Fircroft Engineering Services Holdings Limited
Annual report and financial statements Registered number 08079020 31 August 2019 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Contents
Strategic report D irectors' report 7 Directors' responsibilities statement in respect of the annual report and the financial statements 9 Independent auditor's report to the members of Fircroft Engineering Services Holdings Limited 10 Consolidated profit and loss account 12 Consolidated statement of other comprehensive income 13 Consolidated balance sheet 14 Company balance sheet 15 Consolidated statement of changes in equity 16 Company statement of changes in equity 17 Consolidated cash flow statement 18 Principal accounting policies 19 Notes 28 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019 Company information
Company registration number: 08079020
Registered office: Lingley House 120 Birchwood Boulevard Birchwood Warrington WA3 7QH
Directors: S O'Hare J M Johnson M Cohen J J Johnson K Hughes P A Gore-Randall L D Williams G Triggs A Tomkinson C Menger G Andrews
Secretary: L Mo• -isoo
Banker: HSBC 4 Hardman Square Spinningfields Manchester M3 3EB
Solicitor: Addleshaw Goddard LLP One St Peter's Square Manchester M23DE
Auditor: KPMG LLP One St Peter's Square Manchester M23AE Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 2019 Strategic Report Principal activities
The principal activity ofthe Group is the global supply ofengineering and technical contractors to specialist technical industries. Also, the Group perfonns pennanent placements that attract a one-off fee. The principal activity of the Company is that of a holding company. Financial performance Financial performance for the year is analysed as follows:
2019 2018 Movement %
T urnover (£000) 826,750 804,029 2.8 Gross profit (£000) 52,335 52,234 0.2 Gross profit margin(%) 6.3 6.5 (3.1) EBITDA (£000) (1,45 1) (16,755) 91.3 EBITDA before exceptionals (£000) 8,486 8,062 5.3 Loss before taxation (£000) (25,0 18) (38,138) 34.4 The key performance indicators (KPls) used by the Group are turnover, gross profit margin, and earnings before interest, tax, depreciation and amortisation (EB IIDA).
The increase in turnover a•d gross profit in 2019 was primarily driven by growth within Kazakhstan and Russia. Also, permanent fee income grew through dedicated hubs in America, Europe and Middle East. Gross profit results for the year include an exceptional cost of£1 ,457,000 that has resulted in a decrease in gross margin %. Underlying gross margin has increased in line with revenue growth locations despite client cost pressures and increased volume discounts in Middle East, CIS and Australia. The loss for the year was mainly driven by interest and exceptional costs however the latter reduced considerably when compared to the prior year. The primary elements of exceptional costs included: The Group has incurTed professional fees of £1 .8m (2018: £1. 7m) relating to refinancing, restructuring, merger and acquisition costs in the year primarily associated with advice received in respect of the Group's financing structure ahead of the refinancing which completed on 12 September 2019 (as detailed in note 24). During the year, a review and restmcture of the operations in Kazakhstan was undertaken. Associated costs totalled £2.3m (20/8: £nil) primarily relating to outsourced internal audit costs incurred completing procedures in subsidiaries as pa1t of a wi.der programme of enhancing the Group's compliance activities. Exceptional foreign currency losses of£2.0m (2018: £8.9m) were recognised in relation the Group's cash held in Angolan Kwanza following the Angolan Central Bank depegging the Kwanza from the US dollar. Subsequent to the year end, management identified an ongoing contract which had been entered into prior to acquisition of the Group's subsidiary in Australia, the One Key Group, under which the payroll tax costs in an overseas subsidiary had been incorrectly calculated. TI1ese costs totalled £1.5m including interest costs and related to FY2016-2018. A wider review conducted by management indicated that this was a one-off isolated issue. Costs of£ I .Sm were incurred during the year in relation to severance and relocation costs. A full analysis of exceptional costs is provided in note 3 of the accounts. Strategy
The Group is a global leader in supplying workforce specialists on a contract and permanent basis. Our strategy is to secure the future generation Fircroft by creating a specialist, cost efficient and profitable business. We will do this by supplying quality workforce solutions and engineering services to our clients. This will be achieved through our client and sector expertise and we will do it with operational efficiency. Contract recruitment will always be the core of our service offerings, supported by pennanent search and engineering services where appropriate. As the Group celebrates 50 years ofconnecting people in 2020 we will focus on growing and increasing our exposure with our core global clients and also with our current key clients. This will include expanding our relationships with our clients throughout the Fircroft global footprint as well as increasing the services that we offer. We will also continue to expand our client base and customer portfolio through market & client intelligence. Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Strategic Report (continued)
Strategy (continued) We are committed to developing the engineering sector as our main target which will cover our core industries of oil & gas, petrochemical and chemical, mining, automotive, lCT, construction and infrastructure and renewables. The Group strategy is to continue to diversify and this will be done by focussing on a good variety of sectors, by increasing the service offerings to our clients and by continuing to work on a g lobal footprint.
We will continue to build on the significant progress we have made in global compliance. This includes the reinforcement of policies, greater awareness training and roll out of our global reporting hotline. Safety will continue to be the core of everything we do, with our staff and workforce continuing the journey towards zero incidents.
Diversification within our staff and workforce remains a main priority and we will continue the positive advancement we have made over the past year into the next years ahead. We will continue to lead on diversification from the top down, including the Fircroft Group Board.
Operational efficiency is key. We will ensure that Fircroft systems and processes are second to none by investment, self-awareness and constant improvement. ln this way we will be able to offer efficient solutions to our clients.
To further support our growth strategy on 12 September 2019, the Group completed its refinance of its UK and Australian banking facilities. Refer to note 24 for further details. Future developments The Group strategy is to continue to diversify into new regions of the world where Engineering projects have a demand and a need for technical qualified workforce. We will do this first by focussing and growing our relationship with our existing clients as a trusted advisor and aJso by growing our blue-chip client portfolio.
The Group plans to continue, consolidate and to improve our efficiency by significant internal projects that will cover a ll Group locations, this will achieve consistency in systems and process whilst the output will be operational efficiency.
Management expect the Group to continue to have positive EBITDA before exceptionals in the foreseeable future, a key perfonnance indicator of the Group.
Financial risk ma nagement objectives a nd policies The Group uses various financial instruments which include cash, invoice discounting facilities, bank loan and overdraft facilities, shareholder loan notes and other instruments that arise directly from its operations, such as debtors and creditors. The main purpose of these financial instruments is to raise finance for the Group's operations.
The main risks arising from the Group's financial instruments are liquidity risk, interest rate risk, currency risk and credit risk. The directors review and agree policies for managing each of these risks and they are summarised below.
Liquidity risk The Group seeks to manage liquidity risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Group is primarily financed by invoice discounting facilities whjch can be drawn upon on demand when needed and shareholder loan notes. The board closely monitors the levels of facilities drawn ensuring compliance with all covenant requirements.
interest rate risk The Group finances its operations through a mixture of retained profits, shareholder loan notes, invoice discounting facilities and bank borrowings. The Group manages its interest rates by focussing its borrowing requirements in the lowest interest rate countries wherever possible. No hedging of interest rate risk is undertaken.
2 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019 Strategic Report (continued) Interest rate risk (continued) The interest rate exposure of the financial assets and liabilities of the Group as at 3 I August 2019 is shown in the table below. The table includes trade debtors and creditors although these do not attract interest.
In terest rate Fixed Floating Zero Total £000 £000 £000 £000 Financial assets Cash 9,502 9,502 Trade debtors 9 1,728 9 1,728
9,502 91,728 101,230
Interest rate Fixed Floating Zero Total £000 £000 £000 £000 Financial liabilities Invoice discounting facilities 36,425 36,425 Bank loans 35 35 Revolving credit facility 23,000 23,000 Shareholder loan notes 142,436 142,436 Trade creditors 6,452 6,452 Other creditors and accruals 56,076 56,076 Directors loan accounts 4,418 4,4 18
146,889 59,425 62,528 268,842
Currency risk The Group has exposure to both translation and transaction foreign exchange risk, since the Group has a number of overseas branch operations and subsidiaries. The Group manages its exposure to transaction risk by invoicing overseas customers in local currency and paying workers in the same currency where possible, and the use of local currency accounts and facilities. Translation risk is managed by financing overseas branches and subsidiaries using local currency borrowings wherever possible. No hedging of currency risk through the use of currency contracts is undertaken.
Credit risk fn order to manage credit risk, the directors set limits for customers based on a combination of payment history and third-party credit references. Credit limits are reviewed on a regular basis in conjunction with debt ageing and collection history. The majority of customers are blue chip oil & gas companies which generally attract a lower credit risk.
Principal risks and uncertainties The Board considers that the principal risks to Fircroft achieving its strategic objectives are as follows:
Customer concentration The customer concentration risk is li mited by our sector and geographic diversity. We continue to successfully increase our presence in construction, infrastructure, petrochemical and chemical therefore we continue to diversify our client base.
Our strategy is to continue to develop a good diverse client base by organic growth, however where we see a specific opportunity for quick and significant impact into a new area we will consider acquisitions. Fircroft Group has a presence in many geographical locations, each of which have multiple sectors. lt is our strategy, once we have entered the geography on the back of one industry sector to extend into our other core industries within that location.
3 Fircrofl Engineering Services l-loldings Limited Annual report and financial statements 3 I August 2019 Strategic Report (continued) Customer concentration (continued) Whilst the oil and gas sector remains the largest, the clients that we work with are naturally also migrating into the renewables and chemical markets. We also operate in six other sectors, including petrochemical & chemical, information & communications technology, power, nuclear & renewables, automotive, infrastructure & construction and mining & mineral industries, all of which continue to show good opportunities for growth in one or more geographies. The business is well placed to continue to support its clients and contractors in the current oil and gas market and our expert staff will ensure our clients and contractors in the other sectors are also serviced in the same way.
Over the past 50 years our heritage has been, and will continue to be, in the supply of technical and engineering type workforce and services. We will continue to focus on clients who require this type of workforce and we will also continue to focus on blue chip domestic and international clients who have values and aspirations that match our own. Other Risks During the prior year a decision was issued by the Federal Court in Australia and this was subsequently followed by the case ofWorkpac v Skene (16 August2018) and the current test case of Workpac v Rossato (20 May 2020). The directors have considered these judgements and also recent media coverage of current and potential class actions against labour hire providers in Australia. Based on external legal advice received, the directors have concluded that no provisions should be recorded in the financial statements. There is however uncertainty in determining whether the principles of the Rossato case apply to the Group's arrangements and as such the directors consider that a contingent liability exists as further disclosed in note 23.
Significant events s ince the end of the financial year There have been a number of significant events that have occurred since the end of the financial year. Note 24 contains further details of these events.
Re-financing On 12 September 2019, Fircroft completed a refinance of its UK and Australian banking facilities. The resultant effect on the pro-forma Balance Sheet position at 31 August 2019 is included in Note 24.
Global economy Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID- 19) that has spread globally. The continued spread has led to disruption and volatility in the global capital markets, which increases economic uncertainty. It is likely that the pandemic will cause an economic slowdown ofpotentially extended duration, and it is possible that it could cause a global recession. Further details on the impact on the Group is mentioned below. The principal activity ofthe Group is the global supply ofengineering and technical contractors to specialist technical industries and as a result the Group is affected by the labour market and hiring practices and regulations. The size and availability of human capital in the market can vary with economic conditions in the geographies and sectors where we compete.
The Group operates in the oil and gas sector, among others, which has shown significant price volatility since 2014. However, the sector continued its realignment with a particular focus on costs and break-even positions on global projects. This has led to a continual review by our customers to find efficiencies and savings in their workforce volume, workforce pay rate, workforce expenses and their supplier mark-ups. We have been working with our current and prospective customers around these reviews to promote and find efficiencies, we have considered global solutions as well as regional market solutions. The impact on our business is that we see continued consolidation of supply to assist in delivering savings to customers as well as further decoupling of services from manpower needs which will create cost savings to our core customers. We see that providing flexible workforce solutions will be a key part of assisting our clients in achieving their goals in the current market. The Group has continued to strengthen its position within the non-oil and gas sectors in order to mitigate this risk. Additionally, we see having a global footprint and access to aligned engineering sectors in local markets underpin our ability to ensure we provide the right opportunities to our contractors in local markets as well as provide opportunities to those contractors who are globally mobile.
4 Fircrofl Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Strategic Report (continued)
Coronavirus The March 2020 COVrD-19 pandemic has created unprecedented challenges and uncertainty with the full socio economic impact of the virus likely to be significant but unknown at this time. This event has not impacted on the Group's financial performance for the year ended 31 August 2019, nor on its financial position as at 3 1 August 2019. There have been no material adverse impacts on the group up to the date of approval of the accounts, but given the inherent uncertainties, it is not practical at this time to determine what impact COVlD-19 will have on the Group or provide a quantitative estimate of any future impact. The Group continues to review the situation and its effect on the clients and markets it serves. The health and wellbeing of our employees and client service delivery remain the top priorities with cash flow and liquidity, business continuity and cost control under continuous review. The Group believes its long-term prospects remain positive given the Group's proven growth strategy and industry leading position.
Brexit On 23 June 2016 a referendum was held and the outcome of the vote determined that the United Kingdom would leave the European Union. At the time of the signing of the statutory financial statements the details of how the United Kingdom will leave the European Union, and its effect on the financial markets, are unclear and as such it is not possible to estimate the impact of this event. 1l1e Group continues to monitor the developments and potential impact of Brexit, however, given the markets that the Group operates within and its Global presence we do not expect the impact to have a material risk to the business.
Tax complia nce Fircroft Group is committed to acting professionally, fairly and with integrity m all business dealings and relationships wherever Fircroft and its subsidiaries operate.
At a global level, Fircroft recognises the importance of tax compliance and tax governance and the directors' approach is aligned with our core values. In particular, Integrity and Accountability drive our commitment to complying with tax laws in a responsible manner and having an open and constructive relationship with tax authorities around the world.
Fircroft operates in numerous tax jurisdictions arow1d the world, each having distinct tax regimes and compliance requirements. This, combined with geographical barriers and the varying sophistication of different tax authorities, provides challenges to our teams. The directors have accordingly continued to focus resources into controls and compliance procedures to mitigate this risk as much as is feasibly possible. All individuals with tax compliance responsibilities in our business have suitable professional qualifications and experience and benefit from ongoing appropriate training as required to enable proper performance of their roles. Where it is considered that Fircroft does not have sufficient in-house knowledge or experience to meet its tax compliance requirements, appropriate external support is routinely sought from reputable international tax advisory firms. Furtherrnore, Fircroft has utilised an external specialist tax compliance software tool, OGM, which enables the Group to track global filing and payment deadlines and requirements.
The Group does not tolerate the facilitation of tax evasion by associated persons of Fircroft and has in place effective policies and procedures to counter the facilitation of any tax evading activities.
Competition There are a number of other competitors which provide services that are of a similar nature to those of the Group, therefore there is a risk they could compete in the Group's chosen markets. [n recent years we have seen increasing competition from many directions as companies try to enter the market which continues to maintain pressure on margins. In order to assess this risk, regular reviews of all the Group's markets and competitors are undertaken and these are closely monitored. lo the immediate term we see our customers looking to consolidate suppliers to drive savings and this will also maintain pressure on margins albeit this will make it difficult for new entrants. The ability to have a global footprint and operate compliantly in all of our clients' territories, particularly when on global contracts, is a major hurdle to new entrants as is access to the qua Iity and depth of the contractor pool required to do so. Fircroft is one of the few companies that meet all of these requirements and this is seen as key to maintaining the Group's competitive advantage.
5 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 20 19
Strategic Report (continued)
By order of the Board GAnd,&4L Director
25 August 2020
6 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 20 19 Directors' Report The directors present their report together with the audited financial statements for the year ended 3 I August 2019. Directors The directors who served during the year are set out below. All directors served throughout the period unless otherwise stated:
S O'Hare J M Johnson M Cohen J J Johnson K Hughes PA Gore-Randall S A Hall (resigned on 11 June 2019) L Williams (appointeddirector2I February2019) C Watt ( appointed director 16 September 2019, resigned on 19 June 2020) G Triggs (appointed director 19 September 2019) A Tomkinson (appointed director I October 2019) C Menger (appointed director 13 January 2020) G Andrews (appointed director 12 May 2020)
Business review The Group's loss for the year after taxation amounted to £28.0m (2018: loss of£40.8m). The directors did not declare or pay any dividends (2018: £nil).
Other information An indication of likely future developments in the business and particulars of significant events which have occurred since the end of the financial year have been included in the Strategic report on page I.
Donations Charitable donations amounting to £22,534 (2018: £20,902) were made during the year.
Q ualifying third-party indemnity provision During the year, a qualifying third-party indemnity provision was in force for the directors.
Employee involvement The Group has continued its practice of keeping employees infonned of matters affecting them as employees, as well as the financial and economic factors affecting the perfotmance of the Group. This is done by a combination of the Group's own intranet site, internal newsletters, emails and employee presentations.
Disabled employees Applications for employment by disabled persons are given full and fair consideration for all vacancies in accordance with their particular aptitudes and abilities. Ln the event of employees becoming disabled, every effort is made to retrain them in order that their employment with the Group may continue. lt is the policy of the Group that training, career development and promotion opportunities should be available to all employees.
Disclos ure of information to the auditor The directors who held office at the date of approval of this directors' report confirm that; • so far as each director is aware, there is no relevant audit infonnation of which the Company's auditor is unaware; and • the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that tbe auditor is aware of that information.
7 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Directors' Report (continued)
Auditor Pursuant to Section 487 of the Companjes Act 2006, the auditor will be deemed to be reappointed and K.PMG LLP will therefore continue in office.
By order of the Board
Director 25 August 2020
Lingley House 120 Birchwood Boulevard Birchwood Warrington WA3 7QH
8 Pircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Directors' responsibilities statement in respect of the annual report and the financial statements
The directors are responsible for preparing the Strategic Report, Directors Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the Group and Parent Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS I 02 The Financial Reporting Standard applicable in the UK and Republic ofIr eland.
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 Parent Company and of the Group's profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• assess the Group's and the parent Company's ability to continue as a going concern, disclosing, as applicable, matters related lo going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they detenn ine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them lo safeguard the assets of the Group and 10 prevent and detect fraud and other irregularities.
9 KPMG LLP
One St Peter's Square Manchester M23AE Independent auditor's report to the members of Fircroft Engineering Services Holdings Limited
Opinion
We have audited the financial statements of Fircroft Engineering Services Holdings Limited ("the company") for the year ended 3 .I August 2019 which comprise the Consolidated Profit and Loss Account, Consolidated Statement of Other Comprehensive Income, Consolidated Balance Sheet, Company Balance Sheet, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated Cash Flow Statement and related notes, including the accounting policies. 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 3 I August 2019 and of the Group's loss for the year then ended;
• have been properly prepared in accordance with UK accounting standards, including FRS I 02 The Financial Reporting Standard applicable in the UK and Republic ofIreland; and
• 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 are described below. We have fulfilled our ethical responsibilities under, and are independent of the group in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Material Uncertainty Relating to Going concern We draw attention to the principal accounting policies which indicates that there are a number of uncertainties including the potential impact on banking covenants and liquidity related to the impact of the Covid 19 pandemic and more generally the level of trade in a severe but plausible downside scenario, the renewal of existing debt facilities, and availability of repayable on demand shareholder loans, the timing of payment of certain payroll tax liabilities and UK tax deferrals applied for but not yet approved, and the potential employee benefit liabilities. These events and conditions, along with the other matters explained in the principal accounting policies, constitute a material unce1tainty that may cast significant doubt on the Group's and the parent company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Strategic report and directors' report The directors are responsible for the strategic report and the directors' report. Our opinion on the financial statements does not cover those reports and we do not express an audit opinion thereon. Our responsibility is to read the strategic report and tl1e directors' report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work:
• we have not identified material misstatements in the strategic report and the directors' repo1t;
• in our opinion the infonnation given in those reports for the financial year is consistent with the financial statements; and
• in our opinion those reports have been prepared in accordance with the Companies Act 2006.
10 Independent auditor's report to the members of Fircroft Engineering Services Holdings Limited (continued)
Matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors' remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. Directors' responsibilities As explained more fully in their statement set out on page 9, the directors are responsible for: the preparation of the financial statements and for being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the group and 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 they either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities 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 our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with IS As (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 the financial statements.
A fuller description of our responsibilities 1s provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.
The purpose of our audit work and to whom we owe our responsibilities This report is made solely Lo 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 Lo 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.
Liam Finnigan (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants One St Peters Square Manchester M23AE
Date: 25 August 2020
11 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I Augusl 20 19
Consolidated Profit and Loss Account For the year ended 31 August 20l9
Note 2019 2018 £000 £000
Turnover I 826,750 804,029 Cost of sales (including exceptional costs of £1 ,457,000 3 (774,415) (751,795) (2018: £ni0)
Gross profit 52,335 52,234 Administrative expenses (including exceplional costs of 3 £8,480,000 (20/8:£24,8/6,888)} (63,505) (74,998)
Operating loss (I l,170) (22,764)
Share ofprofi t/(loss) in joint ventures and associates JO 960 (2,40 I) (including exceptional impainnent of £nil (20 18: £3, 129, 000))
Net interest payable and similar charges 4 (14,808) (12,973)
Loss before taxation 2 (25,018) (38,138) Taxation 6 (2,987) (2,704)
Loss for the financial year (28,005) (40,842)
loss allributable to Shareholders of the parent company (27,948) (40,768) Minority interest (57) (74)
Total loss (28,005) (40,842)
All amounts relate to continuing operations.
The accompanying notes fonn part of the financial statements.
12 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Consolidated Statement of Other Comprehensive Income For the year ended 3 1 August 2019
2019 2018 £000 £000
Loss for the financial year (28,005) (40,842)
Foreign exchange differences on translation of foreign operations 1,557 (2,890)
Total comprehensive loss for the year (26,448) (43,732)
Total comprehensive loss a//ributable to Shareholders of the parent company (26,388) (43,611) Minority interest (60) (121)
Total comprehensive loss (26,448) (43,732)
The accompanying notes fonn part of Lhe financial statements.
13 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Consolidated Balance Sheet As at 3 1 August 2019
Note 2019 2018 £000 £000 Fixed assets Intangible assets Goodwill 8 17,793 23,701 Other intangibles 8 5,725 6,830
23,518 30,53 1 Tangible assets 9 1,909 1,771 Investments in associates and joint ventures 10 7,662 6,237
33,089 38,539 Current assets Debtors: amounts falling due within one year II 158,593 163,614 Cash and bank 9,502 14,407
168,095 178,021
Creditors: amounts falling due within one year 12 (299,537) {286,426)
Net current liabilities (131,442) (108,405)
Total assets less current liabilities (98,353) (69,866)
Creditors: amounts falling due after more lhan one year /3 (35) (3 11 ) Provisions for liabilities 14 (746) ( 1,049)
Net liabilities (99,134) (71,226)
Capital and reserves Share capital 16 112 11 8 Share premium 17 365 365 Merger reserve 17 597 597 Other reserve 17 (1,140) ( I , 140) Profit and loss account (99,901) (72,21 0)
Shareholders' deficit (attributable to the parent's shareholders) (99,967) (72,270) Minority interests 833 1,044
Shareholders' deficit (99,134) (71,226)
The accompanying notes fonn part of these financial statements. The financial statements were authorised and approved by the Board of Directors on 25 August 2020 and were signed on its behalf by: GAod,(#L. Director Fircroft Engineering Services Holdings Limited Company reg istered number: 08079020 14 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August2019
Company Balance Sheet As at 3 1 August 2019
2019 2018 £000 £000 Note Fixed assets Investments 10 81,808 81,808
Debtors: amounts falling due within one year 11 2,360 2, 178
Creditors: amounts fa lling due within one yea r 12 (147,125) ( 135,759)
Net current lia bilities (144,765) (133,581)
Total assets less current liabilities (62,957) (5 1,773)
Net lia bilities (62,957) (5 1,773)
Capital and reserves Called up share capital 16 J12 11 8 Share premium 17 365 365 Merger relief reserve 17 597 597 Other reserves 17 (1,140) {I , 140) Profit and loss account (62,891) (51 ,7 13)
Sha reholders' deficit (62,957) (51,773)
The accompanying notes fonn part of these financial statements.
The financial statements were authorised and approved by the Board of Directors on 25 August 2020, and were signed on its behalf by:
Director
Fircroft Engineering Services Holdings Limited Company registered number: 08079020
I S Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 20 19 Consolidated Statement of Changes in Equity As at 31 August 2019
Called up Share Merger Other reserves Profil & loss Total Minority Total equity Share Premium Relief Reserve account shareholders' interests Capital account eq ui ty £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At I September 2017 118 365 597 (1,140) (30,168) (30,228) 1,165 (29,063)
Loss for the financial year (40,768) (40,768) (74) (40,842) Currency translation difference on foreign currency net (2,843) (2,843) (47) (2,890) investments
Total comprehensive loss (43,611) (43,611) (121) (43,732) Other reserves movement Disposal of subsidiary
Equi1y-settled share-based payment charge 1,569 1,569 1,569
At 31 August 2018/ 1 LIS September 2018 365 597 (1,140) (72,210) (72,270) 1,044 (71,226)
Loss for the financial year (27,948) (27,948) (57) (28,005) Currency translation difference on foreign currency net 1,560 1,560 (3) invcslments 1,557
Total comprehensive loss (26,388) (26,388) (60) (26,448)
Other reserves movement: Acquisition of minority interest ( I, 136) ( 1, 136) 380 (756) Equity-senled share-based payment credit {167) (167) (167) Dividend paid (531) (531) Reclassification of Share Capital (6) (6) (6)
At 31 August 2019 112 365 597 (1 ,140) (99,901) (99,967) 833 (99,134)
The accompanying notes form part of the financial statements.
16 Fi rcroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 20 19
Company Statement of Changes in Equity As at 3 1 August 2019
Called up Share Merger Other Profit & Total Share Premium relief reserves loss account s hareholder's capital acco unt reserve equity £'000 £'000 £ '000 £'000 £'000 £'000
At I Septcm bcr 2017 118 365 597 ( I, 140) (41 ,573) (4 1,633)
Loss for the financial year ( 11 ,709) ( 11 ,709)
Total comprehensive loss ( 11,709) ( 11,709) Other reserves movement: Equity-setlled share-based payment 1,569 1,569 charge
At 31 August 2018/ I September 2018 118 365 597 (I, 140) {5 1,7 13) (51,773)
Loss for the financial year ( 11 ,0 1 I) ( 11 ,0 1 I )
Total comprehensive loss {11 ,01 I) ( 11,01 I ) Other reserves movement: Equity-settled share-based payment ( 167) (167) credit Reclassification of Share Capital (6) (6)
At 31 August 2019 11 2 365 597 (1,140) (62,891) (62,957)
The accompanying notes form part of the financial statements.
17 Fircrofl Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Consolidated Cash Flow Statement For year ended 31 August 2019 2019 2018
£000 £000
Net cash flows from operating activities Loss for the year (28,005) (40,842) Depreciation, amortisation and impainncnt 8,672 17,084 Unrealised foreign exchange gains/(losses) 873 (21) Utilisation of provision (471) (1,053) Gain on sales of tangible fixed assets 151 7 Deconsolidation loss (see note 3 vii) 2,447 Impainnent of deferred consideration (see note 3 v) 1,474 Net interest payable 14,808 12,972 Share of (protit)/loss of equity-accounted investments (960) 2,402 Tax expense 2,987 2,704 Equity scnled share-based payment expense (167) 1,353
(2,112) ( 1,473)
Decrease/(increase) in trade and other debtors 5,574 (7,803) Increase in trade and other creditors 1,074 2,293
6,648 (5,510)
Interest paid (3,539) (2,709) Corporation tax paid ( 1,919) (8,543)
Net cash flows from operating activities (922) ( 18,235) Cash nows from investing activities Proceeds from sale of tangible fixed assets 109 (7) Payment of deferred consideration ( 1,533) Dividends received 104 Cash loss on deconsolidatioa (354) Acquisition of tangible fixed assets (730) ( I, 108) Acquisition of subsidiary (756) Acquisition of intangible fixed assets (1,100) (2,150)
Net cash nows from investing activities (2,477) (5,048)
Cash nows from fin ancing activities Movement on invoice discounting facility (4,023) (4,273) Proceeds from increase in revolving credit faci lity 3,000 5,000 Repayment of bank loan (193) ( 143) Minority interest dividends paid (530) Receipt of related pany loan 59 4,082
Net cash nows from financing activities (1,687) 4,666
Decrease in cash and cash equivalents in the year (5,086) ( I 8,6 I 7)
Cash and cash equivalents at beginning of year 14,407 35,603 Effect of exchange rate Ouctuations on cash held 18 1 (2,579)
Cash and cash equivalents at end of year. 9,502 14,407
The accompanying notes fonn part of the financial statements.
18 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Principal accounting policies
Acco1111tiltg Policies Fircroft Engineering Services Holdings Limited (the "Company") is a company Limited by shares and incorporated and domiciled in the UK.
These Group and Parent Company financial statements were prepared in accordance with Financial Reporting Standard I 02 The Financial Reporting Standard applicable in the UK and Republic ofIreland ( "FRS I 02") as issued in August 2014. The presentation currency of these financial statements is sterling. All amounts in the financial statements have been rounded to the nearest£1 ,000.
The Parent Company is included in the consolidated financial statements and is considered to be a qualifying entity under FRS I 02 paragraphs 1.8 to 1.12 and has therefore taken advantage of the disclosure exemptions available to it in respect of its separate fmancial statements, which are presented alongside the consolidated financial statements. Exemptions have been taken in relation to financial instruments, presentation of a cash flow statement and remuneration of key management personnel. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.
Judgements made by the directors, in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are set out in note 2 l. Measurement co11ve11tio11
The financial statements are prepared on the historical cost basis except for financial instrwnents which are classified at fair value through the profit or loss. Going co11cem
As at 31 August 2019 the Group has net liabilities of £99.lm, net current liabilities of£ 13 1.4m and recorded a loss in the period of £28.0m. Tbjs is prior to the outcome of the refinancing as detailed below.
As at 31 August 2019, Fircroft supported the financing of its worldwide business through a portfolio of bank debt agreements that predominantly consisted of a UK £80m invoice discounting line, a £25m revolving credit line and Australian invoice discounting lines totalling $60m. All facilities were repayable within one year with the exception of the One Key ResourcingPty Limited facility that expired on 3 1 December 2019. As such, the facilities were classed as current liabilities within the balance sheet at 31 August 20 I 9.
On 12 September 2019, Fircroft completed a refinance of its UK and Australian bankmg facilities and at the date of approval of the financial statements the Group is supported through a UK invoice discounting line of £40m, a£ 13 .8m revolving credit line (both repayable on 31 August 2021) and Australian invoice discounting lines totalling $60rn. A detailed summary of these and other facilities is provided in note 12.
The Australian invoice discounting lines are $35m available to One Key Resourcing Pty Limited and $25m available to Fircroft Australia Pty Limited. These facilities are repayable on demand. The directors, having made enquires of the facility provider, have a reasonable expectation that the facilities will remain available for the foreseeable future. ln addition to Bank finance, the Group is financed by Shareholder loans. As at 31 August 2019, the total principal and unpaid accrued interest of the Equistone A loan notes & Equistone Payment in Kind ('PIT<') loan notes was £6 l .8m and B loan notes £80.6m. These notes together with the associated interest were repayable in the period to 3 I August 2019 and as such were classified as current liabilities within the balance sheet at 31 August 2019.
Simultaneously with the refinance detailed above, the shareholder debt was also restructured. The restructure reduced the total of the Equistone A loan notes & Equistone PIK loan notes to £45.9m and the total ofB loan notes to £nil and extended the repayment date of the Equistone A loan notes and Equistone PlK loan to October 2021.
A detailed summary of shareholders debt is provided in note 12. Note 24 reflects a profonna balance sheet explaining the impact that the refinance described above would have had on the position at 31 August 2019 if it had occurred on that date.
19 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 2019
Principal accounting policies (continued)
Going co11cem (co11ti11ued) rn making their going concern assessment, the directors have considered that the following uncertainties, which are covered in more detail below, exist:
a. Availability of repayable on demand shareholder loans b. General level of trade in a severe but plausible downside scenario and the impact on covenant compliance c. Timing of payment of certain payroll tax liabilities d. UK tax deferrals applied for but not yet approved e. Potential employee benefit liability f. Renewal of existing debt facilities
a) On 4 April 2018, a shareholder loan of £4m was provided to the company repayable on demand. The tenns of and quantum of the principal of the loan were not affected by the refinance detailed above. The shareholder has confirmed that repayment of this loan will not be requested for at least 12 months from the date of signing of these statutory accounts. As with any company placing reliance on related parties for financial support, the directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of these financial statements, they have no reason to believe that it will not do so.
h,c,d,e) The Group has prepared forecasts for the period to 31 August 2021 which consider the Group's existing debt levels, the committed funding and liquidity positions under debt covenants, the timing of certain tax cashtlows and the Group's ability to generate cash from trading activities. The Group's covenants were reset in July 2020 for the remainder of the facility period to renewal in August 2021, in response to COVlD l 9 related trading conditions.
These base forecasts are based on a detailed region by region view of the performance over the financial year ending 3 .I August 2020, taking into account recent regional trading conditions and known contract impacts at the point of preparing the forecast. The forecasts assume no revenue growth for period to 3 1 December 2020 and low levels of growth beyond 3 1 December 2020. The forecasts show that taking account of mitigating actions within the Company's control, and reliance on shareholder loans and debt, the Group will be able to operate within the level of its current bank facilities over the forecast period.
The recent COVID 19 pandemic has caused significant Global economic uncertainty and may result in variability in the Group's actual results versus their forecast. In considering possible downside scenarios, the directors have considered the impact that ongoing COYID 19 restrictions could have on the Group's results, including a reduction in revenue, profitability and cashflow s over the forecast period. rn addition, the directors have accelerated the timing of certain overseas payroll tax payments based on the worst case assessment of when they could fall due, assumed the tax deferrals applied for but not yet approved, in the UK, are not agreed, and considered the existence, measurement and timing of any payments in respect of employee benefit liabilities disclosed in note 23, which represents a worst case position.
In the severe but plausible downside scenario, the forecasts indicate that currently agreed financial covenants would be breached and more liquidity would be required. Whilst the directors would seek to remedy such a situation using available means, they acknowledge that depending upon the extent of the impact, covenant waivers and additional liquidity are not entirely within their control.
t) The forecasts are also dependent on the successful refinance of the UK banking facilities upon their maturity in August 2021, and the continued availability of on demand facilities over the forecast period.
The Group, as a private equity owned group, continues to contemplate options in respect of the future sale of the business. In making their going concern assessment, the directors have considered events, including that a future sale may happen within the period assessed for going concern, or beyond. In the event that any subsequent sale was secured, the structure of and intentions of any new owners would itself be uncertain.
20 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 2019
Principal accounting policies (continued) Going concern (continued)
Summary
The directors' confidence in the Group's forecasts and availability of controllable mitigating actions supports the preparation of tbe financial statements on a going concern basis. However, these circumstances represent a material uncertainty that might cast significant doubt on the Group's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business.
After considering all available information, the directors have concluded that it is appropriate for the Consolidated Financial Statements to be prepared on a going concern basis and therefore tbe Consolidated Financial statements do not include any adjustments that might be required if the Group were unable to continue as a going concern.
Basis ofco 11so/idatio11
The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings made up to 31 August 2019. A subsidiary is an entity that is controlled by the parent. The results of subsidjary undertakings are included in the consolidated profit and loss account from the date that control commences until the date that control ceases. Control is established when the Company has the power to govern the operating and fmancial policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. An associate is an entity in which the Group has significant influence, but not control, over the operating and financial policies of the entity. Significant influence is presumed to exist when the investors hold between 20% and 50% of the equity voting rights. A joint venture is a contractual an-angement undertakmg in which the Group exercises joint control over the operating and financial policies of the entity. Where the joint venture is carried out through an entity, it is treated as a jointly controlled entity.
The Group's share of the profits less losses of associates and of jointly controlled entities is included in the consolidated profit and loss account and its interest in their net assets is recorded on the balance sheet using the equity method.
Wl1ere a Group Company is party to a joint venture which is not an entity, that Company accounts directly for its part of the income and expenditure, assets, liabilities and cash flows which are then reported in the consolidated financial statements on the same basis.
Under Section 408 oftbe Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account.
In the parent financial statements, investments in subsidiaries and jointly controlled entities are carried at cost less impairment. Foreign currency Transactions in foreign currencies are translated into the Group's functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated into the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. Foreign exchange differences arising on translation are recognised in the profit and loss account.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group's presentational currency, Pounds Sterling, at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.
21 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 2019
Principal accounting policies (continued) Classificatio11 offi11ancial i11strume11ts issued by the Group ln accordance with FRS 102.22, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: (a) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and
(b) where the instrument will or may be settled in the entity's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the entity's own equity instruments or is a derivative that will be settled by the entity exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the entity's own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Basicfi11a11cial instruments Trade and other debtors I creditors
Trade and other debtors are recognised initially at transaction price less attributable transaction costs. Trade and other creditors are recognised initially at transaction price plus attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses in the case oftrade debtors. lftbe arrangement constitutes a financing transaction, for example if payment is deferred beyond nom1al business tenns, then it is measured at the present value of future payments discounted at a market rate of instnunent for a similar debt instrument. lnterest-bearing borrowings classified as basic financial instruments Interest-bearing borrowings are recognised initially at the present value of future payments discounted at a market rate of interest. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method, less any impainnent losses. investments in preference and ordina1y shares Investments in equity instruments are measured initially at fair value, which is nonnally the transaction price. Transaction costs are excluded if the investments are subsequently measured at fair value through profit and loss. Subsequent to initial recognition investments that can be measured reliably are measured at fair value with changes recognised in profit or loss. Other investments are measured at cost less impairment in profit or loss. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and fom1 an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement. Other fil/{111cial instruments Other financial instruments not meeting the definition of Basic Financial Instruments are recognised initially at fair value. Subsequent to initial recognition, other financial instruments are measured at fair value with changes recognised in profit or loss except equity instruments which are not publicly traded and whose fair value cannot otherwise be measured reliably. Such investments are subsequently measured at cost less impairment.
22 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Principal accounting policies (continued) Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Where parts ofan item of tangible fixed assets have different useful lives, they are accounted for as separate items of tangible fixed assets.
Depreciation is charged to the profit and loss account on a straight-Hne basis over the estimated useful lives of each part ofan item of tangible fixed assets. Leased assets are depreciated over the shorter of the lease term and their useful lives. The estimated useful lives are as follows:
Leasehold improvements Lease term Motor vehicles 4 years Office equipment 5 years Computer equipment 3 - 5 years Depreciation methods, useful Jives and residual values are reviewed if there is an indication of a significant change since the last annual reporting date in the pattern by which the Company expects to consume an asset's future economic benefits. Business combittatio11s
Business combinations are accounted for using the purchase method as at the acquisition date, whfoh is the date on which control is transferred to the entity. At the acquisition date, the Group recognises goodwill at the acquisition date as: • the fair value of the consideration ( excluding contingent consideration) transferred; plus • estimated amount of contingent consideration (see below); plus • the fair value of the equity instruments issued; plus • directly attributable transaction costs; less • the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities and contingent liabilities assumed.
Consideration which is contingent on future events is recognised based on the estimated amount if the contingent consideration is probable and can be measured reliably. Any subsequent changes to the amount are treated as an adjushnent to the cost of the acquisition. Goodwill
Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and written off on a straight-line basis over IO years. Provision is made for any impairment. Other intangible assets
Other intangible assets that are acquired by the Company are stated at cost and amortised in equal instalments over their estimated useful economic life. Provision is made for any impairment. Intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: License fees 5 years Computer software 3-5 years Customer relationships 5 years Brands IO years Assets in the course of construction are not amortised until the asset is ready for use.
23 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 20 19
Principal accounting policies (continued) Impairment of assets Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss as described below. Non-financial assets An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after initial recognition, the estimated recoverable value of the asset has been reduced. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. The recoverable amount of goodwill is derived from measurement of the present value of the future cash flows of the cash-generating units (CGUs) of which the goodwill is a part. Any impairment loss in respect of a CGU is allocated first to the goodwill attached to that CGU, and then to other assets within that CGU on a pro-rata basis. Where indicators exist for a decrease in impairment loss, the prior impainnent loss is tested to determine reversal. An impairment loss is reversed on an individual impaired asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the carrying value would have been had no impairment been recognised. Where a reversal of impairment occurs in respect of a CGU, the reversal is applied first to the assets (other than goodwill) of the CGU on a pro-rata basis and then to any goodwill allocated to that CGU. Financial assets For financial assets carried at amortised cost, the amount of an impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate. For financial assets carried at cost less impairment, the impairment loss is the difference between the asset's carrying amount and the best estimate of the amount that would be received for the asset if it were to be sold at the reporting date.
Where indicators ex.isl for a decrease in impairment loss, and the decrease can be related objectively to an event occurring after the impainnent was recogn-ised, the prior impairment loss is tested to determine reversal. An impairment loss is reversed on an individual impaired financial asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the carrying value bad no impairment been recognised. Financial liabilities Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial Iiabilities. Dividends and distributions relating to equity instruments are debited directly to reserves.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classified as financial liabilities in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate ofretum on the outstanding liability.
Compound instruments comprise both a liability and an equity component. At date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar debt instrument. The liability component is accounted for as a financial liability. The value of this instrument is measured at each year end with the movement being charged to interest.
The interest expense on the liability component is calculated by reassessing the fair value for the liability component of the instrument at each balance sheet date. The difference between this amount and any repayment is added to the carrying amount of the liability in the balance sheet.
24 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Principal accounting policies (continued)
Provisions
A provision is recognised in the balance sheet when the entity has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at the best estimate of the amount required to settle the obligation at the reporting date.
Given the nature of the industry in which the Group operates, from time to time employee claims may be brought against Group companies. The Group assesses any such claim carefully, and where appropriate based on external legal advice, provides for any probable liability at the earliest practicable date.
Where the Parent Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company treats the guarantee contract as a contingent liability in its individual financial statements until such time as it becomes probable that the Company will be required to make a payment under the guarantee. Tumover
Turnover is measured at the fair value of consideration received and represents the amounts receivable derived from the provision of services to customers in the normal course of business, net of discounts, VAT and other sales-related taxes. Turnover arising from the provision of temporary personnel services is recognised based on hours worked, following receipt of an approved timesheet. Revenue represents the amounts billed for services of temporary personnel, including the direct costs of those personnel where the Group acts as principal. Where the Company acts as an agent, revenue is repo1ted on a net basis. Temporary personnel are not employees of the Group. The direct cost of those personnel is charged to cost of sales in line with the policy for recognition of the associated revenue. Amounts recoverable on contracts represents the invoice value of services provided during the year, supported by an approved timesheet, but not invoiced until after the balance sheet date. Pension costs
The Group operates a number of defined contribution schemes. The pension costs charged against profits represent the amount of the contributions payable to the scheme in respect of the accounting year. Share-based payment transactions
Share-based payment arrangements in which the entity receives goods or services as consideration for its own equity instruments are accounted foras equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the entity. The grant date fair value of share-based payments awards granted to employees is recognised as an exceptional expense, with a coITesponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fair value of the awards is granted at a variable return up to a maximum value of£ 1 per share, taking into account the tenns and conditions upon which the awards were granted and holdings in other share categories. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. When an employee leaves the Group, the Group will cease to recognise any further expense over the vesting period and will recover any previously recognised expense in relation to that employee. When the shares of the employees are redistributed to actively serving employees the expense will be accrued over the revised vesting period. Refer to note 16 for further details.
25 F'ircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 2019
Principal accounting policies (continued) Operati11g leases Payments (excluding costs for services and insurance) made under operating leases are recognised in the profit and loss account on a straight-line basis over the term of tbe lease unless tbe payments to the lessor are structured to increase in line with expected general inflation; in which case the payments related to the structured increases are recognised as incurred. Lease incentives received are recognised in profit and loss over the term of the lease as an integral part of the total lease expense. Interest receivable and Interest payable Interest payable and similar charges include interest payable, finance charges on shares classified as liabilities and finance leases recognised in profit or loss using the effective interest method, unwinding of the discount on provisions, and net foreign exchange losses that are recognised in the profit and loss account (see foreign currency accounting policy). Other interest receivable and similar income include interest receivable on funds invested and net foreign exchange gains. lnterest income and interest payable are recognised in profit or loss as they accrue, using the effective interest method. Dividend income is recognised in the profit and loss account on the date the entity's right to receive payments is established. Foreign currency gains and losses are reported on a net basis. Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be eligible taxable profits from which the future reversal of the underlying timing differences can be deducted.
When the amount that can be deducted for tax for an asset (other than goodwill) that is recognised in a bus.iness combination is less than the value at which it is recognised, a deferred tax liability is recognised for the additional tax that will be paid in respect of that difference. Similarly, a deferred tax asset is recognised for the additional tax that will be avoided because of a difference between the value at which a liability is recognised and the amount that will be assessed for tax. The amount attributed to goodwill is adjusted by the amount of deferred tax recognised.
Deferred tax liabilities are recognised for timing differences arising from investments in subsidiaries and associates, except where the Group is able to control the reversal of the timing difference and it is probable that it will not reverse in the foreseeable future.
Deferred tax is measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date that are expected to apply to the reversal of the timing difference.
Where items recognised in other comprehensive income or equity are chargeable, or deductible, for tax purposes, the resulting current or deferred tax expense or income is presented in the same component of comprehensive income or equity as the transaction or other event that resulted in the tax expense or income.
Current tax assets and liabilities are offset only when there is a legally enforceable right to set off the amounts and the Group intends either to settle on a net basis or to realise the asset and settle the liability sin,ultaneously. Deferred tax assets and liabilities are offset only if: a) the Group has a legally enforceable right to set off current tax assets against current tax liabilities; and b) the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle cun-ent tax liabilities and assets on a net basis, or to realise tl1e assets and settle the liabilities simultaneously, in each future period in wh ich significant amounts of defe1Ted tax liabilities or assets are expected to be settled or recovered. 26 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 2019
Principal accounting policies (continued)
Exceptional items
Income or costs that are both material and non-recurring, whose significance is sufficient to warrant separate disclosure in the consolidated financial statements, are referred to as exceptional items. These are included and separately identified within their relevant profit and loss account category.
Where amounts recur in more than one accounting period but warrant separate presentation due to their size and nature, they are also included as exceptional items.
27 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 2019
Notes (to the financial statements)
Turnover by country
2019 2018 £000 £000
Australia 274,968 284,348 United Kingdom 187,842 203,21 1 Rest of the World 153,961 153,564 Kazakhstan 147,685 110, 144 Rest of Europe 62,294 52,762
826,750 804,029
2 Loss before taxation Loss before taxation is attributable to the principal activities of the Group and is stated after charging/(c rediting):
2019 2018 £000 £000 Auditor's remuneration: - audit services: - audit of these financial statements 150 134 - audit of subsidiary company financial statements 638 806 - Other (principally lax) advisory services 193 315 Depreciation: - owned assets 620 790 Amortisation 7,854 7,620 Operating lease rentals: - land and buildings 2,190 1,732 - other 866 806 Loss on disposal of fixed assets 151 7 Foreign exchange (gain)/loss (601) 1,002
3 Exceptional items Operating loss is are stated after exceptional costs: 2019 2018 £000 £000
Refinancing, restructuring, merger and acquisition costs (i) 1,784 1,704 Compliance and internal audit costs (ii) 2,308 Severance and relocation costs (iii) 1,479 264 Impairment of intangible assets (iv) 198 8,674 Deferred consideration receivable impaim1ent (v) 1,474 Foreign currency losses (vi) 1,982 8,905 Net loss on One Key deconsolidation (vii) 2,447 One Key Payroll Tax (viii) 1,457 Other (ix) 896 r- share (credit)/charge (x) (167) 1,349
9,937 24,8 17
28 Fircrofl Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Notes (continued) 3 Exceptional items (continued) (i) The Group has incurred professional fees of£ 1.8m (2018: £1. 7m) relating to refinancing, restructuring, merger and acquisition costs in the year primarily associated with advice received in respect of the Group's financing structure ahead of the refinancing which completed on 12 September 2019. (ii) During the year, a review and restructure of operations was undertaken. Associated costs totalled £2.3m (20 I 8: £nil) primarily relating to outsourced internal audit costs incurred completing procedures in subsidiaries as part of a wider programme of enhancing the Group's compliance activities. (iii) Severance and relocation costs of£1.5m (2018: £0.3m) were incurred in the year across the Group. These costs were primarily in relation to the Middle East region which has been restructured, cessation of trading in Angola and restructuring of the senior management team in the UK.
(iv) During the year the Group re-evaluated various projects treated as IT related intangible assets. As a result, a number ofsmaller projects were cancelled totalling £0.2m (2018: £8. 7m), as the costs exceeded the economic benefit of the project and were therefore impaired.
(v) During the prior year, an asset of£1.5m was held on the Group's balance sheet in respect of deferred consideration created by the sale in 2016 of 50% shareholding of a subsidiary over which the Group maintained control. During the year, the Group reacquired the SO% shareholding. As part of this transaction, the mechanism ofrepayment of the deferred consideration was removed and therefore the asset was deemed to be irrecoverable and impaired in full. There were no additional amounts expensed in the current year in relation to the impairment.
(vi) Exceptional foreign currency losses of £2.0m (2018: £8.9m) were recognised in relation the Group's cash held in Angolan Kwanza following the Angolan Central Bank depegging the Kwanza from the US dollar.
(vii) During the prior year a subsidiary company in Australia, One Key Workforce Pty Limited (OKW), was placed into administration by its Directors and was subsequently placed into liquidation by the creditors of OKW. The decision to place OKW into administration was made following a decision of the Full Federal Court of Australia on 28 August 2018, which resulted in an employee benefits liability crystallising in OKW (RECS Litigation). As a consequence, OKW was de-consolidated as at 3 1 August 2018. Inclusive of legal and professional fees this resulted in a net charge to the profit and loss account of £nil (2018: £2.4m). Associated liquidation costs incurred in the year ended 31 August 2019 are disclosed separately within 'Other'.
(viii) Subsequent to the year end, management identified an ongoing contract which had been entered into prior to acquisition of the group's subsidiary in Australia, the One Key Group, under which the payroll tax costs had been incorrectly calculated. These costs totalled £J .5m including interest costs and related to FY2016-2018. A wider review conducted by management indicated that this was a one-off isolated issue.
(ix) Other exceptional costs predominantly relate to costs associated with the liquidation of One Key Workforce including associated legal and consultancy fees.
(x) A number of 7,800,000 (2018: 6,950,000) of non-voting F shares are held by senior employees of the company wbich, subject to certain conditions crystallise at a fixed amount in the event of a future sale of the business. The Directors have made judgements on the expected future value of the shares and the likely sale date to determine the cost to be amortised in the year. The Company has recognised an equity-settled share based payment expense / (credit) on a reasonable basis. The total (credit)/ charge for the year relating to equity-settled share-based payments was (£0.2m) (2018: charge of£1. 3m). The cumulative charge included in reserves is£ I .4m (2018: £/.6m).
Item viii is included within cost ofsales in the profit and loss account, all other items are included within administrative expenses.
Included within share of profit/(loss) in joint ventures and associates in the profit and loss account is an amount of £Nil (20 I 8: £3. 1m) relating to a one-off impairment charge in the year on the net assets of an associated company. Further details can be found in note 10. 29 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3_1 August 2019
Notes (continued)
4 Net interest payable and similar charges £000 £000
Interest on shareholder loan notes 10,847 10,045 Interest on directors' loan accounts 336 82 Interest and charges on invoice discounting facili ty 1,712 1,530 Interest and charges on revolving credit facility 1,141 1,044 Other financing charges and interest 772 272
14,808 12,973
S Directors and employees
Staff costs during the period were as follows: 2019 2018 £000 £000
Wages and salaries 26,914 24,712 Social security costs 2,005 2,016 Pension contributions 491 3 17 Share-based payment (credit) / expense (167) 1,349
29,243 28,394
The average number of employees during the year was 931 (2018: 735). All employees were administrative. Wages and salaries excludes severance costs of£ 1,528,088 (2018: £263,964). Refer to note 3.
2019 2018 Remuneration i.n respect of directors was as follows: £000 £000
Wages and salaries 766 730 Pension contributions 12 l Other emoluments 353 272
1,131 1,003
The directors do not participate in the defined contribution pension scheme. 2019 2018 Remuneration in respect of the highest paid director was as follows: £000 £000
Emoluments 348 348
30 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Notes (continued)
6 Tax on loss on ordinary activities
A reduction in the UK corporation tax rate to 17% (effective from l April 2020) was substantively enacted on 6 September 2016. [n the 11 March 2020 Budget, it was announced that the UK tax rate will remain at the current rate of 19% and not reduce to 17% from I ApriJ 2020. This will increase the company's future tax charge accordingly. Deferred tax is provided at a rate of 17% as this was the rate substantively enacted at the balance sheet date.
2019 2018 £000 £000 Current Tax Current tax for the period 2,810 6,635 Adjustment in respect of prior years - overseas taxation (24) (829)
Total current tax 2,786 5,806
Deferred Tax Origination and reversal ohiming differences sos (3,020) Prior year charge / (credit) (304) (82)
Total deferred tax 201 (3,102)
Total Tax 2,987 2,704
Factors affecting the tax charge for the year The tax assessed for the year differs from the standard rate of corporation tax in the United Kingdom of 19.00% (2018: 19.00%) The differences are explained as follows: 2019 2018 £000 £000
Loss for the year (28,005) (40,842) Total tax expense 2,987 2,704
(25,0 18) (38, 138)
Loss on ordinary activities before taxation multiplied by standard rate of corporation ta'< in the United Kingdom of 19.00% (2018: 19.00%) (4,754) (7,246) Effect of: Non-deductible expenses 5,108 4,608 Tax exempt revenues (27) (589) Fixed asset differences 11 14 Unrelieved foreign ta'< 1,385 1,797 Tax losses not recognised for deferred tax 1,296 4,634 Effect of tax rates in foreign jurisdictions 454 397 Over provided in prior years (486) (911)
Total tax expense included in profit or loss 2,987 2,704
3 1 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued)
7 Loss for the financial period
The Parent Company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The Parent Company's loss for the financial year was £ 11,011,000 (2018: £/ 1,709,000 loss).
8 Intangible fi xed assets
Assets in the Customer Computer course of Brand Purchased License Relationships software construction Total Group goodwill Fees £000 £000 £000 £000 £000 £000 £000
Cost
At I September 2018 60,235 184 6,210 2,845 1,496 14,548 85,518 Foreign exchange translation (I 5) (22) (12) (49) Additions 129 971 1, 100 Reclassification to fixed assets (343) (343) Disposal (14,151) (14, 151 )
At31 August2019 60,220 184 6,188 2,833 1,282 1,368 72,075
Amortisation At I September 2018 36,534 184 2,793 647 844 13,985 54,987 Foreign exchange translation (6) (10) (2) (18) Provided in the year 5,899 1,218 283 202 7,602 Reclassification to fixed assets (227) (227) Disposal (13,985) (13,985) lmpainnent 198 198
At 31 August 2019 42,427 184 4,001 928 819 198 48,557
Net book va lue At 31 August 2018 23,701 3,417 2,1.98 652 563 30,531
Net book value At 3 1 August2019 17,793 2,187 1,905 463 l ,170 23,5 18
Assets under construction relate to an IT project.
During the year the company disposed of the IT project held within asset construction. The asset had previously impaired in full. See note 3 for further details in respect of the prior year impaitment.
There are no intangible assets in the Company.
32 Fircroft Engineering Services I loldings Limited Annual report and financial statements 3 I August 2019
Notes (continued)
9 Tangible fixed assets
G roup Leasehold Motor Office Computer Improvements vehicles equipment eq uipment Total £000 £000 £000 £000 £000 Cost /\t I September 2018 1,603 3 12 1,368 3,071 6,354 Foreign exchange translation 26 22 9 57 Additions 73 15 311 33 1 730 Disposals (95) ( 16) (107) (218) Reclassification from intangible assets (II) 354 343
At 31 August 2019 1,607 327 1,674 3,658 7,266
Depreciation At I September 2018 785 11 8 1., 143 2,537 4,583 Foreign exchange translation 18 I 11 21 5 1 Provided in the year 78 70 202 270 620 Disposals (64) ( I) (44) ( 15) ( 124) Reclassification from intangible assets 227 227
At 3 1 August 2019 8 17 188 1,312 3,040 5,357
Net book value /\ t 3 I August 20 I 8 8 18 194 225 534 1,771
Net book value At 31 August 2019 790 139 362 6 18 1,909
There are no tangible fixed assets in the company.
33 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Notes (continued)
10 Fixed asset investm ents
Associates Joint Ventures Total £000 £000 £000 Group Carrying value at I September 2018 6,047 190 6,237
Foreign exchange translation 7 17 717 Share of retained profit for the year 916 44 960 Amortisation ofgoodwill in the year (252) (252)
At 3 1 August 2019 7,428 234 7,662
During the year the directors reviewed the provision of £3,129,000 provided for in the prior year in accordance with FRS I 02, the directors deemed the provision to be of an appropriate level. This provision has affected the net result of the Associate in the prior year, the on-going profits generated by the Associate are unaffected and therefore the provision is exceptional in nature. The Group's share of N profit is stated after share of tax of £229k and share of interest of £56k.
2019 20 18 £000 £000 Company Subsidiaries: cost and net book value 81,808 81,808
At 3 1 August 2019, the Group had investments in the following subsidiary undertakings, associates and joint ventures. The only direct investment of the Company is in Fircroft Engineering Services Limited, in wh ich it holds I 00% of the ordinary share capital. Class of Proportion C ountry of share held by the Nature of the Name of subsidiary incorporation held Group business
Fircrofl Engineering Services Limited UK Ordinary 100% Contractor supply Professional Laboratory Services Limited UK Ordinary 100% Holding company Fircroft Engineering Services (Northern) Limited UK Ordinary 100% Dormant Recruitment Advisory Services (Northern) Limited UK Ordinary 100% Dormant Italic Managed Solutions Limited UK Ordinary 100% HR outsourcing Johnson Knight International Holdings Limited UK Ordinary 100% Dormant Johnson Knight International Limited UK Ordinary 100% Contractor supply Fircroft Australia Ply Limited Australia Ordinary 100% Contractor supply Fircroft Japan Japan Ordinary 100% Closed Fircrol't Incorporated USA Ordinary 100% Contractor supply Fircroft Lntemational Inc USA Ordinary 100% Dormant Fircroft (Canada) Limited Canada Ordinary 100% Contractor supply Fircroft Professional Solutions Inc USA Ordinary 100% Contractor supply Fircroft Guyana Inc Guyana Ordinary 100% Contractor supply Fircroft 000 Russia Ordinary 99% Contractor supply Fi rcroft Azerbaijan LLC Azerbaijan Ordinary 49% Contractor supply Fircroft Qatar Limited Liability Company Qatar Ordinary 49% Contractor supply Fircroft Malaysia SDN.BHD. Malaysia Ordinary 100% Holding company Fircroft Singapore (Holdings) PTE Limited Singapore Ordinary 100% Holding company International Workforce Solutions Limited UK Ordinary 100% Dorman( Fircroft Mozambique LDA Mozambique Ordinary 100% Contractor supply Fircroft Portugal Limitada Portugal Ordinary 100% Holding Company Fircroft Caspian Services LLC Azerbaijan Ordinary 99% Contractor supply Fircroft Singapore PTE Limited Singapore Ordinary 100% Contractor supply 34 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued) 10 Fixed assets investm ents (continued)
Name of subs idiary Country of Class of Proportion held Nature of the incorporation share by the Group business held Fi rcroft (Vietnam) Company Limited Vietnam Ordinary 100% Contractor supply Fircroft India Private Limited India Ordinary 100% Dormant fircroft Kenya Limited Kenya Ordinary 100% Contractor Supply PT Fircrofi Indonesia Indonesia Ordinary 100% Contractor Supply Fircroft Trinidad Limited Trinidad & Tobago n/a 100% Contractor supply Fircroft PNG Limited Papa New Guinea Ordinary 100% Contractor supply Fireroft Engineering (Thailand) Limited Thailand Ordinary 49% Holding company Fircroft Thailand Limited Thailand Ordinary 100% Contractor supply Fircroft Engineering Services Kazakhstan LLC Kazakhstan Ordinary 100% Contractor supply Fircroft Denmark Denmark Ordinary 100% Contractor supply Fircroft Middle East FZ LLC UAE Ordinary 100% Contractor supply Fircroft Muscat LLC Oman Ordinary 65% Dormant Fircroft Iranian Services Iran Ordinary 100% Contractor supply Fircroft South Africa Ply Ltd South Africa Ordinary 100% Contractor supply Fircroft Group SA Pty Ltd South Africa Ordinary 100% Dormant Pircroft Ukraine LLC Ukraine Ordinary 100% Contractor supply Fircrofi Tanzania Limited Tanzania Ordinary 100% Contractor supply Fircroft Norge AS Nonvay Ordinary 100% Contractor supply Fircroft Norge Management AS Nonvay Ordinary 1000/o Contractor supply Fircroft Engineering Services B.V. Netherlands Ordinary 100% Contractor supply Rize Recruitment Limited UK Ordinary 100% Contractor supply Fircrofl Engineering Services Limited SARL Gabon Ordinary 100% Dormant Fircroft Technical Services UK Limited UK Ordinary 100% Holding Company Fircroft Technical Services (Australia) Pty Ltd Australia Ordinary 100% Contractor supply One Key I loldings Ply Ltd Australia Ordinary 80% Holding Company One Key Projects Holdings Pty Ltd Australia Ordinary 80% Holding Company One Key Resources Ply Ltd Australia Ordinary 800/o Contractor supply One Key Oil & Gas Ply Ltd Australia Ordinary 80% Dom1ant One Key Resources (Qld) Pty Ltd Australia Ordinary 80% Contractor supply One Key Resources (NSW) Pty Ltd Australia Ordinary 80% Contractor supply One Key Projects Ply Ltd Australia Ordinary 80% Dom,ant One Key Resources Mini ng Pty Ltd Australia Ordinary 80% Dormant One Key Resources Ptc Ltd Singapore Ordinary 80% HR Consultancy One Key Larrakia Holdings Pty Ltd Australia Ordinary 39% Contractor supply One Key Larrakia Ply Ltd Australia Ordinary 39% Contractor supply One Key Larrakia (NT) Pty Ltd Australia Ordinary 39% Dormant Rize Afghanistan Consulting Services Co Ltd Afghanistan Ordinary 49% Donnan! One Key Coal QLD Pty Ltd Australia Ordinary 800/o Contractor supply PES Mining Services Pty Ltd Australia Ordinary 80% Contractor supply FES Coal Pty Ltd Austra lia Ordinary 80% Contractor supply WAMC Pty Ltd Australia Ordinary 80% Contractor supply OKR Coal Australia Ply Ltd Australia Ordinary 800/o Contractor supply One Key Workforce Pty Ltd Australia Ordinary 80% Contractor supply Fircroft Engineering Services Limited France Ordinary 100% Contractor supply Fircroft France SAS France Ordinary 100% Permanent Supply FES Ghana Ltd Ghana Ordinary 1000/o Contractor supply Fircroft Ghana Limited Ghana Ordinary 49% Contractor supply Fircroft Tanjung SON BHD Malaysia Ordinary 49% Contractor supply Fircroft Mauritanie-SARL Mauritana Ordinary 100% Donnan! Fircroft Service, S.A DEC. V. Mexico Ordinary 100% Donnan! Fircrofl Engineering Mexico, S.A DEC. V. Mexico Ordinary 100% Workforce Solutions Rize Al Arabia Al Saudia Limited Saudi Arabia Ordinary 49% Dormant Pircroft Senegal SARL Senegal Ordinary 100% Contractor supply Fircrofl International Technical Services Limited UK Ordinary 1000/o Contractor supply Fircroft Kawkhstan Trustee Limited UK Ordinary 100% Holding Company Fircrofl Tashkent LLC Uzbekistan Ordinary 100% Contractor supply Fircrofl SPC Limited Dubai Ordinary 100% I folding Company Fircroft Recruitment Services LLC Dubai Ordinary 100% Contractor supply
35 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 20 19
Notes (continued) 10 Fixed assets investments (continued)
Tbe registered office for entities in respective country of registration is as follows:
Country Registered office UK Lingley House, 120 Birchwood Point, Birchwood Boulevard, Warrington, Cheshire, WA3 7QJ-J Australia (Perth) Parmelia House, Level 12, 191 St Georges Terrace, Perth, WA 6000 Australia (Brisbane) Level 15, 324 Queen Street, Brisbane City, QLD 4000 Papua New Guinea Level 3, ADF Haus, Musgrave Street, Port Moresby, Papua New Guinea Thailand 22nd Floor, 2202, Pacific Place TT, 142 Sukhumvit Road, Bangkok, Thailand, 101 10 Singapore 6 Battery Road, # 16-03, Singapore, 049909 Malaysia Lot E, Level 5, Tower I, Etiqa Twins, I I Jalan Pinang 50450 Kuala Lumpur, Malaysia Indonesia The Executive Centre, Sampoema Strategic Square, South Tower, 18th Floor, JI. Jcnd Sudirman Kav. 45-46, Jakarta, 12930 India Fortune Chambers, I" Floor, No8 Lalbagh Road, Richmond Circle, Bangalore, 560027, Kamataka, India Vietnam Suite S02, SEN office Business Center, Ll8-J 1-13, 18th floor, Vincom Center Dong Khoi Building, No.72 Le Thanh Ton, Ben Nghe Ward, District l, Ho Chi Minh City Kenya IKM Place, Tower A, 5th Floor, 5th Ngong Avenue, Off Bishops Road, PO Box I 1866-00400, Nairobi, 00400, Kenya Tanzania Ground Floor, Kilwa House, 369 Toure Drive, Oyster Bay, Kinondoni, P.O Box 23197, Dar es Salaam, Tanzania South Africa Isl Floor, Convention Towers, Cnr ofHeerengracht and Walter Sisulu Street Foreshore, Cape Town, 800 l UAE Block 17, Office 205, Dubai Knowledge Village, Dubai, UAE, PO Box 2713 1 Qatar 151 Floor, Suite 7, Concord Business Center, No.480 Al Rawabi Street, Al Muntazah, Doha, Qatar Iran Unit 3, 91h Floor, No 114, Abadabi Street, Valiasr, Tehran, 1966913203 Oman Muscat Governorate, PO Box 696, PC 130, Al -Zaiba, Sultanate of Oman USA 1155 Dairy Ashford, Sui Hous ton, 77079 Canada 500 Panarctic Plaza, 815-8 Avenue SW, Calgary, AB, TIP 3P2 Canada Guyana 157 ' C' Waterloo Street, North Cummingsburg, Georgetown, Guyana Russia 125009, Moscow, 16, Tverskaya street, bld.3, of.ll Azerbaijan AZ I 025, Baku City, Khatai district, Nobel Ave. 15/12 12 Trinidad & Tobago Suite 105, Fitt Court, 9-1 1 Fitt Street, Woodbrook, Port of Spain, Trinidad Kazakhstan 411i Floor, 12A Abay Street, Atyrau, 0600003, Kazakhstan Ukraine 25 B P.Sagaydachnogo Str, office 40 I, Kiev, 04070, Ukraine Denmark Kalkbraenderilobskaj 6, 2 l 00 Kobenhavn 0 Netherlands Zuid-Hollandlaan 7, 2596AL 's-Gavenhage Norway C/O Sum Regnskap AS, Professor Olav Hanssens vei 7 A, 4021 Stavanger France La Grande Arche - Paroi Nord, 92044 Paris La Defense CEDEX Ghana 20 Jones Nelson Road, Accra, PO Box GP 821, Ghana Mauritania ZRD ext N° 037 appart N° 3 Nouakchott - Mauritania Mexico Angel Urraza #3 14, Colonia Del Valle, Benito Juarez, Mexico C.P.03100 Gabon Montagne Sainte (a cote d'Air France) BP 74 19, LlBERVlLLE, GABON Portugal Rua Afonso Pra~a, n° 30, IO D, 1495 - 061 Alges Lisboa Portugal Rua dos Desportistas, n° 833.Edificio JAT V- 1, 15° andar Maputo - Mozambique Mo~ambique Senegal Dakar (Senegal), Plateau Azur 15 Building 12, Djily Mbaye Boulevard, BP: 50.555 Dakar Saudi Arabia Seder Village, AI-Khaleej Area, Salman Al Farsi Road, PO Box 250 305, Riyadh - I 1391, Saudi Arabia
36 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Notes (continued) lO Fixed assets investments (continued)
Proportion Country of Class of held by the Nature of the Na me of joint venture incorporation share held Group busin ess Fircroft Tanjung Sdn Bhd Malaysia Ordinary 49% Contractor Supply
Proportion Country of Class of held by the Nnture of the Name of associate incorp oration share held Group business Rize Al Arabia Al Saudi Limited Saudi Ordinary 49% Contractor Supply
Fircroft Engineering Services Holdings Limited is deemed to have control over Fi rcroft Engineering Thailand Limited, in which it holds a 49% share of the ordinary share capital, due to its legal right to acquire the remainder of the share capital of the company.
Following the acquisition in the year ofa further 50% shareholding, Fircroft Engineering Services Holdings Limited is deemed to have full control over Fircroft Engineering Services Kazakhstan LLC through its subs idiary entity Fircroft Engineering Services Limited, due to its direct holding of 50% of the share capital and a further 50% via a trust management agreement with Fircroft Kazakhstan Trustee Limited.
Fircroft Engineering Services Holdings Limited is deemed to have control over One Key Larrakia Holdings Pty Ltd, One Key Larrakia Pty Ltd and One Key Larrakia (NT) Pty Ltd through the tem1s of agreement under which these entities were established.
The Group also consolidates its interest in PT Fircroft lndonesia. The Group holds no share capital in PT Fircroft Indonesia; however, it controls and directs the finance and operations of the company, and directs economic flows, owing to restrictions placed under the local shareholders via the articles of association.
Fircroft Engineering Services Holdings Limited is deemed to have control over Fircroft Qatar Limited Liability Company in which it holds a 49% share of the ordinary share capital, due to its exercise of control over its operations on a day-to-day basis and its entitlement to 97% of the cumulative profits and losses under the company's articles of association.
Fircroft Engineering Services Holdings Limited owns 49% of the share capital of Rize Al Arabia Al Saudi Limited, although the group does not control the day to day accounting and operations of the entity it can exert significant influence over the entity as evidenced by involvement in board meetings and day to day management decisions. Due to the groups significant influence over the entity it is accounted for as an Associate entity.
Fircroft Eng ineering Services Holdings Limited owns 49% of the share capital of Fircroft Tanjung Sdn Bhd but is deemed to have joint control and use of the net assets of the entity. As a result, the group accounts for the entity as a Joint Venture.
Disposals:
On 31 August 2018, One Key Workforce was placed into administration resulting in a loss, net of costs, of £2,447,000 recorded in the prior year.
37 Fircroij Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued)
J l Debtors: amounts falling due within one year
2019 2019 2018 20 18 Group Company Group Company £000 £000 £000 £000
Trade debtors 9 1,728 115,166 Prepayments 2,990 2,414 Accrued income and work in progress 55,2 10 40,223 Other debtors 2,956 692 7 Deferred tax asset (note 14) 1,627 1,030 Corporation tax receivable 4,082 4,089 Amounts owed by Group undertakings 2,360 2, 171
158,593 2,360 163,614 2, 178
Amounts owed by Group undertakings are repayable on demand.
12 Creditors: amounts fallfo g due within one year
2019 2019 20 18 20 18 Group Company Group Company £000 £000 £000 £000
In voice discounting facilities 36,425 40,453 Revolving credit facility 23,000 20,000 Trade creditors 6,452 6,004 Corporation tax payable 358 3, 145 Directors loan accounts 4,418 4,4 18 4,082 4,082 Deferred tax liability (note 14) 2,06 1 1,272 Social security and other taxes 28,3 11 29,655 Accruals and other creditors 56,076 271 50,314 176
157, 101 4,689 154,925 4,258 Shareholder "A" loan notes 61,792 61,792 57,086 57,086 Shareholder "B" loan notes 80,644 80,644 74,502 74,502 Debt issue costs (87) (87)
299,537 147, 125 286,426 135,759
The shareholder loans have been recorded as current due to their expiry date being within one year of the Balance Sheet date. On 12 September 2019, Fircroft completed a refinance of its UK and Australian banking fac ilities and restructured shareholder debt, as disclosed in note 24.
The invoice discounting facilities consist of two separate facil ities in the UK and Australia. The lJK invoice discounting facility is secured by a fixed charge over the book debtors and a floating charge over all the assets of Fircroft Engineering Services Limited, and subject to an interest rate of 1.5% per annum over the prevailing Bank of England Base Rate. It is subject to a maximum drawdown amount of £80,000,000. It was entered into on I July 1 2015 and terminated on 30 h June 2019, the facility was renewed as part of the refinancing that took place on 12m September 2019, refer to note 24. The arrangement fee associated with this faci lity was £600,000. The amount drawn at the year-end was£ 17,400,415 {2018: £2 1,0/ 4,663).
One Australian invoice discounting facility line is held by Fircrofl. Australia Pty Ltd. This is secured over the book debtors of Fircroft Australia Pty Ltd and a guarantee provided by Fircroft Engineering Services Limited. It is subject to an interest rate of 1.5% per annum over the prevailing 30 day BBSY rate in Australia. It is subject to a maximum drawdown amount of A$30,000,000. It was entered into on May 20 16 for 2 years, after which it moves to rolling on 30 days' notice of cancellation. The arrangement fee associated with this facility was A$40,000. The amount drawn at the year-end was £8,877,790 (2018: £6,941,078). 38 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued)
12 Creditors: amounts fa lling due within one year (continued)
A second Australian invoice discounting facility line is held by One Key Resources Pty Ltd. This is secured over the book debtors of One Key Resources Pty Ltd and guarantees provided by other subsidiaries of One Key Holdings Pty Ltd and fonner directors of the company. It is subject to an interest rate of 1.5% per annum over the prevailing 30 day BBSY rate in Australia. It is subject to a maximum drawdown amount of A$30,000,000. The facility was entered into in December 2017 and had an initial committed period of 2 years, after which the facility become repayable on demand. The amount drawn at the year-end was £10,146,562 (2018: £12,497,548).
The revolving credit facilities consist oftwo separate facilities in the UK and Australia. The UK bank overdraft facility is repayable on demand, secured by fixed and floating charges over all the assets of Fircroft Engineering Services Limited, and subject to an interest rate of 2.25% per annum over the prevailing Bank of England Base Rate. The maximum amount available to draw down is £1,000,000. The amount drawn down at the year-end was £Nil (2018: £Nil). The Australia bank overdraft facil ity is repayable on demand, secured by fixed and floating charges over all the assets of Fircroft Australia Pty Ltd, and subject to an i11terest rate equivalent to the prevailing Base Lending Rate in Australia. The maximum amount available to draw down is A$ l ,000,000. The an1ount drawn down at 3 1 August 2018 was £Nil (2018: £Nil).
Also included within the facility is the UK revolving credit facility which is secured by a floating charge over all the assets of Fircroft Engineering Services Limited. The maximum amount available to draw down is £25,000,000. The drawn element of the facility is subject to 2.25% interest rate plus LIBOR but is subject to change in line with Senior Adjusted Leverage. The undrawn element of the facility is subject to a charge equivalent to 0.7875%. lt was entered into on I July 2015 and terminated on 30th June 2019, the facility was renewed as part of the refinancing that took place on 12th September 2019, refer to note 24. The arrangement fee associated with this facility was £250,000. The charge has been amortised over the length of the agreement. The amount drawn at the year-end was £23,000,000 (2018: £20,000,000).
The two classes of loan notes are both subject to a fixed interest rate of 8%, and were repayable in two tranches, the first half on 3 1 December 2018, and the balance on 30 June 2019. To date no repayment of the loan notes has occurred and the capital and interest accrued was renegotiated as part of the refinancing project, completed on l2 September 2019. Both classes accrue interest which is compounded into the capital amount outstanding and is payable on redemption of the loan notes. The •A' loan note interest may be satisfied by the Group in the form of PIK notes. Neither loan notes carry any entitlement to a dividend. The loan notes are shown net of issue costs of £350,000 (2018: £350,000).
13 Creditors: amounts falling due after more than one year 2019 2019 20 18 2018 Group Company Group Company £000 £000 £000 £000
Long tenn bank loan 35 311
35 311
39 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued) 13 Creditors: amounts falling due after more than one year (continued)
The directors consider that the "A" Ordinary shares (note 16) are a compound instrument consisting of both a debt and equity element. The debt element represents the fair value of the company's obligation to pay dividends on the "A" Ordinary shares. This was measured on issue of the instrument and is being measured subsequently at each period end. The liability at 3 1 August 2019 was estimated at£Nil (2018: £Nil). The Company does not hold any long-term bank loans.
The Group long-term bank loan is held in One Key Resources Pty Ltd and is secured on the debtors of One Key Resources Pty Ltd and guarantees provided by other subsidiaries of One Key Holdings Pty Ltd and former directors of the Company. The balance is in relation to the Group.
On 12 September 2019, Fircroft completed a refinance of its UK and Australian banking facilities and restructure of shareholder debt, details of which are disclosed in note 24.
40 Fircroft. Engineering Services I foldings Limited Annual report and linancial statements 31 August 2019
Notes (continued)
14 Provisions for liabilities
Deferred taxation - Group
The movement on the deferred tax balances during the year was as follows:
Liability Asset £000 £000
At 31 August 2018 (1,272) 1,030 Foreign exchange translation 2 8 (Charge)/crcdit for the year (791) 589
At31 August2019 (2,061) 1,627
Deferred tax comprises the following:
2019 2018 Liability Asset Liability Asset £000 £000 £000 £000 Deferred tax Accelerated capital allowances 61 2 Short term timing differences (2,061) 1,502 (1,272) 876 Unused tax losses 64 152
At 31 August 2019 (2,06 1) 1,627 (1,272) 1,030
Deferred tax assets on losses o f £33.6m (2018: £25.5m) within Fircroft Engineering Holdings Ltd have not been recognised as there is uncertainty over the utilisation of these losses
Other Provisions - Group
A provision was made in 2015 in respect of an IT onerous contract. The movement in the year relates to utilisation of the provision. The amount included in other relates to a provision made during the prior year, based on management's best estimate, in relation to litigation claims and two trading disputes overseas and a provision for service leave entitlement for contractors in an overseas location.
2019 2018 IT onerous Other IT onerous Other contract contract £000 £000 £000 £000
Balance at start of the year 168 881 571 1,531 Utilisation during the year ( 168) (135) (403) (650)
At 31 August 2019 746 168 881
41 Fircrofl Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Notes (continued)
I5 Financial instruments
The carrying values of the Group's financial assets and liabilities are summarised by category below: 2019 2018 £000 £000 Financial assets
Cash 9,502 14,407 Trade debtors 9 1,728 11 5, 166 Accrued income and work in progress 55,210 40,223 Other debtors 2,956 689
159,396 170,485
2019 2018 £000 £000 Financial liabilities Measured at amortised cost Invoice discounting facility (36,425) (40,453) Bank loan (35) (3 11) Shareholder "A" loan notes (61,792) (53,985) Shareholder "B" loan notes (80,644) (70,452) Director's loan (4,4 18) (4,082)
Measured at 1111disco11n1ed amo11111 payable Revolving credit faci lity (23,000) (20,000) Trade and other creditors (see note 12) (90,839) (85,974)
(297, 153) (275,257)
16 Share capital 2019 2019 2018 2018 Number £000 Number £000
Allotted, called up and fully paid "A" Ordinary shares of £0.10 each 370,000 37 370,000 37 "B" Ordinary shares of £0.10 each 458,11 3 46 458, 11 3 46 "C" Ordinary shares of £0.10 each 136,904 14 136,904 14 "D" Ordinary shares of £0. 10 each 34,983 3 34,983 3 "E" Ordinary shares of £0.14 each 8 1,450 11 8 1,450 11 "F" Ordinary shares of £0.000 I each 7,800,000 I 6,950,000 7
8,881,450 112 8,031 ,450 11 8
"A" to "E" shares carry equal voting rights. "F" shares carry no voting rights.
On winding up of the business or exit sale, the "A" to " D" shares would have priority over all other classes of shares for the amount equal to any arrears and accruals of unpaid dividends but not for the underlying value. The "F" shares would rank next in priority with a maximum value of£ I to be paid per share. The maximum value of £ I per share is limited to the extent that holders of F shares who also own other classes of shares do not receive consideration for their F shares in the amount that they receive for that other equity. The F Shares are accounted for as a share-based payment settled in the equity of the company and the value of the shares is charged to the profit and loss account up to the period of anticipated vesting. The total (credit) / charge for the year relating to equity-settled share-based payments was (£0.2m) (2018: charge of£/.3111) as explained in note 3 and 21. 42 Fircroft Engineering Services Holdings Limited An.nual report and financial statements 3 I August 20 19
Notes (continued)
16 Share capital (co11ti1111etl)
After this all other classes of shares would rank pari passu.
The "C" Ordinary shares benefit from a ratchet arrangement, whereby the entitlement to proceeds on an exit of that class of share, increase by 5% subject to agreed levels of capital return. TI1e ratchet arrangement would dilute the entitlement of the "A" Ordinary shares only.
During the year 850,000 (2018: nil) "F" ordinary shares were issued at a par value of£0.000 I per share.
The nominal value of the "F" ordinary share capital has been corrected in the year to reflect a value of 7,800,000 shares at £0.000 I per share, total £780 (2018: 6,950,000 shares at £0.0001 per share, total £695). The adjustment has no material impact on the overall share capital of the company in the current or prior year and as a result the comparative share capital value has not been adjusted for this correction.
At 3 1 August 2019, 250,000 (2018: 500,000) "F" ordinary shares of£0.000I per share, £25 (2018: £50) were held by an Employee Benefit Trust. Per the requirements under Section 9 of FRS I 02 the company recognises that it has de facto control over the trust and therefore has an investment in its own shares.
The total expense recognised for the year and the total provision recognised in equity at the end of the year arising from share-based payments are as follows:
2019 2018 £000 £000
Share based payment expense 622 1,349 Leavers provision (789)
( 167) 1,349
2019 2018 £000 £000
Opening provision included in profit and loss reserve 1,569 220 Share based payment expense 622 1,349 Leavers provision (789)
L,402 1,569
The leavers provision relates to holders of F shares who left the Group during the period. The shares have not been cancelled but the expense build up will only be accrued on serving employees.
43 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 1 August 2019
Notes (continued)
17 Other reserves
The share premium reserve contains the premium arising on issue of equity shares, net of issue costs.
The merger relief reserve contains the premium arising on issue of equity shares as part or full consideration for acquisitions. Other reserves include the initial recognition of the compound instrument (see note 13). Subsequent adjustments to the fair value of the compound instrument have been recorded directly in the profit and loss account.
18 Pensions
The Group operates a number of defined contribution schemes. The pension costs charged against profits represent the amount of the contributions payable to the scheme in respect of the accounting year. The pension costs charged in the year amounted to £490,845 (2018: £317,398).
19 Lease commitments
During the year £3,056,000 {2018: £1,571,000) was recognised as an expense in the profit and loss account in respect of operating leases. Non-cancellable operating lease rentals are payable as follows:
2019 2019 2018 2018 Land and Land and Group buildings Other buildings Other £000 £000 £000 £000
In less than one year 1,665 1,036 1,694 273 In one to five years 4,41 2 3,19 1 3,577 14 In greater than five years 972 4 1,798
7,049 4,231 7,069 287
44 Fircrofl Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued)
20 Transactions with directors and related parties
The Company has taken advantage of the exemption within FRS I 02.33 and has not disclosed transactions with wholly owned subsidiaries in the Group.
Total compensation of key management personnel including directors in the year amounted to £4,151,129 (2018: £2,009,000). Other related party transactions during the year are disclosed below. All disclosures relate to the Group and Parent Company, unless noted otherwise.
Directors fees of£44,884 (2018: £43,875) have been paid to Equistone Partners Europe, a shareholder in the company. 11 Payments made to Black Diamond Umbrella Limited amounted to £1 ,078,168 (2018: £1,761,238) for the provision of contractors. Amounts payable to Black Diamond at the end of the year were £37,289 (2018: £nil). Mr J M Johnson, a director of the company, is a shareholder of Black Diamond Umbrella Limited. iii Equistone, a shareholder of the company, was the majority shareholder in Travel Counsellors Limited until 30 May 20 I 8. Payments made to Travel Counsellors Limited in 20 I 8 amounted to £865,325 for the provision of travel services. Amounts payable to Travel Counsellors Limited at 31 August 2018 were £76,555. Travel Counsellors Limited is not a related party as at 31 August 2019. iv Payments made to Kidderpore Consultancy Limited amounted to£ 158,500 (2018: £83,500) for the provision of consultancy services. Amounts payable to Kidderpore Consultancy Limited at the end of the year were £20,850 (2018: £/3,350). Mr M Cohen, a director of the company, is also a director of Kidderpore Consultancy Limited. v Payments made to KWJ Consultancy Limited amounted to £65,000 (2018: £65,000) for the provision of consultancy services. Amounts payable to KWJ Consultancy Limited at the end of the year were £5,417 (20/8: £5,417). Mr K Hughes, a director of the company, is also a director ofKWJ Consultancy Limited. vi Mr M Cohen, a director of the company, is connected to Freedman Frankl & Taylor partnership where his son was a partner during 2018. Payments made to Freedman Frankl & Taylor in 2018 amounted to £3 1,218 for the provision of staff payroll services. Amounts payable to Freedman Frankl & Taylor at 31 August 2018 were £3,420. Freedman Frankl & Taylor partnership is not a related party as at 3 I August 2019. vii Payments made to Forensic Risk Alliance amounted to £875,460 (2018: £nil) for the provision of consultancy services. Amounts payable to Forensic Risk Alliance at the end of the year were£ 133,254 (20/8: £5,417). Mr P Gore-Randall, a director of the company, is also non-executive Chairman of Forensic Risk Alliance. viii The amount due to directors against the loan accounts was £Nil (2018: £nil). Interest charged in the year was £nil (2018: £nil). ix The amount due to directors against the loan notes was £80,015, I 11 (20 I 8: £70, 452,38 I). Interest charged in the year was £6, 126,654 (2018: £5,660,08 /). x The amount due to Equistone against the loan notes was £61 ,791,505 (20/8: £53,984,946). Interest charged in the year was £4,718,978 (2018: £4,359,606). xi The loan due to Mr. John Johnson was £4,417,984 (2018: £4,082,792). Interest charged in the year was £335,192 (2018: £82,792). xii The group has an associate undertaking in Saudi Arabia, Rize Al Arabia Al Saudi Limited, in which the group owns 49% of the share capital. During the year the group had no related party transactions with the group to report (20 I 8: £nil). xiii The group has a Joint Venture arrangement with a Malaysian entity, Fircroft Tanjung Sdn Bhd, in which the group owns 49% of the share capital. During the year the company made sales to other entities of the Fircroft group totalling £489,448 (2018: £119,521) and purchases from other entities of the Fircroft group totalling £250,324 (20 l 8: £85,3 I 4). Amounts receivable from Fircroft Tanjung Sdn Bhd at the end of the year were £159,369 (2018: £92,966). Amounts payable to Fircroft Tanjung Sein Bhd at the end of the year were£18,349 (2018: £122,796).
45 fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued)
2 I Accounting estimates and judgements
In the application of the Group's accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. 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 in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgements in applying the Group's acco11nti11g policies The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), 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.
Tax provisioning The Group operates in a number of territories where the tax regimes are less developed and assessment processes are different from the UK. As a result, despite having taken appropriate professional tax advice initially and when submitting tax returns, occasionally unexpected and potentially material claims may be made from tax authorities and sometimes tJ1ese may be a long time after the period in question. The Board engages furt11er professional support in such situations to evaluate whether, irrespective of the original advice, such claims require provision or disclosure as a contingent liability, recognising in the latter case there may be commercial sensitivity limiting the specifics of the source, nature and quantum of the claim.
Key source ofes timation 1111certai11ty - impairment ofi11ta11gibl es i11cl11di11g goodwill Determining whether intangibles including goodwill is impaired requires an estimation of the value in use of the intangible asset and cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from Lhe cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the balance sheet date was£ 17,793,032 (2018: £23,700,619) and no impairment loss has been recognised in the year.
Operating in overseas juri sdictio11s The Group operates in emerging markets which increases contractual, operational, financial and taxation risks with potentially uncertain or changing regulatory and political environments. This is referred to in the Group's principal risks and uncertainties on page 3. In preparing the consolidated financial statements management fonn a judgement about the likelihood of risks giving rise to financial liabilities or wider impacts on the financial statements.
F Shares An equity-settled share-based payment has been recorded representing management's best estimate of amounts payable to F shareholders on a future sale of the business spread over the service period of the holders. Judgement has been exercised by management in detem1ining the date of any future sale of the business.
Provisions f or liabilities A provision is recognised when the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. Determining the provis ion to be recognised requires estimation over the value of the obligation that the Group is most likely to pay to settle the obligation.
Exceptio11al items In determining the appropriate presentation of the Group's profit and loss account the Directors are required to form judgements over the nature of certain items of expenditure and income to determine whether or not separate presentation is required and appropriate. The accounting policy for these items is set out on page 27.
46 Fircrofl Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued)
22 Ultimate controlling party
In the opinion of the directors, there is no one sing le controlling party of the Group.
23 Contingent assets and liabilities
Banking arrangements
The Company is participant in a Group banking arrangement under which all surplus cash balances are held as collateral for bank faci lities advanced to Group members. No liability is expected to arise under this agreement.
Employee benefit liabilities
In the prior year the directors highlighted ongoing legal action in Australia in relation to annual leave benefits accruing to individuals employed on a casual basis. The principal cases of relevance are in respect of Workpac vs Skene and latterly Workpac vs Rossato. Whilst this legal action relates to a company not related to this Group it was recognised by the Group and its legal advisors that the conclusion of the legal action may have an impact on the wider Australian economy and businesses and individuals utilising casual labour contracts, including the Group' s Australian subsidiaries. Al the date the prior year financial statements were approved the directors, having taken appropriate legal advice, considered that the likelihood of any outflow of economic benefit was low.
On 20 May 2020, the Australian Federal Court detem1ined that in the case of Workpac vs Rossato the nature of the latter's employment with Workpac was in effect permanent, rather than casual, notwithstanding the nominal nature of the arrangement, and that certain annual leave benefits which should have accrued to Rossato as a permanent employee had not been awarded to him. In addition the Court determined that Workpac could not offset any amounts that the Company had considered were additional benefits already paid, known as 'casual loading', in lieu of those benefits a pennanent employee would have been entitled to.
At the date of approval of these financial statements the directors are aware that Workpac have sought special leave to appeal to the Australian High Court and that it has been suggested that Government intervention may be required because of the potential cost to certain sectors of the Australian economy. The finding of the Court represents new information about how the law should have been applied to casual employees previously employed by its Australian subsidiaries. As such, and in line with guidance issued by the Australian Securities and Investments Commission, the directors bave considered the principles applying to the Rossato case apply to contracts it has utilised over the six years prior to the finding, of which a substantial period is prior to the balance sheet date of these financial statements.
The directors, having taken further legal advice in this matter, have assessed the population of casual employment arrangements against the principles of the Rossato case. This has required the directors to make a series of assumptions; including how their own contractual tenns and associated employment agreements may be interpreted. Based on this assessment, the directors have concluded that no provisions should be recorded in the financial statements, there is however uncertainty in determining whether the principles of the Rossato case apply, or it is possible they apply to these arrangements and therefore whether liabilities may arise. As such the directors consider that a contingent liability exists.
47 Fircroft Engineering Services Holdings Limited Annual report and financial statements 3 I August 2019
Notes (continued)
24 Post balance sheet events
Coroaavirus
The March 2020 COVID-19 pandemic has created unprecedented challenges and uncertainty with the full socio economic impact of the virus likely to be significant but unknown at this time. This event has not impacted on the Group's financial perfonnance for the year ended 31 August 2019, nor on its financial position as at 31 August 2019. There have been no material adverse impacts on the group up to the date of approval of the accounts, but given the inherent uncertainties, it is not practical at this time to determine what impact COVID-19 will have on the group or provide a quantitative estimate of any future impact. Due to the uncertainty regarding the duration and impact of COVLD-19, a range of forecast scenarios has been modelled. After careful consideration, the directors reasonably expect tbe company to continue in operational existence for the foreseeable future based on these profit and cash flow projections. Thus, they continue to adopt tbe going concern basis in preparing these financial statements as further documented in the accounting policies.
F Shares
There are a number of estimates and assumptions used in management's best estimate of the expected payment to F shareholders. These include future income streams of the business and date of expected future sale of business, as outlined in the key estimates and judgements note (note 21 ). Any impact on these estimates and judgements that relate solely to Coronavirus are not adjusted for in the financial position at 31 August 2019 as the pandemic is a non-adjusting post balance sheet event. There is a degree of uncertainty relating to the future impact of Coronavirus will have on the F shares although at the date of the approval of the accounts the Directors are of the opinion that this is unlikely to have a material impact on the accounts as a whole.
RECS litigation
On 20 May 2020, the Australian Federal Court determined that in the case of Workpac vs Rossato the nature of the latter's employment with Workpac was in effect permanent, rather than casual, notwithstanding the nominal nature of the arrangement, and that certain annual leave benefits which should have accrued to Rossato as a penuanent employee had not been awarded to him. Whi lst this legal action relates to a company not related to this Group, the directors have considered the impact on the Group financial statements of the principles established in this case, as further documented in note 23.
Group Refinance
On 12 September 2019, Fircroft completed a refinance of its UK and Australian banking facilities and repaid £ I0,500,000 of its £24,300,000 revolving credit line. The business is now supported through a UK invoice discounting line of £40,000,000, a £ 13,800,000 revolving credit line and Australian invoice discounting lines totalling A$60,000,000.
As a result of this refinance the UK invoice discounting line and revolving credit line now have a repayment date of 3 1 August 2021 and an amount of £30,223,000 will be reclassified to creditors: amounts falling due after more than one year in the balance sheet if presented at 12 September 2020.
The Australian invoice discounting lines are A$35,000,000 available to One Key Resourcing Pty Limited and A$25,000,000 available to Fircroft Australia Pty Limited. There has been no change to the repayment dates of the Australian facilities as a result of the refinance. The One Key Resourcing Pty Limited facility had a termination date of 31 December 2019 after which it became repayable on demand. The Fircroft Australia Pty Limited facility is repayable on demand.
Simultaneously with the refinance detailed above, the shareholder debt was also restructured. The accrued interest on the A loan notes (£15,902,000) and B loan notes (£30,099,000) was waived under a deed of waiver. The principal on the 8 loan notes (£50,545,510) was extinguished by exchanging the debt for equity ( I 00,000 £0.000 I Z shares) in Fircroft Engineering Services Holdings Limited. The Z shares have no voting rights but have dividend rights. The maturity date of the A loan notes was extended to 31 October 2021 .
48 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued) 24 Post Balance Sheet Events (continued)
Group Refin ance (continued)
The funds to partially repay the revolving credit line were provided by a shareholder who have subscribed for £10,500,000 10% C loan notes in Fircroft Engineering Services Holdings Limited. The C loan notes have a maturity date of 31st October 2021. As a result of the transaction, aggregate shareholder debt has been reduced from £142,436,000 as at 3 I August 20 I 9 to £56,390,000 as at 12 September 20 I 9 as shown below.
Shareholder "A" Shareholder "B" Shareholder "C" loan notes loan notes loan notes Total £'000 £'000 £'000 £'000 At 3 1 August 2019 61,792 80,644 142,436 Amounts capitalised or written off as a result or refinancing transactions (15,902) (80,644) (96,546) Introduction of debt as a result of refinancing activities 10,500 10,500
Principal debt amounts after refinancing transactions in September 2019 45,890 10,500 56,390
As a consequence of the above steps, at the date of approval of these fo1ancia l statements the aggregate debt falling due within one year is £20,002,000 with debt falling due in more than one year being £86,648,000.
49 Fircroft Engineering Services Holdings Limited Annual report and financial statements 31 August 2019
Notes (continued) 24 Post Balance Sheet Events (continued) The table below compares the actual results at 31 August 2019 as reported on page 14 to the balance sheet as adjusted for the refmancing transaction that occurred on 12 September 2019. The below table does not include the impact of additional interest charged on the debt from I September 2019 to 12 September 2019 of £373,000 or the cost incurred as a result of the refinancing transaction (approximately £750,000).
As at 31 August 2019 Proforma Actual 2019* 2019* £000 £000 Fixed assets /111a11gible assets Goodwill 17,793 17,793 Other intangibles 5,725 5,725
23,518 23,518 Tangible assets 1,909 1,909 Investments in associates and joint ventures 7,662 7,662
33,089 33,089 Current assets Debtors: amounts falling due within one year 158,593 158,593 Cash and bank 9,502 9,502
168,095 168,095
Creditors: amounts falling due within one year ( 116,378) (299,537)
Net current assets I (liabilities) 51,717 (131,442)
Total assets less current liabilities 84,806 (98,353)
Creditors: amounts falling due aft.er more than one year (86,648) (35) Provisions for liabilities (746) (746)
Net liabilities (2,588) (99,134)
Capital and reserves Share capital 112 112 Share premium 365 365 Merger reserve 597 597 Other reserve (1,140) (1,140) Profit and loss account (3,355) (99,901)
Shareholders' deficit (attributable to the parent's sha re holders) (3,421) (99,967) Minority interests 833 833
Shareholders' deficit (2,588) (99,134)
Proforma 2019* above shows the refinancing entries which took place on 12rn September 2019 as though they occurred on 31 August 2019. This is provided for the reader's information only and is not intended to replace any of the actual figures reported in the balance sheet as at 3 I August 20 19 on page 14.
Actual 2019* above shows the actual balance sheet as at 31 August 2019 as reported on page 14. This is presented for comparison purposes.
50