Hss Hire Regulatory News (HSS)

26 August 2015

HSS Hire Group plc

Interim report: Half year results for the 26 week period ended 27 June 2015

HSS Hire Group plc ("HSS" or the "Group") today announces results for the 26 week period ended 27 June 2015.

Financial Highlights for HSS Hire Group plc (1)

Trading and Operational Highlights for HSS Hire Group plc

Current Trading and Outlook

Explanatory Notes:

1) H1 14 numbers provided are for 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

2) Adjusted EBITDA defined as Operating profit with depreciation, amortisation and exceptional costs added back (exceptional costs include: restructuring, IPO and acquisition costs)

3) Adjusted EBITA defined as Adjusted EBITDA less depreciation

Commenting on the half year results and trading outlook, Chris Davies, Chief Executive Officer, said:

"Our results for the first half of 2015 are in line with our update at the end of June, with revenue growth of 12% and further gains in market share. However, as others have reported, trading continues to be unpredictable, and after a reasonable July, we have seen softer market conditions in August. This is obviously disappointing. As a result we are cautious on the outlook for the balance of the year and now expect full year earnings to be below current market expectations.

"Notwithstanding this, we are confident that our strategy is continuing to underpin our market share progress. We are seeing strong growth in the specialist businesses as a result of our investment. We are building our Key Accounts pipeline and our roll-out of local branches is progressing to plan with 50 openings this year.

"We are making good progress in our plans to open a new National Distribution Centre in H1 2016, which will further increase availability for customers. This will also enable us to fully exploit our market-leading online proposition. Furthermore, this development will allow our existing hub and spoke network to concentrate exclusively on customer deliveries and collections, enhancing service levels. It will also contribute to the rebasing of costs in the range of £8m and £12m in 2016 with between £1.5m and £3m being delivered in Q4 2015. Despite the softer August we remain confident in the medium and long term growth prospects for the business."

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 3427 1900. Password: HSS Hire. A copy of the presentation will be available at www.hsshiregroup.com/investor-relations/financial-results/ from 8.30 a.m. BST today.

A separate conference call discussing the results of Hero Acquisitions Limited will be held for holders of Senior Secured Notes at 2.00 p.m. BST today. Details for this call and an accompanying presentation will be made available at www.hsshiregroup.com/investor-relations/senior-secured-notes/.

For further information, please contact:

Notes 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, following its IPO in February 2015. For more information please see www.hsshiregroup.com.

Overview

Revenue in H1 15 was £146.4m, representing 12.1% growth compared to revenue of £130.6m for the 26 week period ended 28 June 2014 ("H1 14"). Growth in the organic business accounted for 10.6% of this increase, with the remainder due to the inclusion of revenue from Apex Generators for Q1 15 and from All Seasons Hire for the 7 week period since its acquisition on 8 May 2015.

Revenue growth in Q2 15 was slower than in Q1 15 with Group revenue growing at a rate of 9.1% compared to 15.2% in Q1 15. The organic business accounted for 8.2% of this increase during Q2 15 (Q1 15: 13.1%).

Revenue in the Core business was up 9.3% to £125.1m (H1 14: £114.5m) with a strong revenue contribution from new local branches. Revenue in the Specialist business grew 31.5% to £21.3m (H1 14: £16.2m) reflecting continued high levels of utilisation alongside ongoing fleet investment and the acquisitions during the current and prior periods.

Adjusted EBITDA was flat period on period at £28.9m (H1 14: £28.9m) in line with the expectations and guidance issued in the pre-close trading update on 29 June 2015. This was primarily due to investment in the planned roll-out of local branches (new sales colleagues and rent & rates), the first year of plc costs, the ongoing investment in rolling out the "HSS Way" process improvement initiative and lower than expected revenue growth.

Adjusted EBITDA in the Core business was 17.1% lower at £17.9m (H1 14: £21.6m) and Adjusted EBITDA in the Specialist business was up 50.7% to £11.0m (H1 14: £7.3m).

The Group reported an operating loss of £1.5m in H1 2015, compared to an operating profit of £8.4m in H1 2014, principally reflecting £3.0m exceptional expenses relating to the Initial Public Offering completed in February 2015, and increased depreciation charges due to the investment in its hire fleet through the 52 week period ended 27 June 2015.

Finance expense was £5.8m lower at £12.6m (H1 14: £18.4m) reflecting lower exceptional finance costs of £4.3m, being the early redemption fee paid on the partial redemption of the Senior Secured Notes in February 2015. This compares to £7.8m of exceptional finance costs in H1 2014 relating to the issue of the Senior Secured Notes in February 2014 (£6.6m) and a fair value movement on a derivative financial instrument in H1 2014 (£1.2m).

The basic and diluted loss per share decreased materially from 19.61p in H1 2014 to 10.51p in H1 15, reflecting the increased loss after tax in H1 15, which was more than offset by the significant increase in the weighted average number of shares between the two periods.

The underlying basic and diluted loss per share decreased from 6.03p to 4.45p, reflecting the increase in the adjusted loss after tax, that is the loss after tax before exceptional costs, which was more than offset by the increase in the weighted average number of shares between the two periods.

Net debt at 27 June 2015 was £197.2m, a decrease of £109.2m from £306.4m as at 28 June 2014, principally reflecting the repayment of £64.0m of the Senior Secured Notes and conversion of the Investor Loan Notes (and accrued interest) into Ordinary Share Capital, both of which occurred as a result of the IPO. This de-gearing was partially offset through the net drawdown of new finance leases and the Revolving Credit Facility over the period to finance the settlement of hire fleet capital expenditure creditors in respect of purchases made during 2014.

Dividend

The Directors are declaring an interim dividend of 0.57p per ordinary share, reflecting the Board's stated intention to adopt a progressive dividend policy, with a medium term target of three to 4.5 times normalised earnings cover.

The interim dividend will be paid on 1 October 2015 to shareholders on the register at close of business on 4 September 2015. The ex-dividend date is 3 September 2015.

Non-trading events

The main non-trading event that occurred during H1 15 was the Initial Public Offering ("IPO") 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. In addition to making HSS a listed entity the IPO enabled the Group to reduce net debt through the partial repayment of the Senior Secured Notes and conversion of Investor Loan Notes from debt into equity.

The unaudited consolidated financial statements herein 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 (the entity for which H1 14 numbers are provided) 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. The merger of the companies took place on 4 February 2015.

On 15 July 2015 the courts approved a special resolution passed by the shareholders to complete a capital reduction and transfer £98,553,000 from the share premium account to retained earnings. This capital reduction enabled the HSS Hire Group plc to create distributable reserves from which dividends can be paid.

Progress against strategy

The group delivered revenue growth through H1 15 despite softer market conditions and has continued to make good progress against the three strategic priorities detailed in its 2014 Report of the Year:

Notes

1) Organic growth only. Revenue from Apex Generators in Q1 2015 is excluded as Apex Generators was not owned by the business during Q1 2014.

Outlook

Recovery and activity levels in the repair, maintenance and improvement ("RMI") and housing markets have continued to be slower and more erratic than predicted by most commentators and this has continued into Q3 15, with customer demand more variable than we would traditionally expect at this time of year.

While the Directors have seen more reasonable revenue growth in July, there is some softening during August across a variety of sectors and customers. This variability period on period and week on week is making it more challenging to predict the out-turn for the year. Against this backdrop, we now expect revenue and earnings for the full year will be below current market expectations.

As a result, the Directors have examined current strategy and progress against plan. Whilst revenue growth has been lower than planned during H1 15, there are encouraging signs that the Group's strategy is resonating well with its customers and underpinning further market share gains. In particular, the Directors have considered the Group's performance against the following operational metrics which are provided today to help illustrate the progress being made:

Notes

1) Based on 858 interviews conducted in May - June 2015

2) Represents the average NPS score of the top third of businesses surveyed by TNS calculated in the period between 2009 and 2012

3) HSS defined group of competitors in the UK tool and equipment rental market. Weighted average score calculated in the Oct/Nov 2014 analysis performed by TNS

4) Represents the average NPS score amongst B2B service companies in the UK calculated by TNS (based on 25,000 business customer interviews in the UK across Industry Products and Services between 2009 and 2012

The performance evident in these metrics together with the growth of the Specialist businesses and Key Accounts give the Directors confidence in the Group's strategy for the medium and long term growth of the business.

The Directors continue to make good progress with plans to evolve the Group's distribution network which will also contribute to the rebasing of the Group's cost base. The Directors are targeting gross cost savings of between £1.5m and £3.0m in Q4 FY15 and between £8.0m and £12.0m in 2016. The planned evolution of the distribution network will deliver further improvements in availability for same day and next day pick up ranges in the local branches, further enhancing service levels for customers and enable the existing hub and spoke distribution network to focus exclusively on customer delivery and collection.

The Group intends to report on its progress against these initiatives in November, when it gives its next quarterly results update.

The principal risks and uncertainties which could have a material impact upon the Group's performance over the remaining 26 weeks of the 2015 financial year have not changed significantly from those summarised in note 23 of this interim report.

Responsibility Statement

We confirm to the best of our knowledge that:

(a) the condensed interim set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union;

(b) the Interim Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the Interim Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Unaudited consolidated income statement

The notes form part of these interim financial statements

Unaudited consolidated statement of comprehensive income

The notes form part of these interim financial statements.

Unaudited consolidated statement of financial position

The notes form part of these interim financial statements.

Unaudited consolidated statement of changes in equity

The notes form part of these interim financial statement

HSS Hire Group plc

Unaudited consolidated statement of cash flows

The notes form part of these interim financial statements

HSS Hire Group plc

Notes forming part of the unaudited interim financial statements

1. Accounting policies

a) Reporting entity

The Company is incorporated and domiciled in the United Kingdom.

These consolidated unaudited interim financial statements comprise the Company and its subsidiaries (the Group).

The Group is primarily involved in providing tool and equipment hire and related services in the United Kingdom and the Republic of Ireland.

HSS Hire Group Limited was incorporated on 7 January 2015 as a private company limited by shares in the United Kingdom and re-registered as a public limited company on 19 January 2015. The Company listed its shares on the London Stock Exchange on 9 February 2015.

b) Presentational currency

These consolidated unaudited interim financial statements are presented in pounds Sterling (£), which is the Group's presentational currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

c) Basis of preparation

The financial information for the half years ended 27 June 2015 and 27 June 2014 have neither been subject to an audit nor a review in accordance with the International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board. The comparative financial information presented herein for the year ended 27 December 2014 does not constitute full statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The financial information in these condensed financial statements is that of the holding company and all of its subsidiaries (the "Group"). It has been prepared in accordance with IAS 34, Interim Financial Reporting, as endorsed by the European Union.

These consolidated unaudited interim financial statements have been prepared on a historical cost basis, with the exception of derivative financial instruments which are measured at fair value on each reporting date.

The financial statements have been prepared in accordance with International Financial Reporting standards ("IFRS") as endorsed by the European Union.

These are the first set of consolidated financial statements of HSS Hire Group plc, which is the new ultimate holding company of Hampshire Topco Limited, following the reorganisation of the Group to facilitate the Initial Public Offering.

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.

Under merger accounting the shares issued on merger were recorded in the consolidated financial balance sheet at the nominal value of the shares issued plus the fair value of any additional consideration, The difference between the nominal value of the shares issued and the nominal value of the shares acquired, if any is taken to a merger reserve in the Group accounts. The assets and liabilities of the subsidiaries are consolidated at book value in the Group accounts and the consolidated reserves of the group are adjusted to reflect the statutory share capital, share premium and merger reserve of HSS Hire Group plc as if it had always existed, adjusted for movements in the underlying Hampshire Topco Ltd share capital and reserves until the share for share exchange.

The principal steps of the Group reorganisation were as follows.

On incorporation the share capital of HSS Hire Group Limited was £50,001 divided into 1 ordinary share of £1.00 each and 50,000 redeemable preference shares of £1.00 each.

HSS Hire Group plc replaced Hampshire Topco Limited as the holding company of the Group, immediately following determination of the Offer Price on 3 February 2015, through a share for share exchange.

As part of the reorganisation, and immediately prior to the share for share exchange the external loan note holders in the Hampshire Topco Group transferred all of their interests in the notes to Hampshire Topco Limited in consideration for the issue of ordinary shares in Hampshire Topco Limited. An aggregate loan note balance of approximately £86,000,000 including £795,500 of accrued interest was converted into ordinary shares. Such shares in Hampshire Topco Limited were subsequently exchanged for shares in HSS Hire Group plc as part of the reorganisation.

In addition, at the same date, the 50,000 preference shares were redeemed.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated unaudited interim financial statements.

d) Critical accounting estimates and judgements

In preparing these consolidated unaudited interim financial statements, management has made judgements, estimates and assumptions that affect the application of the Group's accounting policies and the reported amount of assets, liabilities, income, expenses and other disclosures. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an ongoing basis.

Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information or further information. Such changes are recognised in the period in which the estimate is revised.

Key assumptions about the future and key sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying value of assets and liabilities over the next year are set out below.

Impairment of goodwill and intangible assets

These assets are reviewed annually or more frequently if there is an indication of impairment to ensure that they are not carried above their estimated recoverable amounts. To assess if any impairment exists, estimates are made of the future cash flows expected to result from the use of the asset and its eventual disposal. Actual outcomes could vary from such estimates of discounted future cash flows.

Onerous lease provision

When an onerous lease has been identified the costs of exiting the lease and leaving the leased property are estimated by management and provided for. The actual costs of exiting the lease could vary from the estimates.

Useful economic life of assets

The Group's policy for applying useful economic lives and residual values of assets has been determined through applying historical experience and taking into consideration the nature of assets and their intended use.

Fair value of acquired assets

When the Group acquires an entity the fair value of the acquired tangible and intangible assets needs to be estimated by management.

e) New accounting standards and accounting standards not yet effective

The following new standards, amendments to standards and interpretations issued by the International Accounting Standards Board (IASB) became effective in the period to 17 July 2015. The accounting policies adopted in the presentation of the Company financial statements reflect the adoption of the following new standards, amendments to standards and interpretations as of 7 January 2015. These have not had any material impact on the financial statements.

f) Standards effective in future periods

Certain new standards, amendments and interpretations to existing standards have been published that are relevant to the Company's activities and are mandatory for the Company's accounting periods beginning after 17 July 2015 or later and which the Company has decided not to adopt early.

g) Going concern

Note 17 includes the Group's objectives, policies and processes for capital management and for financial risk management including market risk, credit risk and liquidity risk.

The directors have also considered the adequacy of the Group's debt facilities with specific regard to the following factors:

- there is no requirement to redeem any of the Senior Secured Notes until 1 August 2019

- the financial covenants relating to the revolving credit facility secured by the Group, and as detailed in note 17.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, and senior debt and interest repayments, show that the Group is expected to be able to operate within the level of its current facilities for the foreseeable future.

After reviewing the above, taking into account current and future developments and principal risks and uncertainties (see note 23), and making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing these consolidated unaudited interim financial statements.

h) Basis of consolidation

Subsidiaries are all entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained.

Unless merger accounting has been adopted in specific circumstances, the Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date, any gains or losses arising from such re-measurement are recognised in the profit or loss.

Any contingent consideration is measured at fair value at the acquisition date. If the contingent consideration is classified as equity then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of contingent consideration are recognised in profit or loss.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.

i) Segment reporting

IFRS 8 Operating segments requires operating segments to be reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the management team, including the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer.

For management purposes, the Group is organised into segments based on services provided, and information is provided to the management team on these segments for the purposes of resource allocation and segment performance management and monitoring.

The management team considers there to be two reportable segments:

All trading activity and operations are in the United Kingdom and the Republic of Ireland.

j) Foreign currency translation

Foreign currency transactions are translated into Sterling, the Group's presentational currency, using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign currency translation gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within finance income or finance expense. All other foreign currency translation gains and losses are presented in the income statement within administrative expenses.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group's presentational currency, Sterling, at foreign currency exchange rates ruling at the reporting date.

The revenues and expenses of foreign operations are translated at an average rate for the period, which approximates the foreign currency exchange rates ruling at the dates of the transactions. Exchange differences arising from the translation of foreign operations are reported in other comprehensive income.

k) Property, plant and equipment

Land and buildings comprise leasehold and freehold retail outlets, workshops and offices, and are stated at cost, less depreciation or provision for impairment where appropriate. Land is not depreciated and depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

Materials and equipment held for hire purposes are stated at cost, less depreciation or provision for impairment where appropriate. Materials and equipment are written off over their useful economic life to the asset's residual value which is estimated at between ten percent of cost and nil. Profits or losses arising when customers are invoiced for loss of equipment held for hire purposes are calculated by reference to average written down values.

Gains and losses on disposals of materials and equipment held for hire are calculated as the difference between the proceeds received and the carrying amount of the asset and are recognised in profit or loss.

l) Intangible assets

Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the difference between the fair value of the consideration transferred and the fair value of the acquired assets, liabilities and contingent liabilities.

Impairment of goodwill

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (CGUs), or groups of CGUs that is expected to benefit from the synergies of the combination. A CGU is the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash flows of other assets or CGUs.

Goodwill impairment reviews are undertaken annually. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

Intangible assets acquired on acquisition

When an acquisition is completed intangible assets are separately identified from goodwill and measured at fair value. Brands are valued using the relief from royalty method. Customer relationships are valued using the excess of earnings method.

The HSS brand was first established in the late 1950's, and therefore given its longevity the directors consider the HSS brand to have an indefinite life and it is not therefore amortised, but instead subjected to annual impairment testing using the relief from royalty methodology to calculate the fair value of the brand.

All other brands and customer relationships are amortised over their useful economic life. The directors have assessed the brands of ABird, UK Platforms, TecServ and Apex and estimated that they have useful economic lives of 20 years. The directors have estimated the customer relationship intangible assets recognised on the acquisition of Hero Acquisitions Limited, TecServ Cleaning Equipment Services Limited and Apex Generators Limited as having useful economic lives of 10 years.

Software development costs

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed four years.

Other intangible assets

Other intangible assets that are acquired by the Group that have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Other intangible assets are amortised over their useful economic life, and the amortisation charge included in administrative expenses.

Impairment of intangible assets (excluding goodwill)

Impairment reviews are undertaken whenever events or changes in circumstances indicate their carrying value may not be recoverable. If the fair value of an intangible asset is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount is increased to the revised estimate, but restricted so that the increased amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. Any impairment losses or reversals are recognised immediately in the income statement.

m) Derivative financial instruments

Historically the Group has used a derivative financial instrument to manage its exposure to interest rate risk. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

A derivative is presented as a non-current asset or non-current liability if the remaining maturity of the instrument is more than one year and is not expected to be realised or settled within one year. Where this is not the case, derivatives are presented as current assets or current liabilities.

n) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provision is made for those inventory items where the net realisable value is estimated to be lower than cost. Net realisable value is based on both historical experience and assumptions regarding estimated future sales value.

o) Trade receivables

Trade and other receivables are recognised initially at fair value, which is deemed to be the transaction price. Subsequently, trade and other receivables are measured at amortised cost using the effective interest method, less any provision for impairment.

p) Cash

In the statement of cash flows, cash includes cash in hand, deposits held at call with banks and bank overdrafts. In the statement of financial position, bank overdrafts are shown within borrowings in current liabilities.

q) Share capital

Share capital

Financial instruments used by the Group are classified as equity only to the extent that they do not meet the definition of a financial asset or a financial liability. The Group's ordinary shares and preference shares are classified as equity instruments. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

Share premium

The amount subscribed for share capital in excess of nominal value, less any costs directly attributable to the issue of new shares

Retained earnings/accumulated deficit

Cumulative net gains and losses recognised in the income statement.

Dividends

Dividends on ordinary share capital are recognised as a liability in the Group's financial statements in the period in which they are declared by the Company. In the case of interim dividends, these are considered to be declared when they are paid and in the case of final dividends these are declared when authorised by the shareholders.

Merger Reserve

The merger reserve is the amount arising on the difference between the nominal value of the shares issued on acquisition of the subsidiary company and the carrying value of the interest in subsidiary.

r) Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are recognised initially at fair value and subsequently measured at amortised cost. Trade payables are classified as current liabilities if payment is due within one year or less, otherwise they are presented as non-current liabilities.

s) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

t) Cost of sales, distribution costs and administrative expenses

Cost of sales includes direct costs associated with the Group's principal business of equipment hire. Such costs include hire stock rehire, cost of reselling plant and equipment, maintenance, depreciation, amortisation and asset write off and disposals. Distribution expenses comprise vehicle costs and transport wages. Administrative expenses comprise principally staff and property costs and costs of acquisitions.

u) Earnings before interest, taxation, depreciation and amortisation (EBITDA) and Adjusted EBITDA

EBITDA and Adjusted EBITDA are non-IFRS and non-Generally Accepted Accounting Policy (GAAP) performance measures used by management to assess the operating performance of the Group. EBITDA is defined as operating profit before interest, tax, depreciation, amortisation and hire stock disposals and write offs. Exceptional items are excluded from EBITDA to calculate Adjusted EBITDA. The directors primarily use the Adjusted EBITDA measure when making decisions about the Group's activities. As these are non-GAAP measures, Adjusted EBITDA and Adjusted operating profit measures used by other entities may not be calculated in the same way and are hence not directly comparable.

v) Finance income and expense

Finance income comprises interest received on cash balances.

Finance expense comprises interest payable on borrowings, interest payable on finance leases, amortisation and write off of debt issuance costs and the unwinding of the discount on non-current provisions.

Interest is recognised in profit or loss as it accrues, using the effective interest rate. Interest payable on borrowings includes a charge in respect of attributable transaction costs, which are recognised in profit or loss over the period of the borrowings on an effective interest basis. The interest expense component of finance lease payments is recognised in the income statement using the lease's implicit interest rate.

w) Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of financial position. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

x) Employee benefits

Short term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Pension obligations

The Group operates employee optional stakeholder retirement and death benefit schemes. Both employee and employers are required to make contributions with the employers' contributions for each employee determined by the level of contribution made by the employee and the employee's length of service within the Group or subsidiary company. The employer's contributions are charged to profit and loss in the year in which the contributions are due.

Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 Provisions, contingent liabilities and contingent assets (IAS 37) and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 1 year after the end of the reporting period are discounted to their present value.

y) Provisions

Provisions for onerous leases, restructuring costs and legal claims are recognised when:

Provisions for dilapidation are recognised in full when the related facilities are installed. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related property. The amount recognised is the estimated cost of dilapidations, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated timing of dilapidations or dilapidations cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the dilapidations provision is included as a finance expense.

Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

z) Revenue recognition

The Group's activities consist of supplying hire and equipment services within the UK and the Republic of Ireland. Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods and services supplied, stated net of discounts, rebates, returns and value added taxes.

The Group recognises revenue when the amount of revenue can be reliably measured when it is probable that future economic benefits will flow to the entity. Revenue is recognised as follows:

Revenue arising from the sale of ex-hire fleet assets, fuel and consumables is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer.

aa) Leases

Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have transferred to the Group, and hire purchase contracts are capitalised in the balance sheet and are depreciated over the shorter of useful life and lease term with any impairment being recognised in accumulated depreciation. Leased assets are recorded at an amount equal to the lower of its fair value and the present value of the minimum lease payments at the inception of finance leases. The capital elements of future obligations under leases and hire purchase contracts are included in liabilities in the statement of financial position and analysed between current and non-current amounts. The interest elements of the obligations are charged to the income statement over the periods of the leases and hire purchase contracts so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Operating lease rentals are charged to the income statement on a straight-line basis over the lease term.

Lease incentives are recorded as a liability and then recognised over the lease term on straight line basis in the income statement as a reduction of rental expense.

bb) Fair value measurement

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Set out below is an analysis of the valuation method of the Group's financial instruments:

The different levels in the fair value hierarchy have been defined as follows:

Fair values have been determined for measurement purposes based on the following methods:

Derivative instruments (level 2)

The fair values of interest rate swaps are calculated as the present value of the estimated future cash flows based on the terms and maturity of each contract and using market interest rates as applicable for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and counterparty where appropriate.

The fair value of interest rate swap contracts are calculated by management based on external valuations received from the Group's bankers and is based on anticipated future interest yields.

cc) Exceptional items

Exceptional items are disclosed separately in the income statement where it is necessary to do so to provide further understanding of the financial performance of the Group. Exceptional items are items of income or expense that have been shown separately due to the significance of their nature or amount and include acquisition costs, fair value movements on derivative financial instruments, restructuring costs and accelerated debt issuance costs.

dd) Listing costs

As disclosed in note 1c, HSS Hire Group plc was admitted to the premium listing segment of the Official List of the Financial Conduct Authority on 9 February 2015. As part of the IPO, the Group incurred certain costs. These costs have been allocated between those relating to the issue of new shares, those related to the issue of existing shares, and those costs related to other activities associated with the IPO. Costs that relate to the issue of new shares have been set against HSS Hire Group plc's share premium account in accordance with IAS32 (Financial Instruments: Presentation). All other IPO related costs are charged to profit or loss.

ee) Credit note provision

The Group makes provision for credit notes raised after the end of the reporting period that relate to customer invoices raised before the end of the period, net of any impairment charges relating to the customer invoices.

2. Segmental reporting

As explained in note 1g, the management team considers the operating and 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 that 10% of the group's 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 costs

During the periods presented in these consolidated unaudited interim financial statements the Group has incurred costs in relation to the restructuring of the business and its operations. Included within this are costs of £3.0 million (26 weeks ended 28 June 2014: £nil) incurred in relation to the IPO and relate to professional adviser and broker fees. Other costs included in administrative expenses are associated with non-trading stores (including onerous leases and dilapidations), of £0.6 million (26 weeks ended 28 June 2014: £0.8 million) and costs associated with acquisitions in the period of £0.2 million (26 weeks ended 28 June 2014: £0.2 million).

Refinancing costs

In the period ended 28 June 2014 the Group incurred costs associated with restructuring its debt. These costs were in relation to the acceleration of the write off of previous debt issuance costs, and are net of £0.5 million received in relation to the early cancellation of an interest rate swap. In the period ended 27 June 2015 £4.3 million was charged to the income statement relating to the early partial redemption of the senior secured note using part of the funds raised from the IPO.

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 period ended 28 June 2014 as part of the 2014 debt restructuring hence there is no similar charge in the period ended 27 June 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.

The debt break fees and issue costs charged to the income statement in 2014 arose as a result of the bond issue and refinancing undertaken.

6. Earnings per share

Basic and diluted earnings per share is calculated by dividing the result attributable to equity holders by the weighted average number of ordinary shares in issue for that period. Underlying earnings per share is calculated as the result attributable to the equity holders less exceptional items. The following is a reconciliation between the basic and diluted earnings per share and the underlying basic and diluted earnings per share.

7. Intangible assets

All goodwill arising on business combinations has been allocated to the 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 brands by cash generating units

8. Property, plant and equipment