management judgement.
Our response to the risk included:
• Obtaining confirmation from management of the completeness
of all actual and potential claims
• Requesting confirmation from the Group’s solicitors regarding
the status of known claims and completeness of claims
• Reviewing correspondence from the Group’s solicitors in
respect of actual and potential claims and holding discussions
with management regarding their judgement over the existence
and valuation of required provisions, or lack thereof
• Corroboration of key assertions made by management
to supporting documentation
• Audit of the disclosures made in respect of contingent liabilities
for which no provision has been made
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds
which help us to determine the nature, timing and extent of our audit
procedures and to evaluate the effects of misstatements, both individually
and on the Financial Statements as a whole. During planning, we
determined a magnitude of uncorrected misstatements that we judge
would be material for the Financial Statements as a whole (FSM).
During planning FSM was calculated as £829,500, which was not
changed during the course of our audit. We agreed with the Audit
Committee that we would report to them all unadjusted differences
in excess of £20,000 as well as differences below those thresholds
that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
The audit was scoped to ensure that we obtained sufficient
and appropriate audit evidence in respect of:
• The significant business operations of the Group
• Other operations which, irrespective of size, are perceived
as carrying a significant level of audit risk whether through
susceptibility to fraud, or for other reasons
• The appropriateness of the going concern assumption used in the
preparation of the Financial Statements
The audit was scoped to support our audit opinion on the parent
company and Group Financial Statements of Lakehouse plc and was
based on Group materiality and an assessment of risk at Group level.
Other information
The other information comprises the information included in the
annual report, other than the Financial Statements and our auditor’s
report thereon. The Directors are responsible for the other information.
Our opinion on the Financial Statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the Financial Statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the
Financial Statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
57
SGFLakehouse plc Annual report 2017 Independent auditor’s report
To the members of Lakehouse plc
Auditor’s responsibilities for the audit of the
Financial Statements
Our objectives are to obtain reasonable assurance about whether
the Financial Statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of these Financial Statements.
A further description of our responsibilities for the audit of the
Financial Statements is located on the Financial Reporting Council’s
website at: http://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
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.
Graham Ricketts (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP
Statutory Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB
22 January 2018
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• The information given in the Strategic Report and the Directors’
report for the financial year for which the Financial Statements
are prepared is consistent with the Financial Statements
• The Strategic Report and the Directors’ report has been prepared
in accordance with applicable legal requirements
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the Group and
the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
Strategic Report and the Directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• Adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us
• The parent company Financial Statements are not in agreement
with the accounting records and returns
• Certain disclosures of Directors’ remuneration specified by law are
not made
• We have not received all the information and explanations we
require for our audit
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement
set out on page 55, the Directors are responsible for the preparation
of the Financial Statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of Financial Statements that are
free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for
assessing the Group’s and the parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the parent company
or to cease operations, or have no realistic alternative but to do so.
58
Lakehouse plc Annual Report 2017 Consolidated statement
of comprehensive income
For the year ended 30 September 2017
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating expenses
Share of results of joint venture
Operating profit/(loss) before exceptional and other items
Exceptional costs
Exceptional income – other
Exceptional income – profit on disposal of subsidiary
Impairment of goodwill and intangible assets acquired
Amortisation of acquisition intangibles
Operating profit/(loss)
Finance expense
Investment income
Profit/(loss) before tax
Taxation
Profit/(loss) after taxation from
continuing operations
Discontinued operations
Profit for the year from discontinued operations
Profit/(loss) for the year attributable to the equity
holders of the Group
Earnings/(loss) per share from continuing and
discontinued operations
Basic
Diluted
Loss per share from continuing operations
Basic
Diluted
Underlying earnings per share from continuing and
discontinued operations
Basic
Diluted
Underlying
exceptional
and other
results before Exceptional
and other
items
items (see Note 7)
2017
2017
£’000
£’000
Notes
Underlying
results before
exceptional
and other
items
2016
£’000
Exceptional
and other
items
(see Note 7)
2016
£’000
2017
£’000
2016
£’000
4
290,275
(258,197)
9,251
(11,035)
299,526
(269,232)
299,146
(265,362)
28,051
(34,335)
327,197
(299,697)
32,078
(25,536)
786
7,328
—
—
—
—
—
7,328
(1,747)
16
5,597
(1,394)
(1,784)
(147)
—
(1,931)
(3,012)
1,624
5,402
—
(10,495)
(8,412)
(238)
—
(8,650)
2,766
30,294
(25,683)
786
5,397
(3,012)
1,624
5,402
—
(10,495)
(1,084)
(1,985)
16
(3,053)
1,372
33,784
(25,783)
537
8,538
—
—
—
—
—
8,538
(1,070)
46
7,514
(1,199)
(6,284)
(2,865)
—
(9,149)
(5,742)
2,672
—
(19,204)
(11,156)
(42,579)
(587)
—
(43,166)
5,720
27,500
(28,648)
537
(611)
(5,742)
2,672
—
(19,204)
(11,156)
(34,041)
(1,657)
46
(35,652)
4,521
18
7
7
7
7
7
4,5
8
8
4,5
12
4,203
(5,884)
(1,681)
6,315
(37,446)
(31,131)
11
1,691
—
1,691
1,863
—
1,863
5,894
(5,884)
10
8,178
(37,446)
(29,268)
14
14
14
14
14
14
0.0p
0.0p
(1.1p)
(1.1p)
(18.6p)
(18.6p)
(19.8p)
(19.8p)
3.7p
3.6p
5.2p
5.0p
The accompanying notes are an integral part of this consolidated statement of comprehensive income.
59
SGFLakehouse plc Annual report 2017 Consolidated statement
of financial position
At 30 September 2017
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in joint venture
Trade and other receivables
Deferred tax asset
Current assets
Inventories
Amounts due from customers under construction contracts
Trade and other receivables
Corporation tax receivable
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
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
2017
£’000
2016
£’000
15
16
17
18
21
26
19
20
21
20
22
23
27
25
22
23
27
25
42,169
9,233
1,905
1,196
456
2,085
47,338
21,947
2,826
537
1,359
229
57,044
74,236
4,490
6,269
59,129
551
26,129
5,187
3,161
65,633
1,451
—
96,568
75,432
153,612
149,668
1,786
69,178
—
182
893
690
65,801
71
222
1,904
72,039
68,688
24,529
6,744
973
27,077
144
3,137
6,236
20,586
164
2,974
31,331
29,960
103,370
98,648
50,242
51,020
28
30
29,30
30
30
15,753
25,314
776
(290)
20,067
(11,378)
15,753
25,314
776
(290)
20,067
(10,600)
50,242
51,020
The Financial Statements of Lakehouse plc (registered number 09411297) were approved by the Board of Directors and authorised for issue on
22 January 2018. 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.
60
Lakehouse plc Annual Report 2017 Consolidated statement
of changes in equity
For the year ended 30 September 2017
Share-based
payment
reserve Own shares
£’000
£’000
At 1 October 2015
Loss for the period
Dividends paid (Note 13)
Share-based payment charge
Current tax – Excess tax deductions related to
share-based payments
At 30 September 2016
Profit for the period
Dividends paid (Note 13)
At 30 September 2017
Share capital
£’000
15,753
—
—
—
Share
premium
account
£’000
25,314
—
—
—
—
—
15,753
—
—
25,314
—
—
15,753
25,314
709
—
—
67
—
776
—
—
776
Merger
reserve
£’000
20,067
—
—
—
Retained
earnings
£’000
23,911
(29,268)
(4,568)
(67)
Total equity
£’000
85,464
(29,268)
(4,568)
—
—
(608)
(608)
20,067
—
—
(10,600)
10
(788)
51,020
10
(788)
(290)
—
—
—
—
(290)
—
—
(290)
20,067
(11,378)
50,242
61
SGFLakehouse plc Annual report 2017 Consolidated statement of cash flows
For the year ended 30 September 2017
Cash flows from operating activities
Cash generated from/(used in) operations
Interest paid
Interest received
Taxation
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Purchase of shares in subsidiary, net of cash acquired
Payment of deferred consideration on prior year acquisitions
Sale of shares in subsidiary, net of cash disposed of
Purchase of property, plant and equipment
Purchase of intangible assets
Sale of property and equipment
Loan to associate
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Dividend paid to shareholders
Proceeds from bank borrowings
Repayments to finance lease creditors
Finance issue costs
Net cash generated from financing activities
Net increase/(decrease) 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
34
2017
£’000
2016
£’000
13,373
(1,385)
3
655
(3,014)
(808)
46
(268)
12,646
(4,044)
—
(2,588)
12,044
(909)
(462)
153
—
(14,140)
(3,532)
—
(819)
(291)
160
(250)
8,238
(18,872)
(788)
6,500
(60)
(336)
(4,568)
21,000
(357)
(164)
5,316
15,911
26,200
(71)
26,129
(7,005)
6,934
(71)
62
Lakehouse plc Annual Report 2017 Notes to the consolidated
Financial Statements
For the year ended 30 September 2017
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 IAS 7 Disclosure Initiative
• Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses
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 15
IFRS 16
Financial Instruments
Revenue from Contracts with Customers
Leases
Amendments to IFRS 2
Classification and Measurement of Share-based Payment Transactions
IFRIC 23
Uncertainty over Income Tax Treatments
Effective for accounting periods
starting on or after
1 January 2018
1 January 2018
1 January 2019
1 January 2018
1 January 2019
IFRS 15 represents a notable change to revenue recognition in our industry. We will evaluate the potential impact of IFRS 15 on the FY18
results, which will form the comparative figure when the standard is adopted in FY19 and will provide guidance to the market accordingly.
With the exception of IFRS 15 (and IFRS 16), Directors do not expect the adoption of the standards listed above to have a material impact on
the Financial Statements of the Group.
Basis of consolidation
The consolidated Financial Statements incorporate the assets, liabilities, income and expenses of the Group. The Financial Statements 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 transactions 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.
63
SGFLakehouse plc Annual report 2017 2. Significant accounting policies
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 balance sheet 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 24.
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. 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 remeasured at subsequent
reporting dates and its subsequent settlement is accounted for within
equity. Contingent consideration that is classified as an asset or liability
is remeasured 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 believe that
acquisition costs are exceptional in nature and classified 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.
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 Five years
Remaining period of
the contract
Non-compete
agreements
Five years
Expected cash flows
receivable
Expected cash flows
receivable
With or without method
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future
economic benefits are expected from use or disposal. The gain or loss
from derecognition 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 derecognised.
64
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 2. Significant accounting policies continued
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
Plant and equipment
Fixtures and fittings
Motor vehicles
—
—
—
—
over the period of the lease
15% to 33% per annum on
a straight line basis
20% to 33% per annum on
a straight line basis
25% per annum on a straight
line basis
The estimated useful lives, residual values and depreciation method
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 derecognised 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.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet 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.
Exceptional Items
Items which are significant by their size and nature require separate
disclosure and are reported separately in the statement of comprehensive
income. Details of exceptional 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 considers
such losses should be highlighted separately as not related 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 income statement with further
details provided in Note 7.
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
balance sheet 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.
65
SGFLakehouse plc Annual report 2017 2. Significant accounting policies continued
Revenue continued
(a) Service contracts continued
(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.
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 period 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.
66
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 consolidated 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.
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 balance sheet 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 its IPO
in 2015, 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.
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.
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 2. Significant accounting policies continued
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 to profit or loss, 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.
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). Details of material
provisions are disclosed unless it is not practicable to do so or where it
could be expected to prejudice seriously the position of the entity.
Contingent liabilities
Where a provision or accrual is deemed to be required, it has been
included within the consolidated statement of financial position. For
contingent liabilities where an economic outflow is possible, it is often
not practicable to estimate the financial effect due to the range of
estimation uncertainty. For contingent liabilities where the possibility
of economic outflow is remote, disclosure of the estimated financial
effect is not required.
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.
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.
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.
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SGFLakehouse plc Annual report 2017 2. Significant accounting policies continued
Financial instruments continued
(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 year end in which the
acquisition occurred 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.
(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 remeasured in future
periods at their fair value. They are held at fair value through profit or
loss and are remeasured 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.
68
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.
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 reporting 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
market values identified for equivalent assets, together with 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 acquisitions in 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 cashflows to determine
the net present value of the cashflows
•
Identification of and judgements around the uncertainties of the
valuation model and its sensitivity to error in its key assumptions
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 3. Critical accounting judgements and key
sources of uncertainty continued
Key sources of estimation uncertainty continued
(i) Fair value of identifiable net assets acquired continued
The key judgements and estimates made in determining the fair value
of deferred consideration were:
In quantifying the likely outturn for the Group, the key judgements
and estimates will typically include:
• The scope of the Group’s assessed responsibility
• An assessment of the potential likelihood of economic outflow
• An estimation of economic outflow (including potential likelihood)
• The appropriate discount factor
• A commercial assessment of potential further liabilities
• 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.
(iii) Determination of fair value of disposal proceeds
On sale of a business, management will determine the fair value of
sale proceeds. The fair value will be estimated based on the contractual
entitlements contained in a sale and purchase agreement, discounted
for any deferred sums and contingencies contained therein. Management
will also consider potential post-sale liabilities, based on commitments
provided in the sale and purchase agreement.
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.
(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 sub-contractors, as yet unbilled
• An estimation of costs to complete
• An estimation of remaining revenues
These assessments include a degree of uncertainty and therefore
if the key judgements change, further adjustments of recoverable
amounts may be necessary.
(iii) Provision for legal and other claims
The Group continues to manage a number of potential risks and
uncertainties, including claims and disputes, which are common to
other similar businesses and 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.
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 lifts, 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
• 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 Energy Company Obligations (‘ECO’) and the Scottish
Government’s HEEPS Affordable Warmth programme. Clients
include housing associations, social landlords, local authorities and
private householders and we have trading relationships with the
‘big six’ utility suppliers and many of the leading utility challengers.
We also provide renewable technologies and metering services
to customers throughout the UK
• Property Services: focused on planned and responsive maintenance
service for social housing. A significant part of our service is the
project management 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
• Construction: focused on small to medium-sized building
projects, normally under framework agreements with an emphasis
on (but not confined to) the education sector. The business targets
refurbishment projects for public buildings in the mid-range of
value and tends to avoid large scale building projects
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.
69
SGFLakehouse plc Annual report 2017 4. Operating segments continued
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 consolidated 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.
The following is an analysis of the Group’s revenue and Underlying
EBITA by reportable segment:
Revenue
Compliance
Energy Services
Property Services
Construction
Total segment revenue
Inter-segment elimination
Total underlying revenue
2017
£’000
2016
£’000
104,319
78,960
47,017
61,762
91,023
60,795
98,143
52,051
292,058
(1,783)
302,012
(2,866)
290,275
299,146
Mobilisation of smart metering contracts
Businesses being exited
—
9,251
2,803
25,248
Revenue from external customers
299,526
327,197
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 profit before taxation
Underlying EBITA by segment
Compliance
Energy Services
Property Services
Construction
Central
Total underlying EBITA
Mobilisation of smart metering contracts
Contract losses on businesses being exited
Amortisation of acquisition intangibles
Impairment of goodwill and intangible
assets acquired
Exceptional costs
Other exceptional income
Profit on disposal of Orchard
Investment income
Finance costs
2017
£’000
2016
£’000
7,986
4,015
(1,654)
1,987
(5,006)
7,328
—
(1,931)
(10,495)
—
(3,012)
1,624
5,402
16
(1,985)
6,169
5,655
780
3,606
(7,672)
8,538
(2,493)
(6,656)
(11,156)
(19,204)
(5,742)
2,672
—
46
(1,657)
None of the Group’s major customers had more than 10% of Group
revenue for 2017 or 2016.
5. Loss before taxation
Loss on ordinary activities before taxation is stated after charging/(crediting):
Amount of inventories recognised as an expense
Depreciation of property, plant and equipment:
– owned
– held under finance leases
Amortisation of intangible assets (Note 16)
Impairment of goodwill and intangible
assets acquired
Impairment of tangible assets (Note 17)
Staff costs (Note 9)
Operating lease rentals:
– land and buildings
– other
Profit on disposal of property, plant
and equipment
2017
£’000
2016
£’000
62,425
63,258
1,039
222
10,931
—
394
87,279
1,177
3,270
1,222
371
11,508
19,204
—
85,828
1,354
2,276
(107)
(95)
6. Auditor’s remuneration
The analysis of the auditor’s remuneration is as follows:
2017
£’000
2016
£’000
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:
– Other assurance services
– Corporate finance services
Total non-audit fees
Fees payable to the Company’s previous
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 previous
auditor and their associates for other
services to the Group:
– Taxation advisory services (corporate tax
and indirect tax)
54
216
270
14
128
142
—
—
—
—
—
—
—
—
—
—
—
—
55
269
324
48
22
70
Loss before taxation
(3,053)
(35,652)
– Other assurance services (interim review)
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.
Total non-audit fees
70
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 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
Final account provisions
Impairment of receivables
Restructuring, EGM and other costs
Total exceptional costs
Release of deferred consideration
Profit on sale of
Orchard (Holdings) UK Limited
Net exceptional items
Impairment of goodwill and intangible
assets acquired
Amortisation of acquisition intangible assets
Unwinding discount of deferred consideration
Loss before taxation
Taxation
Loss after taxation from
continuing operations
2017
£’000
1,931
—
1,931
14
917
(540)
2,621
3,012
(1,624)
2016
£’000
6,656
2,493
9,149
642
—
2,567
2,533
5,742
(2,672)
(5,402)
—
(4,014)
3,070
—
10,495
8,412
238
8,650
(2,766)
19,204
11,156
42,579
587
43,166
(5,720)
5,884
37,446
Exceptional and Other Items in the year reduced the Group’s profit
before tax by £8.7m (2016: £43.2m) and relate to the following items:
Contract losses on businesses being exited
The Group continues to redefine its service offering and the Board
has taken the decision to reduce its exposure to higher risk and
unprofitable activities, particularly within Property Services, with the
closure and downsizing of non-profitable operations. Following the
announcement in FY16 that we would be exiting our directly delivered
externals business within Property Services, we undertook an operational
improvement programme during the year, focused on managing a
balanced position of risk and return on capital.
As we discussed in October 2017, we conducted a wide-ranging
review of legacy contracts at year end, which resulted in a £1.9m
charge (2016: £6.6m) relating to the finalisation of our exit from the
directly delivered externals business within Property Services. This
process was completed in October 2017 on completion of the final
outstanding contract.
Smart metering mobilisation costs
We incurred a charge of £2.5m in FY16 relating to the costs associated
with training and retaining smart metering engineers, along with
mobilisation complexities to do with planning work, documenting
installations, inventory management and systems development. A sum
of £1.3m has been incurred in FY17 and reported within underlying
profit, in light of the continuing nature of our smart metering activities.
Exceptional Items
Acquisition costs comprise legal, professional and other expenditure
in relation to acquisition activity and amounted to £nil (2016: £0.6m).
Final account provisions of £0.9m (2016: £nil) relate to the operational
improvement programme discussed above and the exit of our Kent office.
Impairment of receivables, representing an income of £0.5m
(2016: cost of £2.6m), reflected the successful outcome of a series
of adjudications associated with the resolution of historic matters on
a specific contract (‘the Contract’) with Hackney Council where a
charge had been taken at 30 September 2016, further details of which
are outlined in Note 7 of our Annual Report and Accounts for the year
ending 30 September 2016.
Restructuring EGM and other costs of £2.6m (2016: £2.5m) reflect
the costs of our move to AIM in May 2017, managing the impact of media
reports in July 2017, investigating potential strategic options for the
Group as part of our operational improvement programme and
restructuring and other costs during the period. We also announced in
September 2017 our intention to exit Lakehouse’s head office in Romford,
which is now too large for our needs and the charge includes the
write-off of leasehold improvements made to the building. At the time
of writing, we had agreed head of terms for the assignment of the
lease to a third party.
Release of deferred consideration of £1.6m (2016: £2.6m) reflects
the settlement of the final deferred consideration due to the vendors
of Aaron Heating Services Limited, H2O Nationwide and a wider
review of remaining outstanding balances.
Profit on the sale of Orchard (Holdings) UK Limited (‘Orchard’)
of £5.4m (2016: £nil) relates to the sale of Orchard to World Fuel
Services Europe Ltd with an effective date of 29 September 2017.
Lakehouse received a net cash consideration on completion of
£12.4m, with a further sum of £1.9m to be held in escrow against
potential claims under the Sale and Purchase Agreement, to be
released in equal instalments on the first and second anniversaries of
Completion. We attributed a fair value of £12.4m to the consideration,
representing a gain on book value of £5.4m.
Impairment of goodwill and intangible assets acquired
Impairment of goodwill and intangible assets acquired was £nil
(2016: £19.2m).
Amortisation of acquisition intangibles
Amortisation of acquisition intangibles was £10.5m for the period
(2016: £11.2m). The £0.7m reduction reflected the fact that we have
taken amortisation charges in prior periods, meaning we are amortising
a reduced base of intangible assets. We expect a steeper reduction
in this charge in future years.
Unwinding discount of deferred consideration
Unwinding discount of deferred consideration of £0.3m (2016: £0.6m)
reflects the present value of deferred sums, discounted at a post-tax rate
of 2.7% due on outstanding payments for acquisitions.
71
SGFLakehouse plc Annual report 2017 —
(86)
(42)
(14)
(1,985)
(1,657)
On 2 October 2017, the Group announced the sale of Orchard, which
had an effective date of 29 September 2017. The fair value of consideration
(net of cash held on Orchard’s balance sheet) amounted to £12.4m,
representing a net gain on sale of £5.4m.
7. Exceptional and Other Items, including
amortisation of acquisition intangibles continued
Accounting treatment
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 (aside from amortisation of acquisition intangibles
and unwinding discount of deferred consideration) 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 in FY16, which have been reflected within underlying
operating profit in FY17, in light of their continuing nature.
8. Investment income and expenditure
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
Investment income
Bank interest receivable
Unwinding of discount on financial assets
Other interest receivable
2017
£’000
2016
£’000
(1,661)
(238)
(1,014)
(587)
—
13
3
16
4
—
42
46
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
2017
Number
1,575
841
2,416
2017
£’000
78,161
8,163
955
2016
Number
1,393
1,003
2,396
2016
£’000
76,976
7,706
1,146
87,279
85,828
72
10. Retirement benefit obligations
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. From 1 February 2014, the Group
contributes to a new workplace pension scheme for all employees in
compliance with the automatic enrolment legislation. The Group paid
£955,000 in the year ended 30 September 2017 (2016: £1,146,000).
At the reporting date, £143,770 of contributions were payable to the
schemes (2016: £165,970).
11. Discontinued operations
Revenue
Expenses
Profit before tax
Taxation
2017
£000
6,052
(3,926)
2,126
(435)
Profit after tax from discontinued operations
1,691
2016
£000
6,641
(4,270)
2,371
(508)
1,863
12. Tax on loss on ordinary activities
Current tax
Current year
Current tax – prior year adjustment
Total current tax
Deferred tax (Note 26)
2017
£’000
2016
£’000
35
83
118
(1,490)
(357)
(173)
(530)
(3,991)
Total tax on loss on ordinary activities
(1,372)
(4,521)
The tax assessed for the year is lower/higher than the standard rate of
corporation tax in the UK. The differences are explained below:
Loss before tax from continuing operations
Effective rate of corporation tax in the UK
Loss before tax at the effective rate of
corporation tax
Effects of:
Expenses not deductible for tax purposes
Income not taxable
Adjustment of deferred tax to closing tax rate
Current tax – prior year adjustment
Deferred tax – prior year adjustment
Deferred tax asset not recognised
2017
£’000
2016
£’000
(3,053)
19.50%
(35,652)
20.00%
(595)
(7,130)
—
(982)
238
83
(32)
(84)
3,009
—
(268)
(173)
(154)
195
Tax credit for the year
(1,372)
(4,521)
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 12. Tax on loss on ordinary activities continued
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:
Deferred tax (Note 26)
Changes in estimated excess tax deductions relating to share-based payments
2017
£’000
—
—
2016
£’000
(608)
(608)
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 balance sheet date.
The closing deferred tax asset at 30 September 2017 has been calculated at 17% reflecting the tax rate at which the deferred tax asset is
expected to be utilised in future periods.
13. Dividends
The final dividend for the year ended 30 September 2016 of 0.5 pence per share, amounting to £0.8m, was paid in the year. The proposed final
dividend for the year ended 30 September 2017 of 0.5 pence per share amounting to £0.8m and representing a total dividend of 0.5 pence for
the full year (2016: 1.5 pence per share) will be paid on 6 April 2018 to the shareholders on the register at the close of business on 2 March 2018.
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 28 March 2018 and has not been included
as a liability in these Financial Statements.
14. Earnings per share
The calculation of the basic and diluted earnings/loss per share is based on the following data:
Weighted average number of ordinary shares for the purposes of basic earnings/loss per share
Diluted
Effect of dilutive potential ordinary shares:
Share options
2017
Number
2016
Number
157,527,103
157,527,103
6,354,933
2,897,178
Weighted average number of ordinary shares for the purposes of diluted earnings/loss per share
163,882,036
160,424,281
Earnings/(loss) for the purpose of basic and diluted earnings per share being net profit attributable
to the owners of the Company from continuing and discontinued operations (£’000)
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Loss for the purpose of basic and diluted earnings per share being net profit attributable
to the owners of the Company from continuing operations (£’000)
Basic loss per share
Diluted loss per share
Earnings for the purpose of underlying earnings per share being underlying net profit attributable
to the owners of the Company from continuing and discontinued operations (£’000)
Underlying basic earnings per share
Underlying diluted earnings per share
The number of shares in issue at 30 September 2017 was 157,527,103.
10
—
—
(1,681)
(1.1p)
(1.1p)
5,894
3.7p
3.6p
(29,268)
(18.6p)
(18.6p)
(31,131)
(19.8p)
(19.8p)
8,178
5.2p
5.0p
The weighted average number of ordinary shares in issue during the year excludes those accounted for in the own shares reserve (Note 30).
73
SGFLakehouse plc Annual report 2017 15. Goodwill
At 1 October 2015
Recognised on acquisition of Aaron Heating Services Limited
Recognised on acquisition of PLS Holdings Limited
Impairment of goodwill of Foster Property Maintenance Limited
Other adjustments to goodwill
At 30 September 2016
Disposal of Orchard (Holdings) UK Limited
Other adjustments to goodwill
At 30 September 2017
£’000
56,267
3,667
3,626
(17,421)
1,199
47,338
(5,607)
438
42,169
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.
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
Everwarm Limited
H2O Nationwide Limited
Providor Limited
Orchard (Holdings) UK Limited
Sure Maintenance Group Limited
Aaron Heating Services Limited
PLS Holdings Limited
Segment
Compliance
Compliance
Energy Services
Compliance
Energy Services
Energy Services
Compliance
Compliance
Compliance
2017
£’000
3,774
3,717
17,476
2,209
3,037
—
4,225
3,667
4,064
2016
£’000
3,774
3,717
17,476
2,209
3,037
5,607
4,225
3,667
3,626
42,169
47,338
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 2017 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.
Future budgeted and forecast profits are estimated by reference to the average operating margins achieved in the period immediately before the
start of the budget period.
The estimated growth rates are based on past experience and knowledge of the individual sector’s markets. The Directors believe that the heating,
fire safety, property maintenance and the renewable energy and insulation markets will continue to present strong growth opportunities for the
CGUs outlined above respectively. Management believes 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
The assumptions used in the impairment reviews are outlined below.
The growth rate applied to the cash flows in years four and five of the impairment review performed at 30 September 2017 was 2% (2016: 2%).
A terminal growth rate of 1% (2016: 1%) was applied. The pre-tax discount rate applied was 10.3% (2016: 11.4%). The Directors consider that
reasonably possible changes in the key assumptions would not cause the carrying amount of any CGU to exceed its recoverable amount.
74
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 16. Other intangible assets
Cost
At 1 October 2015
Recognised upon acquisition
Additions
Disposals
At 30 September 2016
Disposal of Orchard (Holdings) UK Limited
Additions
At 30 September 2017
Amortisation
At 1 October 2015
Amortisation charge
Impairment
At 30 September 2016
Disposal of Orchard (Holdings) UK Limited
Amortisation charge
At 30 September 2017
Carrying value
At 30 September 2017
At 30 September 2016
At 30 September 2015
Acquisition intangibles
Contracted
customer
order
book
£’000
Computer
software
£’000
Customer
relationships
£’000
Non-compete
agreements
£’000
1,322
24,338
—
291
(2)
2,212
—
—
13,772
4,588
—
—
1,611
26,550
18,360
(43)
462
(2,216)
—
—
—
2,508
950
—
—
3,458
(1,788)
—
Total
£’000
41,940
7,750
291
(2)
49,979
(4,047)
462
2,030
24,334
18,360
1,670
46,394
702
352
—
1,054
(33)
436
9,818
6,616
1,783
18,217
(979)
5,358
4,045
3,663
—
7,708
—
4,260
176
877
—
1,053
(790)
877
14,741
11,508
1,783
28,032
(1,802)
10,931
1,457
22,596
11,968
1,140
37,161
573
557
620
1,738
6,392
530
9,233
8,333
10,652
14,520
9,727
2,405
2,332
21,947
27,199
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 ranges from one to five years.
Customer relationships
The value placed on the customer relationships is 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 is based upon the non-compete clauses and knowledge and know-how of the former owners
of the acquired businesses. The value of non-compete agreements are amortised over five years.
The annual WACC discount rate employed in the calculation of the acquisition intangibles is 13.00% (2016: 13.00%).
75
SGFLakehouse plc Annual report 2017 17. Property, plant and equipment
Cost
At 1 October 2015
Acquisition in the year
Additions
Disposals
At 30 September 2016
Disposal of Orchard (Holdings) UK Limited
Additions
Disposals
At 30 September 2017
Depreciation
At 1 October 2015
Charge for the year
Disposals
At 30 September 2016
Disposal of Orchard (Holdings) UK Limited
Charge for the year
Impairment in the year
Disposals
At 30 September 2017
Net book value
At 30 September 2017
At 30 September 2016
At 30 September 2015
Leasehold
improvements
£’000
Plant and
equipment
£’000
Fixtures and
fittings
£’000
Motor
vehicles
£’000
Total
£’000
1,076
125
211
—
1,412
(49)
94
(42)
1,415
219
241
—
460
(2)
213
394
(39)
1,026
389
952
857
468
254
128
(1)
849
—
112
(26)
935
189
141
(1)
329
—
151
—
(11)
469
466
520
279
1,512
1,815
4,871
138
364
(32)
18
116
(442)
535
819
(475)
1,982
1,507
5,750
(178)
483
(69)
—
220
(407)
(227)
909
(544)
2,218
1,320
5,888
730
563
(27)
1,266
(96)
490
—
(65)
1,595
623
716
782
607
648
(386)
869
—
407
—
(383)
893
427
638
1,208
1,745
1,593
(414)
2,924
(98)
1,261
394
(498)
3,983
1,905
2,826
3,126
Included within the net book value of property, plant and equipment is £326,000 (2016: £763,000) in respect of assets held under finance
leases. Depreciation for the year on these assets was £222,000 (2016: £371,000).
76
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 18. Group entities
Subsidiaries
The Group’s subsidiary undertakings are:
Aaron Heating Services Limited
Aaron Services Limited
Allied Protection Limited
Bury Metering Services Limited
Everwarm Limited
F J Jones Holdings Limited
F J Jones Heating Engineers Limited
Foster Property Maintenance Limited
H20 Nationwide Limited
K & T Heating Services Limited
Lakehouse Compliance Services Limited2
Lakehouse Construction Services Limited
Lakehouse Contracts Limited2
Lakehouse Design and Build Limited
Lakehouse Energy Services Limited2
Lakehouse Holdings Limited1
Lakehouse Property Investments Limited2
PLS GRP Limited
PLS Holdings Limited
PLS Industries Limited
Precision Lift Services Limited
Providor Limited
Smart Metering 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
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
Sure Maintenance Group Limited
England
Ordinary
1. Directly held investment.
2. Investment held by Lakehouse Holdings Limited.
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Principal activity
Intermediate holding company
Maintenance and installation of
domestic gas heating systems
Fire alarm engineers
Non-trading
Energy and insulation services
Non-trading
Non-trading
Property maintenance
Water hygiene
Plumbing and heating engineers
Intermediate holding company
Non-trading
Construction and property services
Non-trading
Intermediate holding company
Intermediate holding company
Non-trading
Intermediate holding company
Intermediate holding company
Non-trading
Lift installation, modernisation and
maintenance services
Smart Metering
Non-trading
Non-trading
Maintenance and installation of
domestic gas heating systems
Intermediate holding company
The registered office of all entities above is 1 King George Close, Romford, Essex RM7 7LS, except for Everwarm Limited whose registered
office is 3-5 Melville Street, Edinburgh EH3 7PE.
Joint ventures
The Group’s joint venture is:
Warmworks Scotland LLP
Scotland
Ordinary
33.33
Energy and insulation services
Country of
incorporation
Class of
capital
%
Principal activity
Details of Warmworks
Carrying value of investment in joint venture
2017
£’000
1,196
2016
£’000
537
Warmworks, a joint venture with Changeworks and the Energy Saving Trust, commenced trading in September 2015. The Group’s share
of income for 2017 was £786,000 (2016: £537,000).
The registered office of Warmworks Scotland LLP is 1 Carmichael Place, Leith, Edinburgh, Midlothian EH6 5PH.
77
SGFLakehouse plc Annual report 2017 19. Inventories
Raw materials and consumables
Other work in progress (which includes
development properties)
2017
£’000
3,832
658
4,490
2016
£’000
3,462
1,725
5,187
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
2017
£’000
2016
£’000
20,097
1,581
163
86
833
19,849
2,280
1,455
336
1,144
There are no inventories at 30 September 2017 or 30 September 2016
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.
20. Amounts due from and to customers under
construction contracts
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
2017
£’000
2016
£’000
218,556
(214,073)
218,476
(216,005)
4,483
2,471
6,269
3,161
(1,786)
(690)
4,483
2,471
Details of retentions held by customers for performance under construction
contracts are disclosed in Note 21. As at 30 September 2017 there
were no advances received from customers for work performed
under construction contracts (2016: £nil).
21. Trade and other receivables
Gross trade receivables
22,760
25,064
Provision for bad debt brought forward
Debtor provision recognised upon acquisition
Disposal of Orchard (Holdings) UK Limited
Amounts written off receivables ledger
Debtor provision (charged)/credited to profit
or loss in the year
Provision for bad debt carried forward
(805)
—
11
329
(12)
(477)
(977)
(28)
—
18
182
(805)
Net trade receivables
22,283
24,259
The entire provision for bad debts of £477,000 (2016: £805,000)
relates to trade receivables past due over 90 days.
During the year, it was determined that the sum of £150,000 due from
the former owners of Everwarm (extant at completion of the acquisition)
should be taken as a price adjustment, given under the purchase working
capital mechanism, any increased cash received into the business
would have been due to the vendors, making this a nil sum gain. The
loan at 30 September 2017 therefore stood at £nil (2016: £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 (2016: zero).
2017
£’000
2016
£’000
22. Trade and other payables
Current
Trade receivables
Construction contract retentions receivable
Social security and other taxes
Other receivables
Prepayments
Accrued income
Non-current
Construction contract retentions receivable
Related party loans receivable
Other receivables
22,283
3,313
199
5,819
2,106
25,409
24,259
3,139
665
6,000
2,283
29,287
59,129
65,633
453
—
3
456
338
150
871
1,359
Current
Trade payables
Sub-contract retentions
Accruals
Deferred income
Social security and other taxes
Other payables
Non-current
Sub-contract retentions
Accruals
2017
£’000
2016
£’000
31,849
5,454
24,989
894
5,529
463
23,810
4,343
28,504
2,600
6,092
452
69,178
65,801
353
620
973
421
5,815
6,236
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 55 days
(2016: 34 days).
78
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 22. Trade and other payables continued
Included in accruals is deferred consideration arising from business combinations analysed as follows:
Current
Non-current
2017
£’000
1,318
620
1,938
2016
£’000
757
5,155
5,912
The fair value of the consideration has been assessed in accordance with the Sale & Purchase Agreements. The non-current element of
the expected settlement has been discounted using a post-tax discount rate of 2.68% (2016: 2.68%) that reflects the time value of money.
£1,443,000 of the deferred consideration is contingent using a post-tax discount rate of 8.5%.
23. 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
2017
£’000
2016
£’000
—
27,077
27,077
—
27,077
—
27,077
71
20,586
20,657
71
—
20,586
20,657
Following the sale of Orchard, we requested that RBS reduce our RCF from £35m to £25m, with an effective date of 2 October 2017. We also
agreed an extension with RBS of the facility from December 2018 to February 2019.
24. Net debt
Cash and cash equivalents
Bank loans and credit facilities (non-current)
Unamortised finance costs (included in other receivables)
Finance lease obligations
25. Provisions
At 1 October 2015
Identified on acquisition
Additional provision
Utilised in the year
At 30 September 2016
Disposal of Orchard (Holdings) UK Limited
Additional provision
Utilised in the year
At 30 September 2017
Current provisions
Non-current provisions
2017
£’000
26,129
(27,077)
—
(326)
2016
£’000
(71)
(20,586)
414
(386)
(1,274)
(20,629)
Property
development
£’000
Legal and
other
£’000
1,100
—
—
(1,100)
—
—
—
—
—
—
—
5,349
762
885
(2,118)
4,878
(130)
1,497
(2,215)
4,030
893
3,137
Total
£’000
6,449
762
885
(3,218)
4,878
(130)
1,497
(2,215)
4,030
893
3,137
79
SGFLakehouse plc Annual report 2017 25. Provisions continued
Legal and other
Legal and other costs relate to property dilapidation obligations, potential contract settlement costs and other potential legal and regulatory
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.
Accelerated
capital
allowances
£’000
Short term
timing
differences
£’000
Share-based
payments
£’000
Acquisition
intangibles
£’000
Unutilised
losses
£’000
(5,315)
—
(1,458)
3,137
—
(3,636)
380
1,784
(1,472)
—
3,065
—
—
140
(608)
2,597
—
(38)
2,559
2,559
Total
£’000
(1,979)
283
(1,458)
3,991
(608)
229
366
1,490
2,085
3,557
(1,472)
—
(1,472)
(1,472)
2,559
2,085
—
(3,636)
(3,636)
2,597
—
2,597
3,865
(3,636)
229
Future
minimum lease
payments
£’000
Present value
of minimum
lease
payments
£’000
Interest
£’000
884
95
(510)
469
263
(327)
405
(141)
(11)
69
(83)
(51)
55
(79)
743
84
(441)
386
212
(272)
326
26. Deferred taxation
(Provision)/asset brought forward as at 1 October 2015
Acquired in the year
On intangible assets identified on acquisition
Credit/(charge) to P&L
Charge to equity
Asset/(provision) brought forward as at 30 September 2016
Disposals in the year
Credit/(charge) to P&L
Asset/(provision) carried forward as at 30 September 2017
Deferred tax asset element
At 30 September 2017
Deferred tax liability element
Net deferred tax asset/(liability)
At 30 September 2016
Deferred tax asset element
Deferred tax liability element
Net deferred tax asset/(liability)
(7)
78
—
195
—
266
(10)
53
309
309
—
309
266
—
266
239
205
—
522
—
966
(4)
(309)
653
653
—
653
966
—
966
39
—
—
(3)
—
36
—
—
36
36
—
36
36
—
36
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
27. Finance lease obligations
These comprise legacy lease arrangements inherited with previous acquisitions.
At 1 October 2015
New obligations
Repayments
At 30 September 2016
New obligations
Repayments
At 30 September 2017
80
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 27. Finance lease obligations continued
Future lease payments are due as follows:
Less than one year
Between two and five years
At 30 September 2017
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
28. Called up share capital
Allotted, called up and fully paid:
2017
Number
2016
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 29.
Future
minimum lease
payments
£’000
Present value
of minimum
lease
payments
£’000
Interest
£’000
226
179
405
271
198
469
471
413
884
(44)
(35)
(79)
(49)
(34)
(83)
(68)
(73)
(141)
182
144
326
222
164
386
403
340
743
2017
£
2016
£
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.
29. 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).
The net charge recognised for share-based payments in the year was £nil (2016: £67,000).
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 were 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.
81
SGFLakehouse plc Annual report 2017 29. Share-based payments continued
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 and no unexercised
options are outstanding at the year end.
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. Three employees are currently participating in the SIAP.
SIP
SAYE
CSOP
PSP
SIAP
Number
At 1 October 2015
Granted
Lapsed
At 30 September 2016
Granted
Lapsed
At 30 September 2017
Weighted average exercise price (p)
At 1 October 2016
Granted
Lapsed
Outstanding at 30 September 2017
Exercisable at 30 September 2017
Outstanding at 30 September 2016
Exercisable at 30 September 2016
Fair value of options granted
Weighted fair value of one outstanding option
Assumptions used in estimating the blended fair value
Share price at date of grant
Exercise price
Expected dividend yield
Risk-free rate
Expected volatility
Expected life
236,213 1,853,785
—
(39,903) (1,237,377)
536,653 1,687,521
—
— 794,088 1,691,607 4,615,385
—
— (1,647,217)
196,310
616,408 1,330,741
— 2,622,809 2,424,234
(817,441) (1,577,285)
1,731,911 4,615,385
—
645,000
—
(393,498)
(31,144)
165,166 2,421,776
2,177,690 1,983,413 4,615,385
0.00p
—
0.00p
0.00p
—
0.00p
—
81.74p
33.27p
60.77p
36.33p
—
81.74p
—
91.68p
40.75p
91.68p
40.75p
—
91.68p
—
0.00p
0.00p
0.00p
0.00p
—
0.00p
—
0.00p
—
—
0.00p
—
0.00p
—
87.61p
15.25p
12.13p
54.15p
0.02p
49.50p
99.75p
36.33p
—
7.07%
4.60%
0.17%
1.21%
40.37%
51.93%
3 years 3.25 years
40.00p
40.75p
7.37%
0.07%
54.50%
3 years
23.50p
75.19p
0.00p
0.00p
6.66%
5.76%
0.13%
0.55%
44.02%
42.17%
3 years 2.36 years
In the year ended 30 September 2017, options were granted in March 2017 in respect of the PSP and CSOP in May 2017 in respect of the SAYE.
The weighted average remaining contractual life of outstanding options at 30 September 2017 was 2.7 years. The aggregate of the estimated
fair values of options granted above was £1.8m.
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.
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 (%)
82
2017
2016
40–46.4
0.00–40.75
54.5
3.00–3.25
0.07–0.12
7.37
89.75
0.00–90.67
23.1
3.00
1.6
5.4
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 29. Share-based payments continued
Special Incentive Award Plan (SIAP) continued
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 (%)
2017
2016
40 23.5–89.75
0.00–40.75 0.00–90.67
54.5–83.0
23.1–42.2
3.00 2.36–3.00
0.07
0.1–1.6
7.37
5.4–6.7
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.
30. Reserves
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.
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 2017
represents the cost of £325,842 (2016: £325,842) shares in
Lakehouse plc, with a weighted average of 165,166 (2016: 196,310)
shares during the year.
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.
Merger accounting principles for this combination have given rise to
a merger reserve of £20,067,000.
31. Guarantees and contingent liabilities
Guarantees
The Company and certain subsidiaries have, in the normal course
of business, given guarantees and performance bonds relating to
the Group’s contracts totalling £10,889,790 (2016: £9,561,513).
A subsidiary of the Group has provided a guarantee of £750,000
(2016: £750,000) to the Warmworks joint venture.
Contingent liabilities
The Group continues to manage a number of potential risks and
uncertainties, including claims and disputes, which are common
to other similar businesses and 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 outturn for the Group, the key judgements
and estimates will typically include:
• The scope of the Group’s assessed responsibility
• An assessment of the potential likelihood of economic outflow
• An estimation of economic outflow (including potential likelihood)
• A commercial assessment of potential further liabilities
Where a provision or accrual is deemed to be required, it has been
included within the consolidated statement of financial position.
For contingent liabilities where an economic outflow is possible,
it is often not practicable to estimate the financial effect due to the
range of estimation uncertainty. For contingent liabilities where
the possibility of economic outflow is remote, disclosure of the
estimated financial effect is not required.
Where specific matters are considered worthy of note, commentary
has been included within the Strategic Report on pages 14 to 29.
32. 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 Pounds 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.
83
SGFLakehouse plc Annual report 2017 32. Financial instruments continued
Categories of financial instruments
Financial assets
Current financial assets
Trade receivables, loans and other receivables
Cash and cash equivalents
Corporation tax receivable
Financial liabilities
Current financial liabilities
Trade and other payables
Borrowings
Finance lease obligations
Loans and receivables
2017
£’000
2016
£’000
57,023
26,129
551
63,350
—
1,451
83,703
64,801
Financial liabilities measured
at amortised cost
2017
£’000
2016
£’000
68,284
—
182
63,201
71
222
Total current financial liabilities
68,466
63,494
Market risk
As the Group only operates in the UK and only transacts in Pounds
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 23.
(a) Interest rate of borrowings
The interest rate exposure of the Group’s borrowings is shown below:
Non-current financial liabilities
Trade and other payables
Borrowings
Finance lease obligations
973
27,077
144
6,236
20,586
164
Floating rate Pounds Sterling borrowings
with a capped interest rate
2017
£’000
2016
£’000
27,077
20,657
Total non-current financial liabilities
28,194
26,986
96,660
90,480
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 2017, the Group had the following interest rate caps
in place:
• A cap of 2.5% on up to £12.5m of debt (2016: £10.0m), rising by
£0.8m per quarter up to £12.5m on 30 June 2017, then to £15m
on 29 December 2017 and expiring on 9 December 2018
• A cap of 2.00% on up to £2.5m of debt (2016: £5.0m), 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 £27.3m 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 £136,500
(2016: £123,000). If the floating interest rate had increased to the
capped rate, interest payable on the weighted average of £27.3m
of debt would have increased by £568,000 (2016: £431,000).
84
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 33. 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
2017
2016
Land and
buildings
£’000
899
1,862
374
3,135
Other
items
£’000
3,220
3,801
—
7,021
Land and
buildings
£’000
1,000
2,266
333
3,599
Other
items
£’000
1,916
1,678
—
3,594
At 30 September 2017 the Company has no operating lease commitments (2016: £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.
34. Cash generated from/(used in) operations
Operating loss
Adjustments for:
Depreciation
Amortisation of intangible assets
Impairment of goodwill and intangible assets acquired
Impairment of tangible fixed assets
Profit on disposal of property, plant and equipment
Profit on disposal of subsidiary
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
Provisions
Net change in working capital from discontinued operations
Cash generated from/(used in) operations
Underlying operating cash conversion calculation
Cash generated from/(used in) operations
Cash impact of Exceptional Other Items in the period
Cash impact of net change in working capital from discontinued operations
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 generated from/(used in) operations
Statutory operating profit before Exceptional Items and amortisation of acquisition intangibles
Statutory cash conversion %
2017
£’000
2016
£’000
(1,084)
(34,041)
1,261
10,931
—
394
(107)
(5,402)
697
(3,108)
1,096
6,533
458
(1,136)
2,840
1,621
11,479
19,204
—
(95)
—
478
(1,108)
116
16,706
(17,401)
(2,334)
2,361
13,373
(3,014)
13,373
1,882
(2,840)
(3,014)
16,226
(2,361)
12,415
10,851
7,328
169%
8,538
127%
13,373
5,397
(3,014)
(611)
248%
493%
85
SGFLakehouse plc Annual report 2017 35. Summary of consideration paid and payable in respect of acquisitions
At 1 October 2016
Revaluation of deferred consideration
Unwinding of discount
Paid in year
At 30 September 2017
Allied
Protection
Limited
£’000
H2O
Nationwide
Limited
£’000
Orchard
(Holdings)
UK Limited
£’000
290
—
—
(290)
—
1,332
70
55
(468)
989
2,133
(329)
26
(1,830)
—
Aaron
Heating
Services
Limited
£’000
1,016
(770)
83
—
329
PLS
Holdings
Limited
£’000
1,141
(595)
74
—
Total
£’000
5,912
(1,624)
238
(2,588)
620
1,938
The fair value of the consideration has been assessed in accordance with the sale and purchase agreements. 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 £1.2m and £1.9m 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
The Company’s subsidiary, Everwarm Limited, leases premises in Bathgate, West Lothian, from Xafinity Pension Trustees Limited (as corporate
trustee of the Everwarm Group SIPP). Mr M 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. £226,184 of rents were paid by the
Group in 2017 (2016: £156,956). The lease terminates in seven years.
The Company’s subsidiary, Everwarm Limited, provides services to Warmworks, a joint venture with Everwarm. £8,424,925 of services
were provided in 2017 (2016: £3,883,331). £525,239 was charged to Everwarm Limited from Warmworks for services provided in 2017
(2016: £246,770).
As at 30 September 2017 Warmworks had a loan owed to Everwarm Limited amounting to £nil (2016: £250,000). As at 30 September 2017
Everwarm Limited had a receivable owing from Warmworks amounting to £701,823 (2016: £593,908).
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 up
to £150,000 per annum (plus VAT). The total value of services provided to the Group in the year was £150,000 (2016: £25,000).
The Company’s subsidiary, Sure Maintenance Limited, provides services to Mears plc, an entity of which Bob Holt is the Chairman. £41,580
(plus VAT) of services were provided in 2017 (2016: £nil). As at 30 September 2017 Sure Maintenance Limited had a receivable owing from
Mears plc amounting to £6,228 (2016: £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
2017
Number
9
2017
£’000
1,511
128
1,639
2016
Number
9
2016
£’000
2,102
217
2,319
37. Events after the reporting date
Following the sale of Orchard, we requested that RBS reduce our RCF from £35m to £25m, with an effective date of 2 October 2017. We also
agreed an extension with RBS of the facility from December 2018 to February 2019.
86
Lakehouse plc Annual Report 2017Notes to the consolidatedFinancial Statements continuedFor the year ended 30 September 2017 Company balance sheet
At 30 September 2017
Fixed assets
Interests in subsidiaries
Current assets
Debtors – due within one year
Debtors – due after more than one year
Income tax receivable
Cash at bank and in hand
Creditors: Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Amounts owed to group companies
Loans and borrowings
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
2017
£’000
2016
£’000
41
42
42
43
43
43
44
45
46
47
12,392
12,392
3,992
42,669
508
14,968
491
47,477
922
—
62,137
(8,583)
48,890
(3,011)
53,554
45,879
65,946
58,271
—
(11,500)
(1,462)
(2,030)
—
(946)
52,984
55,295
15,753
25,314
(290)
616
11,591
15,753
25,314
(290)
616
13,902
52,984
55,295
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 loss for the year was £1,523,000
(2016: profit of £14,090,000).
The Financial Statements of Lakehouse plc (registered number 09411297) were approved by the Board of Directors and authorised for issue
on 22 January 2018. 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.
87
SGFLakehouse plc Annual report 2017 Company statement of changes in equity
For the year ended 30 September 2017
At 1 October 2015
Profit for the period
Dividends paid (Note 13)
Share-based payment charge
At 30 September 2016
Loss for the period
Dividends paid (Note 13)
At 30 September 2017
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
—
—
67
616
—
—
616
Own
shares
£’000
Profit and
loss account
Total equity
£’000
£’000
(290)
—
—
—
(290)
—
—
(290)
4,447
14,090
(4,568)
(67)
13,902
(1,523)
(788)
45,773
14,090
(4,568)
—
55,295
(1,523)
(788)
11,591
52,984
88
Lakehouse plc Annual Report 2017 Notes to the company
Financial Statements
For the year ended 30 September 2017
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 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.
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.
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 15 for further information.
40. Staff numbers and costs
The average number of persons employed by the Company (including
Directors) during the period, analysed by category, was as follows:
Office and administration
2017
Number
35
2016
Number
14
Company only
The following Notes 38 to 47 relate to the Company only position
for the year ended 30 September 2017.
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.
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 remeasured
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 Company 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.
89
SGFLakehouse plc Annual report 2017 Notes to the company
Financial Statements continued
For the year ended 30 September 2017
40. Staff numbers and costs continued
43. Creditors
The aggregate payroll costs of these persons
were as follows:
Wages and salaries
Social security costs
Other pension costs
41. Investment in subsidiaries
Investment in subsidiaries
Cost
At 1 October 2016 and 30 September 2017
Net book value
At 1 October 2016 and 30 September 2017
Further information is provided in Note 18.
42. Debtors
Amounts falling due within one year
Amounts owed by Group undertakings
Prepayments
Deferred tax asset
Other debtors
2017
£’000
2016
£’000
2,975
355
126
3,456
1,980
200
139
2,319
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
£’000
12,392
12,392
Creditors: Amounts falling due
after more than one year
Amounts owed to Group undertakings
Loans and borrowings
44. Provisions for liabilities
2017
£’000
2016
£’000
3,584
90
299
19
3,992
412
33
—
46
491
At 30 September 2016
Additional provision
At 30 September 2017
Further information is provided in Note 25.
45. Share capital
Allotted, called up and fully paid:
2017
£’000
2016
£’000
—
402
4,147
3,917
106
11
5
232
788
1,888
82
16
8,583
3,011
—
2,030
11,500
—
Legal and
other
£’000
946
516
1,462
Ordinary shares of £0.10 each
157,527,103
15,752,710
Number
£
The deferred tax asset of £299,000 (2016: £nil) relates to short term
timing differences.
Amounts falling due after
more than one year
Amounts owed by Group undertakings
Other debtors
2017
£’000
2016
£’000
42,669
—
47,474
3
42,669
47,477
46. 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.
47. Share-based payments
During the period ended 30 September 2017 the Company had five
share-based payment arrangements, which are described in Note 29.
There was no share-based payment charge in the year (2016: £67,000).
90
Lakehouse plc Annual Report 2017 Corporate directory
Company registration number
9411297
Directors
Bob Holt OBE (Chairman)
Michael McMahon (Chief Operating Officer)
Jeremy Simpson (Chief Financial Officer)
Robert Legget (Senior Independent Director)
Andrew Harrison (Non-Executive Director)
Derek Zissman (Non-Executive Director)
Company Secretary
John Charlton
Registered office
1 King George Close
Romford
Essex
RM7 7LS
Independent auditors
RSM UK Audit LLP
25 Farringdon Street
London
EC4A 4AB
Principal bankers
Royal Bank of Scotland
280 Bishopsgate
London
EC2M 4RB
Legal advisers to the Company
Eversheds Sutherland
1 Wood Street
London
EC2V 7WS
Financial adviser and stockbroker
Stockdale Securities Limited
100 Wood Street
London
EC2V 7AN
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Corporate calendar
Annual General Meeting
28 March 2018
Announcement of Interim Results
June 2018
Announcement of Final Results
January 2019
91
SGFLakehouse plc Annual report 2017 Notes
92
Lakehouse plc Annual Report 2017 Printed by Park Communications on FSC® certified paper.
Park is an EMAS certified company and its Environmental Management System is certified to ISO 14001.
100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use
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2017
Lakehouse plc
Annual Report
Lakehouse plc
1 King George Close
Romford
Essex
RM7 7LS
Tel: 01708 758 800
www.lakehouse.co.uk
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