Marlowe Regulatory News (MRL)

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

3 December 2019

MARLOWE PLC

Half Year Results FY 2020

Marlowe plc ("Marlowe", the "Company" or the "Group"), the specialist services group focused on developing companies which assure the regulatory compliance and safety of UK businesses, announces its unaudited results for the six-month period ended 30 September 2019 ("Interim Report").

Summary:

·; Group revenue up 58% to £89.3m. Current 12 month run-rate revenues of approximately £200m

·; Organic revenue growth of 6.5%, benefiting from the Group's broader compliance capabilities, superior service levels and cross-selling between divisions

·; Adjusted EBITDA up 50% to £7.5m

·; Adjusted profit before tax up 58% to £6.2m

·; Adjusted EPS up 31%

·; Oversubscribed placing to raise £20m completed in May 2019

·; Completion of three acquisitions during the period and a further two since the period end, extending the scale and breadth of the Group's compliance services:

o As announced separately today: Acquisition of Law At Work ("LAW") significantly developing our compliance capabilities in the Employment Law, HR and H&S Compliance arena which shares attractive synergies with our existing H&S activities

o As announced yesterday: Acquisition of FSE Fire Safety Systems Limited ("FSE Fire"), further developing our leading Fire Safety & Security capabilities

o Acquisition of Clearwater Group ("Clearwater") created a leading Water Treatment & Hygiene operation with run-rate annual revenues of £75m, with integration proceeding to plan

o Acquisition of Quantum Risk Management ("Quantum Compliance") adds further scale to our leading Health, Safety & Compliance business

o Acquisition of Aquatreat Group ("Aquatreat") increasing scale in our Water Treatment chemical business

·; Adjusted EBITDA for Risk Management & Compliance and Water Treatment & Air Quality divisions up 81% and 27% respectively

·; 50 basis points margin improvement across Risk Management & Compliance and good margin improvement in Water Treatment & Air Quality, excluding the impact of the Clearwater acquisition; medium term target of 15% EBITDA margin

·; Net debt, excluding the effects of the adoption of IFRS 16, of £19.6m,

·; Further investment in Meridian, the Group's cloud-based risk management software

·; Well-developed pipeline of acquisition opportunities to continue to add further scale and capabilities to the Group, focused on regulated compliance and health and safety related service sectors

Commenting on the results Alex Dacre, Chief Executive, said: 

"We are pleased to have delivered a strong performance in the first half, during which Marlowe continued to extend its position as the UK's leading provider of technology-enabled services which assure the regulatory compliance and safety of UK businesses.

All our activities showed strong year-on-year growth and contributed to an acceleration in Group organic revenue growth which is now 6.5%. The acquisition of Clearwater brings significant further scale to our Water Treatment & Hygiene activities and the Quantum Compliance acquisition builds upon our leading position in the UK Health, Safety & Compliance market.

By acquiring Law at Work, a business which helps clients to mitigate their employee-related risk and assure their health & safety performance, we are both strengthening Marlowe's leading health and safety operation and significantly advancing our capabilities to work with clients across the full spectrum of their compliance needs. The acquisition is a major step in strengthening our position as the UK leader in regulated compliance services to organisations of all sizes. 

The second half of the year has started well and, taking into account good trading across our divisions and the contribution of recent acquisitions, we are confident of delivering a full year performance ahead of current market expectations."

CHIEF EXECUTIVE'S REVIEW

RESULTS SUMMARY AND STRATEGY

The Group performed strongly during the first half with further significant improvements in revenue, adjusted profit and adjusted earnings per share, alongside continued M&A activity and investment in operational and technology improvements to drive margin enhancement.

Group organic revenue growth accelerated in the period to 6.5% as a result of our broader capabilities across the compliance service markets that we occupy, the superior service levels that we can now deliver, and the benefits of cross-selling services across our business activities. As a group we are able to work with clients across their compliance requirements. We deliver a comprehensive and integrated approach to assure our clients' safety, risk management and regulatory compliance. We provide consultancy services which assess, audit and monitor our clients' risks to assure the safety and compliance or their employees and the premises that they occupy to minimise these risks. We provide cloud-based risk management software which our clients use to manage their compliance obligations and we provide recurring service programmes to test, inspect and maintain the compliance of our clients' premises & safety systems to certify their ongoing compliance and adherence to regulations. For our clients, who typically are Health & Safety, Risk, Compliance or Property professionals, or are the individuals within our clients' organisations responsible for compliance & safety, we provide the convenience of a one-stop-shop for all their compliance requirements along with the benefits of a trusted and in-depth relationship.

Our Group operates in the non-cyclical Assurance, Testing, Inspection & Certification marketplace which offers significant scope for further organic and acquisition-led growth. The growth of our markets is underpinned by attractive fundamentals, such as: the regulatory requirement for our services and the associated enforcement burden; insurance requirements and the ever-increasing corporate and public expectations surrounding quality, safety and compliance along with the reputational and financial risk posed by non-compliance. Nearly 80% of our revenues are recurring and the vast majority of the services that we provide are non-discretionary to our clients, providing us with attractive visibility of our future earnings. Our activities are not capital intensive and, on an underlying basis are highly cash generative, which will give us the ability to fund significant future inorganic growth through internally generated cash in line with our disciplined approach to capital allocation.

The Group now benefits from attractive scale and critical mass across our four main compliance disciplines of Health, Safety & Compliance, Fire Safety & Security, Water Treatment & Hygiene and Air Testing & Quality. This has resulted in economies of scale which, when coupled with the benefits from the operational and technological improvements that we continue to implement, results in better service levels for our clients and enhanced productivity and profitability across our divisions.

Both divisions, Risk Management & Compliance ("Risk & Compliance") and Water Treatment & Air Quality ("Water & Air"), continued to deliver on their growth strategies, with the integration of the acquisitions completed in the period proceeding to plan and good margin improvement on the prior period across both divisions. We remain confident of our ability to deliver a 15% EBITDA margin in the medium term. During the first half, the Group acquired three businesses across our two divisions. The Group has continued to execute its strategy at pace in the first half and our current run-rate revenues are now approximately £200m (HY 2019: c. £130m).

Adjusted EBITDA for the six months to 30 September 2019 grew 50% to £7.5m (HY 2019: £5.0m) on revenues up 58% to £89.3m (HY 2019: £56.4m). Adjusted operating profit grew 58% to £6.7m (HY 2019: £4.2m) and adjusted profit before tax grew 58% to £6.2m (HY 2019: £3.9m).

Adjusted basic earnings per share for the period increased 31% to 11.5p (HY 2019: 8.8p).

In May 2019, the Group raised approximately £20m through an oversubscribed share placing to fund the acquisition of Clearwater and its subsequent restructuring programme, and to provide additional resources to fund the Group's acquisition-led growth strategy. Following the acquisition of Clearwater, the Group acquired Aquatreat in July and then Quantum Compliance in August to add further scale to our Health & Safety activities.  

Since the period-end we have announced two further acquisitions. We announced this morning the acquisition of Law At Work, for an initial consideration of £6.3 million. LAW is a leading national provider of subscription-based employment law compliance and health and safety services. LAW employs approximately 70 staff, more than half of whom are employment lawyers, HR compliance professionals and health and safety consultants, whose advice and consultancy ensures that commercial organisations remain compliant with employment law and health and safety legislation.

The acquisition is a further step in Marlowe's strategy of building an end-to-end provider of regulated compliance services and offers synergies with the Group's existing Health, Safety and Compliance businesses, in particular William Martin.

The business, which delivers subscription-based consultancy services, operates nationally in an attractive and underserved market in which we see significant growth opportunities. The acquisition is a major step in strengthening our position as the UK leader in regulated compliance services to organisations of all sizes. For the year to 31 May 2019, LAW generated revenues of £5.4 million, EBITDA of £1.2 million and profit before tax of £1.0 million. At 31 October 2019, LAW had net assets of £2.2 million. The total enterprise value will comprise an initial cash consideration of £6.3 million and a contingent consideration of approximately £4.0 million over three years dependent on the achievement of profit targets.

Yesterday, we announced the acquisition of FSE Fire for an initial consideration of £2.4 million. Headquartered in Nottingham, FSE was founded in 2005 and provides a range of fire safety and security services. The business operates nationally with a large base of customers in the East Midlands area. For the year to 31 August 2019, FSE generated revenues of £4.3 million and an adjusted PBT of £0.6 million. The deal is another step in our strategy to consolidate the UK Fire Safety market and to build a leading national position.

Marlowe's strategy to further strengthen its position as the UK's leading provider of regulated compliance services is clearly defined. We will continue to pursue our strategy of organic and acquisitive growth and are well positioned to gain further market share across all of our business streams. Individually, our businesses are leading players in their fields but together form a group that can provide a comprehensive and integrated approach to our customers' risk management, safety and regulatory compliance. The Marlowe group currently provides services on a recurring basis to approximately 17,000 clients across the UK and makes approximately 1.5m service visits per year. These visits are carried out by approximately 1,400 compliance experts who are specialists in their field - these specialists include consultants, risk assessors, auditors, technicians, engineers and employment lawyers. We work with one in every eight UK business that employ more than 250 people alongside thousands of small and medium sized organisations across all sectors. Our vision as a group is clear: to be the UK's most trusted name in the provision of regulated compliance services.

RISK MANAGEMENT & COMPLIANCE

Marlowe's Risk Management & Compliance division delivers services which assure the safety and regulatory compliance of businesses and their commercial facilities across health & safety, fire safety, security and a range of other potential safety risks alongside providing employee-related compliance and risk management services. The division also provides compliance software-as-a-service, which customers use to manage risk and compliance across their businesses. The significant majority of our services are delivered as a subscription and recur from month to month or year to year and are essential to our customers' operations.

Our Risk & Compliance division delivered adjusted EBITDA of £4.5m (HY 2019: £2.5m) and adjusted operating profit of £4.3m (HY 2019: £2.1m) on revenues of £42.8m (HY 2019: £29.9m) with the contribution from the William Martin acquisition supplementing good organic growth. 

Compared to the same period last year, EBITDA margin improved 220 basis points to 10.4%, benefiting from the William Martin acquisition and efficiency improvements across our Fire Safety & Security activities, where we have seen revenue per fee earner improve by 4.0%. William Martin delivered continued strong organic growth following further investments in sales and account management.

Technology is a key differentiator for the Group both in terms of how we can improve compliance standards at our clients' operations through the use of software and how we can improve the efficiency and control of our service delivery and support functions. Meridian is our cloud-based risk management software which is used by approximately 11,000 users to manage their health, safety and compliance obligations. During the year, we significantly increased investment in the Meridian platform and we see this system as key to our strategy of delivering technology-enabled services to our clients across the Group.

The key event towards the end of the period was the acquisition of Quantum Compliance. Founded in 2003, Quantum is a leading provider of health & safety consultancy services to commercial organisations across the UK. Quantum conducts health & safety audit and consultancy services for approximately 8,000 commercial facilities each year, providing specialist advice on managing health & safety risks and ensuring compliance with a wide variety of health & safety regulations. Following the acquisition of William Martin, the addition of Quantum further strengthens Marlowe's leading position in the health, safety and compliance sector and enhances our ability to provide an end-to-end solution for our customers' safety and regulatory compliance needs. The integration of Quantum is on track.  

WATER TREATMENT & AIR QUALITY

Our Water Treatment & Air Quality division delivers regulatory-driven compliance services mainly focused on water treatment, water hygiene, air quality, ventilation hygiene and environmental services. A large portion of the services we deliver recur from month to month or year to year and are essential to our customers' operations.

Our Water & Air division traded strongly during the first half with adjusted EBITDA of £3.9m (HY 2019: £3.1m) and adjusted operating profit of £3.3m (HY 2019: £2.7m) on revenues up 76% to £46.5m (HY 2018: £26.5m), reflecting good organic growth and significant M&A activity.

The key event during the period was the acquisition in May of Clearwater, which represented a significant step in our strategy of consolidating the UK water treatment market. Clearwater provides a range of services mainly related to water treatment, hygiene and compliance across the UK and Ireland and has approximately 2,400 customers across a broad range of end markets including healthcare, education, leisure, food processing and public services. For the year ended 31 December 2018, Clearwater recorded revenues of £27.9m, the majority of which are recurring and derived from long-term contracted customer relationships. The acquisition has broadened Marlowe's technical capabilities and will enhance its route density nationally. Following the acquisition, our enlarged business has run-rate revenues in the water services market of approximately £75m, giving us a significant opportunity as the market continues to consolidate and favours larger, well-invested, national players. Our integration programme is well-progressed, and we remain confident that we will be able to realise significant synergies from the acquisition whilst broadening the range of services the combined business provides.

Across our Water & Air activities we are seeing improved efficiency in our service delivery. Compared to the second half of FY19 and excluding the dilutive impact of Clearwater, which was loss-making upon acquisition, underlying EBITDA margin improved 40 basis points to 9.4%.

Our Water Treatment & Hygiene business is strongly positioned in the UK in its ability to work with clients across the entire water cycle, from compliance services related to water flowing into their facilities (influent), through to the auditing, risk assessing, testing and treating of water within a facility, right through to the compliance of water discharged from a facility (wastewater). We also have our own water treatment chemical blending facility and a network of R&D laboratories. During the first half, we have invested significantly in upgrading our chemical blending capabilities at our purpose-built facility in Daventry. We provide services across all sectors for all types of commercial facilities from small care homes and local leisure centres to large food processing plants and manufacturing facilities.

Within our Air Quality activities, we continue to see strong organic growth across our ventilation compliance activities in a largely unvended market which presents significant further opportunity.

CHANGES IN ACCOUNTING POLICIES

During the period the Group has incorporated the following changes to its accounting policies:

The adoption of IFRS 16 which came into effect on 1 April 2019. As disclosed in the 2019 Annual Report the Group has used the modified retrospective approach to adopting this standard. In addition to the impact on the income statement detailed below, on 1 April, the Group recognised £8.6m of right of use assets and £8.6m of lease liabilities on the statement of financial position.

Further details on the adoption of IFRS 16 have been included in note 13. This change in accounting policy has had a material impact on the Group's financial statements. Under IFRS 16, the Group is not required to restate prior periods. As a result, the Board has decided for the 2019 reporting cycle it is appropriate to show adjusted performance measures. There are two adjusted performance measures:

Firstly, using consistent accounting policies. This provides year on year comparison of performance using the same accounting policies in both periods allowing the reader to discern relative trading performance.

Secondly, adjusted results under revised accounting policies. This provides the reader with the adjusted performance measures derived using accounting policies that the Group has now adopted.

A reconciliation between the statutory profit and the adjusted performance measures noted above is shown below:

STATEMENT OF FINANCIAL POSITION

Net assets at 30 September 2019, excluding the impact of the adoption of IFRS 16, were £97.0m (31 March 2019: £77.5m) reflecting the proceeds of the £20m share placing in May 2019.

Net debt at 30 September 2019, including inter alia £8.6m of lease liabilities as a result of the adoption of IFRS 16, was £32.0m. Net debt at 30 September 2019, excluding the effects of the adoption of IFRS 16, was £19.6m (31 March 2019: £20.1m). The Group's debt facility comprises a £30m revolving credit facility and a £15m accordion facility, giving the Group access to significant further resources to fund acquisitions. 

CASH FLOW

The net cash inflow from operating activities before acquisition and restructuring costs in the period, excluding the effects of the adoption of IFRS 16, was £0.8m (HY 2018: £1.3m). The net cash generated from operating activities during the period includes working capital outflows of £6.1m (HY 2018: outflow £3.1m) reflecting post-acquisition working capital investments in acquired businesses, predominantly in Clearwater which was anticipated at the time of acquisition, the remainder as a result of further organic growth across the Group. Working capital continues to be well managed with net working capital as a percentage of revenue and debtor days both remaining consistent with the position at 31 March 2019. We expect to generate strong operating cash flow in the second half.

NON-IFRS MEASURES

The Interim Report includes measures which are not defined by generally accepted accounting principles such as IFRS. We believe this information, along with comparable IFRS measures, is useful as it provides investors with a basis for measuring the operating performance of the Group on a comparable basis. The Board and our managers use these financial measures to evaluate our operating performance. Non-IFRS financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with IFRS. Similarly, non-IFRS measures as reported by us may not be comparable with similar measures reported by other companies. For further information on the reconciliation between IFRS and non-IFRS measures refer to Note 2 and 4 of the Notes to the Consolidated Interim Report.

PEOPLE

Since our first acquisition in April 2016 the Group has rapidly increased in scale and now employs over 2,200 people, including highly qualified teams of consultants, auditors, risk assessors, technicians, engineers and employment lawyers who deliver our services supported by experts across office-based support functions around the country. The continued dedication of all the teams across Marlowe has been impressive. The Group's businesses deliver services that are provided by people and, as we build our businesses into market leaders, we are relying on these people to continue to demonstrate the drive, expertise and passion that has been evident during the period. The strength of these results reflects their contribution and I would like to thank our entire team for their hard work and dedication.

OUTLOOK

We will continue to pursue our strategy of organic and acquisitive growth and we are well positioned to gain further market share across all our business streams. The second half of the year has started well and, taking into account good trading across our divisions and the contribution of recent acquisitions, we are confident of delivering a full year performance ahead of current market expectations.

Alex Dacre

Chief Executive 3 December 2019

Independent review report to Marlowe plc

Introduction

We have been engaged by Marlowe plc (the "Company") to review the financial information in the half-yearly financial report for the six months ended 30 September 2019 which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows and the related notes. We have read the other information contained in the half yearly financial report which comprises only the Chief Executive's Review and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the financial information in the half-yearly financial report are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.

As disclosed in Note 1, the annual financial statements of Marlowe Plc are prepared in accordance with IFRSs as adopted by the European Union. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in Note 1.

Our responsibility

Our responsibility is to express to the Company a conclusion on the financial information in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 30 September 2019 is not prepared, in all material respects, in accordance with the basis of accounting described in Note 1.

Use of our report

This report is made solely to the company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company those matters we are required to state to it in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusion we have formed.

Grant Thornton UK LLPStatutory Auditor, Chartered Accountants

London3 December 2019

Notes to the Consolidated Interim Report

For the six months ended 30 September 2019

1 Basis of preparation

Basis of preparation

The consolidated interim financial information of the Group for the six months ended 30 September 2018 was approved by the Board of Directors and authorised for issue on 3 December 2019. The disclosed figures are not statutory accounts in terms of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2019, on which the auditors gave an audit report which was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, have been filed with the Registrar of Companies. The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.

The comparative figures for the financial year ended 31 March 2019 and the six months ended 30 September 2018 are consistent with the Group's annual financial statements and interim financial statements respectively.

Going concern

Based on the Group's cash flow forecasts and projections, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. They continue to adopt the going concern basis of accounting in preparing these interim financial statements.

Accounting policies

This interim report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ending 31 March 2020.

The Group has adopted IFRS 16 (Leases) since 1 April 2019. The standard's core principle is for entities to recognise a leased asset and a lease liability for almost all leases and requires them to be accounted for in a consistent manner. This introduces a single lessee accounting model and eliminates the previous distinction between an operating lease and a finance lease. Refer to note 12 for further information on the impact of the standard on the Group's accounts.

There were no new relevant Standards or Interpretations to be adopted for the six months ended 30 September 2019.

All other accounting policies and methods of computation applied are consistent with those applied for the year ended 31 March 2019.

Critical accounting estimates and judgements continue to be applied to the identification of separable intangibles on acquisition and rate of customer attrition, acquisition and other costs, valuation of separable intangibles on acquisition, impairment of non-financial assets, impairment of trade receivables and recoverability of amounts due from contract assets.

2 Segmental information

The Group is organised into two main operating segments, Risk Management & Compliance ("Risk & Compliance") and Water Treatment & Air Quality ("Water & Air"). Services per segment operate as described in the Chief Executive's review. The key profit measures are adjusted operating profit and adjusted EBITDA and are shown before acquisition and restructuring costs, amortisation of acquisition intangibles, share-based payments and profit on disposal of non-core businesses. The vast majority of trading of the Group is undertaken within the United Kingdom. Segment assets include intangibles, property, plant and equipment, inventories, receivables and operating cash. Central assets include deferred tax and head office assets. Segment liabilities comprise operating liabilities. Central liabilities include deferred tax, corporate borrowings and head office liabilities. Capital expenditure comprises additions to computer software, property, plant and equipment and includes additions resulting from acquisitions through business combinations. Segment assets and liabilities are allocated between segments on an actual basis.

REVENUE

The revenue from external customers was derived from the Group's principal activities primarily in the UK (where the Company is domiciled) as follows:

Reconciliation of segment adjusted operating profit to adjusted EBITDA

The above tables reconcile segment adjusted operating profit/(loss), which excludes separately disclosed acquisition and other costs, to the standard profit measure under International Financial Reporting Standards (Operating Profit). This is the Group's Alternative Profit Measure used when discussing the performance of the Group. The Directors believe that adjusted EBITDA and operating profit is the most appropriate approach for ascertaining the underlying trading performance and trends as it reflects the measures used internally by senior management for all discussions of performance and also reflects the starting profit measure when calculating the Group's banking covenants.

Adjusted EBITDA is not defined by IFRS and therefore may not be comparable with other companies' adjusted operating profit measures. It is not intended to be a substitute, or superior to, IFRS measurements of profit.

3 Tax

The underlying tax charge is based on the expected effective tax rate (19%) for the year ending 31 March 2020 applied to taxable trading profits for the period.

4 Earnings per ordinary share

Basic earnings per share have been calculated on the profit after tax for the period and the weighted average number of ordinary shares in issue during the period.

The Directors believe that adjusted basic earnings per share provide a more appropriate representation of the underlying earnings derived from the Group's business. The adjusted items are shown in the table below:

The adjusted earnings per share, based on weighted average number of shares in issue during the period, is calculated below:

5 Dividends

The Company has not declared any dividends in respect of the current or prior period.

6 Intangible assets