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Annual Report and Financial Statements 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
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