Hss Hire Regulatory News (HSS)

6 April 2016

HSS Hire Group plc

Audited Results for HSS Hire Group plc for the 52 week period ended 26 December 2015

HSS Hire Group plc ("HSS" or the "Group") today announces results for the 52 week period ended 26 December 2015. Comparative results for 2014 are those of Hampshire Topco Limited, the holding company of the Group prior to the listing of new parent company HSS Hire Group plc on the London Stock Exchange in February 2015.

Financial Highlights

Trading and Operational Highlights

Current Trading and Outlook

Explanatory Notes:

1) Adjusted EBITA defined as Operating profit with amortisation and exceptional costs added back

2) Adjusted operating profit defined as Operating profit with exceptional costs added back

3) Adjusted earnings per share defined as profit before tax with amortisation and exceptional costs added back less tax at the prevailing rate of corporation tax divided by the weighted average number of ordinary shares

John Gill, Chief Executive Officer of HSS, said:

"In 2015, we invested in the growth and development of our local branch network and our specialist businesses. Whilst our customers' end markets were more variable than expected, we delivered revenue growth of 10%.

"Profitability was lower than planned at the outset of the year. Following a slower than expected first half the Board and I reviewed our strategic objectives and concluded that, with some modifications, they continue to be the right ones to generate shareholder return through market share growth and operational and capital efficiency. As previously announced we have taken actions to rebase our costs and to build more flexibility into our operating model and strategy to enable us to respond more rapidly to changeable market conditions.

"We expect to see the full year benefit of the cost reduction programme implemented in H2 2015 delivered through 2016. We also expect to reduce our capital expenditure, following two strong years of fleet investment and the opening of our new National Distribution and Engineering Centre in H1 2016. Together with the cost reduction programme, we expect these actions to improve our cash generation and financial performance."

Results presentation

Management will be hosting a presentation for analysts at 9.00 a.m. BST today at Citigate Dewe Rogerson, 3 London Wall Buildings, London Wall, EC2M 5SY. Analysts/investors unable to attend in person may join the meeting by conference call by dialling in on +44 (0) 20 3003 2666. Password: HSS Hire. A copy of the presentation will be available at www.hsshiregroup.com/investor-relations/financial-results/ from 9.00 a.m. BST today.

Update call for Hero Acquisitions Limited for holders of Senior Secured Notes

As required by the reporting obligations for the Senior Secured Notes, a separate conference call discussing the results of Hero Acquisitions Limited (a wholly owned subsidiary of HSS Hire Group plc) will be held for noteholders at 2.00 p.m. BST today.

To obtain dial-in details for the call, holders should contact Citigate Dewe Rogerson at ellen.wilton@citigatedr.co.uk. The accompanying presentation for the call will be made available at www.hsshiregroup.com/investor-relations/senior-secured-notes

For further information, please contact:

Note to editors

HSS Hire Group plc provides tool and equipment hire and related services in the UK and Ireland through a nationwide network of over 300 locations. Focusing primarily on the maintain and operate segments of the market, over 90% of its revenues come from business customers. HSS is listed on the Main Market of the London Stock Exchange. For more information please see www.hsshiregroup.com.

CHAIRMAN'S STATEMENT

I am pleased to present our results for 2015. We achieved revenue growth ahead of the UK equipment rental marketplace, whilst continuing to invest in the business and make progress against our strategic plan; however, it was a challenging year.

Market environment

The business experienced softer market conditions through the second quarter, which were also reported by others operating in the construction and building maintenance and facilities markets. There were a number of macroeconomic factors which contributed to this, including specific weaknesses in the RMI markets in which we operate. Our profitability was also adversely affected by weaker than expected demand amongst our larger customers, changes in revenue mix, the first year of plc costs, and incremental depreciation from fleet investment.

Our results

We achieved revenue growth of 10% in 2015 bringing our turnover for the year to £312.3m, delivered Adjusted EBITA of £20.3m (FY14: £31.2m) and achieved a ROA of 14.9% (FY14: 27.0%) . In light of lower than expected revenue growth and the associated impact on profitability, the Board undertook a review of strategy, concluding that with the essential rebasing of our cost structure and an increased focus on operational and capital efficiency, it remains the right one to grow the business and create shareholder value. We are confident that the cost-reduction plan is progressing well, giving us inherent flexibility as to the next stages of investment in the network.

We focus on three strategic priorities: optimising the branch and distribution network; winning new, and deepening existing, customer relationships; and the continued development and growth of our specialist businesses. These priorities are being achieved through a set of five strategic enablers (outlined in the Chief Executive Officer's statement below) which are driven by the needs that our customers consistently tell us are central to their success: safety, value, availability and support.

In 2015 we made solid progress against our three strategic priorities. We opened 50 new low cost, local branches and further evolved the distribution network including planning for the launch and opening of the National Distribution and Engineering Centre alongside the refocus of our Distribution Centres. Following lower than expected key account growth at the beginning of the year, we invested to build our pipeline and have seen a number of important customer wins in the second half. We also continued to invest in the specialist businesses which support our unique customer proposition - including acquiring specialist heating and cooling provider, All Seasons Hire.

Our Board and management team

I would like to thank former Chief Executive Chris Davies, who stepped down towards the end of the third quarter following nine years in which we saw the Adjusted EBITDA of the HSS Group double. During the year, Fiona Perrin, Group Sales and Marketing Director, stepped down from the Board for family reasons, transitioning some of her other duties to other executives who were well-prepared for succession.

John Gill, who has been involved with the development of our growth strategy, in particular the implementation and evolution of our distribution and logistics network, previously as CFO and then COO, has taken over as CEO to drive forward our plans. He is supported by an effective senior management team which has responded well to the market conditions we saw in the year.

Governance

Prior to our February 2015 IPO, we already had strong governance structures in place and we have worked hard to develop and establish the various additional committees, systems and policies through the first year as a public company. I believe that strong governance is the bedrock of effective execution of our business plan together with the smooth running of day to day operations and the protection of assets.

Our people

HSS achieves excellent customer satisfaction scores and this is down to its people. We recruit motivated and driven individuals who believe in our unique company ethos and then we invest in their development. I never fail to be impressed by their professionalism, energy and commitment to going beyond the call of duty for our customers. They are at the heart of HSS's differentiated market position and unique customer service offering. During the year we have made improvements in the diversity of our workforce and established targets for further progress.

Looking ahead

We have moved into 2016 with a heavy focus on cost management and productivity, combined with continued growth. HSS is an entrepreneurial business with a solid business plan underpinned by operational and capital flexibility. We move forward determined to deliver that plan and to create shareholder value.

Dividend

The Directors have proposed a final dividend of 0.57p per ordinary share. If approved at the forthcoming Annual General Meeting the total dividend for the year would be 1.14p per share, reflecting the Board's stated intention to adopt a progressive dividend policy.

The final dividend is expected to be paid on 4th July 2016 to shareholders on the register at close of business on 3rd June 2016. The ex-dividend date is 2nd June 2016.

Alan Peterson

Chairman

CHIEF EXECUTIVE OFFICER'S STATEMENT

Overview

In 2015, we invested in the growth and development of our local branch network and our specialist businesses. Whilst our customers' end markets were more variable than expected, we delivered revenue growth of 10%, ahead of the overall equipment rental market.

In light of our performance in the first 8 months of the year, the Board and I reviewed the overall strategy in considerable detail and concluded that our strategic objectives continue to be the right ones to generate shareholder return, but with some modifications which allow us to respond more rapidly to market conditions. Specific areas of focus include the rebasing of our cost structure, increased focus on capital efficiency and an ongoing drive for operational efficiency. These are central to our objectives as we move forward.

Revenues in our Specialist businesses grew 30% year on year, materially ahead of the wider market. This partially reflects the acquisition of All Seasons Hire in May 2015 but is principally due to us starting to realise the benefits of our continued investment in the hire fleets, depot network and sales teams of ABird, Apex and UK Platforms through 2014 and 2015.

The HSS difference

HSS continues to be strongly differentiated within its markets. Our focus starts with the needs of our diverse customer base and they tell us that they prioritise Safety, Value, Availability and Support. During the year we worked hard to further improve our customer service in support of these values, and drive our operational efficiency, which in itself results in further customer satisfaction, as well as cost benefits. The growth in our externally assessed Net Promoter Score to 36 reflects this difference and continues to be well above the industrial and services sector benchmark.

Our performance

Despite less favourable market conditions, we continued to grow our revenues strongly. Revenues in our Core businesses continued to grow faster than our market at 7% and revenues in our Specialist businesses grew by 30% year on year. Our Adjusted EBITA performance in the year reflects the increase in depreciation charges resulting from our investment plans, including the opening of 50 new low cost local branches and further investments in our specialist businesses and hire fleet. These are investments to ensure we have the right network and rental fleet to support demand over the coming years.

Our markets

We operate in the UK tool and equipment hire market, which the European Rental Association (the "ERA") estimate had a total turnover of £5.7bn in 2015. It is worth noting the ERA's assessment that non-construction (operating environments and business) demand for rental is 40% of sales versus 60% from construction; with non-construction one of the highest shares in Europe.

Our market focus is in the operation of the built environment where our work for many major blue-chip companies - facilities management, airports and retail customers for example - benefits both our Core and Specialist divisions and is backed by strong customer propositions, from our Reintec cleaning equipment offer through to 'Total Equipment Management' where we manage entire fleets of equipment for some of our largest customers. Here customers recognise the benefits of rental in operational efficiency and maintaining a flexible cost base.

The ERA also notes that c.50% of the market is held by regional and/or independent tool hire operators. HSS is directly targeting this opportunity to win share in local markets through the expansion of our low cost, local branch footprint. This is backed by a retail-like distribution network which supports our customers' number one priority - availability - through both a range of products designed to be hired instantly and access to our entire range next-day.

HSS also services the construction segment of the equipment rental market through our Core tools and equipment offer, albeit more focused on later-cycle "build, maintain and operate" customers and through our rehire division which provides a single point of contact, order and invoice for third party plant and equipment, some of which is used in early-cycle construction. Our Specialist divisions too, benefit from ongoing construction growth supplying powered access and power generation to civil engineering and residential and commercial construction.

During 2015 we successfully launched the first transactional mobile-enabled e-commerce platform from a national tool and equipment hire company, which enables out of hours ordering, click and collect, local stock availability checks and instant access to bespoke pricing for local trades. This commitment to a multi-channel offer positions us well to meet the expectations of our customers, offering convenience and seamless service. It also helps drive up the utilisation of our equipment, making our use of capital more efficient.

Our strategy

Having examined our strategy in depth during the year, the Board is confident that, with modifications to rebase our costs and ensure a deeper focus on operational productivity and capital efficiency, it continues to be the right one to create shareholder return over the medium term. These modifications will allow us to respond to market conditions with more flexibility while optimising investment and margins.

Optimising our branch and distribution network

During 2015, we opened 50 new low cost local branches in new markets, extending our availability promise to our customers and winning share from both national and local competitors. These branches are part of our strategy to become "the local tool hire company with a national presence" and are backed by continual development of our distribution system. This is continuing to evolve in 2016, with the opening in the first quarter of our new National Distribution and Engineering Centre, operated on our behalf by our long term partners, Unipart, alongside our existing network of Customer Distribution Centres across the UK. This latest evolution is designed to deliver clear competitive advantage through enhanced availability of equipment to branches and customer sites in support of our multichannel offer. It also drives utilisation and capital efficiency in our core business.

The roll out plan for local branches has been successful and we will continue to open new local branches during 2016, but with flexibility in the speed of roll out in line with prevailing market conditions. Our current plans see us opening up to 20 new local branches in 2016. We will continue to refine the format, using the lessons learnt from the top performers in the portfolio to further improve the operating model for the entire estate. Our extensive network now comprises over 300 branches and operating locations ensuring that we provide convenience to our customer base.

Win new, and deepen existing, customer relationships

We have focused hard on being able to provide more of the equipment and services that our customers need to enable us to grow revenue with a greater share of their spend. Our Specialist businesses support our ability to be a "one-stop-shop" for customers across many segments. Our OneCall rehire division also supports our growth through the ease of ordering via HSS from a supply chain selected for quality and safety. Following lower than expected growth in key accounts in the first half of the year, we increased our focus on winning new customer accounts in the last quarter.

Continued development and growth of our specialist businesses

Our strategy has been to acquire and integrate specialist businesses, and then invest in fleet and depot expansion to drive growth. During 2015 this contributed to revenue growth for the Group while at the same time depreciation from these investments impacted profitability. We acquired specialist heating and cooling provider, All Seasons Hire, and can now offer our customers access to temporary bespoke chillers and boilers, typically used in managing heating and cooling during complex building moves and maintenance. As with our other specialist businesses we are now focused on expanding All Seasons Hire's reach via depot and fleet expansion. Having completed two years of significant investment in our Specialist businesses, our focus in 2016 will be on organic growth and margin improvement.

In order to support our three strategic priorities, we focus on five strategic enablers which are:

a) Focus on profitability and growth;

b) Deliver value and quality to our customers;

c) Invest in our colleagues;

d) Drive availability and operational efficiency; and

e) Ensure safe, sustainable working environments for colleagues and customers

These are measured by our KPIs which will be set out in our forthcoming Annual Report.

Safety and the environment

We believe in a culture which states that "safety is the way we do things round here" and continue to put an emphasis on the ownership of safety from the Board through to every colleague.

We also deliver innovations in safety - a good example is our anti-entrapment system Activ' Shield Bar which was fitted onto the 1000th UK Platforms' diesel boom during the year. We understand well the role that hire plays in making more efficient use of resources through a reduction in materials used in manufacturing. The opening of our purpose-built refurbishment centre in Manchester has significantly increased our capacity to refurbish more machines. This extension of asset lives is a strong example of our commitment to our role in the "circular economy", making effective use of the world's resources and our own capital.

Our people

Our Training Academy at Reading delivered training to 526 delegates throughout the year. Building on that success we are extending the Academy's reach into our branch network creating Branches of Excellence throughout our operation to deliver ongoing colleague training, while the Academy concentrates on the development of our managers. Training days per colleague is a KPI for our business as we continually develop our colleagues' skills in customer service as well as the technical and safety requirements of the roles they undertake every day. I am continually impressed by the energy, enthusiasm and customer commitment of our colleagues and would like to thank them wholeheartedly for the roles they individually play every day in building our business.

Outlook

Following the challenges of 2015, we are taking a highly disciplined approach to managing our growth, with a focus on cost and operational efficiency, on improving productivity and on delivering higher standards of customer service. Our absolute priority is the creation of shareholder value and we have put in place the foundations for future profitable growth in 2016 and beyond.

John Gill

Chief Executive Officer

FINANCIAL REVIEW

Overview

Following a good start to 2015, with Q1 revenues ahead of budget, full year revenues did not develop as expected. We reported this to this market and took action through the second half of 2015 to address the lower than expected revenue growth in Q2 and Q3. At the revenue level this included investment in our key account teams to enable us to build a larger pipeline and to win and convert more attractive contract opportunities.

At the cost level we reduced our cost base through refining our branch organisational structure, honing our sales teams, and reorganising our customer support and central functions thereby driving efficiency through the business. As a result of actions to date cost savings in Q4 15 were £2.4m, in line with the guidance of £1.5m to £3.0m provided to the market in August 2015.

As indicated in my 2014 Financial Review, we completed our IPO in February 2015. The associated conversion of investor loan notes and accrued interest into equity and partial repayment of our Senior Secured Notes and drawn revolving credit facility balances enabled us to de-gear the business. Since the IPO we have increased the leverage in the business through continued investment in expanding our core and specialist hire fleets to meet customer demand. We also increased the headroom in our existing facilities in November 2015 to give us additional flexibility to execute our plans.

Group financial performance

Revenue

Group revenue grew 10% to £312.3m (2014: £284.6m) as we expanded our core business and invested in our specialist offerings. Particular drivers of this result were:

Revenue growth for 2015 was lower than achieved in 2014 (25.5%), principally reflecting more challenging market/trading conditions widely cited by listed peers and a number of our listed customers, but also reflecting a lower level of acquisitions and the associated full year effect of such acquisitions. In 2014 acquisitions accounted for 6.8% of the revenue growth, compared to 1.3% in 2015.

Growth in revenues from our Key Account customers, whilst positive (+10.3%), was below the level we had expected given our achievements in growing these revenues through 2013 and 2014. We referenced this in our interim results published in August 2015 and took action to reorganise and invest in our business development capabilities to ensure we build and convert a larger pipeline of attractive client opportunities.

This renewed focus on winning and deepening customer relationships was applied to all of our customer groups. Across the group as a whole the average spend per account customer increased to £8.1k (from £7.7k in 2014) reflecting both an increase in revenue from trade accounts and an increase in live accounts through the year.

In respect of wider market growth, the annual ERA European Equipment Rental Industry report estimates that the UK market grew at 1.5% in 2015. This rate of growth was two thirds lower than they had forecast for 2015 at the outset of the year and mirrored the tougher trading conditions previously mentioned. On this basis, we continue to grow at a faster rate than the wider UK tool and equipment market and will continue to target outperformance through 2016.

Costs

Our cost of sales increased by £17.9m (17.4%) to £120.9 million. Approximately £1.7m of this growth was due to the annualisation of the March 2014 Apex Generators acquisition and the purchase of All Seasons Hire in May 2015.

The primary driver of the growth in cost of sales was higher depreciation charges (+£9.4m) relating to our larger hire fleet. This reflects two years of demand-led investment to support growth in the core business and to expand our specialist businesses. Strong growth in HSS OneCall (rehire) and HSS Training revenues and the corresponding increase in related third party supplier costs accounted for £2.1m and £1.0m respectively and stock maintenance costs also increased by £3.0m due to the increased size of the fleet.

Our distribution costs increased by £4.1m (11.0%) to £41.3m. This increase was primarily driven by the growth in volume of customer deliveries and collections, across both the core and specialist businesses. £0.5m relates to the annualisation of Apex Generators and All Seasons Hire acquisitions.

Our administrative expenses increased by £22.3m (18.3%) to £144.2m. The Apex and All Seasons acquisitions accounted for c. £1.2m of this growth. Staff costs also increased due to the branch openings, as well as growth in field-based sales staff. The growth in Key Accounts, HSS Training and HSS Onecall also required additional headcount to be recruited. 2015 was also the first year of life as a plc, with the additional Board and governance costs that are required. The remaining cost increase was driven largely by the annualisation of the 2014 new branch openings combined with the 50 opened in 2015 contributing to an increase in rent and rates costs of £3.4m.

In H2 15 we took the opportunity to review and refine our staffing model across the business, reorganising our operations to reduce cost. The opening of the NDEC in Q1 16 and the new purpose built refurbishment centre in late 2015 bring the opportunity to further improve productivity and operational and capital efficiency.

Our Adjusted EBITDA was broadly flat at £71.0m (FY14: £71.1m) reflecting the increases in our cost bases set out above. Our Adjusted EBITDA margin for FY15 was 22.7% (FY14: 25.0%).

Our Adjusted EBITA was £20.3m (FY14: £31.2m). This decrease year on year principally reflects the increase in depreciation during the year, from £39.9m in FY14 to £50.7m in FY15, which arose primarily as a function of our fleet investment through FY14 and FY15.

Core performance

During 2015 the Core businesses delivered revenue of £261.7m (FY14: £245.6m) and Adjusted EBITDA of £45.6m (FY14: £51.2m) and together accounted for 84% of Group revenue and 64% of the Group's Adjusted EBITDA.

Revenue growth, and as a result of our operational gearing, earnings in our core business were impacted by softer than expected market conditions, price competition and lower than expected growth amongst our customers.

Our cost base increased through the year reflecting increased revenues and associated distribution and stock maintenance costs, the opening and associated running cost of the 50 new immature local branches, ongoing wage inflation, investment in staff in anticipation of certain levels of revenue growth and investment in plc related headcount.

During the year we invested £41.3m in our core hire fleet (2014: £41.9m) and LTM utilisation improved to 48% (2014: 47%).

Specialist performance

During 2015 the Specialist businesses delivered revenue of £50.6m (FY14: £39.0m) and Adjusted EBITDA of £25.4m (FY14: £19.9m) and together accounted for 16% of Group revenue and 36% of the Group's Adjusted EBITDA.

During the year we invested £23.7m in our Specialist hire fleet (2014: £30.0m) and LTM utilisation improved to 76% (2014: 70%). The considerable investment in our Specialist businesses over the last few years has enabled us to build modern well-invested fleets, and to establish a UK wide Specialist depot network, a number of which are co-located with other Specialist businesses or existing HSS locations. This gives us more flexibility for the levels of hire fleet capital expenditure in our Specialist businesses through 2016.

Other income

Other income of £0.9m relates to income received from sub-let non-trading stores. This decreased by £0.2m compared to the prior period as concerted efforts were made to shrink the non-trading property estate through head lease expiries and targeted surrenders.

Operating profit

Operating profit was £6.8m in FY15 (FY14: £23.6m) principally reflecting the £11.9m increase in depreciation and amortisation charges together with the £4.8m year on year increase in non-finance related exceptional costs.

Finance costs

Our net finance expense decreased by £11.4m, or 35.5%, from £32.1m in 2014 to £20.7m. This decrease was primarily due to the reduction in net debt following the IPO at the start of 2015. This reduction led to a decrease in interest on investor loan notes of £7.3m and a £2.3m reduction in senior secured note interest.

Taxation

The Group has incurred an income tax expense of £0.4m in FY15, compared to a £3.0m income tax credit in FY14. The FY15 tax charge principally reflects the origination of unprovided temporary differences. The FY14 tax credit principally related to the recognition of a £2.4m deferred tax asset (on prior year losses) together with the release of deferred tax on intangible assets acquired.

Reported and adjusted earnings per share

Our basic and diluted loss per share increased to 9.9p (FY14: 8.6p). This was due to the larger loss for the year, largely driven by higher depreciation and amortisation charges and an increase in non-finance exceptional costs and partially offset by the increase in the weighted number of shares as a result of the IPO in February 2015.

Our adjusted earnings per share, being profit before amortisation and exceptional costs less tax at the prevailing rate of corporation tax decreased to 3.2p from 8.4p in FY14 reflecting the impact of the lower adjusted profit together with the increase in the weighted number of shares as a result of the IPO in February 2015.

Cash utilised in / generated from operations

Cash utilised in operations was £7.4m for FY15, a £23.8m decrease from the prior period (FY14: £16.4m). This movement principally reflects the £17.4m increase in cash settled purchases of hire equipment in FY15 (extended payment terms from 2014 and purchases made in 2015), together with the increase in exceptional costs in FY15.

Capital expenditure

Fixed asset additions during the period (excluding assets acquired on acquisition) were £84.0m, slightly higher than in 2014 (£83.6m). Of this total, £65.0m represented additions of materials and equipment held for hire (2014: £71.9m) and £16.0m represented additions to non-hire equipment (land, buildings, plant and machinery) (2014: £11.7m) with a further £3.0m related to the accounting for dilapidations on new properties. The increase in non-hire equipment additions principally reflects the opening and fit out of 50 new low cost local branches and relocated distribution centres such as in Reading and St Ives.

Fleet investment continued to exceed depreciation, consistent with 2014, and reflects the substantial investment made in growing both our Core and Specialist hire fleets over the last two years. This investment together with the opening of the new National Distribution and Engineering Centre, which is designed to further enhance availability across our branch network, enables us to reduce our capital expenditure in 2016 in line with softer customer demand.

Return on Assets ("ROA") and Return on Capital Employed ("ROCE")

Our ROA for FY15 is 14.9%, 12 percentage points lower than in FY14 (27.0%). This decrease is primarily due to the lower EBITA generated during FY15, the reasons for which are set out above, but also reflects the significant investment in our fleet through FY14 and FY15 which together materially increased the average net book value of hire fleet in use by £33.2m. ROA is calculated as Adjusted EBITA divided by the total of average total assets (excluding intangible assets) subtracted by average current liabilities.

Our ROCE for FY15 is 11.2%, a reduction of 12 percentage points for the same reasons outlined above. ROCE is calculated as Adjusted EBITA divided by the total of average total assets (excluding intangible assets and cash) less average current liabilities (excluding current debt items).

Leverage and net debt

Net debt (stated gross of issue costs) decreased by £98.9m to £218.1m. This decrease principally reflects the repayment of £64.0m of our Senior Secured Notes from the proceeds of the IPO in February 2015 and the conversion of investor loan notes into equity, offset by increases in our finance leases and RCF drawings through the year as we have settled capital expenditure creditors from 2014 and through 2015. Our leverage, calculated as net debt divided by Adjusted EBITDA decreased from 4.5x in FY14 to 3.1x at the end of FY15.

Steve Trowbridge

Chief Financial Officer

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement has been prepared in connection with the full Annual Report and Accounts of the Group. Certain sections referred to herein are not included in this announcement.

We confirm that to the best of our knowledge:

We consider that the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

This Responsibility Statement was approved by the Board of Directors on 6 April 2016 and is signed on its behalf by:

PRINCIPAL RISKS AND UNCERTAINTIES

FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF CONSOLIDATED INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

1. Basis of preparation / Accounting policies

The Group's financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and on a basis consistent with that adopted and set out in our 2015 Interim Report (available at www.hsshiregroup.com/ investor-relations/financial-results).

The Group financial statements have been prepared, on a going concern basis, on a consistent basis, under the historical cost convention as modified by financial assets and liabilities (including derivative instruments) at fair value through the profit or loss. The financial statements were approved by the Board on 6 April 2016.

These are the first annual consolidated financial statements of HSS Hire Group plc, which is the new holding company of Hampshire Topco Limited, following the reconstruction of the Group to facilitate the initial public offering of and admission of ordinary shares in new parent company HSS Hire Group plc to the Official List of the London Stock Exchange on 9 February 2015.

The consolidated financial statements have been prepared under the merger method of accounting because the transaction under which HSS Hire Group plc became the holding company of Hampshire Topco Limited was effectively a group reconstruction with no changes in the ultimate ownership of the group and all the shareholdings in Hampshire Topco plc were exchanged via a share for share transfer. HSS Group plc did not actively trade at the time. The merger of the companies took place on 4 February 2015.

The financial statements have been presented as a continuation of the Hampshire Topco Limited business. The result of the application is to present the financial statements as if HSS Hire Group plc has always owned the Group, and the comparatives have been prepared on this basis.

The financial information included in this preliminary statement of results does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The financial information has been extracted from the 2015 statutory accounts on which the auditors have reported; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2015 or 2014.

The Annual Report and Accounts for the year ended 26 December 2015 will be posted to shareholders on or about 22 April 2016, and delivered to the Registrar of Companies shortly thereafter

2. Segment reporting

The management team considers the reportable segments to be HSS Core and HSS Specialist. All segment revenue, operating profit, assets and liabilities are attributable to the principal activity of the Group being the provision of tool and equipment hire and related services in the United Kingdom and the Republic of Ireland. The Group has no single external customers that provide more than 10% of Group turnover.

3. Other operating income

4. Exceptional items

Items of income or expense have been shown as exceptional either because of their size or nature or because they are non-recurring. An analysis of the amount presented as exceptional items in the consolidated income statement is given below.

Restructuring, IPO costs and Acquisition costs

During the year the Group incurred costs of £5.3m (2014: £1.1m) in relation to the restructuring of the business and its operations. Of the £5.3m incurred in 2015, £2.0m related to onerous leases on non-trading stores, £1.8m related to set-up costs of the NDEC as we accelerated its development and £1.5m related to the cost reduction plan, principally redundancies. IPO costs incurred in the year and not available to offset against share premium account totalled £2.9m (2014: £2.4m).

During the year the group has incurred £0.3m (2014: £0.2m) relating to acquisitions. Principally these costs have related to legal and professional fees associated with the acquisitions. In accordance with IFRS these have been expensed as incurred.

The tax effect of these items in the year ended 26 December 2015 was to reduce the tax charge by £1.8m (2014: £0.7m).

Refinancing costs

On 12 February 2015 the Group, made an early redemption of £64.0m of its 6.75% senior secured note. This gave rise to a bond redemption premium of £4.3m and the acceleration of the write off of debt issue costs of £1.8m.

In the year ended 27 December 2014 the Group incurred costs associated with restructuring its debt. These costs include £6.6m in relation to the acceleration of the write off of previous debt issuance costs, net of a receipt of £0.5m for the early termination of a swap agreement.

The tax effect of these items was to reduce the tax charge by £1.2m (2014: £1.3m).

Fair value movement on derivative financial instruments

The Group took out an interest rate swap in 2012 to fix LIBOR interest at 0.959% in respect of £120 million of the senior debt which was due to expire on 26 November 2016. The movements in the fair value of the interest rate swap have been taken to profit and loss and presented as exceptional items.

The interest rate swap was cancelled in the year ended 27 December 2014 as part of the 2014 debt restructuring, hence there is no similar charge in the year ended 26 December 2015.

5. Finance income and expense

The bond redemption premium charged in to profit and loss in 2015 relates to the early partial redemption of the senior secured note using part of the funds raised from the IPO. Debt issue costs in 2015 include £1.8m of accelerated write off of previous debt issuance costs due to the partial redemption.

The debt issue costs charged to profit and loss in 2014 arose as a result of the bond issue and refinancing undertaken, and includes £6.6 million of accelerated write off of previous debt issuance costs and net of a receipt of £0.5m for the early termination of a swap agreement.

6. Earnings per share

Basic and diluted earnings per share has been calculated by dividing the result attributable to equity holders by the weighted average number of ordinary shares in issue for that period. Adjusted earnings per share has been calculated after adjusting the result attributable to the equity holders for exceptional items and the amortisation charge. The following is a reconciliation between the basic and diluted earnings per share and the adjusted basic and diluted earnings per share.

7. Intangible assets

On the acquisition of All Seasons Hire Limited on 8 May 2015 the Group acquired £1.3m of customer lists and £0.6m of brand intangible.

All goodwill arising on business combinations has been allocated to the Cash Generating Units (CGUs) that are expected to benefit from those business combinations. The Group tests goodwill and indefinite life brands annually for impairment.

Analysis of goodwill and indefinite life brands by cash generating units

The Group estimates the recoverable amount of a CGU using a value in use model by projecting pre-tax cash flows for the next five years together with a terminal value using a long term growth rate. The key assumptions underpinning the recoverable amounts of the CGUs tested for impairment are forecast revenue and EBITDA.

The five year plans used in the impairment models are based on management's past experience and future expectations of performance.

The key assumptions used for all material CGUs are a pre tax discount rate of 10.3% (2014: 11.4%) a short to medium term growth rate of between 5% and 12% (2014: between 5% and 17%), and a long term growth rate of 2.5% (2014: 3%).

The pre-tax discount rate used is derived from a weighted average cost of capital (WACC) calculation for the Group and benchmarked against similar organisations operating within the sector. The long term growth rate used does not exceed the average for the sector.

The total recoverable amount in respect of goodwill and brands, as assessed by management using the above assumptions, is greater that the carrying amount and therefore no impairment charge has been booked in the year for any CGU.

Management consider that it is not reasonably possible for the assumptions to change so significantly as to eliminate the excess.

Other intangible assets

No impairment tests were considered to be required at 26 December 2015 and the carrying value of other intangible assets is considered to be appropriate.

8. Property, plant and equipment

The net book value of materials and equipment held for hire includes an amount of £38.8m (27 December 2014: £13.9m) in respect of assets held under finance leases. The depreciation charge for assets held under finance leases in the year ended 26 December 2015 was £7.3m (2014: £4.0m).

9. Trade and other receivables

The provision for impairment of trade receivables is estimated based upon past default experience and the directors' assessment of the current economic environment, and includes provisions for credit notes raised after year end for customer invoices issued before year end. The creation and release of bad debt receivables provision is charged/ (credited) to administrative expenses in the income statement, and the credit note provision is charged/ (credited) to revenue.

The following table details the movements in the provision for impairment of trade receivables.

The ageing profile of debtors that are overdue but not impaired is: