SUR.L Regulatory News (SUR)

23 January 2018

Lakehouse plc, the asset and support services group

Preliminary Results for the year ended 30 September 2017

Restructuring programme finalised, positioned for growth

Bob Holt, Chairman of Lakehouse, commented:

"Lakehouse had an excellent year, posting Underlying EBITA of £9.5m (comprising £7.3m from continuing operations and £2.2m from discontinued operations). As part of the ongoing operational improvement programme, the Group continues to streamline the business to focus on building up its core activities of Compliance and Energy Services, where we have strong businesses and leading market positions.

"For the year ended 30 September 2017 the Group, excluding Property Services, contributed 21% of revenue growth and a 15.8% increase in underlying EBITA.

"We had an excellent year in bidding, securing £580m in new wins. These successes were reflected in the value of our frameworks, which increased by 22% from £1.6bn to £1.9bn and our order book increased by 19% from £532m to £631m.

"I was delighted by our good cash management in the year with year end net debt of £1.3m (2016: £20.6m), significantly ahead of expectations.

"In terms of outlook, having expanded our core divisions, put in operational improvement measures and managed our exposure to risk, we are building a strong platform from which to deliver a continued growth in performance. Therefore, we are confident in the Group's future prospects."

Financial overview:

Lakehouse plc ("Lakehouse" or "the Group") full-year financial results reflect continued strength in our core businesses of Compliance and Energy Services, together with the delivery of operational efficiencies:

Ø Notwithstanding underlying revenue growth of 21% within Compliance, Energy Services and Construction, Group underlying revenue from continuing operations decreased by 3% to £290.3m (2016: £299.1m), reflecting the restructuring and downsizing of Property Services.

Ø Underlying Group EBITA1 from continuing operations decreased to £7.3m (2016: £8.5m), reflecting the impact of Property Services; excluding Property Services, underlying Group EBITA grew 15.8%, from £7.7m to £9.0m.

Ø Lakehouse returned to profit in the year, following a loss in 2016.

Ø Underlying basic EPS of 3.7p (2016: 5.2p) and statutory EPS of 0.0p (2016: loss of 18.6p).

Ø Underlying operating cash inflow from continuing operations of £12.4m (2016: £10.9m) reflecting a strong cash conversion of 169% (2016: 127%). On a statutory basis, operating cash flow was £13.4m (2016: outflow of £3.0m) representing a cash conversion of 248% (2016: outflow of 493%).

Ø As at 30 September 2017 net debt balance stood at £1.3m (2016: £20.6m) reflecting, in part, the £12.4m proceeds from the sale of Orchard.

Ø The Board proposes a final dividend of 0.5 pence per share. This represents a total dividend payable for the year of 0.5 pence (2016: 1.5 pence).

Key performance indicators

Ø High bidding success rate led to contract wins in the period valued at £580m contributing to a year end order book of £631m, representing growth of 19% in the year (2016: £532m).

Ø The Group is now on 351 frameworks (2016: 244).

Ø Value of frameworks up 22% to £1.9bn (2016: £1.6bn).

Operational and strategic highlights

Ø Ongoing operational improvement process throughout the Group.

Ø Construction sector difficult - Carillion brings further uncertainty.

Ø Focus on mobilising smart metering, which remains challenging.

Ø Business platform established with Compliance and Energy Services ready to exploit strong market dynamics driven by increased regulatory compliance obligations.

Enquiries

Notes to editors

Lakehouse 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 clients in the UK public sector and regulated markets. Services are delivered through four divisions: Compliance, Energy Services, Property Services and Construction.

The Group was founded in 1988 and is headquartered in Romford, Essex. It currently employs some 2,300 staff from 29 offices across the UK.

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 Notes 4 and 7 and on the face of the Consolidated Statement of Comprehensive Income. Underlying EBITA is the same as 'Operating profit before exceptional and other items' on the face of the Consolidated Statement of Comprehensive Income, but used as terminology in light of being a key performance measurement for management in the Group.

2. As set out in the Consolidated Statement of Comprehensive Income, other underlying numbers are stated before Exceptional and Other Items (discussed further in Notes 4 and 7). Underlying profit after tax and underlying earnings per share are net of an imputed tax charge.

3. Underlying operating cash conversion is operating cash flow, plus the cash impact of Exceptional and Other Items (discussed further in Notes 4,7 and 34), as a percentage of underlying EBITA.

Executive Chairman's statement

Introduction

I am pleased with the progress made in the year, following a significant restructuring of the Group at the end of 2016. We have continued to focus on building our core growth activities within Energy Services and Compliance, together with maintaining a cautious approach to Construction.

Having downsized our Property Services businesses to manage exposure to risk, we took the opportunity to reduce central costs. I am happy to confirm that we now have a streamlined business that is both fit for purpose and appropriate for a Group of our size.

Our Energy Services and Compliance divisions both had excellent performances, which is a credit to those management teams which contributed to provide the top-line sales growth and profitability in line with or ahead of expectations across the eight companies concerned.

The sector had challenges in the year following the Grenfell tragedy, as highlighted in the Operational Review. This necessitated clients to refocus their budgeted spends on areas of high risk within their property portfolios. The Group saw some benefit arising from those changes in spend pattern, both from existing clients and through contract awards from new clients. However margins saw some localised pressure. The recent demise of Carillion brings further uncertainty to the sector. For our part, we will continue to invest in our people, focus on quality of service delivery and target those sectors and clients where we believe we can earn an acceptable return.

Significant contract awards were gained in the period and we experienced like for like sales growth of 21% collectively in Compliance, Energy Services and Construction. Our order book grew 19% from £532m in 2016 to £631m as at 30 September 2017. Similarly, our value of frameworks (of which the order book is a subset) increased by 22%, from £1.6bn to £1.9bn, underpinning the confidence we have in the future potential of the Group.

The now leaner central services team also contributed to the successes in the year, as we maintained the highest standards of reporting, health and safety compliance, procurement savings and bid performance. I am pleased to report that the key non-operational functions of the business are all functioning well.

Our cash management in the period was good, where we were able to demonstrate that excellent operational service levels can expect above average cash receipts.

Divestiture

On 2 October 2017, we were able to announce the divestment of our white-collar energy consultancy business, Orchard Energy (Holdings) Limited ('Orchard'). The Group acquired Orchard in 2015 and saw an opportunity to divest at a significant premium to the cost of acquisition. Orchard was the only part of the Group which provided pure consultancy services and therefore the divestment was easy to extract with no upheaval and little effect on the other trading entities. The sale had an effective completion date of 29 September 2017 and realised £12.4m, representing a gain on sale of £5.4m, which was used to pay down the Group's debt with the Royal Bank of Scotland.

As mentioned previously, this cash repayment alongside our good cash collection saw the Group end the period with a very low net debt of £1.3m against a figure of £20.6m at the corresponding period in 2016. This reflected a terrific effort from a number of people.

Trading performance

The details of our financial performance for the year are set out in the Operating Review. I was pleased with an underlying EBITA of £9.5m (comprising £7.3m from continuing activities (2016: £8.5m) and £2.2m from Orchard (2016: £2.4m), which was reported as a discontinued activity). Our performance was in line with market expectations and provides a strong base upon which to move forward. Our profit for the year attributable to equity holders of the Group was significantly impoved at £10,000, compared to a £29.3m loss in the prior year.

Strategy

We have outlined our strategy on pages 10 and 11 of the Annual Report for the year ending 30 September 2017 ('Annual Report'), which remains:

· Developing key markets: utilising our strong presence in social housing, public buildings, energy and education to grow both geographically and across service lines

· Focused divisions: sticking to what we are good at within our core activities of gas, fire and electrical, air and water, lifts, energy efficiency, smart meters and construction, whilst stabilising Property Services

· Working together: capitalising on our strong national base to collaborate in expanding our activities within existing markets

To which we have added a fourth category:

· Operational performance: we are proud of the operational turnaround achieved to date by the Property Services team in the past year, given past failures elsewhere in the sector - we must build on these experiences not simply to fix what is broken, but to become a better, class-leading business across all our divisions

I have been delighted by the commitment and passion shown across our workforce of more than 2,300, in what has been a difficult period. We have come out of this stronger, leaner and, in our target markets, bigger. However, our achievements will count for nothing without our reputation for delivering a high quality service to our clients and wider stakeholders, whilst ensuring our environments remain safe and secure.

Dividend

The Board is looking to maintain a dividend, which recognises shareholder need, whilst retaining sufficient capital for future growth. The Board proposes a final dividend of 0.5 pence per share for the year which, subject to shareholder approval, will be paid on 6 April 2018 to shareholders on the register at 2 March 2018. This represents a total dividend of 0.5 pence per share for the year (2016: 1.5 pence).

People

The Board was strengthened recently with the appointment of Derek Zissman, who brings a wealth of experience to the Group, most notably from 35 years at KPMG, where he was a Founding Partner of their Corporate Finance and Private Equity Groups. We are delighted that Derek has agreed to take over the Chairmanship of the Audit Committee. I look forward to the continued maintenance of our high standards of Corporate Governance with Derek's support.

I should like to thank all employees of the Group for their commitment during a challenging but exciting period and I look forward to bringing news of further success to all stakeholders of the Group.

Outlook

We have taken significant steps forward this year, expanding our activities within Energy Services and Compliance, taking a steady approach in Construction and downsizing and repairing Property Services. Our focus remains on operational improvement within the Group, but we can now start to consider strategic development. We do not expect to return to a significant acquisition strategy, albeit we can never rule out the right deal, instead focusing on organic growth in our core growth markets within Energy Services and Compliance, which have considerable bandwidth.

We have a settled and committed Board, a strong leadership base in each of our businesses and a great workforce in which we continue to invest. We therefore look to the future with optimism.

Bob Holt

Chairman

Operational review

Financial performance

The Group had a strong year, posting an underlying EBITA of £9.5m, comprising £7.3m from continuing activities (2016: £8.5m) and £2.2m from Orchard (2016: £2.4m), which was reported as a discontinued activity.

Underlying revenue from continuing activities was 3% lower at £290.3m (2016: £299.1m) and underlying EBITA from continuing activities declined by 14.2% to £7.3m from £8.5m in the prior year, representing a margin of 2.5% (2016: 2.9%). We have previously discussed the challenges faced by our Property Services business, and excluding these operations, underlying revenues grew 21.0% from £201.0m to £243.3m, with underlying EBITA rising 15.8% from £7.7m to £9.0m, which included absorbing some £1.3m of meter mobilisation costs within our underlying performance. Property Services revenues fell 52.1% from £98.1m to £47.0m, posting an underlying EBITA loss of £1.7m (2016: profit of £0.8m).

Statutory revenue was 8.5% lower at £299.5m (2016: £327.2m), reflecting the withdrawal from our 'externals' activities within Property Services announced in the prior year. Operating losses were much improved at £1.1m (2016: £34.0m), after Other Items of £1.9m (2016: £9.1m), a net exceptional gain of £4.0m (2016: loss of £3.1m, together with a £19.2m impairment charge) and amortisation of acquisition intangibles of £10.5m (2016: £11.2m), which are discussed further in the Financial Review below and Note 7.

Underlying profit before tax from continuing activities was £5.6m (2016: £7.5m) and underlying profit after tax from continuing activities was £4.2m (2016: £6.3m), resulting in underlying basic earnings per share of 3.7 pence (2016: 5.2 pence). The statutory loss from continuing operations before tax was £3.1m (2016: £35.7m) and loss after tax was £1.7m (2016: £31.1m).

Profit after tax from discontinued activities was £1.7m (2016: £1.9m), resulting in a profit for the year attributable to the equity holders of the Group of £10,000 (2016: loss of £29.3m) and basic earnings per share of 0.0 pence (2016: loss of 18.6 pence).

Looking forward

During the year, we saw very strong underlying growth in our Compliance (underlying revenues up 14.6%) and Energy Services (underlying revenues up 29.9%) divisions and we will continue to focus on both moving forward.

Construction underlying revenues grew 18.7%, which, whilst pleasing, came from a low base in FY16. This remains a good business but unpredictable both in terms of timing of client procurement and project management and we are planning for modest future growth.

Property Services had a difficult first half of the year, losing an underlying £1.1m, and we saw an improvement in the second half, with losses falling to £0.6m, resulting in an overall loss for the year of £1.7m. Underlying revenues declined 52.1% as we sought to reduce risk and we matched this with a reduction in the cost base. We expect these activities to improve returns in the future, possibly on revenues slightly lower than FY17.

With this in mind, we are pleased to have visibility over 84% of forecast revenues for the current year (as at November 2017), compared to 87% at the same point in FY16.

The Group's order book stood at £631m at 30 September 2017, an increase of 19% on the prior year of £532m, reflecting significant gains in Compliance and Energy Services. Our value of frameworks (of which order book is a subset) also increased by 22%, from £1.6bn to £1.9bn, underpinning the confidence we have in the future potential of the Group.

Our Compliance, Energy Services and Construction divisions have all delivered strong growth in the year and we remain confident in the exciting prospects for each. Property Services has been in a turnaround situation during FY17, but new management have stabilised operations, reviewed risks and provided a base upon which we can build in the future.

Compliance

(36% of Group Underlying Revenue)

The Compliance division comprises planned and responsive maintenance, installation and repair services predominantly 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, as well as industrial and commercial properties. The division is seeing the benefits of a wider pool of clients and mandatory services that provide significant future opportunities.

Overall, underlying revenue increased by 14.6% to £104.3m (2016: £91.0m). Underlying EBITA increased 29.5% to £8.0m (2016: £6.2m), resulting in an underlying EBITA margin of 7.7%, up by 90ppt, reflecting the increased critical mass of the business, especially as regards procurement. The year on year annualised impact of Aaron Heating Services (acquired November 2015) and Precision Lift Services (acquired in December 2016) was £4.8m in revenues and less than £0.2m in EBITA.

Gas Compliance

The three Gas Compliance businesses (Sure, Aaron and K&T) make up 75% of divisional revenues and built on the progress made in FY16 with another excellent year. K&T has historically operated within the dense metropolitan areas of London, while Sure and Aaron worked in the wider geographic regions of the North West and East Anglia respectively. K&T has historically enjoyed larger margins as a result of higher engineer efficiency and procurement leverage. We carried this experience over into Sure and Aaron during 2017, with a resultant improvement in margins.

We have continued to expand the reach of each of the Gas businesses during the year, as we seek to provide both nationwide coverage and a broader range of related services, particularly in commercial gas (being boiler plant rooms and the like). Sure expanded into the South West with Guinness Trust and the Midlands, with Derbyshire County Council. Aaron expanded into the Home Counties with Central Beds. K&T developed its commercial gas offering in securing a £7m programme with London & Quadrant, along with completing a national offering with Sure for Guinness Trust, as we won all three geographic lots on this £5m per annum programme during the year.

The business has further capacity to fill in geographic gaps and expand its range of services, building on the successes of 2017. We are also investigating the investment required in systems development, with the aim to improve engineer planning and utilisation, without compromising the quality of service offered by a local presence. There are further gains to be made in fleet management and procurement, albeit as we identify in the risk section on pages 26 to 29 of the Annual Report we will keep a close watch over commodity prices as the Brexit process advances, in particular metals such as steel and copper, which are a core component of boilers. Whilst price rises are possible in the long term, we are committed to mitigating, wherever possible, the impact on client budgets and as such need to ensure our procurement leverage relative to our competitors allows us to maintain and develop our competitive advantage.

During the year, Gas Compliance secured a number of notable further wins, with a £6.1m heating service and maintenance contract with Places for People, a £1.6m boiler replacement programme with Corby Borough Council, a £5m two-year heating services contract with Moat Housing and a £4.9m heating service and maintenance contract with Southern Housing Group over four years. In addition, we secured places on the Eastern Procurement framework (potentially worth £1.6m per annum) and two places on Sanctuary Housing's commercial heating installations framework, all key and important. We were also highly successful in resecuring a number of existing contracts with clients such as Whitefriars and Charnwood Housing Associations.

Building Compliance

Our Building Compliance businesses comprise Allied Protection (fire and electrical), H2O Nationwide (air and water) and Precision Lift Services (lifts).

H2O Nationwide had another superb year, as we further developed its footprint in both the social housing and industrial and commercial sectors. During the year, the business secured a £0.5m water hygiene maintenance contract with the London Borough of Ealing, a £0.6m water compliance contract with Homes For Haringey, a £0.6m framework with Procurement for All and a £0.7m water hygiene framework with Fusion21. There is significant strategic bandwidth in this business, individually and together in water and air hygiene services, as well as further development in the Industrial and Commerical market and we are excited about the future value that can be generated.

With new management in place, Allied turned a small FY16 EBITA loss into a healthy EBITA profit in FY17 through a focus on operational improvement. This was really pleasing after a difficult FY16, where we saw a significant drop-off in project works. The Grenfell Tower tragedy has focused the attention of clients on the non-discretionary nature of fire protection and we expect this market to develop further in the future. It is too early to determine quite how these developments may progress as there are a range of potential solutions, but we invested during the second half in our central team to ensure we are best placed to respond to client requests and, importantly, provide them with the documentary reassurance they need to remain compliant. Allied was engaged by Kensington and Chelsea in January 2017 to certify the appropriate working of its installed fire safety systems at Grenfell Tower and is satisfied the system was maintained in accordance with the requirements. All evidence presented to date indicates that the system performed as it was designed to do and there has been no inference of any contractual shortcomings on Allied's part. Allied was not responsible for the specification or installation of the system.

A particular challenge in the current market is retaining good engineers and we expanded the Lakehouse Academy during FY17 to train apprentices in-house, thereby providing a steady stream of engineers trained to the standards we expect. Allied had a good year for new wins with a £1m fire equipment service and maintenance contract with Shepherds Bush Housing Association, a four-year fire safety programme with Fusion21 worth £2.7m and a four-year, £2.4m fire safety improvement works programme with Paragon Housing Association. Allied also achieved successful geographic expansion, including a two-year contract with Coventry City Council and a £1.6m passive protection contract with Wythenshawe Council, courtesy of a pre-existing relationship with Sure.

We decided during the year to bring a new management team into Precision Lift Services, in place of the former owner and Managing Director. We expect the change to bring the drive necessary to deliver growth in a commercial environment. The former team built an excellent and strong business, which was evidenced by a number of great wins in the year, including a 10-year £27m lift service repair and refurbishment programme with Westminster City Council, a £1.6m lift modernisation programme with the London Borough of Hammersmith and Fulham, a £0.9m lift modernisation programme with Brent Housing Partnership, a £0.9m lift refurbishment programme with each of Hyde Housing Association and the London Borough of Newham and a £1.2m four-year framework with Eastern Procurement. We also successfully resecured significant contracts with Tower Hamlets Housing Association and Wandsworth Council.

Looking forward

Compliance now includes 204 frameworks, up from 108 at 30 September 2016, with an aggregate potential value of £608m (30 September 2016: £447m). We have been cautious during the year about announcing excessive numbers of new wins, as headline client names and quantum of frameworks do not always lead to material levels of new work. In reflecting a near doubling of our number of frameworks and increase in value by one-third, we have exercised our normal levels of conservatism.

We regard Lakehouse to be the market leaders in the compliance sector, with a true national reach. We believe we have built the strongest compliance business of its type, well positioned to grow further in what is a fragmented and regional market. The division stands alone and each of the six business Managing Directors is encouraged to think and act as an entrepreneur, whilst operating within the governance boundaries of a plc.

Energy Services

(27% of Group Underlying Revenue)

Energy Services provides a range of energy efficiency services, including insulation, heating and renewable technologies for social housing and private homes through its Everwarm subsidiary. Everwarm also uses these services to deliver carbon emissions savings for energy companies, enabling them to meet their legislative targets. The division offers smart metering services through Providor and has a small but developing presence in the installation of electrical vehicle charging points.

Underlying revenue increased by 29.9% to £79.0m (2016: £60.8m). These figures reflect our energy efficiency and metering activities following the sale of Orchard in September 2017, which has been treated as a discontinued activity and therefore excluded from the above figures. Top-line growth was very much driven by our new contracts with Scottish Power as the metering business continued to mobilise in the year.

Underlying EBITA decreased by 29.0% to £4.0m (2016: £5.7m). As we highlighted in FY16 would be the case, the Providor metering business continued to mobilise during the year and we felt as a continuing activity it was therefore right to include the performance within trading, whereas as a new activity it had been taken to 'Other Items' in the prior year. The costs of mobilisation amounted to £1.3m (2016: £2.5m reported within 'Other Items'), which were slightly higher than the £1.0m we had previously indicated, due to the inefficiences created by continued delays in the programme. This is discussed further below and accounted for the bulk of the movement in underlying divisional EBITA year on year.

Everwarm

We saw Everwarm's business model continue to evolve during the year, creating a wider and more balanced portfolio of activities, particularly in heating, renewables and comprehensive property services, all of which performed well during the year. We were delighted to announce a £44m four-year contract with Aberdeenshire Council, which underpins this development.

Insulation remains the most significant part of Everwarm's business and in the year, whilst the carbon rates that underpin energy subsidy funding remained stable at a macro-level, we experienced some localised examples of price fluctuations, mainly one-off offerings for smaller volumes and shortened timeframes based on specific requirements among energy suppliers. Our strategic approach to relationships with energy suppliers secures us higher volume commitments over longer durations, which saw less volatility, and we currently have committed volumes to June 2018. In addition, the ECO 2 transition ('ECO2t') model has seen a move to deemed scoring measures, aimed to simplify the procedures. While the headline carbon rates associated with ECO2t have increased, on average the new scoring approach has maintained overall funding levels per property, so we see no margin benefit. There remain challenges around lead generation and compliance; however, our core strengths play well to the latter and leave us extremely well placed to deliver a class-leading service. ECO2t has been extended to September 2018, prior to the proposed introduction of a fuel poverty-focused scheme thereafter. Our belief continues to be that insulation offers a low cost and highly effective means of reducing energy consumption and alleviating fuel poverty.

As we discussed at the half year, margins in the insulation market remain challenging, but we saw improvements in heating, renewables and comprehensive property services through an improved activity mix and scale in our activities.

The Group holds a one-third share in the Warmworks joint venture, along with Changeworks and the Energy Saving Trust. Warmworks operates the Scottish Government's flagship Home Energy Efficiency Programme for Scotland ('HEEPS'), which performed exceptionally well, albeit with the expected plateau and then slight decrease in volumes during the second half of the year, in light of funding availability. A decision around further funding is expected in early 2018, which will guide us further, although committed volumes reduce any exposure we have here. We continue to explore options for the development of the business model, including areas such as water efficiency and advisory services.

The recent tragic events with Grenfell Tower have no direct bearing on Everwarm, as the business has not engaged in either aluminium cladding or refurbishment of tower blocks. However, the insulation sector remains under-represented in Westminster and these events have introduced further uncertainty into the market. We nevertheless remain optimistic of the long term need for energy efficiency measures, given the large volume of energy inefficient homes in England and Wales, but this will require a flexible model that responds to the solutions that arise, which could involve development of new technology. Given the breadth of the wider Group, we believe the business is well placed to respond accordingly.

Providor Metering

We were delighted to announce in March 2017 the award of a £39m contract with Scottish Power, covering the installation of some 400,000 meters in the West Midlands. This contract is mobilising and we continue to work well with Scottish Power, with client data indicating we are now established as one of the highest performing meter installers in the industry.

We noted at the half year that we are now having to review pricing, as the complexities of the smart meter installation programme become more apparent. If anything, these complexities have increased as the year has progressed. A particular difficulty is that the new 'SMETS2' smart meter standard has yet to be introduced. This means that suppliers continue to install less advanced 'SMETS1' smart meters. The UK Government has granted an exclusive licence to DCC Limited ('DCC'), a data communications company entrusted to manage the data and communications network to connect smart meters to the business systems of energy suppliers, network operators and other authorised service users of the network. The introduction of this network is three years behind schedule and there is no guarantee that SMETS1 meters will communicate with the DCC. This means that suppliers are understandably holding back in the introduction of smart meters, making the installation process less efficient as a consequence. The UK Government has set a July 2018 backstop date for introduction of SMETS2 (albeit with a flexibility for minor slippage), but this focuses on the interests of suppliers - as installers, we are concerned about a significant dip in installations up to this period and then a huge surge in demand afterwards. This would create significant difficulties in the installation sector, with engineer churn a particular challenge. We continue to review our forecasts every month and work with our customer base to manage the programme as efficiently and profitably as possible.

Providor is one of only a handful of operators capable of managing a national rollout of smart meter installations and we are confident that we have built a strong market position with future opportunity for growth through partnership with the leading energy utilities. To this end, we will ensure our concerns are registered with both energy suppliers and the Government.

Divisional contract position

FY17 has been a successful bidding period for the division, winning a variety of projects spread across new and existing clients. Securing Everwarm's position on the Aberdeenshire £44m HIP framework was a key victory with an existing partner, in addition to significant External Wall wins for West Dunbartonshire (£2.1m) as a new client, West Lothian Council (£2m) and Almond Housing Association (£1.4m). Providor won a £4m managed service contract with Scottish Power in addition to the installation contracts previously announced.

Everwarm secured a first ranked place in 28 out of 32 areas on the multi-million pound Scotland Excel framework in the year, from which we have already obtained our first contract win (£4m for Renfrewshire Council). This was in addition to our first non-domestic contract with North Ayrshire (£1m), for which work is progressing well. We continue to see a strong volume of new opportunities to secure our pipeline and remain interested in the Welsh Government Warm Homes (Arbed) tender, as a means to increase our footprint outside of Scotland and take advantage of our years of industry experience.

Looking forward

Energy Services is now on 54 frameworks, up from 36 at 30 September 2016, with an aggregate value of £468m (30 September 2016: £427m), providing an encouraging future pipeline of opportunity.

Discontinued activities

Orchard Energy

At the end of the financial year, we disposed of Orchard Energy, our energy procurement and advisory services business. Orchard recorded an operating profit of £2.2m, some 10% down on the prior year (2016: £2.4m). The sale of Orchard, a white-collar business, will allow the Group to concentrate on our operatives-focused activities within Compliance and Energy Services.

Property Services

(16% of Group Underlying Revenue)

Property Services provides planned and responsive maintenance services for social housing clients, which are mainly local authorities and housing associations. The division operates through two businesses:

· Lakehouse Property Services: operates in London and the South East, focusing on planned maintenance activities

· Foster Property Maintenance ('Foster'): operates in East Anglia and has a broad reach, encompassing planned and reactive maintenance, project works and energy efficiency measures

We discussed last year that we had launched an operational improvement programme aimed at improving returns in Property Services. This involved challenging the return on capital at a client level and focusing on those relationships where we can earn an acceptable return, matching the cost base accordingly. The turnaround of this business meant that FY17 was a transitional year for Property Services and we ended the year a great deal stronger and leaner than when it started.

Property Services underlying revenue was £47.0m in the year, down 52.1% (2016: £98.1m). This decline reflected our previously stated intention to manage risk in the business and, to this end, the significant efforts of the Lakehouse Property Services team in closing out legacy issues in the business (reported within Other Items and discussed below). We needed to go through this process before taking on new work, which became a focus towards the end of the year.

Revenues of £9.3m (2016: £25.2m) relating to businesses being exited and reported within Other Items reflect the residual contracts completed in the year, relating to the exit from our directly delivered externals business announced in FY16. We finished all contracts in relation to this business in October 2017.

The business posted an underlying EBITA loss of £1.7m (2016: profit of £0.8m), which was below expectations, but improved significantly as the year progressed. Given the focus on clearing up legacy issues we saw a lack of margin-earning work that meant the business overall made a loss. This was exacerbated by a frustrating inconsistency in workflows from certain key clients and although our primary response was to work with clients on planning out their needs, there were instances where we had to walk away. As part of this exercise, we continued to review the cost base throughout the year, not only in headcount, but in other operating expenditure such as premises, fleet and inventory management. The actions contributed to an improvement in returns as the year progressed and we expect to return to profitability over the medium term.

Lakehouse Property Services

Our new leadership team spent most of the year stabilising Lakehouse Property Services after an exceptionally difficult FY16. We managed to close out the legacy 'roofing' contracts during the year, with the operations concluding with the final project in October 2017. Lakehouse has always delivered on its promises, frustratingly at times, irrespective of cost. This, however, means that clients know they can rely on Lakehouse to deliver works to the highest standard, focused always on compliance with contractual terms and the needs and safety of residents. When things go wrong, as they can in this industry, we ensure issues are resolved in a timely fashion and where they turn out not to be our fault, we work with clients in a constructive fashion. It is for these reasons that we have sought during the year to focus on working with those clients with whom we can forge a relationship of cooperation and fair approach to sharing risk and reward. This is not a quick process, which is why bidding remained secondary to operational improvement during the year, but the balance shifted as the year progressed and we have gone into FY18 with a number of opportunities that we are confident will ultimately deliver growth and profitability. It is a particular testament to the new team and its resilience that we managed to deliver on this difficult turnaround programme.

We secured our first works order under the new four-year planned maintenance framework with Network Homes, valued at £1.5m, to install new windows, doors, kitchens and bathrooms. We were also pleased to secure positions on the Redbridge housing capital delivery and London and Quadrant internal works frameworks. As we enter FY18, we are seeing a number of opportunities crystallise within our core client base that we are confident will underpin an improvement year on year.

Foster

Foster faced inconsistent client volumes on its core planned maintenance activities through the year. We responded by reducing staffing levels, along with our number of premises, vans and volume of stores. This is, however, not enough to preserve Foster's future, so we took the tough decision during the year to exit certain planned maintenance contracts and seek a broader base of work for the business. Foster has historically earned good returns from project work, essentially small-scale construction contracts, which we grew during the year among a core group of clients with whom we could develop a regular flow of work and, importantly, earn a satisfactory return. We were also pleased to see an improvement in fortunes in the responsive maintenance business, which went from being loss making in FY16 to break even in the year. Given its unique geographic focus on East Anglia and regional brand strength, Foster has traditionally turned its hand to a wide range of activities, including renewables, energy efficiency and certain compliance activities. We therefore entered FY18 as a broader business, which we believe will largely maintain or even slightly reduce revenues, but improve returns.

Foster had a number of encouraging wins during the year, including repair and maintenance contracts for Hastoe Group and Colchester Borough Homes (together worth £3.7m over the next three to four years), planned maintenance contracts with Havebury Housing Partnership (£1.8m over three years) and Cambridge City Council (£3m p.a. over five years), and the £4m St Luke's Primary School Sensory Room Works project with Cambridgeshire County Council.

Looking forward

Property Services is now on 70 frameworks (2016: 71), a small fall by number but with a higher aggregate value of £442m (2016: £370m). With a strong base of frameworks, a settled leadership team and a firm policy of managing risk/reward, we are confident in the turnaround of Property Services and its future prospects.

Construction

(21% of Group Underlying Revenue)

Construction is a public buildings services business that delivers extension, refurbishment, rationalisation and new build works, primarily in the education market, with a particular focus on schools.

Underlying revenue increased by 18.7% to £61.8m (2016: £52.1m). Underlying EBITA decreased by 44.9% to £2.0m (2016: £3.6m). This resulted in an underlying EBITA margin of 3.2%, around half of the margin experienced in the prior year (2016: 6.9%).

Although we were pleased to see revenues increase, these arose largely as a consequence of FY16 delays coming through in the year. The market is becoming ever more challenging, particularly as clients are becoming increasingly contractual and able to provide less visibility over project timing, in light of the nature of two-stage procurement. This was particularly apparent in closing out final accounts and general negotiation with clients in the year and the lower margins reflected a series of settlements that were less favourable than expected, where we may have expected a better outcome in the past. We conducted a significant review of all contracts at year end, which contributed to the lower margin. As we discuss on page 31 of the Annual Report, we will be further investing in training our teams this year on contractual understanding, to ensure we present clear and robust claims for payment.

The division continually looks to innovate and is participating in Built2Spec, part of the EU-funded research and innovation project Horizon 20/20, which aims to secure Europe's global competitiveness. Built2Spec's objective is to reduce the 'performance gap' in new buildings, being the difference between the expected energy performance of a building at design stage and the actual energy performance of that building once it is built and being used. The performance gap can potentially mean up to double the expected energy usage after a building has been finished, a significant challenge to the UK construction industry. Built2Spec addresses this challenge by supporting the development of systems to check the efficiency of the building at all stages of the build process, ensuring delivery of the building is exactly as specified at the design stage.

Built2Spec has access to €5.5m in funding across 20 construction partners from eight countries and these partners are undertaking research in new onsite techniques in several key areas: thermal imaging, internal air quality, air tightness testing, acoustic tools, 3D imagining tools and smart building sensors. Each of these areas can significantly improve the process of ensuring the building's efficiency is as it should be.

Lakehouse Construction has been working alongside a mixture of partners including VRM Technology, the Building Services Research and Information Association ("BSRIA") and the University of Nottingham, conducting research and development in the area of air tightness testing within buildings. Lakehouse Construction and its partners are involved in the project in the following ways:

· Nottingham University is developing new air testing equipment called the pulse unit

· BSRIA is testing thermal imaging cameras from Flir 1 that can be used with iPhones and developing software so this can be utilised on site checks of thermal performance

· VRM is developing its Refurbify app software for the Virtual Construction Management Platform ('VCMP')

· Lakehouse is to work with these partners by providing sites for testing, carrying out the pulse unit testing against blower door test equipment and developing the VRM software and overall training plans

The results of the development work will be brought together in one overall cloud-based, Building Information Modelling integrated, construction management platform. This cloud-based platform will also incorporate site quality management systems through mobile devices. The full suite of tests will then be piloted across all regions. Over the course of FY18 Lakehouse will be conducting long term live testing of the air tightness equipment and VCMP.

The Construction team has maintained a disciplined approach to bidding through the year and seen considerable success, securing a number of important wins, including a £6.1m contract with Uxendon Manor Primary School, a £2.7m contract for Harris Academy, an £8.9m contract for Hackbridge School, a £3.3m contract for Colville School, a £3.8m contract for Galleywall Primary School, a £5.1m contract for West Hatch High School and, most recently, a £2.1m contract for Millbrook Combined School High Wycombe.

Whilst education remains our core focus, we secured a number of frameworks with other parts of the public sector during the year, including the Met Police Minor and Intermediate framework and the Capital Works framework - Sussex Partnership NHS, where we secured our first project shortly after year end. During FY17, we also gained our first project at Bulford Garrison, a £1.5m project under the Aspire Defence Partnership arrangement.

Looking forward

The number of frameworks declined to 23 from 29 as at 30 September 2016, albeit aggregate value rose 20% to £424m (30 September 2016: £353m). These frameworks provide significant opportunity for the Construction division to continue to grow, whilst maintaining an acceptable rate of return. We remain positive about the prospects for Construction in a market with challenges, but strong underlying growth fundamentals.

Michael McMahon

Chief Operating Officer

Financial review

The Operational Review provides a detailed overview of our trading performance during the year. This Financial Review therefore covers other aspects of the consolidated statements of comprehensive income, financial position and cash flows.

Trading overview

The Group had a strong year, posting an underlying EBITA of £9.5m, comprising £7.3m from continuing activities (2016: £8.5m) and £2.2m from Orchard (2016: £2.4m), which was reported as a discontinued activity. A summary of the underlying EBITA featured in this report is provided below:

Group underlying revenue from continuing operations in the year decreased by 3.0% to £290.3m (2016: £299.1m). We have previously discussed the challenges faced by Property Services and excluding these operations, underlying revenues grew 21.0% to £243.3m (2016: £201.0m). Property Services saw revenues fall 52.1% to £47.0m in the year (2016: £98.1m).

Underlying EBITA from continuing operations decreased to £7.3m (2016: £8.5m). Property Services saw a FY16 profit of £0.8m slip to a £1.7m loss in the year. Again, excluding Property Services, we saw underlying EBITA grow 15.8% to £9.0m (2016: £7.7m). We took the full £1.3m cost of mobilising smart metering within underlying EBITA in the year, reflecting its continuing nature, whereas we took the corresponding charge of £2.5m to 'Other Items' in FY16, given this was a new activity in the prior year.

We exclude Exceptional and Other Items in calculating underlying EBITA to provide a more appropriate view of underlying operating performance.

Underlying operating expenses fell 1% to £25.5m in the year (2016: £25.8m) reflecting reductions in the cost base of Property Services and investment in mobilising new contracts within Compliance and Energy Services. Central costs fell by 34.7% to £5.0m (2016: £7.7m), reflecting the cost reduction programme outlined last year.

Statutory revenue from continuing operations was 8.5% lower at £299.5m (2016: £327.2m), reflecting the withdrawal from our 'externals' activities within Property Services announced in the prior year. We reported an operating loss from continuing operations of £1.1m (2016: £34.0m), reflecting £1.9m of Other Items (2016: £9.1m) a £4.0m net exceptional gain (2016: £3.1m loss together with a £19.2m impairment charge) and a £10.5m charge for amortisation of acquisition intangibles (2016: £11.2m). Interest expense was £2.0m (2016: £1.6m), taxation a £1.4m credit (2016: £4.5m) and Orchard recorded a post-tax profit within discontinued operations of £1.7m (2016: £1.9m). The statutory profit after tax was £10,000 (2016: loss of £29.3m).

Exceptional and Other Items, including amortisation of acquisition intangibles

Exceptional and Other Items in the year reduced the Group's profit before tax by £8.7m (2016: £43.2m) and related to the following items:

Contract losses on businesses being exited

The Group continues to redefine its service offering and the Board has taken the decision to reduce its exposure to risky and unprofitable activities, particularly within Property Services, with the closure and downsizing of non-profitable operations. Following the announcement in FY16 that we would be exiting our directly delivered externals business within Property Services, we undertook an operational improvement programme during the year, focused on managing a balanced position of risk and return on capital.

As we highlighted in October 2017, we conducted a wide-ranging review of legacy contracts at year end, which resulted in a £1.9m charge (2016: £6.6m) relating to the finalisation of our exit from the directly delivered externals business within Property Services. This process finished in October 2017 on completion of the final outstanding contract.

Smart metering mobilisation costs

We incurred a charge of £2.5m within 'Other Items' in FY16 relating to the costs associated with training and retaining smart metering engineers, along with mobilisation complexities to do with planning work, documenting installations, inventory management and systems development. A sum of £1.3m has been incurred in FY17 and reported within underlying profit, in light of the continuing nature of our smart metering activities. This is discussed further within the Operational Review above.

Exceptional Items

Acquisition costs comprise legal, professional and other expenditure in relation to acquisition activity and amounted to £nil (2016: £0.6m).

Final account provisions of £0.9m (2016: £nil) relate to the operational improvement programme highlighted above and the exit of our Kent office.

Impairment of receivables, representing an income of £0.5m (2016: cost of £2.6m), reflected the successful outcome of a series of adjudications associated with the resolution of historic matters on a specific contract ('the Contract') with Hackney Council where a charge had been taken at 30 September 2016, further details of which are outlined in Note 7 of our Annual Report and Accounts for the year ending 30 September 2016.

Restructuring EGM and other costs of £2.6m (2016: £2.5m) reflect the costs of our move to AIM in May 2017, managing the impact of media reports, investigating potential strategic options for the Group as part of our operational improvement programme and restructuring and other costs during the period. We also announced in September 2017 our intention to exit Lakehouse's head office in Romford, which is now too large for our needs and the charge includes the write-off of leasehold improvements made to the building. At the time of writing, we had agreed head of terms for the assignment of the lease to a third party.

Release of deferred consideration of £1.6m (2016: £2.6m) reflects the expected settlement of the final deferred consideration due to Aaron Heating Services Limited, H2O Nationwide and a wider review of remaining outstanding balances.

Profit on sale of Orchard of £5.4m (2016: £nil) relates to the sale of Orchard to World Fuel Services Europe, Ltd with an effective date of 29 September 2017. Lakehouse received a cash consideration on completion of £12.4m, with a further sum of £1.9m to be held in escrow against potential claims under the Sale and Purchase Agreement, to be released in equal instalments on the first and second anniversaries of Completion. We attributed a fair value of £12.4m to the consideration and recognised a gain on book value of £5.4m.

Impairment of goodwill and intangible assets acquired

Impairment of goodwill and intangible assets acquired was £nil (2016: £19.2m).

Amortisation of acquisition intangibles

Amortisation of acquisition intangibles was £10.5m for the period (2016: £11.2m). The £0.7m reduction reflected the fact that we have taken charges in prior periods, meaning we are amortising a reduced base of intangible assets. We expect a steeper reduction in this charge in future years.

Unwinding discount of deferred consideration

Unwinding discount of deferred consideration of £0.3m (2016: £0.6m) reflects the present value of deferred sums, discounted at a post-tax rate of 2.7% due on outstanding payments for acquisitions.

Accounting treatment

All items discussed above in relation to Exceptional and Other Items 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. Contract losses on businesses being exited relate to businesses that have been closed and smart metering mobilisation costs reflect the one-off nature of mobilising our new domestic smart metering programme in FY16, which have been reflected within underlying operating profit in FY17, in light of their continuing nature.

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 £1.7m (2016: £1.0m).

The total finance expense of £2.0m (2016: £1.6m) included the unwinding of discounts on deferred consideration figure of £0.3m (2016: £0.6m) discussed above and treated as a non-operating item.

Tax

The tax charge on underlying profit before tax was £1.4m (2016: £1.2m), representing an effective rate of 24.9%, which compares with the statutory corporation tax rate of 19.5%. The difference was due to a combination of permanent differences together with prior year tax adjustments. A tax credit of £2.8m (2016: £5.7m) was recognised in relation to exceptional and other items, resulting in a statutory tax credit for the year of £1.4m (2016: £4.5m).

The effective tax rate on the statutory loss before tax for the year was 44.9%, which is higher than the UK statutory corporation tax rate of 19.5% mainly due to permanent differences together with prior year tax adjustments. The decrease in gross permanent differences from £15.2m to a credit of £5.0m (to which a tax rate of 19.5% should be applied) is mainly due to the £5.4m profit on sale of Orchard and non-taxable income of £1.6m relating to a release of deferred consideration.

Our net cash tax receipt for the year was £0.7m for continuing operations (2016: net cash payment of £0.3m). During the year, the Group has received the anticipated cash tax refund from HMRC which formed the corporation tax receivable on the 30 September 2016 balance sheet. The Group has also made tax payments on account during the year.

The net deferred tax asset as at 30 September 2017 was £2.1m (2016: £0.2m), with the movement mainly relating to acquisition intangibles and the disposal of Orchard. Further details are set out in note 26.

In the year, the Group maintained a deferred tax asset in respect of tax losses at £2.6m. The carried forward tax losses mainly arose on the exercise of share options at the time of the IPO and were eligible for Group tax relief. The remaining tax credit relates to three Group companies and may be utilised over a period of greater than one financial year. The Group has recognised a deferred tax asset arising on tax losses of £2.6m on the basis of a combination of taxable temporary differences (£0.1m) and forecast taxable profits (£2.5m), which is consistent with the Board's anticipation of improving profitability as outlined above.

Earnings per share

Underlying basic earnings per share from continuing and discontinued operations were 3.7 pence (2016: 5.2 pence), based on underlying earnings of £5.9m (2016: £8.2m). Underlying earnings are stated after adding back £5.9m (2016: £37.4m) of Exceptional and Other Items (after tax).

Our statutory profit for the year was £10,000 (2016: loss of £29.3m). Based on the weighted average number of shares in issue during the year of 157.5m, this resulted in basic earnings per share of 0.0 pence (2016: loss of 18.6 pence).

Further details are contained in Note 14.

Dividend

The Board has proposed a final dividend for the year of 0.5 pence per share. This represents a total dividend payable for the year of 0.5 pence (2016: 1.5 pence).

Subject to approval at the AGM on 28 March 2018, the final dividend will be paid on 6 April 2018 to shareholders on the register at the close of business on 2 March 2018.

Cash flow performance

Our underlying operating cash flow for the year was an inflow of £12.4m (2016: £10.9m), discussed in Note 34 and reflecting a strong underlying cash conversion of 169% (2016: 127%). We calculate underlying operating cash conversion as cash generated from continuing operations, excluding 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. On a statutory basis, we saw an operating cash inflow of £13.4m (2016: outflow of £3.0m), representing a cash conversion of 248% (2016: outflow of 493%).

As we highlighted last year, the timing of revenues, method of contract delivery and customer contractual terms can all have an impact on working capital and, consequently, cash conversion.

The value of net 'unbilleds' is a particular feature of our industry, being accrued income, prepaid expenses and accrued project costs. The management of these items, together with debtors and creditors represented a challenge in the year, resulting in a series of working capital peaks and troughs, particularly in Construction and Property Services. We managed these comfortably within our banking facilities and a significant push on cash at year end contributed to our excellent performance for the year as a whole. However this represents a snapshot in time and a normalised year end debt position would have been some £10m higher.

Notwithstanding the turbulence in Property Services and Construction, we expect to continue to target an average annual operating cash conversion of 80% over the long term.

Net debt

Our net debt balance was improved significantly at £1.3m at 30 September 2017 (2016: £20.6m). The decrease over FY16 related predominantly to the £12.4m proceeds from the sale of Orchard, recognised as at 29 September 2017. Net debt was nevertheless significantly ahead of expectations, with much of the inflow occurring in September 2017 as a result of a significant improvement in working capital. We would expect debt to be some £10m higher on a steady run rate.

Banking arrangements

We had drawn £27.5m under our revolving credit facility at the year end. At the date of issuing this report we had drawn £17m, as we used the Orchard sale proceeds to pay down debt. Royal Bank of Scotland ('RBS') continue to be an excellent and supportive partner. As with last year, we continue to show our commitment to managing our banking arrangements and, on the sale of Orchard, requested that RBS reduce our Revolving Credit Facility ('RCF') from £35m to £25m, which took effect on 2 October 2017 and removes an expensive non-utilisation charge of some £0.2m per annum. We retain a £5m overdraft facility.

We extended the term of the RCF after year end to February 2019 and expect to renew the facility during FY18. We are confident that our banking facilities provide sufficient support in managing our corporate affairs and provide sufficient capacity to plan for future growth, particularly in bidding with confidence on new contracts.

Balance sheet

The principal items in our balance sheet are goodwill, intangible assets and working capital.

The principal movement in net assets reflected a reduction of £17.9m in goodwill and intangibles, due to £10.5m in amortisation of acquisition intangibles and £7.8m in relation to the sale of Orchard, discussed above and in Notes 7, 15 and 16.

Net current liabilities (excluding cash) stood at £1.4m (2016: asset of £7.0m), reflecting a hard push on working capital management towards the end of the year, which as discussed above, produced results significantly above expectations.

Deferred consideration on acquisitions is analysed below.

Provisions

Provisions as at 30 September 2017 stood at £4.0m (2016: £4.9m). During the year, we utilised £2.2m of provisions in line with our expectations, relating predominantly to the Contract, discussed above and in Note 7 and the costs of our industrial and commercial metering business as discussed in our 2016 accounts. We provided a further £1.5m in relation to specific risks and adjusted £0.1m in relation to the sale of Orchard.

Further details are set out in Note 25.

Acquisitions and disposals

The Group made no acquisitions in the year. On 2 October 2017, we announced the sale of Orchard, which had an effective date of 29 September. Lakehouse received a net cash consideration on completion of £12.4m, with a further sum of £1.9m to be held in escrow against potential claims under the Sale and Purchase Agreement, to be released in equal instalments on the first and second anniversaries of Completion. We attributed a fair value of £12.4m to the consideration, representing a gain on book value of £5.4m.

Deferred consideration

A number of the acquisitions made by the Group in recent years incorporate deferred consideration as part of the transaction terms, some of which depend on the performance of the businesses post-completion.

The table below shows the movement in the total discounted deferred consideration payable and the amount outstanding at the year end.

The sums in relation to H20 Nationwide Limited and Aaron Heating Services Limited were settled in full after year end.

Risks

The Board considers strategic, financial and operational risks and identifies actions to mitigate those risks. Key risks and their mitigation are disclosed on pages 26 to 29 of the Annual Report. We manage a number of potential risks and uncertainties, including claims and disputes, which are common to other similar businesses which could have a material impact on short and longer term performance.

As we discussed above in Exceptional and Other Items, the Group continues to redefine its service offering and the Board has taken the decision to reduce its exposure to risky and unprofitable activities, particularly within Property Services, with the closure and downsizing of non-profitable operations. Following the announcement in FY16 that we would be exiting our directly delivered externals business within Property Services, we undertook an operational improvement programme during the year, focused on managing a balanced position of risk and return on capital.

This process has progressed well in the year and the Board continues to focus on the outcome of a number of contract settlements, on which there is a range of outcomes for the Group in terms of both cash flow and impact on the statement of comprehensive income. Most notably, the £6.9m claim from Harvil Roofing discussed in section 7.3 of the Appendix to our Schedule One AIM Announcement found in our favour, with no liability due. We believe we head into FY18 with an ever more balanced risk position.

Our year-end review included an assessment of unbilled balances, which as a Group we review regularly for impairment. 'Unbilleds' represent the significant balance sheet risk in our industry and we continue to ensure a balanced approach between risk and possible outcome on final account settlements is taken, rather than defer decisions until the final outcome is achieved, which can be months or years.

Going concern statement

The Directors acknowledge the Financial Reporting Council's 'Guidance on the going concern basis of accounting and reporting on solvency and liquidity risks' issued in April 2016. The Group's business activities, together with factors likely to affect its future development, performance and position are set out in the Strategic Report as referred to on pages 4 to 25 of the Annual Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review, as part of the Strategic Report, on pages 4 to 25 of the Annual Report. In addition, Note 32 to the consolidated Financial Statements within the 2017 Annual Report includes details of the Group's approach to financial risk management, its financial instruments and hedging activities, and its exposure to credit risk and liquidity risk. In assessing the Group's ability to continue as a going concern, the Board reviews and approves the annual budget and three-year plan, particularly for the 16 months following year end, including forecasts of cash flows, borrowing requirements and covenant headroom. The Board reviews the Group's sources of available funds and the level of headroom available against its committed borrowing facilities and associated covenants. The Group's financial forecasts, taking into account possible sensitivities in trading performance, indicate that the Group will be able to operate within the level of its committed borrowing facilities and within the requirements of the associated covenants for the foreseeable future. RBS remains very supportive of the Group and, to show our commitment to managing banking arrangements within our means, we requested that RBS reduce our RCF from £35m to £25m following the sale of Orchard, with an effective date of 2 October 2017. We also agreed an extension with RBS of the facility from December 2018 to February 2019. The Directors have a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the Annual Report and Accounts.

Jeremy Simpson

Chief Financial Officer 

Consolidated statement of comprehensive income

For the year ended 30 September 2017

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

Consolidated statement of financial position

At 30 September 2017

The Financial Statements of Lakehouse plc (registered number 09411297) were approved by the Board of Directors and authorised for issue on 22 January 2018. 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 2017

Consolidated statement of cash flows

For the year ended 30 September 2017

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

Notes to the consolidated financial statements

For the year ended 30 September 2017

General information

Lakehouse plc is a company incorporated in the United Kingdom under the Companies Act. 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.

1. Basis of preparation

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.

These results for the year ended 30 September 2017 are an excerpt from the Annual Report & Accounts 2017 and do

not constitute the Group's statutory accounts for 2017 or 2016. Statutory accounts for Lakehouse plc for the year to 30

September 2016 have been delivered to the Registrar of Companies, and the Lakehouse plc statutory accounts for the

year to 30 September 2017 will be delivered by 14 February 2018. The Auditor has reported on both those accounts;

their reports were unqualified, did not draw attention on 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 2017 which will be available at www.lakehouse.co.uk.

Basis of accounting

The Group's consolidated Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The Financial Statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies adopted are set out below.

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group's Financial Statements except as noted below.

Adoption of new and revised standards

The accounting policies adopted are consistent with those of the previous financial year except for the following new and revised Standards and Interpretations which have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these Financial Statements.

· Amendments to IAS 7 Disclosure Initiative

· Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses

New standards and interpretations not applied

The International Accounting Standards Board and the International Financial Reporting Interpretations Committee (IFRIC) have issued the following standards and interpretations for annual periods beginning on or after the effective dates as noted below:

IFRS15 represents a notable change to revenue recognition in our industry. We will evaluate the potential impact of IFRS15 on the FY18 results, which will form the comparative figure when the standard is adopted in FY19 and will provide guidance to the market accordingly. With the exception of IFRS15 (and IFRS16), Directors do not expect the adoption of the standards listed above to have a material impact on the Financial Statements of the Group.

Basis of consolidation

The consolidated Financial Statements incorporate the assets, liabilities, income and expenses of the Group. The Financial Statements of the subsidiaries are prepared for the same financial reporting period as the Company. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies used into line with those used by the Group. Intercompany transactions, balances and unrealised gains and losses transactions between Group companies are eliminated on consolidation.

As a consolidated statement of comprehensive income is published, a separate profit and loss account for the parent Company is omitted from the Group Financial Statements by virtue of section 408 of the Companies Act 2006.

2. Significant accounting policies

Going concern

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The Directors regard the foreseeable future as no less than 12 months following publication of its annual Financial Statements, so in practical terms, 16 months from the balance sheet date. The Directors have considered the Group's working capital forecasts and projections, taking account of reasonably possible changes in trading performance and the current state of its operating market, and are satisfied that the Group should be able to operate within the level of its current facilities and in compliance with the covenants arising from those facilities. Accordingly, they have adopted the going concern basis in preparing the financial information. Please see further information in the strategic report on page 24 of the Annual Report.

Operating segments

The Directors regard the Group's reportable segments of business to be Compliance, Energy Services, Property Services and Construction. Costs are allocated to the appropriate segment as they arise with central overheads apportioned on a reasonable basis. Operating segments are presented in a manner consistent with internal reporting, with inter-segment revenue and expenditure eliminated on consolidation.

Business combinations

Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquired company and the equity interest issued by the Group in exchange for control of the acquired company. Acquisition-related costs are recognised as non-trading exceptional costs in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and liabilities assumed are recognised at their fair value. Goodwill is measured as the excess of the sum of the consideration transferred over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the excess is recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with IAS 39 or IAS 37 as appropriate, with the corresponding gain or loss being recognised in profit or loss.

Acquisition costs

Whilst the Group remains in its growth phase, management believe that acquisition costs are exceptional in nature and classified as such, so as not to distort presentation of the underlying performance of the Group.

Goodwill

Goodwill is initially recognised and measured as set out above.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which the goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight line basis over their useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The estimated useful life for each asset type is set out below.

Computer software - three years

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Intangible assets are recognised if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using suitable valuation techniques.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

The estimated useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

Derecognition of intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. The gain or loss from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset; is recognised in profit or loss when the asset is derecognised.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is calculated so as to write off the cost of a tangible asset, less its estimated residual value, over the estimated useful economic life of that asset on the following bases:

Leasehold improvements - over the period of the lease

Plant and equipment - 15% to 33% per annum on a straight line basis

Fixtures and fittings - 20% to 33% per annum on a straight line basis

Motor vehicles - 25% per annum on a straight line basis

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

An item of property, plant and equipment is derecognised upon disposal, or when no future economic benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Exceptional Items

Items which are significant by their size and nature require separate disclosure and are reported separately in the statement of comprehensive income. Details of exceptional items are explained in Note 7.

Contract losses on businesses being exited

Where a business activity is being exited and, due to legacy issues, losses are incurred in closing out contracts, management considers such losses should be highlighted separately as not related to the ongoing activity of the Group as they would otherwise distort the underlying earnings. Revenue and costs associated with the business activity being exited are presented separately from the underlying results of the Group on the face of the income statement with further details provided in Note 7.

Revenue

Revenue and profit are recognised as follows:

(a) Service contracts

Revenue is recognised when the outcome of a job or contract can be estimated reliably; revenue associated with the transaction is recognised by reference to the stage of completion of work at the balance sheet date. The outcome of the transaction is deemed to be able to be estimated reliably when all of the following conditions are satisfied:

· The amount of revenue can be measured reliably

· It is probable that the economic benefits associated with the transaction will flow to the Group

· The costs incurred for the transaction and the costs to complete the transaction can be measured reliably

The Group has recognised revenue dependent on the nature of transactions in line with IAS 18 'Revenue'. There are a range of contractual arrangements that require consideration:

(i) Schedule of Rates ('SOR') contracts

SOR contracts are set based on predetermined rates for a list of services and duties required by the customer. The billing arrangements can range from an all-encompassing price for each direct works, including an element of local site overhead, central overhead and associated profit, to the price of the direct works alone, with (where relevant) a separately agreed annual fee for local site and central overheads. The quantum of work performed in each period is captured and valued either against the agreed contract terms or with reference to costs incurred to date as a percentage of total expected costs, and the resulting revenue is recognised.

(ii) Fixed price (or lump sum) service contracts

Certain contracts, in particular for gas servicing and maintenance, are procured on a fixed price basis. Revenue for maintenance/reactive activities is recognised on a straight line basis over the life of the contract. Revenue for servicing activities is recognised when the service is performed; however, when it is impractical for the customer and householder to sign off every job sheet, revenue is recognised on a straight line basis. Where the contract contains servicing and maintenance/reactive elements and the revenue cannot be split reliably between each element of the contract, it is recognised on a basis that most closely reflects the phasing of the servicing provision. Costs are recognised as incurred.

(iii) Formula based income

When income is subject to formulaic valuation, revenue is recognised either when the valuation has been submitted to, and agreed by, the client or, where there are time constraints with the process for receiving agreement from the client, revenue can be recognised if prior experience shows that agreement will be received within one month of providing a valid submission and invoice.

(b) Construction contracts

Revenue arising from construction contracts is recognised in accordance with IAS 11 'Construction Contracts'. When the outcome can be assessed reliably, contract revenue is recognised by reference to the stage of completion of the contract activity at the Statement of Financial Position date. The stage of completion of the contract at the Statement of Financial Position Date is assessed with reference to the costs incurred to date as a percentage of the total expected costs.

Margin on contracts is calculated in accordance with accounting standards and industry practice. Industry practice is to assess the estimated final outcome of each contract and recognise the revenue and margin based upon the stage of completion of the contract at the Statement of Financial Position date. The assessment of the final outcome of each contract is determined by regular review of the revenues and costs to complete that contract. Consistent contract review procedures are in place in respect of contract forecasting.

The gross amount receivable from customers for contract work is presented as an asset for all contracts in progress for which costs incurred, plus recognised profits (or less recognised losses), exceed progress billings.

The gross amount repayable to or paid in advance by customers for contract work is presented as a liability for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses). Full provision is made for losses on all contracts in the period in which the loss is first foreseen.

(c) Other income

(i) Contract variations

Margin associated with contract variations is only recognised when the outcome of the contract negotiations can be reliably estimated. Costs relating to contract variations are recognised as incurred. Revenue is recognised up to the level of the costs which are deemed to be recoverable under the contract.

(ii) Preliminaries income and pre-contract costs

All costs relating to pre-commencement and mobilisation are written off as they are incurred. However, where there is a contracted element within the preliminaries income to cover such costs, revenue and margin can be recognised in line with the contractual terms.

In the event that mobilisation costs are incurred in a new and material activity, market and/or territory, such costs will be highlighted on the face of the Consolidated Statement of Comprehensive Income, until such point as we achieve 'business as usual'. This will typically be defined as the point at which we cease hiring a series of net new staff for the activity and reach a sustainable level of output from those staff we have trained.

Employee benefits

Retirement benefit costs

The Group contributes to the personal pension plans of certain employees of the Group. The assets of these schemes are held in independently administered funds. The pension cost charged in the Financial Statements represents the contributions payable by the Group in accordance with IAS 19.

Share-based payments

The Company has issued equity-settled share-based awards and free shares to certain employees. The fair value of share-based awards with non-market performance conditions is determined at the date of the grant using a Black-Scholes model. The fair value of share-based awards with market-related performance conditions is determined at the date of grant using the Monte Carlo model. Share-based awards are recognised as expenses based on the Company's estimate of the shares that will eventually vest, on a straight line basis over the vesting period, with a corresponding increase in the share option reserve.

At each balance sheet date the Company revises its estimates of the number of options that are expected to vest based on service and non-market performance conditions. The amount expensed is adjusted over the vesting period for changes in the estimate of the number of shares that will eventually vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. Options with market-related performance conditions will vest based on total shareholder return against a selected group of quoted market comparators. Following the initial valuation, no adjustments are made in respect of market-based conditions at the reporting date.

Employee Benefit Trust

The Company established an Employee Benefit Trust upon its IPO in 2015, whose remit is to hold Lakehouse plc shares on behalf of its employees. The trust is wholly funded by the Group and although legally independent is deemed to be controlled by the Group as the Trust relies on it for funding and the Company is able to remove and appoint the trustees. The assets and liabilities of the Trust are therefore consolidated with those of the Group.

Finance income and costs

Interest receivable and payable on bank balances is credited or charged to the Statement of Comprehensive Income as incurred.

Finance arrangement fees and issue costs are capitalised and netted off against borrowings. Construction borrowing costs are capitalised where the Group constructs qualifying assets. All other borrowing costs are written off to the Statement of Comprehensive Income as incurred.

Notional interest payable, representing the unwinding of the discount on long term liabilities, is charged to finance costs and recognised as an 'Other Item' on the face of the Statement of Comprehensive Income.

Costs incurred in raising finance

Costs incurred in raising finance are capitalised and amortised through the Statement of Comprehensive Income over the term of the funding as a trading item. In the event that the associated finance product is refinanced prior to its expiring, the unamortised costs are treated as an 'other item' on the face of the Statement of Comprehensive Income, to the extent that they are replaced with fees and costs associated with raising the new finance.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's asset for current tax is calculated using tax rates prevailing at the year end.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the Statement of Financial Position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences; deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that have been enacted or substantively enacted at the Statement of Financial Position date. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. When current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Inventories

Inventories and work in progress are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where appropriate, labour and overheads which have been incurred in bringing the inventories and work in progress to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made, where appropriate, to reduce the value of inventory to its net realisable value.

Property in the course of development and completed units are stated at the lower of cost and net realisable value. Direct cost comprises the cost of land, raw materials and development costs but excludes indirect overheads.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, and where it is probable that the Group will be required to settle that obligation and the amount can be reliably estimated. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the time value of money is material). Details of material provisions are disclosed unless it is it is not practicable to do so or where it could be expected to prejudice seriously the position of the entity.

Contingent liabilities​​​​​​​

Where a provision or accrual is deemed to be required, it has been included within the Consolidated Statement of Financial Position. For contingent liabilities where an economic outflow is possible, it is often not practicable to estimate the financial effect due to the range of estimation uncertainty. For contingent liabilities where the possibility of economic outflow is remote, disclosure of the estimated financial effect is not required.​​​​​​​

Contingent liabilities acquired in a business combination are initially valued at fair value at the acquisition date. At the end of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognised in accordance with IAS 37 and the amount initially recognised.

Joint venture​​​​​​​​​​​​​​

Under IFRS 11 we account for joint ventures under the equity method of accounting. Loans receivable and investments in joint venture entities are reviewed for impairment at each year end.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument. The principal financial assets and liabilities of the Group are as follows:

(a) Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Trade receivables do not carry any interest and are stated at their initial value reduced by appropriate allowances for estimated irrecoverable amounts. Provisions against trade receivables and amounts recoverable on contracts are made when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write down is determined as the difference between the assets' carrying amount and the present value of estimated future cash flows. Individually significant balances are reviewed separately for impairment based on the credit terms agreed with the customer. Other balances are reviewed in aggregate.

(b) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with a maturity of three months or less. Bank overdrafts are presented as current liabilities to the extent that there is no right of offset with cash balances.

(c) Investments

Investments in subsidiary undertakings are stated at cost less any provision for impairment. Any contingent consideration is recognised as an accrual at the acquisition date and is measured at the present value of the expected settlement using a pre-tax discount rate that reflects current market assessment of the time value of money. The increase in the accrual due to the passage of time is recognised as a non-trading interest expense. Any change to the value of contingent consideration identified within 12 months of the year end in which the acquisition occurred is reflected in the original cost of the investment. Subsequent changes to the value of contingent consideration are reflected in the Statement of Comprehensive Income.

The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may have suffered an impairment loss. If any such indication exists, the Company makes an estimate of the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. Value in use represents the discounted net present value of expected future cash flows. If the recoverable amount is less than the value of the investment, the investment is considered to be impaired and is written down to its recoverable amount, and an impairment loss is recognised immediately in the Statement of Comprehensive Income of the Company.

(d) Trade and other payables

Trade and other payables are not interest bearing and are stated initially at fair value and subsequently held at amortised cost.

(e) Bank and other borrowings

Interest-bearing bank and other loans are recorded at the fair value of the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for at amortised cost and on an accruals basis in the Statement of Comprehensive Income using the effective interest method. Interest is added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise.

(f) Derivative financial instruments

Derivatives are initially recognised at fair value on the date that the contract is entered into and subsequently remeasured in future periods at their fair value. They are held at fair value through profit or loss and are remeasured at each reporting date with the movement being recognised in the Statement of Comprehensive Income.

(g) Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the financial instrument's contractual obligations rather than the financial instrument's legal form. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

(h) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Operating leases

Amounts due under operating leases are charged to the Statement of Comprehensive Income in equal annual instalments over the period of the lease.

Finance leases

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the Statement of Financial Position as a finance lease obligation.

Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group's general policy on borrowing costs.

3. Critical accounting judgements and key sources of uncertainty

In the application of the Group's accounting policies, which are described in Note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or if the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that may have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Fair value of identifiable net assets acquired

Upon acquisition of a business, its identifiable assets and liabilities are assessed to determine their fair value. The values attributed to assets and liabilities as part of this process are, where appropriate, based on market values identified for equivalent assets, together with management's experience and assessments including comparison to the carrying value of assets of a similar condition and age in the existing business.

The accounting for acquisitions in the comparative period involved identifying and determining the fair values to be assigned to the identifiable assets, liabilities and contingent liabilities acquired and the cost of acquisition. The determination of fair values involved some key judgements and estimates, particularly in relation to the fair value of work in progress, other intangibles and deferred consideration.

The key judgements and estimates made in determining the fair value of other intangibles were:

· An estimation of cash arising from future revenues and profit derived from the asset where this method is used to assess the fair value of the asset. The estimate will itself depend on key assumptions

· The appropriate discount factor to apply to cashflows to determine the net present value of the cashflows

· Identification of and judgements around the uncertainties of the valuation model and its sensitivity to error in its key assumptions

The key judgements and estimates made in determining the fair value of deferred consideration were:

· The appropriate discount factor

· An estimation of future revenues and profit of the related businesses which determine the amount of the future consideration to be paid

· Identification of and judgements around the uncertainties of the valuation model and its sensitivity to error in its key assumptions

(ii) Impairment of goodwill, tangible and intangible assets

The Group reviews the valuation of goodwill, other intangibles and tangible assets for impairment annually or if events and changes in circumstances indicate that the carrying value may not be recoverable. The recoverable amount is determined based on value-in-use.

(iii) Determination of fair value of disposal proceeds

On sale of a business, management will determine the fair value of sale proceeds. The fair value will be estimated based on the contractual entitlements contained in a sale and purchase agreement, discounted for any deferred sums and contingencies contained therein. Management will also consider potential post-sale liabilities, based on commitments provided in the sale and purchase agreement.

Critical accounting judgements

The following are the critical judgements, apart from those involving estimations (which are dealt with separately above), that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the Financial Statements.

(i) Revenue and profit recognition

Revenue is recognised based on the stage of completion of job or contract activity. Certain types of service provision pricing mechanisms require minimal judgement; however service provision lump sum construction and construction-type contracts do require judgements and estimates to be made to determine the stage of completion and the expected outcome for the individual contract.

(ii) Valuation of accrued revenue and amounts recoverable under construction contracts

The key judgements and estimates in determining the recoverable amounts of accrued revenue arising from construction and non-construction contracts were:

· An estimation of work completed by subcontractors, as yet unbilled

· An estimation of costs to complete

· An estimation of remaining revenues

These assessments include a degree of uncertainty and therefore if the key judgements change, further adjustments of recoverable amounts may be necessary.

Provision for legal and other claims

The Group continues to manage a number of potential risks and uncertainties, including claims and disputes, which are common to other similar businesses and which could have a material impact on short and longer-term performance. The Board remains focused on the outcome of a number of contract settlements on which there is a range of outcomes for the Group in terms of both cash flow and impact on the Statement of Comprehensive Income.

In quantifying the likely outturn for the Group, the key judgements and estimates will typically include:

· The scope of the Group's assessed responsibility

· An assessment of the potential likelihood of economic outflow

· An estimation of economic outflow (including potential likelihood)

· A commercial assessment of potential further liabilities

4. 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:

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

· Installation, maintenance and repair-on-demand of gas appliances and central heating systems

· Compliance services in the areas of fire protection and building electrics

· Air and water hygiene solutions

· Service, repair and installation of lifts

· 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') and the Scottish Government's HEEPS Affordable Warmth programme. Clients include housing associations, social landlords, local authorities and private householders and we have trading relationships with the "big six" utility suppliers and many of the leading utility challengers. We also provide renewable technologies and metering services to customers throughout the UK.

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

· Construction: focused on small to medium sized building projects, normally under framework agreements with an emphasis on (but not confined to) 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 accounting policies of the reportable segments are the same as those described in the accounting policies section.

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

The profit measure the Group used to evaluate performance is Underlying EBITA. Underlying EBITA is defined as operating profit before deduction of Exceptional and Other Items, as outlined in Note 7 and on the face of the Consolidated Statement of Comprehensive Income.

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:

Intra-segment trading comprises services provided by the Compliance segment for the Property Services segment and are charged at prevailing market prices.

Reconciliation of underlying EBITA to profit before taxation

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. 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.

None of the Group's major customers had more than 10% of Group revenue for 2017 or 2016.

5. Loss before taxation

Loss on ordinary activities before taxation is stated after charging/(crediting):

6. Auditor's remuneration

The analysis of the auditor's remuneration is as follows:

7. Exceptional and Other Items, including amortisation of acquisition intangibles

Exceptional and other items in the year reduced the Group's profit before tax by £8.7m (2016: £43.2m) and relate to the following items:

Contract losses on businesses being exited

The Group continues to redefine its service offering and the Board has taken the decision to reduce its exposure to higher risk and unprofitable activities, particularly within Property Services, with the closure and downsizing of non-profitable operations. Following the announcement in FY16 that we would be exiting our directly delivered externals business within Property Services, we undertook an operational improvement programme during the year, focused on managing a balanced position of risk and return on capital.

As we discussed in October 2017, we conducted a wide-ranging review of legacy contracts at year end, which resulted in a £1.9m charge (2016: £6.6m) relating to the finalisation of our exit from the directly delivered externals business within Property Services. This process was completed in October 2017 on completion of the final outstanding contract.

Smart metering mobilisation costs

We incurred a charge of £2.5m in FY16 relating to the costs associated with training and retaining smart metering engineers, along with mobilisation complexities to do with planning work, documenting installations, inventory management and systems development. A sum of £1.3m has been incurred in FY17 and reported within underlying profit, in light of the continuing nature of our smart metering activities.

Exceptional Items

Acquisition costs comprise legal, professional and other expenditure in relation to acquisition activity and amounted to £nil (2016: £0.6m).

Final account provisions of £0.9m (2016: £nil) relate to the operational improvement programme discussed above and the exit of our Kent office.

Impairment of receivables, representing an income of £0.5m (2016: cost of £2.6m), reflected the successful outcome of a series of adjudications associated with the resolution of historic matters on a specific contract ('the Contract') with Hackney Council where a charge had been taken at 30 September 2016, further details of which are outlined in Note 7 of our Annual Report and Accounts for the year ending 30 September 2016.

Restructuring EGM and other costs of £2.6m (2016: £2.5m) reflect the costs of our move to AIM in May 2017, managing the impact of media reports in July 2017, investigating potential strategic options for the Group as part of our operational improvement programme and restructuring and other costs during the period. We also announced in September 2017 our intention to exit Lakehouse's head office in Romford, which is now too large for our needs and the charge includes the write-off of leasehold improvements made to the building. At the time of writing, we had agreed head of terms for the assignment of the lease to a third party.

Release of deferred consideration of £1.6m (2016: £2.6m) reflects the settlement of the final deferred consideration due to the vendors of Aaron Heating Services Limited, H2O Nationwide and a wider review of remaining outstanding balances.

Profit on the sale of Orchard (Holdings) UK Limited ('Orchard') of £5.4m (2016: £nil) relates to the sale of Orchard to World Fuel Services Europe Ltd with an effective date of 29 September 2017. Lakehouse received a net cash consideration on completion of £12.4m, with a further sum of £1.9m to be held in escrow against potential claims under the Sale and Purchase Agreement, to be released in equal instalments on the first and second anniversaries of Completion. We attributed a fair value of £12.4m to the consideration, representing a gain on book value of £5.4m.

Impairment of goodwill and intangible assets acquired

Impairment of goodwill and intangible assets acquired was £nil (2016: £19.2m).

Amortisation of acquisition intangibles

Amortisation of acquisition intangibles was £10.5m for the period (2016: £11.2m). The £0.7m reduction reflected the fact that we have taken amortisation charges in prior periods, meaning we are amortising a reduced base of intangible assets. We expect a steeper reduction in this charge in future years.

Unwinding discount of deferred consideration

Unwinding discount of deferred consideration of £0.3m (2016: £0.6m) reflects the present value of deferred sums, discounted at a post-tax rate of 2.7% due on outstanding payments for acquisitions.

Accounting treatment

All items discussed above in relation to Exceptional and Other Items 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. Contract losses on businesses being exited relate to businesses that have been closed and smart metering mobilisation costs reflect the one-off nature of mobilising our new domestic smart metering programme in FY16, which have been reflected within underlying operating profit in FY17, in light of their continuing nature.

8. Investment income and expenditure

9. Information relating to employees

The average number of employees, including Directors, employed by the Group during the year was:

The aggregate remuneration was as follows:

10. Retirement benefit obligations

The Group contributes to the personal pension plans of certain employees of the Group. The assets of these schemes are held in independently administered funds. From 1 February 2014, the Group contributes to a new workplace pension scheme for all employees in compliance with the automatic enrolment legislation. The Group paid £955,000 in the year ended 30 September 2017 (2016: £1,146,000). At the reporting date, £143,770 of contributions were payable to the schemes (2016: £165,970).

11. Discontinued operations

On 2 October 2017, the Group announced the sale of Orchard, which had an effective date of 29 September 2017. The fair value of consideration (net of cash held on Orchard's balance sheet) amounted to £12.4m, representing a net gain on sale of £5.4m.

12. Tax on loss on ordinary activities

The tax assessed for the year is lower/higher than the standard rate of corporation tax in the UK. The differences are explained below:

In addition to the amounts charged to the consolidated statement of comprehensive income, the following amounts relating to tax have been recognised directly in equity:

Factors that may affect future charges

The Finance (No 2) Act 2015, which provides for reductions in the main rate of corporation tax from 20% to 19% effective from 1 April 2017 and to 18% effective from 1 April 2020, was substantively enacted on 26 October 2015. Subsequently, the Finance Act 2016, which provides for a further reduction in the main rate of corporation tax to 17% effective from 1 April 2020, was substantively enacted on 6 September 2016. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date.

The closing deferred tax asset at 30 September 2017 has been calculated at 17% reflecting the tax rate at which the deferred tax asset is expected to be utilised in future periods.

13. Dividends

The final dividend for the year ended 30 September 2016 of 0.5 pence per share, amounting to £0.8m, was paid in the year. The proposed final dividend for the year ended 30 September 2017 of 0.5 pence per share amounting to £0.8m and representing a total dividend of 0.5 pence for the full year (2016: 1.5 pence per share) will be paid on 6 April 2018 to the shareholders on the register at the close of business on 2 March 2018. The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 28 March 2018 and has not been included as a liability in these Financial Statements.

14. Earnings per share

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

The number of shares in issue at 30 September 2017 was 157,527,103.

The weighted average number of ordinary shares in issue during the year excludes those accounted for in the own shares reserve (Note 30).

15. Goodwill

Goodwill arising on consolidation represents the excess of the fair value of the consideration transferred over the fair value of the Group's share of the net assets of the acquired subsidiary at the date of acquisition.

Goodwill is not amortised but is reviewed for impairment on an annual basis or more frequently if there is an indication that goodwill may be impaired. Goodwill acquired in a business combination is allocated to cash generating units ('CGUs') according to the level at which management monitors that goodwill.

Goodwill is carried at cost less accumulated impairment losses.

The carrying value of goodwill is allocated to the following CGUs:

15. Goodwill (cont.)

An asset is impaired if its carrying value exceeds the unit's recoverable amount which is based upon value in use. At each reporting date impairment reviews are performed by comparing the carrying value of the CGU to its value in use. At 30 September 2017 the value in use for each CGU was calculated based upon the cash flow projections of the latest Board approved three-year forecasts together with a further two years estimated and an appropriate terminal value based on perpetuity.

Future budgeted and forecast profits are estimated by reference to the average operating margins achieved in the period immediately before the start of the budget period.

The estimated growth rates are based on past experience and knowledge of the individual sector's markets. The Directors believe that the heating, fire safety, property maintenance and the renewable energy and insulation markets will continue to present strong growth opportunities for the CGUs outlined above respectively. Management believes that future growth in these markets is underpinned by a number of factors including:

· A pipeline of new tenders

· Further opportunities to work with other Group companies

· Client demand for safe buildings

· Adjacent market opportunities

The assumptions used in the impairment reviews are outlined below.

The growth rate applied to the cash flows in years four and five of the impairment review performed at 30 September 2017 was 2% (2016: 2%). A terminal growth rate of 1% (2016: 1%) was applied. The pre-tax discount rate applied was 10.3% (2016: 11.4%). The Directors consider that reasonably possible changes in the key assumptions would not cause the carrying amount of any CGU to exceed its recoverable amount.

16. Other intangible assets

Contracted customer order book

The value placed on the order book is based upon the cash flow projections over the contracts in place when a business is acquired. Due to uncertainties with trying to forecast revenues beyond the contract term, the Directors have valued contracts over the contractual term only. The value of the order book is amortised over the remaining life of each contract which typically ranges from one to five years.

Customer relationships

The value placed on the customer relationships is based upon the non-contractual expected cash inflows forecast on the base business over and above contracted revenues. The value of customer relationships is amortised over five years.

16. Other intangible assets (cont.)

Non-compete agreement

The value placed on the non-compete agreements is based upon the non-compete clauses and knowledge and know-how of the former owners of the acquired businesses. The value of non-compete agreements are amortised over five years.

The annual WACC discount rate employed in the calculation of the acquisition intangibles is 13.00% (2016: 13.00%).

17. Property, plant and equipment

Included within the net book value of property, plant and equipment is £326,000 (2016: £763,000) in respect of assets held under finance leases. Depreciation for the year on these assets was £222,000 (2016: £371,000).

18. Group entities

Subsidiaries

The Group's subsidiary undertakings are: