SUR.L Regulatory News (SUR)

10 December 2015

Lakehouse plcPreliminary results for the financial year ended 30 September 2015

Lakehouse plc, the asset and energy support services group, is pleased to announce its maiden results for year ended 30 September 2015.

Financial highlights

· Good group performance with underlying revenue growth of 11.3% to £336.6m; on a like for like basis, this represents organic revenue growth of 2.5%

· Significant increase in underlying EBITA1 to £22.2m, driven by new contract wins and the full year contribution of acquisitions (predominantly Everwarm and H2O Nationwide); operating profit increased to £4.6m

· Improved EBITA group margin of 6.6% with core margins across Regeneration, Compliance, Energy Services and Construction all improving and strong performances during period

· Underlying profit before tax2 significantly increased to £21.6m; profit before tax increased to £3.2m

· Contract losses on businesses previously highlighted as being exited of £2.5m and exceptional items of £8.7m, primarily reflecting the costs of our initial public offering in March, together with resolution of legacy contract issues

· Strong underlying operating cash conversion3 of 115%, ahead of our long term sustainable target of 80%

· Strengthened balance sheet, with net cash of £6.6m, reflecting net IPO proceeds of £24.6m and the acquisitions of Providor, Orchard Energy and Sure Maintenance

· Proposed maiden final dividend of 1.9p per shares

· With a solid order book and pipeline for the forthcoming year, the Board remains confident of its expectations for the current year and the future

Operational and strategic highlights

· Continued implementation of organic growth strategy

o High bidding success rate contributed to contract wins valued at £638m, including a number of long term frameworks

o Continued expansion of geographic reach and service capabilities

o Cross-selling of services accelerating across the Group

· Continued focus on operational efficiency and increasing margins

· Secured the substantial HEEPS contract with Scottish Government in March, as part of Warmworks joint venture

· Order book at 30 September 2015 stood at £595m

· Growing sales pipeline of £2.8bn at 30 September 2015

· In line with our growth strategy, we completed bolt-on acquisitions of H2O Nationwide (October 2014), Providor (May 2015), Orchard Energy (July 2015) and Sure Maintenance (September 2015)

· Since year end, we have acquired Aaron Heating Services (November 2015) and yesterday we announced the acquisition of Precision Lifts

· Acquisitions integration proceeding to plan

Commenting on the results, Stuart Black, Executive Chairman said:

"Lakehouse is delighted to report its maiden full year results as a listed company. During the year we have delivered on our stated strategy of achieving organic growth, supplemented by value-enhancing acquisitions which provide complementary services and new geographies. The Board remains confident of its expectations for the current year and the future."

Enquiries

A copy of this announcement is available online at http://www.lakehouse.co.uk/investors/regulatory-news 

Notes to editors

Lakehouse plc is an asset and energy support services group that constructs, improves, maintains and provides services to homes, schools, public and commercial buildings with a focus on the UK public sector and regulated markets. The Group was founded in 1988 and is headquartered in Romford, Essex. It employs more than 2,400 staff from 35 offices throughout the UK.

We deliver services through four divisions:

· Regeneration, which provides planned refurbishment, repair and maintenance and a growing responsive maintenance offering, for social housing providers

· Compliance, which delivers a range of regulated and legislated services, primarily to local authority and housing association clients

· Energy Services, which provides domestic insulation, energy efficiency products and advice, primarily for social housing landlords, five of the "Big Six" energy utility companies and the key independent energy companies

· Construction, which delivers extension, refurbishment, rationalisation and new build works, primarily in the education market and with a particular focus on schools

Definitions

1. EBITA is earnings before interest, tax and amortisation of acquisition intangibles. Underlying EBITA is defined as operating profit before deduction of exceptional and other items, as outlined in note 3 and on the face of the income statement. Underlying EBITA is the same as "Operating profit before exceptional and other items" on the face of the financial statements, but used as terminology in light of being a key performance measurement for management in the Group.

2. As set out in the income statement, other underlying numbers are stated before exceptional and other items (discussed further in note 3). Underlying profit after tax and underlying earnings per share are net of an imputed tax charge. Underlying revenue represents revenue for the underlying Group and excludes contract losses on businesses being exited.

3. Underlying operating cash conversion is operating cash flow, plus the cash impact of exceptional and other items (discussed further in notes 3 and 10), as a percentage of underlying EBITA.

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that we delivered a good operational and financial performance during a year of important change. As well as our successful IPO in March 2015, we made excellent progress with our organic and acquisitive growth strategy, completing four value-enhancing acquisitions in the period.

Our focus on customers lies at the heart of our success. It ensures we meet their needs through great service, which in turn supports our organic growth, our ability to cross-sell and our geographic expansion. Consistent delivery underpins both our strategy and our financial performance.

Trading performance

Our results for the year demonstrate organic growth and the success of recent acquisitions. We increased underlying revenue by 11.3% to £336.6m (2014: £302.5m) with organic revenue up 2.5%. The results included the first full year of Everwarm (acquired in April 2014) and H2O Nationwide (acquired in early October 2014), along with a small contribution from Providor, Orchard Energy and Sure Maintenance, all of which were acquired in the second half of the year. Revenue was £340.2m (2014: £302.5m).

Underlying EBITA increased significantly to £22.2m (2014: £10.8m), representing an improved margin of 6.6% (2014: 3.6%). Underlying profit before tax increased 114.2% to £21.6m (2014: £10.1m). Underlying profit after tax was £17.5m (2014: £8.8m), resulting in underlying basic earnings per share of 13.7p (2014: 11.7p). Profit after tax was £2.4m (2014: loss of £(0.4)m), resulting in basic earnings per share of 1.9p (2014: loss of (0.5)p).

We were successful in winning new work. Our contract wins in the year totalled £638m (2014: £364.5m), contributing to a year-end order book of £595m (December 2014: £503m, which represents the first month we prepared comparable data).

Our strong balance sheet provides the financial resources to implement our strategy. At 30 September 2015, the Group had net cash of £6.6m (2014: net debt of £7.2m), reflecting the net proceeds from our IPO and our strong underlying operating cash conversion of 115% (2014: 143%), which was ahead of our long term sustainable target of 80%. We also strengthened the Group's financial position ahead of the IPO with a new £30m revolving credit facility from the Royal Bank of Scotland, which gave us additional resources to support our strategic acquisition programme. Since the end of the year, we have extended this facility to £45m in order to finance future corporate development activity.

Strategy

Lakehouse has an established strategy based on organic growth supplemented by value-enhancing acquisitions. Our aim is to create a sustainable business that delivers profitable growth, whilst being robust throughout the changing economic cycle. We aim to do this by developing a broad business which is less susceptible to challenges in any one geographic region, commercial market or service. We have also improved the visibility of revenues and profits by building an order book based on frameworks and invested time and money in enhancing the visibility of our opportunity pipeline.

In parallel, our plan is to deliver improved returns through moving into higher margin areas, increasing self-delivery and emphasising strong financial controls and efficiencies, with the aim of building further resilience into our business model.

Our structure of four divisions has helped us determine where we want to grow and will seek to invest, both organically and through acquisition. We expect to focus on opportunities in Compliance and Energy Services in the short term, Regeneration in the medium term, while Construction will focus on delivering the right balance of risk and return. The divisional structure, along with our established network of business relationships, enables us to quickly identify potential complementary acquisitions which can provide additional cross-selling opportunities and new services.

IPO

We are delighted with the success of our IPO and the support from our new institutional shareholders. The IPO raised net cash proceeds of £24.6m, after costs of £5.4m, to provide the resources we need to continue to implement our growth strategy.

Sound corporate governance structures have always been an element of the Lakehouse culture. As part of the IPO, we were pleased to further strengthen the Board with the appointment of Chris Geoghegan, as our Senior Independent Non-Executive Director, together with Johnathan Ford and Jill Ainscough as Independent Non-Executive Directors. We are already benefiting from their wealth of experience, from both public company and commercial backgrounds.

As part of enhancing our governance we formed a Risk Committee, which reports to the Audit Committee, and reviews all aspects of operational and strategic risk, across the business.

Dividend

As Admission took place just before the half year, we did not declare a dividend for the six months ended 31 March 2015. The Board has adopted a progressive dividend policy and has proposed a dividend of 1.9p per share for the second half which, subject to shareholder approval, will be paid on 8 February 2016 to shareholders on the register at 8 January 2016. Our aim is to reward our investors while retaining capital to invest in our long term growth.

People

I want to thank everyone in Lakehouse for their hard work and contribution to this year's performance. Over the year and following the two acquisitions post year end, our employee base has more than doubled to over 2,400 as we increasingly move towards a self-delivery model. All the businesses we bought this year and since year end are self-delivery and, collectively, they brought some 1,250 people into the Group.

We continue to invest heavily in our people, giving them the skills they need to deliver for our customers and advance their own careers. The IPO also allows our people to benefit from our success through our Save As You Earn scheme. Giving our people a sense of ownership is a key part of our culture. To this end, at the time of Admission we awarded all our employees an allocation of shares under the Group's Share Incentive Plan.

Outlook

We aim to benefit all our stakeholders. Delivering great service to our customers and developing and retaining our employees ultimately translates into value for our shareholders.

There is significant growth for us to go for in the coming years as we remain a small player in large and fragmented markets. Reflecting the scale of this opportunity, our pipeline stood at £2.8bn at the year end. We will continue to deepen our presence in our existing markets, while implementing our strategy of broadening the business and opening up new routes to growth.

With our robust order book and sales pipeline, together with our recent successful acquisitions of Aaron Services and Precision Lifts, the Board remains confident of its expectations for the current year and the future.

CHIEF EXECUTIVE OFFICER'S REVIEW

I am pleased with the performance across the Group in our maiden year as a listed company. We reported underlying Group revenue growth of 11.3% to £336.6m with underlying profit before tax increasing significantly to £21.6m. We have continued to focus on the quality of business we win, prioritising earning good margins rather than revenue. The Group won a wide range of work in the period including a number of strategically important long term contracts. In addition, we have benefitted from our focussed approach to identifying the right contracts to target, high quality bid compilation and a considered approach to pricing. This has increased our order book and, coupled with a strong sales pipeline, puts us in a strong position for growth in the future.

Our highly selective targeting of new opportunities has also contributed to the improved profit margins across each of our divisions. I am delighted with the rate and success of the integration of our newly acquired businesses and I am very positive about the cross-selling opportunities that our newly integrated businesses are already bringing to the Group.

Divisional review

Regeneration

Regeneration provides planned and responsive maintenance services for social housing clients, which are mainly local authorities and housing associations. The division operates through three businesses: Regeneration (South), Regeneration (East) and Regeneration (North).

The 6.3% reduction in revenues during the year reflected that our Hackney Homes contract came to maturity and the Eastern Procurement and London Borough of Camden frameworks were in the stages of re-procurement in the period. We are participating in the re-procurement of relevant lots for both Eastern Procurement and Camden in the current financial year; the outcome of both exercises will be determined by where we can make a satisfactory return.

Despite the reduced revenue, we improved our EBITA margins by selectively bidding and focusing on our framework opportunities with smaller, higher margin contracts. This focus reflects the changing social housing procurement backdrop, where some clients are moving away from high value bundled contracts to more product-targeted frameworks with multiple potential delivery partners. This has resulted in an increased level of bidding activity but plays to our strategy, as the breadth of services Lakehouse offers enables us to bid for these as specialists, giving us a competitive advantage over our larger peers, who cannot necessarily offer such services in-house. We only recognise the value of confirmed orders and budgets in our order book, so one consequence of this trend is that we are likely to see an increased difference between the value of our confirmed order book and the overall value of framework contracts, based on our estimated share of the available budget.

During the year the division continued to win new business, increasing its participation in framework contracts from 33 at the end of September 2014 to 53. Importantly, these frameworks have a combined value of £539m and an average duration of four years. Notable wins included the two year London & Quadrant Housing Trust Decent Homes framework, a Stevenage Borough Council two year roofing upgrade programme, a four year external decorations programme for Family Mosaic and a four year major housing works framework for Enfield Homes. Regeneration (South) secured a place on the Southwark four year framework; secured and delivered projects for Guinness (Mansell Street externals and a further kitchen and bathroom scheme); kitchen and bathroom upgrade works for London Borough of Harrow; and fire precaution upgrade works for Brent Housing Partnership. In addition, as reserve contractor, we have been called on to help clients when their incumbent partners have fallen short in terms of service. We also re-secured the Eastern Procurement Heating framework following our strong performance and high levels of customer satisfaction on the previous framework.

We invested in our continued organic growth in two key areas: a responsive maintenance operation in Regeneration (East) and in Regeneration (North) in Scotland.

Regeneration (East) mobilised the five responsive maintenance contracts won in the first half of the year and we see this as a growth area, albeit we may look at targeted acquisitions to help us achieve critical mass. We are also looking to build the business in adjacent markets and saw early success at the end of the year with an important contract win with Nottingham-based Metropolitan Housing Trust to undertake kitchen and bathroom refurbishments over a two year period. We are also seeing some direct selection contracts coming from the Efficiency East Midlands framework we were recently appointed to (for planned maintenance services), alongside our Compliance division (for both gas and water and air hygiene).

Regeneration (North) is already winning work, including being appointed to frameworks for the City of Edinburgh and Argyll & Bute Council. City of Edinburgh has begun a substantial procurement programme and we will shortly be delivering our first newly secured contracts through this framework.

To further improve customer service and our efficiency, we have implemented our new maintenance operating system, Impact Response, for responsive maintenance services. This system tracks each responsive maintenance task order, from the moment we receive the call, all the way through to customer satisfaction surveys and invoicing. We have also invested significantly in a new customer contact centre in Regeneration (East). By supporting high-quality service, these initiatives will help us to win and retain contracts.

Self-delivery remains an important part of our strategy: for example, our roofing team is successfully delivering projects using this model. We intend to roll out this model more widely in the medium term which will help us improve customer satisfaction and contract profitability.

As discussed above, we are seeing a shift away from traditional bundled frameworks with guaranteed budget allocations to a small number of contractors, to frameworks with multiple contractors competing on mini tenders. Regeneration is seeing an increasing number of opportunities coming through as a result, where clients are seeking to broaden their base of service providers. We expect the current year to be one of consolidation, as some of our traditional bundled frameworks come to an end and we seek to develop positions on a wider number of new frameworks. We are confident that our reputation for customer service and operational delivery means we are well positioned to help these customers over the long term.

Compliance

Compliance comprises planned and responsive maintenance, installation and repair services to local authority and housing association clients in the areas of gas, fire and electrical, water and air hygiene and lifts. These services cover clients' social housing and public building assets. The acquisition of H2O Nationwide in October 2014 expanded our range of compliance services into air and water. In addition, we acquired Sure Maintenance in September 2015, extending the geographical footprint of the Group's gas offering. In November 2015, after the end of the financial year, we acquired Aaron Services, which gives us a broader geographic footprint, offering the same cross-selling openings as Sure and a particular opportunity to work with Regeneration (East), which operates in a similar territory. Yesterday we announced the acquisition of Precision Lifts which brings lift installation and maintenance capabilities into the division. This enables us to provide an even more comprehensive compliance offering and opens up new opportunities.

Full year revenues increased by 13.9%, an improvement of £4.4m. This was aided by the acquisition of our water and air business, H2O Nationwide, on 3 October 2014 which provided a full year contribution. The acquisition of Sure Maintenance in September 2015, close to year end, provided a small contribution.

An improvement in business mix, particularly the contribution of higher margin water and air services, along with a number of high margin projects saw margins improve from 7.9% to 12.3%. The division also did not see the scale of new contract mobilisation experienced in the prior year and so saw a lower impact of mobilisation costs.

Notable wins included a seven year gas maintenance contract with Arun District Council, a three year mechanical and electrical contract with MHS Homes, and a four year electrical maintenance contract with Brighton & Hove City Council. Our projects with Peabody and A2 Dominion, which were the result of cross-selling initiatives, also performed well. We are continuing to strengthen our relationships with these customers. Further successes include fire maintenance and safety works for Kensington & Chelsea TMO and Wandle Housing Association, together with contracts for gas servicing and maintenance for A1 Housing, domestic boiler installations for London Borough of Islington, gas safety inspections for Lanarkshire Housing Association and a framework win for major works for London Borough of Southwark.

H2O Nationwide performed well in the year, delivering continued organic growth and re-securing a key contract with Unite Housing. It achieved its first cross-selling success, winning a contract to provide water treatment to Arun District Council, a gas compliance customer introduced by K&T Heating. The business also entered the social housing market when it was appointed to a framework for Efficiency East Midlands, working alongside Foster Property Maintenance and Sure Maintenance in this procurement network.

We believe that as a consequence of new contract wins and complementary acquisitions, we have achieved critical mass, both in terms of geographic coverage and scale of engineers we employ directly. Our Compliance division now offers a comprehensive range of services which we are developing into a single Lakehouse offering, with delivery supported by our Impact Response system and our Customer Journey initiative. We are now raising customer awareness of our offering and reviewing with them how we can meet all their compliance needs.

Energy Services

Energy Services provides a range of energy efficiency services for social housing and private homes. The division also uses these services to deliver carbon emissions savings for energy companies, enabling them to meet their legislative targets. In addition, the division offers renewable technologies, smart metering services and energy brokerage to customers throughout the UK.

Revenue grew to £68.1m from £22.9m year on year and this was primarily due to our first full year of ownership of Everwarm, which we bought in April 2014. Previously, we had only a sub-scale presence in the English market.

Improved labour utilisation afforded by a higher level of activity, together with a full year contribution from Everwarm and the Energy (South) business turning from loss to profit in the year, saw underlying EBITA margins rise from 12.1% to 14.1%. Providor and Orchard Energy made small contributions after integration costs and both have showed significant early opportunities.

In May 2015, the division expanded its nascent smart-meter installation business with the acquisition of Providor and in July 2015 acquired Orchard Energy, a leading UK energy procurement and advisory service provider. We have made further progress expanding Energy Services in England including being appointed to the RE:NEW framework in London. RE:NEW is the Mayor's programme to help make London's homes more energy efficient and has the capacity to deliver up to £1.6bn of energy upgrades. In addition, we secured a place on both the Fusion 21 and Eastern Procurement frameworks for energy services. We are also gaining traction with local authority and social housing customers who wish to explore our solutions and ability to obtain funding for them from the major energy companies. Key highlights this year included £14m of new wins in London and the South East, including notable contracts with the London Borough of Camden and a three year contract with the London Borough of Brent.

We have very strong relationships with five of the Big Six energy utility companies and the key independent energy utility companies, and continue to help them meet their environmental obligations. We have negotiated contract extensions into 2016 and developed relationships with several smaller independent utility companies, who will play a larger role in the coming years. We are already delivering contracts for energy saving measures and metering for these independent providers.

Providor is one of the UK's leading smart-metering specialists. It complements our existing energy services offering by giving us critical mass in the high growth smart-metering market, which forms part of the Government's £11bn scheme to upgrade the UK's energy infrastructure and improve competition by 2020. We are pleased with the growth in Providor's order book since acquisition, which includes a new ten year contract with Ovo Energy.

Orchard Energy is a leading UK energy procurement and advisory service provider which works with corporate clients to manage their energy costs, particularly energy supply and usage. In addition, it provides energy management services to commercial and industrial customers including brokering supply with utilities firms, managing contracts and advising on energy consumption. The acquisition enhances our offering to social housing clients who are keen to address fuel poverty. We are now introducing Orchard Energy to our Regeneration customers who wish to explore how they and their residents can benefit from cheaper energy.

The Group holds a one-third share in the Warmworks joint venture along with Changeworks and the Energy Saving Trust. During the year, Warmworks was awarded a national fuel poverty scheme funded by the Scottish Government and worth up to £224m in total over a period of up to seven years. A proportion of this sum is being deployed directly on energy saving measures delivered by Everwarm. The contract started in September 2015, on target with the expectations set out by Scottish Government and initial volumes have been in line with expectations.

The division has made good progress this year despite the energy sector experiencing some well publicised challenges in the period, particularly around UK Government policy towards energy efficiency and the funding policies that underpin the sector. As we moved into the final phase of current policy and the obligations placed on utility companies relaxed, we saw pressure on carbon prices impacting in the final quarter of the year, which had a consequential effect on margins. We expect 2016 to be a transition year from the existing energy company obligation to the new policy, which starts in April 2017. 

While acknowledging the challenges arising from this evolving market, we believe that the market drivers remain: to improve energy efficiency across the UK housing stock and address fuel poverty. To deliver such a wide and complex challenge will require organisations with the necessary expertise and bandwidth. We have strengthened our Energy Services offering accordingly by acquiring complementary businesses and extending our capabilities - we remain well positioned to deliver on our strategy.

Construction

The Construction division offers refurbishment and small to medium-sized public building works, predominantly for local authority clients. The division focuses primarily on clients in the education sector, although it also delivers works to a range of other public buildings.

Full year underlying revenues declined overall, reflecting the exit last year from our social housing development activities, further details of which are outlined in notes 2 and 3. Our core education business grew by 12%, as we saw the benefit of higher value work secured on our frameworks in London.

The improvement in underlying margins reflected our focus on small to medium-sized education projects, where we can effectively balance risk and return, along with the exit from our social housing development business (which generated a loss of £1.2m in the underlying results for 2014).

During the year, we were reappointed to the Hampshire County Council framework and secured a place on the Local Government Shared Services (LGSS) framework with Northamptonshire and Cambridgeshire County Councils. We were also appointed to the Kent County Council Principal Contractors framework, the Gloucester County Council Major Construction Contract and the South Hunsley National framework for small to medium works.

We were pleased to secure the first two projects under the LGSS framework at Silverstone School and Radstone Fields School. We also saw the strengthening of relationships with London Borough of Richmond upon Thames, after winning the Russell and Strathmore School expansion project. We secured new schemes with Bromley Council at Midfield, Glebe and Edgebury Schools, two of which are under the Lewisham Pupil Places framework. There remains a large pipeline of opportunities for the division.

Utilising the East London Solutions framework, we won contracts with Newham Council at Salisbury, West Ham Church and Ranalagh schools. We also successfully delivered the first London Construction Programme project at Bounds Green School. In addition, we secured our first projects for City of Westminster College (Maida Vale Campus) and Ellen Wilkinson School in Ealing.

A key driver for the division is the continued shortage of primary school places, which requires investment in new school buildings to meet demand. The scale of this demand means we are able to remain selective about the new opportunities we pursue. High customer satisfaction also leads to good levels of repeat business and we continue to secure new framework wins.

Order book

Our bidding and estimating teams have continued to perform well, with new contract wins totalling £638m secured in the period. The focus on long term contractual relationships has led to all four divisions increasing the number of frameworks they are appointed to, which has in turn contributed to growth in our order book to £595m, an increase of £92m since December 2014.

Our sales pipeline remains robust at £2.8bn of identified Pre Qualification Questionnaire ("PQQ") and tender opportunities. The fragmented nature of our markets, combined with our still relatively small market share, underlines the scale of opportunity available to each of our divisions.

In addition a key driver for organic growth is our ability to cross-sell our services across the Group's clients and we have identified a number from each division where we are introducing other services alongside those we are already successfully providing.

FINANCIAL REVIEW

Introduction

This was a successful year for Lakehouse as we delivered our maiden results in line with our expectations. The year has been significant, delivering strong growth whilst managing the inevitable demands of completing our IPO.

Trading performance

* Detailed further in notes 2 and 3.

Underlying Group revenue in the year increased by 11.3% to £336.6m (2014: £302.5m), with organic revenue growth of 2.5%. Organic revenue excludes the impact of acquisitions in the year (specifically H2O Nationwide, Providor, Orchard Energy and Sure Maintenance), together with the annualised impact of the prior year acquisition of Everwarm and the exit from our social housing development activities. Revenue was £340.2m (2014: £302.5m), with the £3.6m difference to underlying revenue relating to revenues earned in the year from loss-making contracts on businesses being exited in our former social housing development activities (which sits in the Construction segment).

Group underlying EBITA rose by 105.6% to £22.2m (2014: £10.8m) to give an underlying EBITA margin of 6.6% (2014: 3.6%). Underlying EBITA excludes the amortisation of acquisition intangibles, contract losses on businesses being exited and exceptional items, which the Board believes provides a more appropriate view of our underlying operating performance. Organic EBITA growth was 50.0% (defined again as in revenue above). Operating profit rose to £4.6m, from £1.3m in the prior year.

The significantly improved Group underlying EBITA reflects progression in every division arising from operational improvements and a focus on higher margin work, producing an improved margin mix.

Regeneration

Full year revenues declined by £10.9m (6.3%) from £172.6m to £161.7m year on year. This reflects the Hackney Homes framework coming to maturity in the year, which had a 6.8% adverse impact on year on year revenues. We were pleased to see the new organic businesses in Regeneration (North) and responsive business in Regeneration (East) make a positive contribution in the second half of the year, as both reached profitability.

Underlying EBITA margins improved from 5.4% to 6.5% as a result of focusing on smaller frameworks where we could earn stronger returns, coupled with an improved operational performance.

Compliance

Full year revenues improved by £4.4m from £32.2m to £36.6m, representing an increase of 13.9%. The acquisition of our water and air business, H2O Nationwide, completed on 03 October 2014, and so provided a full year contribution. The acquisition of Sure Maintenance in September 2015 provided a small contribution, given its timing prior to year end. The acquisitions of Aaron Services and Precision Lifts both came after year end and as such, made no contribution in the year.

Margins improved from 7.9% to 12.3% reflecting an improvement in business mix, particularly the contribution of water and air services, along with a number of high margin projects. The division also did not have the scale of new contract mobilisation experienced in the prior year and so saw a lower impact of such costs.

Energy Services

Full year revenues increased by 196.6%, from £22.9m to £68.1m. This reflected primarily the full year impact of Everwarm (acquired in April 2014), together with, to a lesser extent, the acquisitions of Providor in May 2015 and Orchard Energy in July 2015. The division grew 50% on an organic basis, reflecting the mobilisation of our Energy Services offering in England and a strong second half performance from Everwarm as we emerged strongly from a slow period over the winter.

Underlying EBITA margins grew from 12.1% to 14.1% in the year, reflecting the improved labour utilisation afforded by a higher level of activity, together with a full year contribution from Everwarm and the Energy (South) business turning from loss to profit in the year. Providor and Orchard Energy made small contributions after integration costs and both have showed significant early opportunities.

We have seen significant change in the market for energy subsidies during the year and towards the end of the period an ensuing reduction in the prices we received for carbon. We believe the breadth of offering we have developed through the three acquisitions, together with the organic opportunities we are realising, particularly with social housing clients in the developing English market, leaves us well placed to adapt to changes in the energy market. While not immune to further changes that may arise in the markets we have built an infrastructure that is strong and can help both Government and our social housing clients address the multiple challenges of budgetary limitations, at the same time as having to meet targets for carbon emissions and fight fuel poverty.

Construction

Full year underlying revenues declined by £5.1m (6.5%) from £78.5m to £73.4m and underlying EBITA improved by £2.3m (90.5%) from £2.5m to £4.8m, reflecting the closure of our social housing development activities last year, further details of which are outlined in notes 2 and 3. Our core education business grew by 12.0%, as we saw the benefit of higher value work secured on our frameworks in London. We seek to grow our construction activities on a selective basis, where we can achieve an appropriate balance of risk and reward.

Central costs

Central costs increased 13.9%, from £6.3m in 2014 to £7.2m in 2015. This reflects the additional costs associated with being a listed company, together with additional support costs for the acquisitions we made in the year.

Exceptional and other items, including amortisation of acquisition intangibles

Exceptional and other items in the year related to the following:

Exceptional and other items in the year reduced the Group's profit before tax by £18.4m and related to the following items:

Contract losses on businesses being exited

Contract losses on businesses being exited of £2.5m (2014: £nil) represent further losses incurred on certain legacy contracts of our now ceased social housing development business. The associated revenues on these contracts was £3.6m. In the prior year, a loss of £1.2m was incurred in the social housing development business, which was treated as part of underlying activities in that year.

Exceptional items

Acquisition costs comprise legal, professional and other expenditure in relation to acquisition activity during the year and amounted to £0.8m (2014: £0.7m).

Contract costs relate to exceptional remediation expenses associated with the resolution of historic matters on a specific contract. The amount of £2.9m above represents the cost of additional unforeseen work undertaken over and above the £3.0m provided in the year ended 30 September 2014.

Restructuring costs of £0.8m (2014: £nil) relate to redundancy costs, the write-off of certain fixed assets and legal fees in relation to reshaping the Group structure during the year post IPO.

IPO costs of £4.2m (2014: £0.6m) comprise legal, professional and incidental expenditure incurred in relation to the IPO. We also transferred £1.3m of costs to the share premium account at the half year.

Amortisation of acquisition intangibles

When we acquire businesses, we estimate the value of their intangible assets following a review of the following: business drivers, statutory accounts, completion accounts and share purchase agreement, as well as holding discussions with local management. As with our four previous acquisitions, the intangible asset is made up of three identified categories: contracted work, customer relations and non-compete agreement. The relative values of each depend on the number and value of long term contracts, wider commercial relationships and legal terms of the acquisition agreement.

Acquisition intangibles are recognised separately in the Group balance sheet and are amortised over their assessed useful life, which is typically between three and five years. We exclude this amortisation charge from our calculation of underlying EBITA, because the Board does not consider that the cost is appropriate in understanding our underlying operating performance.

Amortisation of acquisition intangibles was £6.4m for the year (2014: £5.1m), with the increase reflecting the full year effect of Everwarm, together with the acquisitions of H2O Nationwide, Providor, Orchard Energy and Sure Maintenance during the year.

The balance of the difference between acquisition price, less acquisition intangibles and net assets acquired, is held as goodwill on the balance sheet. Goodwill is reviewed annually for impairment, based on trading projections sourced from the Group's three year plan. The Board concluded that none of our acquisitions necessitated impairment during the year.

Accelerated amortisation of financing costs 

Finance costs of £0.4m (2014: £nil) represent the acceleration of unamortised costs on the term loan we replaced with a new revolving credit facility in December 2014, ahead of the IPO.

Unwinding discount of deferred consideration

The unwinding discount of deferred consideration is a non-operating sum of £0.4m (2014: £0.5m) relating to the unwinding of discounts on deferred consideration payable for acquisitions.

Accounting treatment

The costs discussed above are considered non-trading because they are not part of the underlying trading of the Group and (aside from amortisation of acquisition intangibles and unwinding discount of deferred consideration) are not expected to recur year to year.

Cash impact

The main cash impact of the above contract losses on businesses being exited, contract costs and restructuring costs are expected to occur within one year. The other costs were either non-cash in nature or their impact occurred during the year.

Finance expense

The total finance expense for the year represented the interest charged on our debt facilities (net of finance income), together with the amortisation of debt raising costs, which totalled £0.6m (2014: £0.7m).

Our revolving credit facility was undrawn at year end. At the date of issuing this report we had drawn £23m, principally to finance the purchase of Aaron Heating Services Limited and Precision Lift Services Limited, along with £3.4m for deferred consideration payments due to the former owners of Allied Protection Limited and H2O Nationwide Limited.

We took the opportunity to renegotiate our banking facilities with Royal Bank of Scotland in December 2015 to secure a revolving credit facility of £45m (increased from £30m) for deployment in future corporate development activity.

Tax

The tax charge on underlying profit before tax of £21.6m was £4.1m, representing an effective rate of 19.0%, which compares with the statutory corporation tax rate of 20.5%. The difference was due to a settlement of items relating to the prior year.

The effective tax rate on statutory profit before tax for the year was 25.5%, the difference to the statutory rate being due to some £2.1m of exceptional items that were considered non-deductible for tax purposes.

Our cash tax payment for the year was £1.9m, compared to a statutory charge of £0.8m. The cash payment related to the timing of quarterly tax payments from the prior year. In the year, we utilised some £2.9m of a £5.9m tax credit, which arose on the exercise of share options at the time of the IPO and were eligible for Group tax relief. The difference between our cash and statutory charge was taken to reserves.

The remaining tax credit relates to a single Group company and may be utilised over a period of greater than one financial year.

Earnings per share

Underlying basic earnings per share were 13.7p (2014: 11.7p), based on underlying earnings of £17.5m (2014: £8.8m). Underlying earnings are stated after adding back £15.1m of exceptional and other items (after tax), as outlined above.

Our statutory earnings for the period were £2.4m (2014: £(0.4)m). Based on the weighted average number of shares in issue during the year of 127.8m, this resulted in basic earnings per share of 1.9p (2014: (0.5)p).

Further details are contained in note 6.

Dividend

The Board has proposed a dividend of 1.9p per share in respect of the second half of the financial year. Subject to approval at the AGM, this will be paid on 8 February 2016 to shareholders on the register at the close of business on 8 January 2016.

Provisions

Provisions as at 30 September 2015 stood at £6.4m (30 September 2014: £6.7m). During the year, we utilised £3.3m of provisions in line with our expectations, predominantly £2.4m in relation to specific contract costs (discussed in exceptional items above) and £0.5m in relation to share costs utilised as part of the share restructuring process around the IPO. We provided a further £2.9m in relation to specific contract costs (as outlined in note 3) and recognized £0.8m as part of fair value accounting on acquisitions.

Further details are contained in note 9.

Cash flow performance

Our operating cash flow for the year was £19.1m (2014: £15.3m) and £25.6m (2014: £15.5m) after taking account of the cash impact of exceptional and other items. This resulted in a strong underlying cash conversion of 115% (2014: 143%).

We calculate operating cash conversion as cash generated from operations, plus the cash impact of exceptional and other items, divided by underlying EBITA. We believe this measure provides a consistent basis for comparing cash generation consistently over time.

We managed working capital very tightly in the year, resulting in a positive movement of £5.9m. Our packaged subcontractor model still maintains a significant influence over cash dynamics for the Group and we saw a benefit in the year.

As the Group grows, we will need to continue to invest in working capital; in particular, the timing of revenues, method of contract delivery and customer contractual terms can all have an impact on cash conversion. Generally as revenues rise under a packaged subcontractor model, there is a cash benefit, as we are paid more quickly by our clients than we pay our supply chain; conversely as revenues fall, we may find payments to subcontractors do not fall in proportion to lower revenues, resulting in a cash outflow. We are increasingly employing a direct labour model, which attracts higher margins, but involves a shorter working capital cycle, as we carry higher levels of inventory and pay the workforce more quickly than packaged subcontractors. Clients are increasingly seeking later payment terms, in particular pushing for payment on completion of work, rather than in stages.

After factoring in the matters highlighted above, together with the impact of the exceptional and other items in the balance sheet at year end, we expect to continue to target an average annual operating cash conversion of 80% over the long term.

Our net cash balance stood at £6.6m and we had no debt at 30 September 2015.

Corporate development

During the year, we made four acquisitions. These were:

· H2O Nationwide Limited in October 2014, for initial cash consideration of £4.9m (including £2.1m of net cash received), fixed deferred payments of £1.4m and contingent deferred consideration estimated at £0.9m (capped at £2.0m)

· Providor Limited in May 2015, for initial cash consideration of £5.6m (including £0.8m of net cash received) and contingent deferred consideration estimated at £1.5m (capped at £2.0m)

· Orchard (Holdings) UK in July 2015, for initial cash consideration of £8.9m (including £1.9m of net cash received) and contingent deferred consideration estimated at £1.6m (capped at £3.0m)

· Sure Maintenance Group, for initial cash consideration of £7.3m (including £0.8m of cash and cash equivalents received) and contingent deferred consideration estimated at £0.5m (capped at £2.35m)

All amounts are stated net of discounting to present values as at 30 September 2015 and net cash received is net of working capital adjustments.

We made a further two acquisitions after the year end:

· Aaron Heating Services Limited in November 2015, for initial cash consideration of £6.7m and contingent deferred consideration, capped at £3.3m

· Precision Lift Services Limited in December 2015, for initial cash consideration of £5.5m and contingent deferred consideration, capped at £3.0m

Deferred consideration

During the year, we made further fixed deferred consideration payments in relation to Foster Property Maintenance and Allied Protection. The table below shows the total discounted deferred consideration payable and the amount outstanding at the year end. £7.2m of the deferred consideration outstanding at year-end is contingent on future earnings of the businesses acquired.

In addition to the acquisitions discussed above, one of our former acquisitions - Allied Protection - had contingent deferred consideration as part of the transaction terms, amounting to £2.7m. Allied Protection met its profit targets in the year to 30 September 2015, resulting in a full payment of the £2.7m contingent consideration in November 2015 (and is included in full within the table above).

Acquisition integration

We have a well worked integration process for acquisitions and focus on certain key items in the first 100 days:

· Daily cash reporting and maintenance of a rolling three month cash forecast

· Alignment of financial reporting with the Group's reporting timetable

· Future income visibility through monthly forecasting

· Order book reporting, which underpins the predictability for our revenue

· Alignment of accounting policies

We typically conduct the due diligence in-house, with support from external advisers where appropriate and specific value can be added. This process means we get to know the acquired businesses well and cover the above integration matters during the process, such that acquired businesses are substantially aligned from day one.

The Group has a track record of purchasing successful, well-managed businesses with comparable culture and financial discipline to our own. This helps ensure their integration is relatively smooth.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

For the year ended 30 September 2015

Responsibility statement of the directors on the annual report

This responsibility statement below has been prepared in connection with the company's full annual report for the year ended 30 September 2015. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge that:

1. The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

2. The strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principcal risks and uncertainties they face; and

3. The annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

This responsibility statement was approved by the board of directors on 9 December 2015 and signed on its behalf by:

Jeremy Simpson

Chief Financial Officer

9 December 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2015

The accompanying notes are an integral part of this consolidated statement of comprehensive income.

1 Underlying results are stated before exceptional and other items. Exceptional and other items are detailed further in Note 3.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The financial statements of Lakehouse plc (registered number 09411297) were approved by the board of directors and authorised for issue on 9 December 2015. They were signed on its behalf by:

J J C Simpson

Director

The accompanying notes are an integral part of this consolidated statement of financial position.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2015

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2015

The accompanying notes are an integral part of this consolidated statement of cash flows.

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

For the year ended 30 September 2015

1. Basis of Preparation and significant accounting policies

Lakehouse plc is a company incorporated in the United Kingdom under the Companies Act, registered number 09411297. The address of the registered office is 1 King George Close, Romford, Essex RM7 7LS. The consolidated financial statements are presented in Pounds Sterling because that is the currency of the primary economic environment in which the Group operates.

As part of a restructuring accompanying the Initial Public Offering ("IPO") of the Group on 23 March 2015, Lakehouse plc replaced Lakehouse Holdings Limited as the Group's ultimate parent company by way of a Share exchange agreement. Under IFRS 3 this has been accounted for as a group reconstruction under merger accounting. The results for the Group for the period from 1 October 2014 to 30 September 2015 have been presented as if Lakehouse plc was the ultimate parent company from 1 October 2014. The prior year comparatives reflect the consolidated results of the Group under Lakehouse Holdings Limited. On 23 March 2015 Lakehouse plc was listed on the London Stock Exchange.

These results for the year ended 30 September 2015 are an excerpt from the Annual Report & Accounts 2015 and do not constitute the Group's statutory accounts for 2015 or 2014. Statutory accounts for Lakehouse Holdings for the year to 30 September 2014 have been delivered to the Registrar of Companies, and the Lakehouse plc statutory accounts for the year to 30 September 2015 will be delivered in due course. The Auditor has reported on both those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under Sections 498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

Whilst the financial information included in this Annual Results Release has been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union (EU), this announcement does not itself contain sufficient information to comply with IFRS. Full financial statements that comply with IFRS are included in the Annual Report & Accounts 2015 which will be available at www.lakehouse.co.uk.

The accounting policies adopted are consistent with those followed in the preparation of the Lakehouse Holdings Limited Group's Annual Report & Accounts for the year ended 30 September 2014 except for the adoption of IFRS 10 'Consolidated Financial Statements', IFRS 11 'Joint Arrangements', IFRS 12 'Disclosures of Interests in Other Entities', IFRIC21 "Levies", IAS 36 "Recoverable Amount Disclosures for Non-Financial Assets" and "Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting" . The adoption of these standards has had no impact on the results or financial position of the group.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Annual Report and Accounts.

Underlying business performance

The Group believes that the measure of underlying EBITA and presentation of underlying operating profit, profit before tax, profit after tax and earnings per share provide useful information on underlying trends to shareholders. These measures are used by the Group for internal performance analysis and incentive compensation arrangements for employees.

The terms "underlying EBITA", '"underlying", "contract losses on businesses being exited" and "exceptional items" are not defined terms under IFRS and may therefore not be comparable with similarly titled profit measures reported by other companies. It is not intended to be a substitute for, or superior to, GAAP measurements of profit.

The term "underlying" refers to the relevant measure being reported for continuing operations excluding exceptional and other items, (which include amortisation of acquisition intangibles). EBITA is earnings before interest, tax and amortisation of acquisition intangibles. Adjusted EBITA is stated before exceptional and other items.

2. Operating segments

The Group's chief operating decision maker is considered to be the Board of Directors. The Group's operating segments are determined with reference to the information provided to the Board of Directors in order for it to allocate the Group's resources and to monitor the performance of the Group.

The Board of Directors has determined an operating management structure aligned around the four core activities of the Group, with the following operating segments applicable:

(a) Regeneration: focused on planned and responsive maintenance services for social housing. A significant part of our services is project managing delivery and ongoing resident liaison in delivering planned services such as new kitchens, bathrooms, roofs and windows. The segment also has a small but growing responsive maintenance business. We contract with customers predominantly under framework agreements, where the number of suppliers will vary from one to a small group.

(b) Compliance: focused on gas, fire, electrics, air and water, where we contract predominantly under framework agreements. Services comprise the following:

a. installation, maintenance and repair-on-demand of gas appliances and central heating systems;

b. compliance services in the areas of fire protection and building electrics; and

c. air and water hygiene solutions.

(c) Energy Services: we offer a range of services in the energy efficiency sector, including external, internal and cavity wall insulation, loft insulation, gas central heating and boiler upgrades. The services are offered under various energy saving initiatives including Energy Company Obligations ("ECO"), Green Deal and the Scottish Government's HEEPs ("Home Energy Efficiency Programme") Affordable Warmth programme. Clients include housing associations, social landlords, local authorities and private householders and we have trading relationships with five of the "big six" utility suppliers and many of the leading utility challengers. We also provide renewable technologies, metering services and energy advisory and brokerage services to customers throughout the UK.

(d) Construction: focused on small to medium sized building projects, normally under framework agreements with an emphasis on the education sector. The business targets refurbishment projects for public buildings in the mid-range of value and tends to avoid large scale building projects. The segment also includes a social housing development business, which we are exiting and in relation to which, contract losses have been disclosed separately so as not to distort the underlying trading position of the Group and the Construction segment.

The accounting policies of the reportable segments are the same as those described in the accounting policies section of the Annual Report and Accounts.

All revenue and profit is derived from operations in the United Kingdom only.

The profit measure the Group uses to evaluate performance is Underlying EBITA. Underlying EBITA is defined as operating profit before deduction of exceptional and other items, as outlined in note 3 and on the face of the income statement.

The Group accounts for inter-segment trading on an arm's length basis. All inter-segment trading is eliminated on consolidation.

The following is an analysis of the Group's revenue and Underlying EBITA by reportable segment:

Inter-segment trading comprises services provided by the Compliance segment for the Regeneration segment and are charged at prevailing market prices.

The improvement to IFRS 8 issued in April 2009 clarified that a measure of segment assets should be disclosed only if that amount is regularly provided to the chief operating decision maker. Following a change in the internal reporting of segmental financial results during the year the chief operating decision maker no longer reviews segmental assets and liabilities on a regular basis. Only the Group consolidated statement of financial position is regularly reviewed by the chief operating decision maker and consequently no segment assets or liabilities are disclosed here under IFRS 8.

3. Exceptional and other items, including amortisation of acquisition intangibles

Exceptional and other items in the year reduced the Group's profit before tax by £18.4m and related to the following items:

Contract losses on businesses being exited

Contract losses on businesses being exited of £2.5m (2014: £nil) represent further losses incurred on certain legacy contracts of our now ceased social housing development business. The associated revenues on these contracts were £3.6m. In the prior year, a loss of £1.2m was incurred in the social housing development business, which was treated as part of underlying activities in that year.

Exceptional items

Acquisition costs comprise legal, professional and other expenditure in relation to acquisition activity during the year and amounted to £0.8m (2014: £0.7m).

Contract costs relate to exceptional remediation expenses associated with the resolution of historic matters on a specific contract. The amount of £2.9m above represents the costs of additional unforeseen work undertaken over and above the £3.0m provided in the year ended 30 September 2014.

Restructuring costs of £0.8m (2014: £nil) relate to redundancy costs, the write-off of certain fixed assets and legal fees in relation to reshaping the Group structure during the year post IPO.

IPO costs of £4.2m (2014: £0.6m) comprise legal, professional and incidental expenditure incurred in relation to the IPO. We also transferred £1.3m of costs to the share premium account to reflect costs directly attributable to the issue of new equity.

Amortisation of acquisition intangibles

Amortisation of acquisition intangibles was £6.4m for the year (2014: £5.1m), with the increase reflecting a full year impact of Everwarm, together with the acquisitions of H2O Nationwide, Providor, Orchard Energy and Sure Maintenance during the year.

Accelerated amortisation of financing costs

Finance costs of £0.4m (2014: £nil) represent the acceleration of unamortised costs on the term loan we replaced with a new revolving credit facility in December 2014, ahead of the IPO.

Unwinding discount of deferred consideration

Unwinding discount of deferred consideration reflects the present value of deferred sums, discounted at a post-tax rate of 8.5%, due on outstanding payments for acquisitions.

Accounting treatment

The costs discussed above are considered non-trading because they are not part of the underlying trading of the Group and (aside from amortisation of acquisition intangibles and unwinding discount of deferred consideration) are not expected to recur year to year.

4. Tax on profit on ordinary activities

Factors that may affect future charges

The Finance Act 2014, which provides for a reduction in the main rate of corporation tax from 21% to 20% effective from 1 April 2015, was substantively enacted on 17 July 2014. This rate reduction has been reflected in the calculation of the deferred tax at 30 September 2015.

The Government intends to enact further reductions in the main tax rate down to 19% effective from 1 April 2017 and to 18% effective from 1 April 2020. As these tax rates were not substantively enacted at the balance sheet date, the relevant rate reductions are not yet reflected in these financial statements in accordance with IAS 10, as it is a non-adjusting event occurring after the reporting period.

We estimate that the future rate change to 18% would further reduce our UK deferred tax liability recognised at 30 September 2015 from £1,979,000 to £1,880,000. The actual impact will be dependent on our deferred tax position at that time.

5. Dividends

The proposed final dividend for the year ended 30 September 2015 of 1.9p per share amounting to £3.0m (2014: nil) will be paid on 8 February 2016 to the shareholders on the register at the close of business on 8 January 2016. The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

6. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

The weighted average number of Ordinary shares in issue during the year excludes those accounted for in the own shares reserve, representing a weighted average of 169,187 (2014: £nil) shares.

7. Borrowings

In October 2013 the Group renegotiated its bank facilities to provide an overdraft facility of £2,000,000 together with a £15,000,000 term loan repayable in instalments. At 30 September 2014 a balance of £11,667,000 was outstanding on the term loan, with 11 instalments outstanding and a final amount of £2,500,000 being due on 21st October 2017; no amount of the overdraft facility was outstanding. An average interest cost of 4.29% was incurred on the term loan in 2014. The term loan was fully repaid in December 2014.

In December 2014, the Group renegotiated its bank facilities to provide an overdraft facility of £5,000,000 together with a revolving credit facility of £30,000,000. In light of the net cash position of the Group, the revolving credit facility was undrawn at 30 September 2015.

8. Net cash / (debt)

9. Provisions

Share costs

Share costs relate to the expense associated with compensating certain employees on IPO, for the higher than expected costs faced on exercising share options extant at 30 September 2014. This crystallized entirely during the financial year, following the IPO in March 2015.

Property development

Property development costs represent sums due to the former owners of the land relating to the Manor Road housing development under the terms of the sale. This sum was paid in October 2015.

Legal and other

Other costs relate to property dilapidation obligations, potential contract settlement costs and other potential legal settlement costs, including a provision of £200,000 for legal expenses held on the balance sheet of the Company. The largest figure relates to the potential contract settlement costs which have been made on management review of contractual obligations faced on legacy contracts and include the Contract costs referred to in note 3. These are expected to result in an outflow of economic benefit over the next one to three years.

10. Cash generated from operations

11. Business combinations

2015 acquisitions:

H2O Nationwide Limited

On 3 October 2014 the Group acquired the entire share capital of H2O Nationwide Limited for consideration as detailed below. H2O Nationwide Limited's principal activity is that of air and water compliance. The effect of the acquisition on the Group's assets and liabilities were as follows: