HSS Hire Group Annual Report 2016
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HSS Hire Group plc Moving Annual Report 2016 forward for our customers HSS Hire Group plc Annual Report 2016 About HSS The HSS Hire Group is a leader in the UK tool and equipment hire market, with a strong national presence and well-established brand. In addition to the hire of traditional smaller tools and equipment such as drills, cement mixers and breakers, we offer our customers expertise in specialist categories such as power generation and powered access. Together with our valued supply partners, through HSS OneCall, we can provide a one-stop-shop for all of our customers’ needs regardless of whether we own the tools and equipment being hired. In addition to our financial performance, this Report provides you with an overview of the changes to our operating model implemented during the year to drive increased efficiency and effectiveness of our operations. This investment has strengthened our ability to deliver the kit our customers need, anytime and anywhere in the UK and reflects our unrelenting focus on moving forward for our customers. Key performance highlights Revenue Adjusted EBITDA Adjusted EBITA Operating (loss)/profit £342.4m £68.6m £20.5m (£2.7m) +9.6% (3.4%) +1.0% £6.8m Reported EPS Adjusted EPS (diluted) Core utilisation (LTM) Specialist utilisation (LTM) (basic and diluted) 2.94p 50% 75% (11.18p) (0.26p) +2pp (1pp) (1.32p) Find out more in our Financial Review 26 This Report contains certain forward-looking statements with respect to the operations, strategy, performance, financial condition, and growth opportunities of the Group. By their nature, these statements involve uncertainty and are based on assumptions and involve risks, uncertainties and other factors that could cause actual results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this Report and, other than in accordance with its legal and regulatory obligations, HSS undertakes no obligation to update these forward-looking statements. Nothing in this Report should be construed as a profit forecast. HSS Hire Group plc 01 Annual Report 2016 Our PerformanceOur Our Business and Rental Services Contents Strategic Report Our Business and Our Performance 02 Chairman’s Statement Our Responsibilities Our 04 Q&A with John Gill 06 Chief Executive Officer’s Review 10 Our Key Performance Indicators 12 Our Marketplace 14 Our Business Model 16 Our Operational Model 18 Our Business in Action Governance 26 Financial Review Our Responsibilities 30 Principal Risks and Uncertainties 34 Corporate Responsibility Financial Information Our Rental segment comprises Our Services segment directly Directors’ Report rental income earned from HSS complements our Rental offering Governance owned tools and equipment and and comprises income from the directly related revenue e.g. resale, group’s third party supplied rehire 40 Chairman’s Introduction transport and other ancillary business (HSS OneCall), HSS 42 Board of Directors revenues. Through our core HSS Training and TecServ. In addition 44 Corporate Governance brand and specialist brands of to trading directly with customers, 49 Audit Committee Report Other Information ABird, All Seasons Hire, Apex together with our Rental offering, 52 Market Disclosure Committee Report and UK Platforms, we can offer these businesses allow us to 52 Nomination Committee Report customers access to a broad provide a true one-stop-shop tool 54 Directors’ Remuneration Report range of 23 owned equipment and equipment hire and related 62 Other Statutory Disclosures categories which can be delivered Services offering to our customers 65 Directors’ Responsibility Statement or picked up nationwide from our across the UK. national network of Customer Distribution Centres (CDCs) and local branches. Financial Information 68 Independent Auditor’s Report 72 Consolidated Income Statement 73 Consolidated Statement of Comprehensive Income 74 Consolidated Statement of Financial Position 75 Consolidated Statement of Changes in Equity 76 Consolidated Statement of Cash Flows 77 Notes to the Consolidated Financial Statements 112 Company Statement of Financial Position 113 Company Statement of Changes in Equity 114 Company Notes to the Financial Statements Other Information Find out more in our Financial Review 26 117 Shareholder Information 118 Company Information 119 Definitions and Glossary To view our Annual Report online visit hssannualreport2016.com 02 HSS Hire Group plc Annual Report 2016 Chairman’s Statement 2016 was a year of investment in innovation, particularly in the ongoing development of our distribution and engineering model. Our clear objectives are to increase capital and operational efficiency and deliver the benefits of a significantly enhanced customer service proposition for competitive advantage in our Branch Network over the medium term. These underpin the Board’s commitment to creating profitable growth and shareholder value. Alan Peterson Chairman We took the decision to extend Welcome to the HSS Hire Group implementation of our network transformation plc Annual Report and Accounts programme into Q1 17 in order to minimise execution risk. We will now leverage our for 2016. The year was a investment, concentrating on reinvigorating transformational one for HSS, Rental revenues through reconnecting with in which we invested in our customers who were impacted through operating model to incorporate the change. We expect the benefits of the transformation and sales plans to accrue an industrialised engineering in H2 17. function alongside our retail-like The Board remains confident that the logistics capability. This will drive changes undertaken in the year will position a real competitive advantage for the business to drive improved shareholder our Branch Network, providing returns over the medium term. Our focus in 2017 is firmly on cost control, operational a paradigm shift in kit availability and capital efficiency and deriving clear within our markets where we competitive advantage from our enhanced expect to see growth in the customer experience. medium term. In addition, we grew Our customer proposition our Services revenue significantly Our customer proposition is concentrated in 2016, delivering an attractive on ensuring instant, same-day and next-day hire availability of our extensive range of tools return with minimal capital and equipment, through a multichannel offer, investment. However, we were combining the UK’s largest branch network, disappointed with our earnings strategically located Customer Distribution out-turn, which was below our Centres and our e-commerce platform, which enjoys 60% market share of online hire. We initial expectations for the year, complement our core tools and equipment as a consequence of our Rental proposition with a wide range of complex programme of change. specialist equipment from diesel booms to large power generation. We have also strengthened our operational management team in early 2017 as we leverage our investment to drive sales growth in our core Rental business, where the marginal profit on every additional sale is highly attractive. HSS Hire Group plc 03 Annual Report 2016 Our PerformanceOur Our Business and In 2016 we grew our Services revenue Our achievements against these priorities Capital structure significantly. This largely comprises and the five strategic enablers which support On 28 December 2016 we placed our successful rehire operation, which them are outlined in the Chief Executive 15,445,238 new ordinary shares with our provides an attractive return on assets, Officer’s Review on page 6. two largest shareholders at an undiscounted through the provision of equipment such Find out more about Our Business in Action 18 placing price of 83.875p per share. As a as large plant, without the need for capital result the total issued share capital increased investment. It contributes to our ability to Our results by 9.98% to 170,207,142 shares. The placing provide a one-stop-shop for customers Group turnover increased 9.6% to £342.4m, raised c. £13.0m before expenses and was Responsibilities Our from large organisations where we manage principally due to strong growth with new undertaken to strengthen the Group’s balance complex supply chains on their behalf, and existing Key Account customers, and sheet and provide additional flexibility to fund to smaller trades, seeking equipment Services revenue, from which we generated fleet investment. across the spectrum. Adjusted EBITA of £20.5m (FY15: £20.3m) Our people and delivered a Return on Capital Employed Market environment I continue to be extremely impressed with the HSS has seen little or no impact amongst (ROCE) of 9.7% (FY15: 11.2%). Our results motivation, can-do attitude and achievements its larger customers following the decision are discussed in more detail in the Financial of HSS people across our Group, which is to leave the EU, reflected in the strong Review on page 26. reflected in our consistently high customer Governance performance of our Key Account portfolio. Find out more in our Financial Review 26 satisfaction scores. During the year we have Revenue from our mid-sized and smaller made improvements in the diversity of our customers however has been softer than Our Board and management team workforce and established targets for further originally expected, possibly in part due In August 2016 we welcomed Paul Quested progress which are reported on page 37. to the Group as Chief Financial Officer.