VIEWS: 58 PAGES: 100 POSTED ON: 10/22/2010
This is the 2009 annual report for Speedy Asset Services Ltd a publicly traded company. The report contains assessments of the year’s operations, business and financial highlights, company’s view of the upcoming year and their prospects in their industries.
This is the 2009 annual report for Speedy Asset Services Ltd a publicly traded company. The report contains assessments of the year’s operations, business and financial highlights, company’s view of the upcoming year and their prospects in their industries.
Annual Report & Accounts 2009 TOUGH DECISIONS DECISIVE ACTION ANNUAL REPORT AND ACCOUNTS 2009 >TOUGH TIMES, TOUGH MARKETS // BUT WE REMAIN THE UK’S LEADING HIRE PROVIDER OF EQUIPMENT, EXPERTISE AND SUPPORT TO CONSTRUCTION, INFRASTRUCTURE, INDUSTRIAL AND RELATED SECTORS // WE PROVIDE THESE SERVICES TO UK CUSTOMERS WHO OPERATE BOTH NATIONALLY AND INTERNATIONALLY. Speedy Hire Plc Annual Report and Accounts 2009 01 CONTENTS The Speedy Spirit 02 Corporate Governance 34 Company Balance Sheet 63 Financial Highlights 03 Remuneration Report 47 Consolidated Cash Flow Statement 64 Strategic Focus 04 Audit Committee Report 57 Company Cash Flow Statement 65 Market Report 06 Nomination Committee Report 58 Notes to the Financial Statements 66 Letter from the Chairman 12 Independent Auditors’ Report 59 Five Year Summary 93 Operating and Financial Review 14 Consolidated Income Statement 60 Shareholder Information 94 Operating Board 27 Statements of Recognised Income and 61 Registered Oﬃce and Advisers 95 Directors 28 Expense Awards and Accreditations 96 Directors’ Report 30 Consolidated Balance Sheet 62 >THE CASE FOR HIRE IS STRONGER THAN EVER // HIRE IS CHEAPER THAN OWNERSHIP, AS IT IS FREE OF CAPITAL,REDuCES SERVICING, STORAGE, TRANSPORT AND REPAIR COSTS // WITH LEGISLATION GETTING MORE ONEROuS, THERE ARE INCREASING RISKS IN TERMS OF LIABILITY, COMPLIANCE AND OBSOLESCENCE THROuGH OWNERSHIP // HIRE ALLOWS FOR GREATER FLEXIBILITY OF DEMAND AND AVAILABILITY. 02 Speedy Hire Plc Annual Report and Accounts 2009 THE SPEEDY SPIRIT >IT WILL TAKE SPEEDY SPIRIT TO SuCCEED // WE’RE STICKING TO OuR PRINCIPLES… >CuSTOMER FIRST – ALWAYS >ONE TEAM, ONE SPEEDY >KEEP IT SIMPLE, DO IT WELL, KEEP IT SAFE >DRIVEN BY SuCCESS & REWARD >TAKE A LEAD,FIND A BETTER WAY Speedy Hire Plc Annual Report and Accounts 2009 03 FINANCIAL HIGHLIGHTS > OuR RESuLTS REFLECT A DIFFICuLT YEAR // REVENuE +2.3% // OPERATING PROFIT * -22.3% // EBITDA -4.6% Revenue > £m Net book value of Property, Plant & Equipment > £m H1 FY FY 04/05 98.9 206.5 04/05 187.9 05/06 120.0 254.3 05/06 241.4 06/07 154.4 335.5 06/07 295.7 07/08 209.5 465.5 07/08 372.9 08/09 219.9 476.1 08/09 323.2 Operating pro t * > £m Group operating margin* > % H1 FY FY 04/05 13.7 30.6 04/05 14.8 05/06 17.3 38.1 05/06 15.0 06/07 21.5 50.0 06/07 14.9 07/08 29.3 64.0 07/08 13.7 08/09 32.8 49.7 08/09 10.4 EBITDA* > £m EBITDA* > as % of Revenue H1 FY FY 04/05 27.3 61.8 04/05 29.9 05/06 35.7 77.0 05/06 30.3 06/07 44.7 100.3 06/07 29.9 07/08 59.9 131.6 07/08 28.3 08/09 71.2 125.6 08/09 26.4 Return on capital employed* > % Earnings per share > pence* FY FY 04/05 17.6 04/05 45.15 05/06 17.5 05/06 52.86 06/07 16.9 06/07 65.00 07/08 15.2 07/08 73.19 08/09 10.9 08/09 48.88 H1 = First half year FY = Full year * Pre amortisation and exceptional items 04 Speedy Hire Plc Annual Report and Accounts 2009 STRATEGIC FOCuS WE’RE FACING TOuGH quESTIONS IN TOuGH TIMES // WE HAVE NOT SHIRKED FROM OuR RESPONSIBILITIES AND REMAIN COMMITTED TO OuR LONG-TERM STRATEGY. THE OuTCOME WILL BE BETTER THAN THE OuTLOOK.” STEVE CORCORAN CHIEF EXECuTIVE Speedy Hire Plc Annual Report and Accounts 2009 05 HOW HAS THE MARKET ENVIRONMENT IMPACTED YOuR STRATEGY? However, with the continued investment in the country’s infrastructure together with ongoing activity in the regulated markets of power It hasn’t. Our overall strategy remains the same; as does our vision and systems, water services and transport infrastructure, we are seeing our ambition. It is the timescale that has altered through the enforced strategy of aligning our business closer to the ‘major construction retraction brought about by the recession. groups’ proving to be a good one. These are the principal beneficiaries of construction spending in these areas. In the short-term we have had to apply an interim plan. This will see us concentrate our resources upon maximising cash flow, minimising Looking to the future we can be confident that, with our business costs and reducing debt. This will be done whilst never losing sight of having the best geographic coverage, the best invested fleet and the the fact that it is the customer that pays our wages and, therefore, our broadest product range†, together with our strong balance sheet, we service standards cannot slip. are well placed to see out the current difficulties and emerge on the other side in an even stronger position. ARE OVERSEAS EXPANSION AND THE ‘BEYOND HIRE’ MOVE INTO BRANDED AND ADVISORY SERVICES STILL PART OF YOuR PLANS? YOu’VE HAD TO CuT COSTS AGGRESSIVELY THIS YEAR. HOW ARE YOu Yes, very much so. I am pleased to say that we have made progress in MAINTAINING SERVICE STANDARDS? all of these activities. We always stated that our objectives in this area We undertook very careful assessment of our operations before we were very much about “following our customers” without requiring confirmed where we would make the necessary cuts. Clearly, before huge investments in infrastructure and fixed cost. Our objective is to the sharp contraction that we witnessed from September 2008 (see Q1 work closely with key clients and identify ways in which we can above), we were still on a strong growth curve. This had presented us support them in their activities overseas. Progress has been with the opportunity to add several additional sites in most of the encouraging and we now have several hundred items of equipment major towns and cities of the UK. With the downturn we were able to on the ground in the Middle East. These assets have been supplied identify where we had multiple outlets that we could converge and together with Speedy management, who are seconded to our clients operate extended activity from fewer sites. and tasked to generate savings through improved operational management of plant and equipment. It is important to note that we still have by far the largest network of any operator in the UK with the largest and best invested fleet.† It will In respect of Branded and Advisory services, again progress has been always be of paramount importance to us that we maintain our service made. We have undertaken training programmes on behalf of our standards and this commitment will never be compromised. customers which have resulted in us undertaking 2,788 hours of customer training, the equivalent billing of 348.5 days in April and May WHY DO YOu BELIEVE THAT SPEEDY WILL SuRVIVE THE DOWNTuRN 2009. We have also initiated partnerships with selected agents which has seen us establish a broader base of support to our customers and which BETTER THAN OTHERS? now encompasses activities in areas such as vehicle hire, hire of assets Apart from the differentiators that I have mentioned previously in outside of our normal activities and the provision of managed services. respect of the network, the fleet and the range, we have now reduced We are confident that before the interim results we will have extended our cost base, restructured our banking and loan facility and we will this aspect of our activity further still. shortly invite shareholders to invest an additional £100 million (net of expenses) to pay down debt to a level that, by the end of this financial HOW HAS THE DOWNTuRN AFFECTED DEMAND FOR HIRE? WHAT’S year, we believe will be equivalent to around one year’s cash THE IMMEDIATE OuTLOOK? generation. We are, therefore, extremely well positioned to see out the recession, commercially, operationally and financially. All of this, of We identified the risk to trading and set about renegotiating our course, could not have been achieved without the tremendous banking facility in January 2009. Our facility’s covenants at the time goodwill and support that we receive from our employees who are were established on EBIT not EBITA/EBITDA. The covenants had increasing ratchets demanding increasing cover at a time of reducing undoubtedly the key reason for Speedy’s ongoing success. activity and, most worryingly of all, they had no allowances for cash STEVE CORCORAN exceptionals. So as we set about restructuring the Group we became CHIEF EXECuTIVE increasingly exposed to covenant risk. I am pleased to say that again 26 MAY 2009 this has been concluded successfully and we now have a much more appropriate financing and covenant structure. The severe contraction that has occured in construction activity following the collapse of Lehman Brothers in September 2008, dramatcially changed the outlook for hire. Post-September there has been a sustained period of stagnation as projects planned to start were either cancelled, deferred or delayed. Reduced construction activity will lead to reduced hire demand. † Based on publicly available information and Speedy analysis. 06 Speedy Hire Plc Annual Report and Accounts 2009 Almost all commentators, from the Governor of the Bank of England downwards, are agreed that the outlook for the UK economy and other leading economies is at best ‘uncertain’; for the UK construction market there is a degree of certainty in that most forecasters expect the downturn to continue well into 2010. SPEEDY HIRE Until the latter part of the third quarter of 2008 the construction market (with the exception of private housing) had enjoyed a prolonged period of ‘boom’, bringing considerable demand for MARKET REPORT equipment and tool hire. Although there had been significant unease over the problems manifesting in the banking sector throughout 2008, 2009: the real effects of the credit crunch were not felt by most hirers until last September. High activity levels throughout 2007 and the perception that these would continue encouraged hirers to invest THE uPSIDE heavily in equipment. Figures from ‘The Plant Hire Investment Report 2007/2008’ indicate that the median annual growth of the largest 75 equipment/tool fleets was 13.4%; this compared with figures of TO THE 12.15% in 2006/2007 and 8.4% in 2005/2006. Thus the rate of investment was actually accelerating in the period immediately before DOWNTuRN the downturn began. This has inevitably meant that many hire companies have highly geared balance sheets and excess fleet capacity. In the second half of last year several leading hirers including Speedy took action to downsize their operations to capacities more CATHERINE appropriate to the foreseeable levels of demand. Since its acquisition of Hewden’s tool hire operation, Speedy has had the largest depot network and been the largest employer in the UK hire sector and, even STRATTON, after depot closures and job cuts last autumn, it remains so with 4,471 employees and 399 depots; the last quarter of 2008 saw the INDEPENDENT announcement by Hewden of the closure or merger of some 22 outlets, with the loss of 213 jobs, reducing the hirer’s network to some 80 depots and some 1,500 employees. December 2008 also brought ANALYST news of depot closures at Ashtead, both in its UK subsidiary A-Plant and in the US at Sunbelt. A-Plant closed 40 of its depots over the twelve months to January 2009 (to reduce its total to 154) and its head count fell by just over 100. The UK’s third largest tool hirer Brandon (the Wolseley subsidiary) announced it was cutting 170 jobs last November. Both Speedy and Hewden have reduced their fleet sizes; in the case of the former by some 10% to a gross book value of £514 million at 31 March 2009 (compared with £570 million a year earlier). At the end of 2008 the Hewden fleet had a gross book value of £436 million, an 8% decline on the previous year and that will fall again this year; Ashtead’s third quarter figures to 31 January 2009 indicate that A-Plant’s fleet was some 2% larger than in the previous year but this growth will almost certainly have been reversed by the end of its financial year. With the downsizing of fleets and depot closures has come reorganisation of company structures; in the case of Speedy it is implementing its ‘One Speedy’ programme to streamline the business, while last autumn Hewden reorganised its structure on a regional basis. Lavendon’s UK operations have also recently completed an integration programme. These radical reorganisation programmes reflect the suddenness and depth of the decline in demand as shown in the most recent construction output figures. Speedy Hire Plc Annual Report and Accounts 2009 07 Construction output (constant (2000) prices, seasonally adjusted) (£m) New Work Public Private Infra- Public Private Private All Quarter housing housing structure (excl. infra) industrial commercial new work 2007 1 675 2,823 1,140 1,650 1,038 3,868 11,194 2 690 2,862 1,254 1,625 1,025 4,045 11,501 3 636 2,876 1,355 1,664 970 4,236 11,737 4 575 2,713 1,319 1,689 964 4,309 11,569 2008 1 644 2,558 1,420 1,798 938 4,372 11,730 2 633 2,375 1,515 1,858 797 4,184 11,362 3 601 2,241 1,575 1,991 770 4,325 11,503 4* 516 1,958 1,333 2,039 720 3,838 10,404 * Provisional Repair and Maintenance Public Private All repair Public Private non- non- and main- Quarter housing housing housing housing tenance 2007 1 1,712 2.886 1,501 3,095 9,194 2 1,542 3,031 1,431 3,064 9,069 3 1,482 2,820 1,446 3,168 8,917 4 1,520 3,112 1,425 3,241 9,298 2008 1 1,617 2,971 1,640 3,171 9,399 2 1,666 3,165 1,586 3,198 9,616 3 1,611 2,902 1,676 2,996 9,186 4* 1,514 3,168 1,460 2,788 8,930 * Provisional Total All Construction Work Quarter Quarter Quarter Quarter Total 1 2 3 4 for year 2007 20,388 20,570 20,653 20,867 82,478 2008 21,128 20,977 20,689 19,334 82,129 % change +3.6 +2.0 +0.2 -7.3 -0.4 Source: Office for National Statistics, Output in the construction industry (published 5 March 2009) 08 Speedy Hire Plc Annual Report and Accounts 2009 SPEEDY HIRE MARKET REPORT 2009: THE uPSIDE TO THE DOWNTuRN CONTINuED: The most recent quarterly output figures give further evidence to heavily geared financially, as well as operationally, and this the contention of many hirers that they only began to experience a obviously leaves them vulnerable when revenues decline but, decline in demand as they approached the final quarter of 2008. provided they have bought wisely and maintained their fleets well, Suddenly they were seeing their yards filling up with off-hired plant they are able to raise cash relatively quickly from selling surplus and they had to adjust from the buoyant demand of the past plant. Indeed recent months have seen Speedy and other leading decade to a sudden drop in demand, the like of which the hire companies disposing of equipment through auctions. Undoubtedly sector had not seen since the early 1990s. many of their smaller competitors will have also been reducing their fleets. In many ways the hire industry is very different now from fifteen/sixteen years ago but the early pattern of the recession has Can we expect to see a similar pattern of resilience this time? It is been similar. The downturn was swift; one major hirer told the early days and even those best positioned and qualified to judge author that in 1993 ‘one day the yards were empty, the next almost the overall economy are finding it exceedingly difficult to forecast all the plant was back’. From the 1960s onwards plant hire had the course of this recession. In its Trade Survey published in May come to play an increasingly important role in the construction 2009, The Construction Products Association said that that ‘the industry as contractors realised the value of being able to hire construction industry is facing its sharpest decline on record’ and it equipment for which they had use for only limited periods. foresaw no prospect of improvement over 2009 and 2010. The Downturns in construction demand (or the threat of them) made Association estimated that output would fall by over 12% in the contractors turn further to hire in order to conserve their own current year with the private sector shrinking by 20% (with sharp capital and this had brought a degree of protection to hirers during declines in offices and retail building as well as in private housing such times. In the early 1990s, however, the combination of the repair and maintenance). severity of the decline in demand and the fact that construction companies had become increasingly reliant on hire to meet their The CECA (Civil Engineering Contractors Association) Workload plant requirements meant that hirers were more exposed to Trends Survey for the first quarter of 2009 showed that civil recessionary factors. engineering order books continued to be in decline and stated that since the downward trend had first begun in July 2008, each Plant hire is highly operationally geared; once revenues decline successive quarter had brought progressively weaker results. One profits will decline at a faster rate; so the swift drastic surgery rather flickering glimmer of hope was that the latest quarter had undertaken by Speedy was the right response as the imminence seen a ‘slight slowdown’ in the rate of decline, which was attributed and likely protracted nature of the recession became clear but to ‘less negative results’ from Scotland and Wales. Rail was the only despite the severe nature of the downturn and its exposure to the component of the workload to show growth, while the worst vulnerable construction industry, plant hire is more resilient than declines were seen in preliminary works and water sewage orders. might be thought. By their nature hire companies tend to be Civil Engineering Order books compared with a year ago, by size of firm, ranked by number of operatives April ’08 July ’08 Oct ’08 Jan ’09 April ’09 Number % balance % balance % balance % balance Higher % Same % Lower % % balance -115 -17 -22 -46 -63 14 13 73 -59 115–299 +37 -21 -37 -57 2 30 67 -65 300–599 +23 -7 -10 -60 29 6 65 -36 600+ +19 -14 -13 -18 25 22 54 -29 Source: CECA Workload Trends Survey First Quarter 2009 (published 15 May 2009) Speedy Hire Plc Annual Report and Accounts 2009 09 As the real downturn in the overall construction market only began Change in fleet size in the final quarter of 2008, it is somewhat early to gauge its full GBV % change impact on the results of either construction companies (many of Hire Fleet on previous whom have calendar year accounting periods) or plant hirers. The Company (£million) year tables below are based on the most recent hire results available, Aggreko 1,382.8 +56.5 with the exception of those for Ashtead where we have made Lavendon 544.4 +31.1 estimates based on the company’s latest trading statement. Speedy 514.3 -9.7 Hewden 436.7 -8.2 Major uK Hire Companies – Recent Results Vp 154.0 +9.3 Change in revenues Figures are not available for Ashtead. % Change Revenue on previous While Hewden operates almost exclusively in the UK, the majority Company (£million) year (80%) of Aggreko’s revenues are derived from outside Europe; in the Ashtead 977.0 est No change case of Lavendon just over half its revenues were from the UK. In Aggreko 946.6 +36.6* the nine month period included for Ashtead, its US operation Speedy 476.1 +2.3 accounted for 80% of group revenues. Its UK subsidiary A-Plant saw Lavendon 248.4 +33.5 its revenues fall some 4% to £153.5 million; it was, however, the last Hewden 171.0† -12.9† three months of the period which were responsible for the decline Vp 150.9 +1.1 with revenues dropping by 14% to £44.0 million. More recently Ashtead has issued a trading update ahead of the announcement * In constant currency terms +26.2%. of its full year results in mid-June. These indicate that the final † Excludes discontinued operations. quarter to 30 April 2009 saw a 24% fall in revenues compared with the same period a year earlier. The company did not disclose Change in pre-tax profit whether there was any difference in the levels of decline between Pre-tax % Change the US and the UK but a fall of 24% is not out of line with the profit/(loss) on previous experience of hirers in the UK. Finning – the parent company of Company (£million) year Hewden – issued its first quarter 2009 results in May which Aggreko 191.9 +52.5 indicated that Hewden had seen its revenues fall by nearly 29% in Speedy 33.9‡ -29.5 sterling terms. Lavendon 30.4 +25.6 Vp 21.7 +7.4 The assessment of their immediate prospects by most of these Hewden (0.2) † companies is sobering. In its first quarter 2009 Investor Conference † The loss is stated after a gain of £9.8 million on sale of properties Call Finning said that it expected the general construction and and of £1.1 million on disposal of Hewden’s hoist division which rental sectors in the UK to remain ‘very weak’ and that Hewden made an operating loss of £0.2 million up to the time of its would continue to reduce its fleet. The May 2009 trading update disposal in 2008 and an operating loss of £0.4 million in 2007. from Ashtead indicated that underlying pre-tax profits for Hewden accounts show a profit before tax of £59.7 million in 2008/2009 would be towards the lower end of analysts’ forecasts 2007; this is after a gain on sale of discontinued operations (i.e. and went on to warn that the profits for the succeeding year were Tool Hire division) of £46.9 million and a gain of property sales of likely to fall below the board’s previous expectations. £1.0 million. Excluding these gains profits after finance charges were £11.8 million in 2007 and losses in 2008 were £11.1 million. ‡ Pre exceptional items of £95.3 million and amortisation of £9.2 million. 10 Speedy Hire Plc Annual Report and Accounts 2009 SPEEDY HIRE MARKET REPORT 2009: THE uPSIDE TO THE DOWNTuRN. CONTINuED: By contrast, the statement issued in conjunction with specialist hirer In view of the deteriorating condition of government finances, Aggreko’s AGM in April was much more buoyant; trading in 2009 is recently highlighted in Standard & Poor’s revision of the UK Outlook expected to be at similar levels to 2008 on a constant currency basis from ‘stable’ to ‘deteriorating’, the industry cannot afford to be too with the proviso that if the sterling:US dollar rate stays at the levels of sanguine about the public sector. There are, however, a number of mid-April 2009, ‘the reported results would show substantial growth mega-projects such as the Olympics, the £16 billion Crossrail scheme over 2008’. Lavendon, the largest powered access hire company in and the nuclear de-commissioning and nuclear reactor building Europe, reported signs of a slowdown to its AGM. Revenues for the programmes. What of the private sector? There are now some faint first quarter were ahead by 2% in the UK but this included the effect signs of the beginning of a recovery in the private housing market; of a major acquisition in April 2008. The statement went on to underlying demand and need for new housing is clear but it seems say that ‘in recent trading it has become clear that the market unlikely that we will see any significant upturn in the immediate environment has tightened considerably for many smaller customers future. There are also indications that the commercial property in the construction segment’. market may be at or close to bottom as seasoned property investors appear to be interested in returning to the market. Both the Of course the health of much of the UK’s equipment/tool hire sector residential and commercial markets will have to contend first with is dependent on the state of the wider construction industry. Are the ‘overhang’ of properties and the restoration of confidence; this there any positive signs to assist hirers? One noticeable feature has will take time. been that the larger contractors appear to be better positioned than their smaller competitors to deal with current conditions. The CECA So what can plant hirers do? As outlined above, Speedy and several Workload Trends Survey shows this quite clearly with regard to civil other major companies have taken fairly drastic action to reduce engineering companies but all the indications are that it is also true their operations to a level more commensurate with the shrinking of builders. Much of this reflects the predominance of large public market. Over recent years Speedy and other national hirers have contracts. Recent trading and results statements from leading focused on securing supply contracts with major contractors. This contractors also testify to this; at their respective AGMs, Balfour should give them a degree of protection in terms of both their Beatty and Morgan Sindall were both able to report strong order volume of work and the price at which it is undertaken. In this regard books. The former stated that its performance in the UK building Speedy has been particularly active, often at the same time acquiring sector was ‘steady’, while its UK civil engineering was described as part or all of the contractor’s plant operations. Last year’s acquisitions ‘strong’. Morgan Sindall’s construction division was ‘well positioned from AMEC and Carillion look well judged in this context. with around three-quarters of its workload coming from the public sector’ and its Infrastructure Services division had maintained There are growing cost pressures on companies as the recession momentum, securing further major contracts in the first quarter of continues. There remain construction companies with large plant 2009. AMEC was also able to report a strong order book of £3.4 holdings; some of them will be reappraising their strategy and may billion at its AGM, while Carillion was able to tell its shareholders decide that the option of hiring plant is more attractive than the cost ‘despite challenging market conditions, . . . we remain on track to of maintaining or renewing a fleet. The process of rationalisation deliver materially enhanced earnings in 2009’. within the plant sector is likely to take place not just through hirers acquiring their weaker competitors (which happened during the recovery of the early 1990s) but also through some construction companies seeking to dispose of their in-house plant operations to those hirers who are able to provide them with a high standard of service across the country. The current economic conditions are likely to give rise to another wave of outsourcing by commercial and industrial companies. Commenting on the recent results of MITIE, the company’s Chief Executive Ruby McGregor-Smith stated that the company was making ‘strong progress as clients increase outsourcing in their drive for efficiency at this stage in the economic cycle.’ Speedy Hire Plc Annual Report and Accounts 2009 11 Plant and tool hire is one of the longest-established forms of ‘outsourcing’; this recession should be an opportunity for those hire companies with strong national networks, providing a wide range of Catherine Stratton modern equipment and a professional service to further expand their customer bases by proving that hire is the most efficient and Catherine Stratton has effective way for contractors and others to meet their equipment researched and analysed the needs. Major contractors, like other commercial enterprises, are intent on reducing their number of suppliers. Speedy’s plant and tool hire sector for reorganisation to simplify its company structure into ‘One Speedy’ is many years and is the author an example not just of improving the company’s internal efficiency but of providing a more streamlined service to meet the of ‘The Plant Hire Investment requirements of its customers. Report’ which has been The onset of this recession marked a swift correction to the published annually since construction boom; as companies continue to adjust to much lower 1994. She also writes regularly demand levels, there will be a period of significant rationalisation with the strong construction and hire companies taking a growing for ‘Executive Hire News’. share of their respective markets, whether it be through acquiring their weaker brethren or by simply being better able to adjust to and survive the economic maelstrom in which we have been engulfed. Her interest in the hire sector Despite the precipitous decline in current construction demand, the underlying need for continuing improvement to and expansion of began when she joined the our infrastructure (whether it be roads, railways, power production, research department of City water treatment or housing) remains. Once the economy revives, construction will again play its key role and those hire companies stockbrokers Greene & who have used the recession to make their own operations more Company in 1969. She efficient (and thereby also to improve those of their customers) will be best placed to prosper again. became a partner in that firm and a member of the London Stock Exchange in 1975. After Greene’s merger with Grieg Middleton in 1988 she was a director of the latter until 1992 when she left the City to set up as an independent researcher and consultant in the hire industry. The Plant Hire Investment Report 2008/2009 will be published in July 2009. www.phir.co.uk 12 Speedy Hire Plc Annual Report and Accounts 2009 LETTER FROM THE CHAIRMAN DEAR SHAREHOLDER // IT’S BEEN A TOuGH YEAR FOR ALL OF uS; OuR SHAREHOLDERS, OuR CuSTOMERS AND OuR PEOPLE // TOuGH DECISIONS AND DECISIVE ACTION HAVE ENSuRED THAT WE REMAIN IN GOOD SHAPE TO MEET THE CHALLENGES WHICH LIE AHEAD.” DAVID WALLIS CHAIRMAN Speedy Hire Plc Annual Report and Accounts 2009 13 OVERVIEW FINANCIAL STRATEGY The caution on the outlook for your business, which I expressed in our To ensure that we are able to deal with the short and medium-term Interim report to shareholders, has proved to be well founded. The last challenges thrown up by the market and simultaneously continue to few months have been exceptionally difficult and challenging, with a develop these strategic relationships, the Group has reviewed its rapid and severe contraction in the level of general construction financial strategy. activity. The deterioration of both national and global credit markets has had a negative impact resulting in reduced activity, confidence In April 2009, the Board announced that the Group had successfully and capital availability which has caused the cancellation or deferment renegotiated terms with all of its banks to establish more appropriate of construction projects, resulting in a significant weakening in output. covenants on its facility, albeit at significantly increased interest We expect this to continue over the medium term. As a consequence, margins. The revised £300 million facility extends to June 2012 and swift and decisive action was taken by management to align the cost incorporates revised covenants which the Board considers more base of the Company with the lower levels of revenues being appropriate for prevailing market conditions. generated. In addition, capital expenditure was severely curtailed, surplus assets were disposed of, cash management further In addition, in order to strengthen the balance sheet, thereby strengthened and debt reduced. providing resilience in case of a further downturn in our markets and to deliver on its longer-term strategic objectives, the Board intends to A review of the Group’s financial performance is set out in the raise £100 million (net of expenses) of new equity by way of a rights Operating and Financial Review on page 14. In brief, revenues issue. Details of this will be contained in a separate prospectus issued increased by 2.3% to £476.1 million (2008: £465.5 million), adjusted to our shareholders. profit before tax* reduced by 29.5% to £33.9 million (2008: £48.1 million), and adjusted earnings per share* reduced by 33.2% to 48.88p LOOKING FORWARD (2008: 73.19p). After adjusting for amortisation, impairments and Speedy is dealing effectively with the short-term challenges which exceptional items, earnings per share reduced to a loss per share it faces. Its immediate priorities are fourfold: maximise revenues, of 107.93 (2008: 47.89). optimise costs, generate cash and reduce bank debt. The actions taken by management on all four counts have ensured that the business is The Board is recommending a final dividend of 6.4 pence per share in well placed to deal with current market conditions. However, it is respect of the financial year to 31 March 2009, bringing the total for important not to lose sight of longer-term strategy. the year to 12.8 pence per share. If approved by shareholders this will be paid on 25 August 2009 to all shareholders on the register as at 26 Speedy aims to extend key customer relationships through its June 2009. Although some 35% lower than that declared in the prior alignment with the major contractors and industrial groups, which year, the Board believes that this recognises the challenging trading should enable the business to withstand the current wider conditions your Company is facing. Future dividend payments will take construction sector downturn. This may extend to targeted into account underlying earnings, cash flows and capital investment acquisitions of customer fleets, carried out several times in the past, plans and the need to maintain an appropriate level of dividend cover. and support for customers on an international level. We will also seek to increase market share through natural consolidation as smaller OPERATIONAL STRATEGY competitors cease to trade, with the aim of maximising our The speed and scale of the impact of the turmoil in the financial competitive advantage and emerge from the current trading markets have shocked most of us. As a result, we believe the next two environment in a stronger position. or more years will prove to be very tough for many sectors of the UK economy, none more so than the construction sector. A consequence It has been an exceptionally difficult year for everyone, particularly for of the difficulties in the construction sector is that the trend towards our people, who have responded magnificently to the challenges and I outsourcing of non-core activities is growing. would like to express the thanks of the Board and shareholders to each of them. However, looking further ahead, we are confident that our long-term aim of developing close, long-term strategic partnerships with major The Annual General Meeting (“AGM”) will be held at 11 am on contractors, industrial groups and their respective supply chains (we 21 July 2009 at the Mere Court Hotel & Conference Centre, Knutsford, currently have exclusive or preferred supplier status with 21 of the top Cheshire and I look forward to seeing you there. If you have any 25 UK contractors) will enable us to develop our traditional tool and comments on any aspect of this letter, or indeed any part of the equipment hire services offering into a broader support services Annual Report, I would be delighted to hear from you, either by outsourcing role, encompassing complementary activities such as writing to me at Chase House, Haydock or by e-mail to testing, inspection, maintenance, asset management and training. We firstname.lastname@example.org have also focused strategically on achieving leading market positions in more resilient sub-sectors of the UK construction industry, which Yours sincerely now represent over 70% of our revenues, including infrastructure development, regulated utilities and petrochemicals. DAVID WALLIS CHAIRMAN * Pre amortisation, impairment and exceptional items 26 MAY 2009 14 Speedy Hire Plc Annual Report and Accounts 2009 OPERATING AND FINANCIAL REVIEW >WE’VE TAKEN SOME TOuGH DECISIONS THIS YEAR, FROM CLOSING DEPOTS TO LOSING GOOD PEOPLE // AS SOON AS WE REALISED THE NATuRE OF THE CHALLENGES IN OuR MARKETS, WE TOOK DECISIVE ACTION TO REMOVE COSTS // WE’RE NOT OuT OF THE WOODS YET BuT THE CLEAR ACTION WE’VE TAKEN WILL KEEP uS ON TRACK. Speedy Hire Plc Annual Report and Accounts 2009 15 1. INTRODuCTION AND OVERVIEW 2. SuMMARY FINANCIAL PERFORMANCE Speedy is a business-to-business support services company. It is the The key financial highlights for the year to 31 March 2009 are as UK’s leading provider of tool and equipment hire. In recent years, the follows: Group has grown its market share, organically and by selective Revenues increased by 2.3% to £476.1 million (2008: £465.5 million) acquisitions, to approximately 10% of the overall UK hire market – Operating profit* reduced by 22.3% to £49.7 million (2008: £64.0 more than double that of its nearest competitor. million) Operating margins* were 10.4% (2008: 13.7%) The Group provides a broad range of products for hire to the Return on capital* (operating) was 10.9% (2008: 15.2%) construction market, specialist industries, their supply chains and the Profit before tax* reduced by 29.5% to £33.9 million (2008: £48.1 public sector. In addition to its supply of hire services, Speedy’s close million) alignment with its customers and markets has enabled the business to Loss before tax of £70.6 million (2008: profit £30.5 million) develop additional services such as facilities management services, The effective tax rate* was 27.6% (2008: 22.5%) regulatory testing and inspection, maintenance and asset management and training, thereby creating important new platforms * Pre amortisation and exceptional items for future growth. Speedy reported modest overall revenue growth in the year ended Speedy operates a highly flexible, delivery-based business model and 31 March 2009, with strong growth in the first half of the year offset is structured into two divisions, Tools and Equipment, trading from a by a sharp slowdown in the second half of the year as the general network of 399 depots throughout the UK and the Republic of Ireland. construction market weakened rapidly in response to increasing turmoil in the financial sector. In order to position the business The Group has successfully implemented a consistent strategy over appropriately for the predicted downturn in overall activity levels, recent years by developing long-term strategic partnerships with decisive early action was taken from July 2008 to maximise the Group’s major contractors (both national and regional), industrial users and free cash generation by implementing major cost reduction initiatives, their respective supply chains. As at 31 March 2009, Speedy has Speedy Speedy Speedy Speedy Speedy exerting tight controls on capital expenditure and driving working Northern Western Southern Scotland Ireland exclusive or preferred relationships with 21 of the UK’s top 25 major 74 depots 48 depots 76 depots 30 depots 01 depots capital improvement. The result of these actions is that: contractors. In addition to providing access to more visible long-term revenue streams, this strategy Division Tool Hire has afforded a degree of insulation from between July 2008 and 31 March 2009, 957 employees (17%) have volatility in the wider construction sector in the last 12 months by left the business, 82 depots (17%) have been closed and 470 virtue of the strong market Speedy Speedy Hire Direct positions held by a number of those vehicles (15%) returned to their lessors or sold. These actions, Support Speedy Training customers in the infrastructure, energy and regulated utilities sectors, 01 control centre Services together with other cost reduction initiatives, have ensured that all of which remain relatively robust due to their largely public sector cost savings with an annualised benefit in excess of £42 million derived funding. Equipment Division were in place for the start of the new financial year; capital expenditure in the second half of the year at £22 million was Notwithstanding the success of this strategy, Speedy benefits from a Speedy Speedy Speedy Speedy Speedy approximately 59% down on the level of the first half year spend, Power Pumps Survey Lifting Space highly diversified customer base, with no single customer accounting 13 depots 02 depots 16 depots 33 depots 21 depots with a focus on investing only on assets necessary to maintain the for more than 5% of Group revenues. operational integrity of the business and essential IT and property investment, together with judicious support of customers, projects STRuCTuRE OF BuSINESSES and sectors where appropriate. The Group also engaged in a proactive disposal programme of under utilised and older assets Speedy Northern Speedy Western Speedy Southern Speedy Scotland Speedy Ireland Speedy N. Ireland which, together with reduced capital expenditure, has resulted in 87* depots 49 depots 78 depots 52 depots 04 depots 01 village the net book value of hireable assets reducing by £51.4 million (15%) over the second half of the year. Disposal proceeds in the year Tool Hire Division from asset sales totalled £39.4 million; the net cash outflow relating to working capital movements in the Speedy Hire Direct Speedy Support Speedy Training year to 31 March 2009 totalled £12.6 million, a £0.8 million Control Centre Services deterioration on the £11.8 million in the prior year. In the second half of the year there was a net cash inflow relating to working Equipment Division capital of £5.2 million, reflecting closer focus on the management of trade debtors and inventory; and Speedy Speedy Speedy Speedy Speedy Speedy Power Pumps Survey Lifting Space Engineering net debt at 31 March 2009 was £248.4 million, a reduction of over 18 depots 06 depots 18 depots 59 depots 18 depots 09 depots £46.3 million (15.7%) since June 2008, emphasising the Group’s strong cash generation. * Including 01 Multi Service Centre 16 Speedy Hire Plc Annual Report and Accounts 2009 OPERATING AND FINANCIAL REVIEW Debt increasing Debt Gearing increasing Cash stable Gearing neutral increasing Gearing 39% Current falling growth >2008 FINANCIAL >2009 FINANCIAL Cash Market share increasing STRATEGY // generative Gearing falling % STRATEGY // INVESTING Turnover growth FOCuSING FOR PROFITABLE Strategy: Investing for profitable growth ON PAYING GROWTH DOWN DEBT Cash Debt increasing Gearing stable Debt increasing Gearing WITH A BuSINESS RENEGOTIATING neutral increasing Gearing 39% Current falling growth Market share increasing MODEL THAT OuR BANKING Cash generative CONTAINS THE TERMS AND Gearing falling % Turnover FLEXIBILITY TO ADAPTING TO growth Strategy: Investing for profitable growth LOWER GROuP Debt increasing Gearing Debt increasing CHANGES IN THE DEBT WHEN MARKET. Cash stable Gearing neutral increasing Gearing Debt falling increasing GROWTH RATES Cash Market share increasing SLOW. % generative Gearing falling Turnover growth 2009 Financial Strategy: Focusing on paying down debt SPEEDY-O-METER: 2008 FIRST HALF SPEEDY-O-METER: 2009 SECOND HALF Debt Debt increasing Debt increasing Debt increasing Gearing increasing Gearing Cash Cash stable Gearing stable Gearing neutral neutral increasing increasing Gearing Gearing Debt Debt falling falling increasing increasing Market share Market share increasing increasing Cash Cash generative generative Gearing Gearing falling % falling % Turnover Turnover growth growth 2008 Financial Strategy: Investing for pro table growth 2009 Financial Strategy: Focusing on paying down debt Debt increasing Debt Speedy Hire Plc Annual Report and Accounts 2009 17 Speedy completed two small scale but important acquisitions of ONE YEAR SHARE PRICE RECORD COMPARED TO FTSE 250 customer fleets in the year ended 31 March 2009. In May 2008, the PRICE IN PENCE Group acquired the business and assets of Carillion Accommodation Speedy Hire share price for the past year (Price in pence) Services for a consideration of £12.6 million. As part of the acquisition, 900 Speedy entered into a five year strategic partnering agreement with 800 Carillion’s UK and Irish businesses under which Speedy moved from being “a preferred”, to “the preferred” supplier to Carillion. In August 700 2008, the Group acquired for a cash consideration of £0.7 million the 600 business and assets of Apollo Hire Centres, the internal hire business of Connaught plc, one of the UK’s leading service providers to the social 500 housing, public sector and compliance markets. As part of the 400 acquisition, Connaught entered into a three year preferred supplier agreement with Speedy with a two year extension option. 300 200 Both of the above acquisitions were rapidly integrated into Speedy’s existing operations and represent a continuation of the Group’s 100 strategy of using so called ‘in house’ fleet acquisitions to grow new 0 customers and new markets and increase the breadth and depth of Mar June Sept Dec Mar relationships with existing customers. 2008 2008 2008 2008 2009 I Speedy In addition, the Group acquired the remaining minority interest in I FTSE 250 Speedy Asset Leasing Limited in April 2008 for £1.3 million. FIVE YEAR SHARE PRICE RECORD COMPARED TO FTSE 250 3. SHARES, EARNINGS AND DIVIDEND PRICE IN PENCE Five year record (Price in pence) Earnings per share, adjusted for amortisation of intangibles and exceptional items, decreased by 33.2% to 48.88 pence (2008: 73.19 1400 pence). A final dividend of 6.4 pence per share is recommended, giving 1200 a total (if approved) of 12.8 pence per share for the year (2008: 19.8 pence). The proposed final dividend (if approved) leaves the overall 1000 dividend 3.8 times covered (calculated as adjusted earnings per share 800 divided by dividend). The final dividend will be paid to shareholders on 25 August 2009, to all shareholders on the register as at the close of 600 business on 26 June 2009. 400 In the year ended 31 March 2009, the Group reported pre-tax 200 exceptional items totalling £95.3 million. £21.0 million of this amount 0 relates to restructuring and integration costs principally relating to the Mar Mar Mar Mar Mar Mar reduction of the Group’s operating cost and fixed asset base. In 2004 2005 2006 2007 2008 2009 I Speedy addition, the Group incurred £4.6 million of exceptional financial costs I FTSE 250 principally comprising bank fees relating to its recent bank facility renegotiation. The balance relates to impairment of non-current intangible and property, plant & equipment of £60.9 million and £8.8 4. OPERATIONAL HIGHLIGHTS million respectively. Of the total exceptional items, the cash cost is anticipated to be £17.9 million, of which circa £12.0 million had been Notwithstanding the potential for the cost reduction initiatives incurred prior to 31 March 2009. The tax impact of these exceptional referred to above to cause distraction to the business, Speedy has items is likely to lead to a cash inflow of approximately £10 million in been careful to ensure that appropriate focus has remained on the year ending 31 March 2010. winning new business and protecting revenue streams with existing customers. Recent contract wins and renewals include: Olympic Park – Construction Site Solutions (‘‘CSS’’), the consortium that includes Speedy, BSS, Hewden and Lavendon, has been selected as the Olympic Development Authority’s first choice partner for the 2012 Olympic Park. Under the arrangements to be put in place, Speedy will, as a member of the CSS consortium, provide hire fleet together with additional services, for example, safety and training. It is anticipated that the contractual arrangements formalising the relationship between the consortium members and the provision of services by the consortium to the 18 Speedy Hire Plc Annual Report and Accounts 2009 OPERATING AND FINANCIAL REVIEW >THIS IS A TIME TO CONSOLIDATE // THE DOWNTuRN IS AN OPPORTuNITY TO INTRODuCE EFFICIENCIES ACROSS THE BuSINESS THIS WILL BECOME A PLATFORM FOR GROWTH // ONE SPEEDY = ONE SOLuTION Speedy Hire Plc Annual Report and Accounts 2009 19 Olympic Delivery Authority will be concluded within the next two Attainment of ISO 9001 accreditation to complement existing months. quality systems accreditation in power, lifting and survey. Environment Agency – the award of a four year preferred supplier The establishment of specialist centres to support customers in their contract. specialist requirements, for example, light plant, access and fencing, SembCorp – the renewal of the Group’s site based services together with the initiation of further specialisations in utilities, agreement at SembCorp’s Wilton facility, at which Huntsman, SABIC, interiors/ fit-out and air-conditioning which are underway. INVISTA, Artenius and Dow all have operations. Continued further penetration of utilities, facilities management The renewal of many existing awards (for example, Interserve, and social housing repair markets to complement our existing Morgan Sindall, and May Gurney). strong presence in contracting and M&E markets. Continued development of our training, apprenticeship and prison Some of the Group’s operational highlights for the year to 31 March workshop programmes. 2009 include: EquIPMENT Year on year revenue growth of 15.9% with the Group’s top 20 The operational highlights of the equipment hire division in the year to customers – which now account for approximately 24% of Group 31 March 2009 include: revenues. This growth reflects: – The increasing strength and depth of Speedy’s relationships with Revenue £238.9 million (2008: £208.9 million); EBITA £39.1 million such customers. (2008: £40.0 million) (pre-impairment and exceptional items). – As the general construction market has weakened, the Consolidation of sales management across the business to facilitate polarisation of activity towards a smaller number of much larger cross-selling and streamline resourcing. public sector and infrastructure projects, in many cases Launch of the Group’s communications offering to include 3G undertaken under long-term framework and partnering mobile site-communications and extension of the safety offer which agreements, which inevitably favour our larger customers. has complemented the existing offer in industrial and Increased penetration of a number of industrial and other non- petrochemical markets. construction markets – which now account for approximately 35% Development of a new regulatory test and inspection business of Group revenues, including the securing of a 5 year framework which will be rolled out nationwide. agreement to support ExxonMobil at its Fawley facility. Extension of the Group’s accommodation offering into facilities The introduction of a significant number of product innovations management incorporating the provision of fully serviced targeting increased energy efficiency and reduced carbon temporary office accommodation. emissions, such as our ‘Envirocabin’ temporary site accommodation The Group’s new specialist rail business extending the reach of its system which reduces carbon footprint by over 50% and services to both Network Rail and with the rail operations of existing significantly reduces water consumption compared to standard site Speedy clients. accommodation systems. Further penetration of industrial and petrochemical markets with Launch of the Hand Arm Vibration (HAV) awareness initiative under new on-site facilities awarded and several existing contracts Speedy’s award winning ‘Safety from the Ground Up’ campaign renewed/extended. which is used to communicate new products, legislation and operator awareness in respect of changes in safe working practice. The operational priorities for the hire division for the coming year The successful trial of a fleet of new generation of electric flat-bed include: delivery vehicles as part of a strategic initiative with Modec. Completion of the first phase of the Group’s new Shared Service Further penetration of growth markets including infrastructure Centre (SSC) as part of Speedy’s drive to enhance both construction, public sector and industrial services. administrative efficiency and the quality of Management The continued development of the temporary on-site depot service Information (MI) reporting both internally and to customers. for major projects. Continuing the roll-out of Speedy’s new Group-wide integrated IT Consolidation of the 10 operating businesses into a single trading platform, the final phase of which is on target to be completed by entity to enable customers to trade from one account across the UK. December 2009, which will provide increased visibility of asset status The alignment of the sales force to market sectors to enable us to and enable the business to derive further operational efficiencies. develop a deeper level of understanding of the Group’s clients’ needs. Continued investment in service improvement initiatives and TOOLS customer facing management information systems. The operational highlights of the tool hire division in the year to Development of the MSC (Multi Service Centre) and superstore 31 March 2009 include: formats. Expansion of the Group’s facilities management, regulatory test and Revenue £237.2 million (2008: £256.6 million); EBITA £20.5 million inspection and asset management services. (2008: £34.8 million) (pre-impairment and exceptional items). Expansion of our services to support key clients in their overseas Realignment of the management structure to 4 regional operations activities. (from 6) to create a more responsive and streamlined business. Establishment of a projects team to co-ordinate the sales and operational efforts on major construction projects. 20 Speedy Hire Plc Annual Report and Accounts 2009 OPERATING AND FINANCIAL REVIEW >WE’RE MOVING THE FOCuS OF OuR BuSINESS AWAY FROM PRODuCTS AND TERRITORIES AND TOWARDS CuSTOMERS AND MARKETS // WE’LL GO WHEREVER OuR CuSTOMERS GO AND PROVIDE THEM WITH THE SERVICES AND SuPPORT THEY NEED. Speedy Hire Plc Annual Report and Accounts 2009 21 5. SPEEDY’S MARKET Training for our customers in relation to the skills needed for their OVERVIEW employees to perform tasks using our tools and equipment safely The UK hire market is valued at approximately €8.3 billion (Source: and efficiently. European Equipment Rental Industry 2008 Report). Driven by growth in outsourcing and regulatory pressures, the trend towards hire rather Geographically, our market is expanding beyond the UK. In 2006, the than ownership continues. Contractors and other operators manage Group began operating in the Republic of Ireland. their costs by outsourcing their fleet activities which at the same time enables them to benefit from the emphasis on health and safety and In January 2009, and following the establishment of the strategic quality assurance by the major providers in the UK hire market and to partnering agreement with Carillion in May 2008, Speedy placed an seek efficiencies from consolidation of their supply chains. The implant team in the in-house fleet operations of Al Futtaim Carillion, experience of Speedy’s senior management team during the last Carillion’s longstanding joint venture in the Middle East and North recession in the early 1990s was that capital constraints caused Africa. The implant team is working with Carillion locally to identify and customers to accelerate this process and we believe that similar implement efficiency improvements to its equipment operations patterns are already emerging at the onset of the current recession. across the region. MARKET OuTLOOK Speedy’s national network, range of products and award-winning commitment to safety standards differentiate it from many of its Whilst the longer term prospects for the Group are positive, current competitors. These dynamics are increasing demand for more modern conditions in construction markets remain difficult. fleet, fully compliant with health and safety regulations and, increasingly, with a focus on energy efficiency and carbon emission Major contractors have benefited from strong spending by reduction. Speedy has invested consistently in these areas over many Government, particularly in education, health, utilities and transport years and is, therefore, well-placed to benefit from such changes. infrastructure related sub-sectors, with these activities now accounting for between 70% and 90% of major contractors’ order books. However, NEW MARKETS the wider construction market, in particular contractors exposed to the Whilst Speedy’s principal market remains the construction sector in its private sector, private house building and consumer spending, widest sense, the Group continues to extend its position to a broader continues to find conditions difficult. range of industrial and other non-construction sectors. Having anticipated this situation in 2008 and advised shareholders of Notwithstanding that Speedy has increased its revenues from its key the increasing likelihood of a severe contraction in activity going construction clients by £142 million in the last 3 years, building and forward, we undertook prompt and decisive actions to right-size our construction sector revenues as a proportion of Group revenues have operating base. As a result we believe that we are well placed to trade reduced from 80% to 65% over the same period. through market conditions which continue to prove challenging and which we believe will not reach a trough until the autumn of 2009. In The Group’s Equipment businesses continue to provide Speedy with management’s opinion we do not expect construction market growth a platform to penetrate additional areas of the market. We are until 2010. However, our market leading position, strong brand and increasingly active in industrial markets, where we provide site-based growing relationship across a diverse customer base position the service support at large scale facilities such as steelworks and Group well to benefit from consolidation in the market. petrochemical plants. There is ample opportunity to grow our leading, but relatively small, The Group’s businesses continue to see opportunities for expansion and market share, particularly through close alignment with, and the ability cross-selling in areas of activity closely related to the core hire offering to support, the beneficiaries of Government and regulated industry and which enhance the relationship with our larger clients, for example: spending. The Group’s facilities management services increasingly take on In the short-term we will continue to reduce capital outflow, manage greater complexity and, when combined with the other services we down costs and reduce bank debt through strong cash generation. are providing, add value from the client’s perspective. We now offer services including the management of all customer equipment 6. CAPITAL STRuCTuRE AND TREASuRY requirements via consolidated order-desks irrespective of whether CAPITAL STRATEGY Speedy is the equipment provider and the provision of a wider Speedy’s long-term funding is provided through a combination of range of site logistics services such as serviced offices and shareholder funds and bank debt. At 31 March 2009, shareholder temporary on-site hire and training facilities. funds totalled £167.5 million and net debt outstanding was £248.4 Regulatory testing and inspection services and repairs of customers’ million, resulting in gearing of 148.3% (2008: 106.5%). 68% of the own equipment utilising the existing infrastructure and systems of Group’s gross capital employed (shareholders’ funds plus net debt) is the Group. represented by hire fleet assets. The management and maintenance on an outsourced basis (including most recently in the rail sector), of customers’ owned Despite the challenging trading conditions over the last 12 months, asset fleet on the Group’s systems. the decisive action taken by management has ensured that cash continues to be generated. This includes the realisation of £42 million 22 Speedy Hire Plc Annual Report and Accounts 2009 OPERATING AND FINANCIAL REVIEW >IT’S AT TIMES LIKE THIS THAT THE SPEEDY CuLTuRE REALLY SHINES THROuGH // WE’RE PROuD OF THE WAY OuR PEOPLE HAVE RESPONDED TO uNCERTAIN TIMES // THEIR COMMITMENT AND CAN- DO ATTITuDE ARE THE quALITIES WE NEED TO RIDE OuT THE DOWNTuRN. Speedy Hire Plc Annual Report and Accounts 2009 23 of annualised cost saving benefit and significantly reduced capital terms for an amended £300 million facility to June 2012. The amended expenditure, which in the second half of the year ended 31 March facility, in addition to providing for prudent levels of headroom, 2009 was at a level of approximately 59% of the expenditure made in includes quarterly interest, fixed charge, leverage and cash flow cover the first six months of the year. tests which are more appropriate to current market conditions. The amended facility also provides flexibility for Speedy to set dividends HEDGING and bonus payments and manage capital expenditure in line with Speedy’s policy is to hedge a portion of its debt against the risk of business needs. interest rate movements. We aim to have between 40% and 70% of our debt covered by interest rate risk management instruments. As at In consideration of the amendments referred to above, the interest 31 March 2009, Speedy had a number of instruments covering £140 margin above LIBOR under the amended facility ranges from 2% to 4% million of the Group’s debt, with maturity dates of between September depending on the ratio of the Group’s net debt to EBITDA (less net 2009 and July 2011. capital expenditure). Accordingly, the Group is incentivised to manage down its net debt position. CASH GENERATION Speedy is a cash generative business, with operational cash flow Following the first covenant test at the end of June 2009 the Group typically able to support organic growth of approximately 10%. In the anticipates that the margin payable would be at 3%. In order to secure event of a market downturn, the business is able rapidly to redirect the above amendments, a fee of 1.5% was paid to the banks on 31 free cash generation to the reduction of debt. This feature of the March 2009. business model is supported by two distinct elements of Speedy’s supply chain strategy: The above factors, combined with the retention to June 2012 of the term of the existing facility with the same partnership banks, we Whilst retaining competitive terms with suppliers due to its scale, believe represent a positive outcome for Speedy. capital expenditure is structured so as to be subject to short forward order requirements with no minimum volume thresholds. 7. OuR STRATEGY Speedy has ensured sustained investment over several years in the Speedy’s strategy continues to be driven by strong relationships with latest, and therefore fully regulatory compliant, hire fleet. Whilst the customers. Our overall vision is to see Speedy become a world class average fleet age of UK tool and equipment companies is 3.1 years, service provider with the expertise and reach to support our over 60% of Speedy’s fleet is less than 3 years old. Accordingly, customers on a consistent basis wherever they do business. In order Speedy enjoys a further competitive advantage in that its hire fleet for us to reach ‘preferred’ or ‘strategic partner’ status, our customers is more durable and sustainable in the event of a prolonged demand that we provide quality, consistency and added value to their downturn and has more flexibility to allow its hire fleet to age than businesses. Our investment in fleet, our unrivalled operational network competitors without impacting the operational integrity of its in the UK and our expanding range of services are ensuring we are well business and service levels to customers. placed to meet these requirements. Speedy’s cash flow, expressed as a ratio of EBITDA (pre-exceptional The key means by which Speedy seeks to achieve this goal are items) to revenues, remained strong in the year ended 31 March 2009 as follows: at 26.4% (2008: 28.3%) and operating cash flow was resilient at £98.1 million (2008: £102.3 million). To retain strong customer relationships Why: By understanding our customers we have been able to RETuRN ON CAPITAL identify: new products and services to meet their needs; new Return on capital (based on pre-exceptional EBITA) totalled 10.9% in markets where these products are utilised; and expand the year ended 31 March 2009. This compares to 15.2% in the prior geographically with their support. year period. The principal reason for this decline relates to a 22.4% decline in EBITA to £49.7 million. Additionally, although year-end To operate the most modern and comprehensive fleet in the capital employed totalled £415.9 million, a £79.8 million reduction industry over the position at the beginning of the year, the average capital Why: The best fleet is less prone to breakdown, is compliant with employed in the year to 31 March 2009 remained above the average current legislation and a younger fleet gives us more flexibility. for the prior year period. To have an effective national network offering a full range of BANK FuNDING products and services In June 2007, the Group put in place a £325 million, five year bank Why: Our national network ensures our customers have better facility with a group of seven relationship banks which expires in June access to more products and services wherever they work, 2012. In light of the volatility in trading conditions, Speedy announced improving their productivity by reducing their downtime. in its January 2009 trading update that it had commenced discussions with its banking partners to establish more appropriate covenants under its facility. As announced on 1 April 2009, following a detailed review by the banks of the Group’s business, operational model, financial projections and cash flow forecasts, all seven banks agreed 24 Speedy Hire Plc Annual Report and Accounts 2009 OPERATING AND FINANCIAL REVIEW To increase our product and service ranges To maintain product expertise Why: The continuing development of the specialist areas has Why: To ensure that our customers can have confidence in our allowed us to broaden our offer in those areas where we detect product knowledge and can therefore trust us to source and service customer opportunities. It enables our customers to obtain more their hire requirements competitively and professionally with high-quality services from fewer suppliers, while increasing cross- equipment suitable to their project. selling opportunities, thus improving operational flexibility and strengthening our client relationships. To invest in marketing Why: To develop our understanding of the markets in which we To be a leader in service innovation operate and the trends that we see in those markets from a Why: The ability to influence innovation and change increases the customer, supplier or legislative perspective. By understanding our trust of our clients thereby improving our strong client relationships. customers and their markets better we identify new products and We have continued to drive innovation in our industry and are services to add to our offering. We can then position and promote constantly striving to improve our products and services. When our our brand effectively. customers need a solution we want them to think of us first. To employ a large direct sales force Why: We understand the value of having face-to-face contact with our customers, to understand their needs, service them better and It won’t take contracts of provide us with the flexibility to respond to changing demand. Olympian proportions to To be an industry consolidator Why: We see further consolidation opportunities in select areas in ensure we succeed . . . the industry as both likely and desirable, particularly in relation to customer fleets and areas of our equipment business. This Fortunately, we’ve consolidation will have a positive impact on the supply chain, health and safety and quality improvements. already won one. To maintain financial strength OLYMPIC DELIVERY AuTHORITY Why: To ensure that Speedy can continue to invest in the resources Speedy as part of the Construction Site Solutions (“CSS”) necessary to support the ambitions of its customer base. consortium came first in a tendering process with the Olympic Delivery Authority (“ODA”) to provide rental 8. OuR VALuES equipment, building supplies and training to firms working At Speedy, we believe that our sucess has been based on sticking to on the 2012 Olympic and Paralympic Games site in simple principles. We call these the Speedy Spirit: Stratford, East London. Customer First - Always. Coming first in the tender process has enabled us to select the location of our facility within the Park (one of Europe’s One Team, One Speedy. largest construction and engineering projects). Speedy will operate from the North site, supplying the whole park with Keep it Simple, Do it Well, Keep it Safe. our extensive product and services portfolio. The facility is due to be fully operational by early July 2009. Driven by Success & Reward. The bid was structured to ensure that the overall Take a Lead, Find a Better Way. requirements of the ODA were recognised, not just in the provision of quality hire fleet at good commercial terms These principles underpin our ‘enterprise’ culture. They have motivated but also by concentrating on their wider objectives e.g. our people and helped integrate the businesses we have acquired. sustainability, safety, training and legacy. A number of In turn this has helped to sustain our growth. aspects of the Speedy consortium bid were singled out by the ODA team, including the use of sophisticated logistics This approach preserves our solid foundations for future growth as we planning to minimise traffic movement on and into the expand into new markets. site, the use of emission-free electric delivery vehicles, our apprenticeship programme and training academy, access to the latest and most advanced fleet and the provision of site-level health and safety training for operatives. The scale, complexity and importance of this project will bode well for us with every major project we approach in the future. Speedy Hire Plc Annual Report and Accounts 2009 25 Our Corporate Responsibility approach continues to evolve as the Group evolves. Commitments that the Group has always held to our A subsidiary of Scottish people, our communities and our award winning approach to Health and Safety remain undiminished. and Southern Energy, We have placed Corporate Responsibility at the centre of our business, Southern Electric providing added value to our customers, our people and our communities – all of which are clearly linked to business priorities. Contracting saw that During the current tough market conditions this has not changed. Speedy had the power to Our approach is simple – how can we deliver more from less for our make things happen. customers, continue to invest in and develop our people and add value to our communities. In engaging with our stakeholders we are SOuTHERN ELECTRIC CONTRACTING always looking to share learning, improve our performance and Southern Electric Contracting (“SEC”), one of the country’s implement best practice. largest mechanical and electrical contractors, has signed a £6 million sole supplier agreement with Speedy, building For more comprehensive coverage of our approach to Corporate on a successful five-year relationship. Responsibility please visit www.speedyhire.plc.uk where more information can be found and our latest Corporate Responsibility The £306 million turnover company is a division of the Report can be downloaded. Scottish and Southern Energy Group and provides specialist M&E services across a broad range of sectors including Speedy is a member of Business in the Community and FTSE4Good. education, health, manufacturing, housing and defence. 10. GOVERNANCE AND RISK MANAGEMENT It operates from 65 local offices across the country and Speedy will provide nationwide support via its 399 depots, In the year ended 31 March 2009, the Company complied with the supplying a range of tools and equipment including provisions set out in the Combined Code and maintained high generators, site accommodation and powered access. standards of Governance. At the same time we continued to monitor and evaluate all areas of financial and operational risk. Our risk Health and Safety is a key priority for SEC, and the firm has management is independently evaluated. a strong culture of striving for zero accidents. Speedy’s Health and Safety credentials therefore played an Environmental and social risks are monitored and evaluated through important role in securing the deal. our Corporate Responsibility Working Group. Key Performance The two-year contract represents Speedy’s evolving role as Indicators are set on a three year rolling basis and reported on in our an integrated supply chain partner, providing efficient Corporate Responsibility Report and on our website. solutions for complex hire requirements as well as valuable management information. 11. OuR PEOPLE Guiding Principle – To attract, retain, train and develop the best The deal also continues Speedy’s expansion beyond its employees and equip them with the skills and support to reach their traditional construction client base. full potential and attain maximum job satisfaction. Richard Moores, group purchasing manager at SEC, said: This has been a tough year and we are aware that, as we have reduced “Over the past five years, we have been impressed with our cost base to reflect the wider economic downturn, we have seen Speedy’s national coverage, commitment to health and good people leave the business. However, as a business, Speedy has safety, product range and availability. never shied away from taking difficult decisions and this was the only This agreement will provide our sites with consistent high responsible course of action to protect the future of the majority of our standards in equipment supply.” employees in the more challenged economic environment. Our people are our business and we continue to provide the vision and support to reward their efforts. Within the Group People Plan ‘What Good Looks Like’ remains our key training programme, providing clarity 9. DOING IT RIGHT DOING IT RESPONSIBLY ADDING VALuE on ‘what a good job looks like’ and then equipping our people through At Speedy we are committed to the Corporate Responsibility agenda. training and development to achieve this standard and well beyond. Since taking a more structured approach to the whole area of As further assistance for our people in their wider wellbeing we have Corporate Responsibility 4 years ago, we have implemented a also introduced this year an Employee Assistance Programme (EAP), a continuous improvement policy towards achieving our vision to be: confidential advice line for employees to assist them across a range of issues including managing money, staying healthy, and both family “The best company to work for, to do business with, to hire from and and workplace issues. Just launched we will assess its impact over the to invest in”. coming months. 26 Speedy Hire Plc Annual Report and Accounts 2009 OPERATING AND FINANCIAL REVIEW More information on our work with our people can be found in our 14. OuR COMMuNITIES Corporate Responsibility Report. Guiding Principle – To be a positive influence in the communities in which we operate, work closely with our community partners and 12. HEALTH AND SAFETY engage our employees. Guiding Principle – To engender a commitment to quality and safety in every aspect of our business and promote Health and Safety at Through our charities committee Speedy continue to support our site level through our ‘Safety from the Ground up’ communication communities locally, through small donations and support ‘in kind’, process. nationally through partnerships with charities such as the Lighthouse Club and CRASH, and internationally through Habitat for Humanity, Health and Safety is central to the Speedy brand. Managed through where for the first time this year we sent an exclusively Speedy team to our Safety, Health, Environment and Quality (SHEQ) Team we continue support Habitat’s work in Ghana. to prioritise site safety through our on-site toolbox talks and ongoing communication process on major industry issues such as working at We remain committed to our prisoner rehabilitation project providing height regulations, hand arm vibration (HAV), dust, noise and manual training opportunities for 4 HMP Prisons and were also delighted this handling. year to sponsor a Prison Art Competition in conjunction with the Co-operative Group. Internally our main key performance indicator is our accident lost time frequency rate and the constant reduction in this rate over previous Our community investment this year was £350,000. years has been both an excellent reflection on our safety record and helped reduce a hidden cost to our operations with fewer people away More information is available in our Corporate Responsibility Report. from work through injury or illness. 15. FOCuS FOR THE FuTuRE More information on our multiple award winning ‘Safety from the It has been an exceptionally tough year but our business model has Ground Up’ programme and wider Health and Safety performance can proved very resilient and we have also taken the hard decisions that be found in our Corporate Responsibility Report. the severely challenging market conditions have required to protect the business and its future profitability. 13. ENVIRONMENT AND SuSTAINABILITY Guiding Principle – Minimising wherever possible our impact on the We will use these difficult trading times to improve further our business environment and promoting good environmental practices with our model seeking to differentiate our performance, by getting closer to our stakeholders. customers and providing the services and solutions-based approach that we feel continues to provide significant added value to them. Sustainable growth is a key driver for the Group. We believe hire to be intrinsically a sustainable industry which optimises the use of goods The Group continues to invest and evolve. Our core business offering and services, in turn reducing the environmental impacts of our has been augmented with more service based solutions, increasing our customers operations, reducing waste and maximising the principles alignment with our customers. Regular dialogue with our customers of recycling and reuse. continues to inform this process and shape our approach to key industry issues. Regular dialogue with our suppliers continues to meet these Speedy works closely with our customers, our suppliers, and our requirements, raise the bar on product performance and keep the Group people, including our internal Carbon Champions, in addressing what at the leading edge of product development. is a major issue for all businesses. Although we currently fall outside the criteria for the Government’s Carbon Reduction Commitment we We will continue to build on this increasing customer intimacy and are fully aware of the need to reduce our carbon emissions and continue to build on our health and safety and environmental support our customers to do likewise. performance. In turn this will enable us to support our customers in achieving new levels of performance and new sustainability standards New ‘greener’ products, especially in relation to temporary for construction sites, meeting and exceeding customer expectations accommodation and power generation, are already part of our offering, wherever we operate. and increasingly we are supporting our customers in establishing best practice at site level based on a Low Carbon – Low Cost approach. The STEVE CORCORAN JUSTIN READ current economic conditions, if anything, emphasise the cost and CHIEF EXECuTIVE GROuP FINANCE DIRECTOR efficiency benefits which can be derived from adopting such practices. More information is again available in our Corporate Responsibility MIKE McGRATH CLAUDIO VERITIERO Report, including a case study of our work with the Olympic Delivery COMMERCIAL DIRECTOR CHIEF OPERATING OFFICER Authority in relation to 2012 London Olympics site. PATRICK RAWNSLEY COMPANY SECRETARY 26 MAY 2009 Speedy Hire Plc Annual Report and Accounts 2009 27 OPERATING BOARD 01 GREG WOOD 02 DAVID GRAHAM 03 IAN SCAPENS 04 MARTIN KNOTT 05 ANDY CARTER MANAGING DIRECTOR, MANAGING DIRECTOR, FINANCE DIRECTOR, MANAGING DIRECTOR, MANAGING DIRECTOR, NATIONAL ACCOuNTS SPEEDY ASSET SERVICES SPEEDY ASSET SERVICES BuSINESS & CuSTOMER SPEEDY ASSET SERVICES AND HIRE DIRECT TOOLS Aged 35, Ian joined EXCELLENCE EquIPMENT Aged 52, Greg joined Aged 50, David joined Speedy in 2005 as Aged 49, Marton rejoined Aged 43, Andy joined Speedy in June 2003 as Speedy in 2004 as Group Business Development Speedy in 2004 as Speedy in December 1999 National Accounts Sales and Marketing Director (for acquisitions). Operations Director of to form Speedy Power. For Director. Greg has 32 Director and Managing Following the acquisition our Tool Hire division and the previous ten years years’ experience in the Director of Speedy Direct. of Hewden Tools in 2007, was appointed Managing Andy worked for Rentair tool hire industry In July 2006 he was Ian moved to the role of Director in April 2005. Plc, firstly as a Regional previously owning his appointed Managing Integration Director and Martin has worked in the Manager and then as Sales own company, Instant Director of Speedy subsequently became hire industry for over 30 and Marketing Director. Tool Hire. In September London & South East. Finance Director for the years and was one of the Prior to this he was 2006 Greg took on the Previously David worked Engineering businesses first Speedy Depot London region sales additional role of for SGB Youngman in within the Equipment Managers. He worked for representative for Vp Managing Director for various roles including Division. Before joining HSS in various operational PLC and Business Speedy Hire Direct Regional Manager for Speedy, Ian worked as a roles and was appointed Development Manager following the success and London, General Manager Corporate Finance to the HSS Group Board in for Hertz Equipment growth of National of Retail Operations and Adviser for Andersen and 1995, spending seven Rental. Andy was Accounts and the close latterly Sales and Deloitte. years as UK Operations appointed Managing association with the Hire Marketing Director. David Director. Martin was Director (Equipment) in Direct function. was appointed Managing appointed to Managing November 2008. Director (Tools) in Director of Business & November 2008. Customer Excellence in November 2008. 28 Speedy Hire Plc Annual Report and Accounts 2009 DIRECTORS 01 02 03 04 05 06 It will come as no surprise that progress in terms of Board effectiveness James Morley joined the Board on 2 April 2009 as a Non-Executive has, this year, been muted. My aspirations have had to take account of Director and chairs the Audit Committee. James is a Chartered unprecedented circumstances, which have necessitated different Accountant with 25 years’ experience as a board member at both listed priorities. Nevertheless, I believe that a key objective for the year, and private companies. He is currently a Non-Executive Director at outlined in this report a year ago, was to ensure that the new members Clarkson plc, Costain Group plc, The Innovation Group plc and WS of the Board settled into their roles. This has been achieved, with each Atkins plc. James brings a wealth of experience which will contribute making a significant contribution to the debate and gives me comfort to Board debate and we are all looking forward to working with him. that we have the appropriate skills in the Boardroom. The Board structure is therefore once again complete, with an Once again, our internal evaluation used a quantitive system and we Executive team of four, complemented with four Non-Executive aim to build on and develop the areas identified for improvement, Directors following David Galloway’s retirement and myself as following the external evaluation carried out three years ago. Chairman. There is an impressive range of skills and experience in the Boardroom, which gives me confidence that we will manage through The areas addressed include: the difficult times which still lie ahead of us and ultimately deliver our long-term objectives. The effectiveness of the Board in the testing and development of strategy including an evaluation of the Company’s resources and Finally, I would like to thank our Company Secretary, Patrick Rawnsley, advisers. for his help and wise counsel over the past two years and wish him An examination of the Board’s governance and processes, including every success as he moves on to an exciting new role in the business its structure and the skills and experiences of its members, together heading up Branded & Advisory Services. I welcome Suzana with Board relationships. This also includes an evaluation of the Koncarevic, who will replace Patrick as our Company Secretary on 22 Board committees, risk management and resource planning. July 2009. Suzana has joined us from United Utilities Group Plc. An evaluation of the meetings themselves to ensure that there is appropriate reporting of key information, full and open debate, An effective, well-functioning Board is an essential element of a proper resolution of issues and that an appropriate balance is struck successful business and the input and support of my colleagues is between strategic and operational matters. central to that. As always, it is an honour to chair it. An examination of the effectiveness of the communication of the decisions of the Board, in terms of the strategy which has been set DAVID WALLIS and the safeguarding of the ethics and core values of the business. CHAIRMAN The effectiveness of the Board in securing the long-term interests of 26 MAY 2009 the business in the interests of its shareholders, employees and wider stakeholder group. Our score was 76%, compared to 81% last year, which was unsurprising given the many new issues to be dealt with. There has been no change to the composition of the Board over the course of the financial year, with the exception of Neil O’Brien, who stepped down as Group Finance Director on 1 April 2008. David Galloway will retire on 31 May 2009, having served eight years on the Board. David has chaired the Audit Committee throughout that time and, in my view, has proved to be exemplary, both as a Non-Executive Director and Chair of the Audit Committee. Always giving freely of his time, through spending time in the accounting and IT functions, he has influenced and helped to shape the financial structure and controls of the business, through a period of significant growth and has had huge input to the strategic debate. The Board is immensely grateful for his contribution and we all wish him well for the future. Speedy Hire Plc Annual Report and Accounts 2009 29 Audit Committee: James Morley (Chair), Ishbel Macpherson, Peter Atkinson, Michael Averill, David Galloway Nomination Committee: David Wallis (Chair), David Galloway, Ishbel Macpherson, Peter Atkinson, James Morley, Michael Averill Remuneration Committee: Ishbel Macpherson (Chair), James Morley, Peter Atkinson, Michael Averill, David Galloway 07 08 09 10 11 01Wallis joined the Board in June 2000 and was appointed as David DAVID WILLIAM WALLIS NON-EXECuTIVE CHAIRMAN 06 Rawnsley, aged 44, joined the Company in January 2007. PATRICK JAMES RAWNSLEY COMPANY SECRETARY Patrick Chairman in February 2001. He is also Chairman of Directorbank Group Patrick was formerly the Company Secretary of Reg Vardy plc and prior Limited and has previously held the position of Chairman or Non- to that was a partner at Eversheds LLP. Executive Director in a number of public and private companies. His executive career included nine years as Group Managing Director of Merchant Retail Group plc. 07Macpherson, aged 48, joined the Board following the AGM in Ishbel ISHBEL JEAN STEWART MACPHERSON NON-EXECuTIVE DIRECTOR – SENIOR INDEPENDENT DIRECTOR 2007. Ishbel is an investment banker of over 20 years’ standing who has 02Corcoran, aged 48, was appointed Chief Executive of Speedy Hire Steve STEVEN JAMES CORCORAN CHIEF EXECuTIVE specialised in UK mid-market corporate finance. Ishbel was Head of UK Emerging Companies Corporate Finance at Dresdner Kleinwort Plc in April 2005 and has over 25 years’ experience in the hire industry. Wasserstein from 1999 to 2005 and is presently a Non-Executive Director Having joined the Company in 1987 when the business had 13 outlets, of MITIE Group plc, GAME Group plc, Hydrogen Group plc and Dignity he has been progressively promoted “through the ranks”. Steve was plc. Ishbel is also the Senior Independent Director. appointed to the role of Chief Operating Officer in April 2001 and to his present role 4 years later. 08Morley, aged 60, joined the Board on 2 April 2009 and became James JAMES MORLEY NON-EXECuTIVE DIRECTOR 03Read, aged 48, joined the Board in April 2008. Prior to joining Justin JUSTIN RICHARD READ GROuP FINANCE DIRECTOR chair of the Audit Committee on 8 May 2009. He is a Chartered Accountant with some 25 years of experience as a board member at Speedy, he worked for 13 years at Hanson PLC, the international building both listed and private companies. Most recently, James was Chief materials company. At the time of leaving Hanson, he held the dual roles Operating Officer of Primary Insurance Group. He currently holds Non- of Managing Director, Hanson Continental Europe and Head of Corporate Executive Directorships at Clarkson plc, Costain Group plc, The Development. Previously he held a number of other senior roles within Innovation Group plc and WS Atkins plc. Between 1994 and 2008 James Hanson, including Deputy Finance Director, Head of Risk Management was also a Non-Executive Director of the Bankers Investment Trust. and Treasury, and Group Treasurer. He had also been responsible for Hanson’s corporate communications and investor relations. 09Atkinson, aged 52, joined the Board in June 2005. Peter is Peter PETER DUNCAN ATKINSON NON-EXECuTIVE DIRECTOR 04 Veritiero, aged 35, joined the Board in 2007 having been Claudio CLAUDIO VERITIERO CHIEF OPERATING OFFICER currently Chief Executive of Macfarlane Group plc, a position which he has held since October 2003. Prior to this he held a number of senior employed by Speedy since 2004. Previous roles within the Group positions within Brambles Industries plc, GKN plc, SC Johnson Wax and include Group Business Development Director with responsibility for Procter & Gamble. acquisitions and strategic development and Managing Director of Speedy Lifting. Prior to joining Speedy, he worked for eight years with the Investment Banking arm of Rothschild where he was involved in a 10 Averill, aged 58, held the position of Group Chief Executive of MICHAEL CHARLES EDWARD AVERILL NON-EXECuTIVE DIRECTOR Michael lead advisory role on a broad range of mergers and acquisitions, fund- raisings and strategic consultancy. Shanks Group plc for 13 years until September 2007. He is a Non- Executive Director of Care UK plc and chairman of both Enviroco Limited and JBM International Limited. He has also been a director of 05McGrath, aged 42, became Commercial Director in March 2006, Mike G MICHAEL ANDREW McGRATH COMMERCIAL DIRECTOR the Waste and Resources Action Programme (WRAP) for nearly 9 years. having served as Company Secretary on a part-time basis since 2001. He is responsible for strategic projects across the Group, including 11 Galloway, aged 63, joined the Board in April 2001 and will step David DAVID ALLISTAIR GALLOWAY NON-EXECuTIVE DIRECTOR developing strategic partnering arrangements with the Group’s largest down on 31 May 2009. He stepped down as Chair of the Audit customers. Mike was formerly a partner at Pinsent Masons, the Group’s Committee on 8 May 2009. He has extensive experience of support solicitors, and has advised Speedy in relation to the majority of its services and hire and leasing businesses and was a Director of RAC plc. acquisitions over the last 16 years. He is currently Non-Executive Chairman of Accident Exchange plc and a Non-Executive Director of May Gurney Integrated Services plc. 30 Speedy Hire Plc Annual Report and Accounts 2009 DIRECTORS’ REPORT The Directors present their report and the audited consolidated BuY-BACK OF SHARES accounts for the year ended 31 March 2009. At the AGM held on 15 July 2008, a special resolution was passed to authorise the Company to make purchases on the London Stock REVIEW OF THE BuSINESS AND FuTuRE DEVELOPMENTS Exchange of up to 10% of its ordinary shares. As at 26 May 2009, no A review of the progress made by the Group during the year, together shares had been purchased under this authority. Shareholders will with the business review that is required to be disclosed pursuant to be requested to renew this authority at the forthcoming AGM in the Companies Act 1985 (Operating and Financial Review and July 2009. Directors Report) Regulations 2005, are contained within this report, the Chairman’s statement on pages 12 and 13, and the Operating and EMPLOYMENT OF DISABLED PERSONS Financial Review on pages 14 to 26 which should be read as part of The Group recognises its responsibilities towards disabled persons and this report. gives full and fair consideration to applicants in positions suited to their own particular abilities where appropriate openings exist. Where RESuLTS AND DIVIDENDS employees become disabled in the course of their employment, every The consolidated loss after taxation for the year was £54.6 million effort is made to provide them with continuing employment. (2008: profit £24.4 million). This is after a taxation credit of £16.0 million (2008: charge £6.1 million) representing an effective rate of 27.6% EquAL OPPORTuNITIES (2008: 22.5%) pre exceptional items. An interim dividend of 6.4 pence In the recruitment of employees and their subsequent career per share was paid during the year. The Directors propose that a final development, individuals are considered having regard to their dividend of 6.4 pence per share be paid, making a total dividend aptitudes and abilities irrespective of race, sex, marital status, age, distribution for the year of 12.8 pence per share (2008: 19.8 pence). religion or disability. POST-BALANCE SHEET EVENTS EMPLOYEE INVOLVEMENT There have been no significant events since the balance sheet date The Group aims to achieve a shared commitment from all employees which would have a material effect on the financial statements. to the success of the businesses in which they are employed. The Board believes in the financial effectiveness of incentive bonuses. It is ISSuE OF SHARES the Group’s policy that every employee should be in some form of On 19 June 2008, the Company issued 51,158 ordinary shares of incentive scheme as soon as possible after joining the Group. Details of 5 pence each to the vendors of Waterford Hire Services Limited as such incentive schemes, including annual bonus arrangements for deferred consideration under the terms of the acquisition announced Executive Directors and senior executives, are summarised in the on 30 July 2007. Remuneration Committee’s report on page 47. PAYMENTS TO SuPPLIERS It is the Group’s policy to make suppliers aware of the terms and conditions upon which the Group will trade with them and to abide by those terms. Codes or standards on payment practice are followed where appropriate. The Group had 87 days of purchases outstanding at the end of the financial year (Company: 41 days). FINANCIAL INSTRuMENTS The Group holds and uses financial instruments to finance its operations and manage its interest rate and liquidity risks. Full details of the Group’s arrangements are contained in note 17 of the financial statements. Speedy Hire Plc Annual Report and Accounts 2009 31 GOING CONCERN The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the After making enquiries, the Directors have a reasonable expectation Operating and Financial Review on pages 14 to 26. that the Company and Group have adequate resources to continue to operate for the foreseeable future. Accordingly, they continue to adopt POLITICAL AND CHARITABLE DONATIONS the going concern basis in preparing the Annual Report and financial statements. The Group made charitable donations amounting to £76,000 (2008: £68,000) during the year. Company charitable donations were £63,000 As highlighted in Note 17 to the financial statements the Group meets (2008: £21,000). In accordance with the policy of the Group, no political its day to day working capital requirements through operating cash donations were made during the year. flows, with borrowings in place to fund the acquisition of hire fleet. The ability of the Group to continue as a going concern is reliant upon the SuBSTANTIAL SHAREHOLDERS continued availability of the Group’s loan facilities. Following As at 26 May 2009, the Company had been notified, in accordance with discussions with the Group’s banks and a detailed review by the banks the Disclosure and Transparency Rules, of the following holders of and their advisers of the Group’s business, operational plan, and shares with 3% or more of the total voting rights in the issued share financial projections an amended £300 million committed facility capital of the Company: extending to June 2012 was agreed on 31 March 2009. Based on these projections, and taking account of possible changes in trading performance, the Group expects to be able to operate within the terms of its facility agreement. The Group had £40 million of undrawn committed facilities and £11 million of cash at 31 March 2009. Percentage of Name voting rights Schroder Investment Management 18.50% Barclays PLC and its subsidiaries 6.69% AXA SA and its subsidiaries 6.43% Credit Suisse Asset Management Limited 5.94% Black Rock Inc. 4.47% Legal & General Group Plc 4.13% Oberbank 3.77% 32 Speedy Hire Plc Annual Report and Accounts 2009 DIRECTORS’ REPORT DIRECTORS The Group and Parent Company financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial The Directors who served during the year and the interests of Directors position of the Group and the Parent Company and the performance in the share capital of the Company are set out on pages 29 and 53. for that period; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to David Wallis, Mike McGrath and Steve Corcoran are retiring by rotation financial statements giving a true and fair view are references to their at the AGM and are offering themselves for re-election. James Morley, achieving a fair presentation. having been appointed since the date of the last AGM, offers himself for election in accordance with the Company’s Articles of Association. In preparing each of the Group and Parent Company financial statements, the Directors are required to: The remaining Non-Executive members of the Board have undertaken a review of the Chairman’s performance and are satisfied that David Wallis select suitable accounting policies and then apply them performs to the very highest standard as Chairman and that his wide consistently; experience of business and finance continue to be of great value to the make judgements and estimates that are reasonable and prudent; Board and the Company. The Board believes that David has played a vital state whether they have been prepared in accordance with IFRSs as role in overseeing the growth of the Company and has been responsible adopted by the EU; and for the strengthening and development of the Board into the strong and prepare the financial statements on the going concern basis unless effective team it is today. David remains an important sounding board it is inappropriate to presume that the Group and the Parent for the executive team, providing trust and support whilst upholding Company will continue in business. high standards of governance through constructive challenge of strategy and operational developments. The commitment and The Directors are responsible for keeping proper accounting records enthusiasm he brings to the role of Chairman is undiminished and the that disclose with reasonable accuracy at any time the financial remaining members of the Board unanimously support his re-election. position of the Group and Parent Company and enable them to ensure that these financial statements comply with the Companies Act 1985. The Board approved the appointment to the Board of James Morley on They have a general responsibility for taking such steps as are 2 April 2009 who has succeeded David Galloway as Chair of the Audit reasonably open to them to safeguard the assets of the Group and to Committee from 8 May 2009. prevent and detect fraud and other irregularities. Neil O’Brien retired from the Board on 31 May 2008. Under applicable laws and regulations, the Directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and No Director had any interest, either during or at the end of the year, in the Corporate Governance statement that comply with that law and any disclosable contracts or arrangements, other than a contract of those regulations. service, with the Company or any subsidiary company. No Director had any interest in the shares of any subsidiary company during the year. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. DISCLOSuRE OF INFORMATION TO AuDITORS Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant STATEMENT OF DIRECTORS’ RESONSIBILITIES PuRSuANT TO audit information of which the Company’s auditors are unaware and each Director has taken all the steps that he ought to have taken as a DISCLOSuRE AND TRANSPARENCY RuLES 4.1.12 Director to make himself aware of any relevant audit information and The Directors confirm that, to the best of their knowledge: to establish that the Company’s auditors are aware of that information. (i) The financial statements, prepared in accordance with applicable STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE set of accounting standards, give a true and fair view of the assets, ANNuAL REPORT AND THE FINANCIAL STATEMENTS liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; The Directors are responsible for preparing the Annual Report and the and Group and Parent Company financial statements in accordance with (ii) The Directors Report, Chairman’s letter and Operating and Financial applicable law and regulations. Review, include a fair review of the development and performance of the business and the position of the Company and the Company law requires the Directors to prepare Group and Parent undertakings included in the consolidation taken as a whole, Company financial statements for each financial year. Under that law together with a description of the principal risks and uncertainties they are required to prepare the Group financial statements in that they face. accordance with IFRSs as adopted by the EU and have elected to prepare the Parent Company financial statements on the same basis. The names and functions of the Directors of the Company are set out on pages 28 and 29 of the Annual Report. Speedy Hire Plc Annual Report and Accounts 2009 33 AuDITORS Each Director must also stand for re-election at the third AGM following their last election or re-election. If the number of Directors KPMG Audit Plc were reappointed at the AGM of the Company held on standing for re-election is less than one-third of the current Board 15 July 2008 and their appointment expires at the conclusion of this (which excludes any Directors appointed by the Board who are year’s AGM. KPMG Audit Plc offer themselves, and are recommended by standing for election for the first time) then additional Directors must the Board, for reappointment under the provisions of Section 489 of the also stand for re-election in order that at least one-third is standing. Companies Act 2006. ARTICLES OF ASSOCIATION TAKEOVER DIRECTIVE INFORMATION The Company’s articles of association may be amended by special Where not provided elsewhere in this report, the additional information resolution of the Company’s shareholders. required for shareholders as a result of the implementation of the Takeover Directive into English law is set out below. DIRECTORS’ POWERS At the AGM to be held on 21 July 2009, shareholders will be asked to SHARE CAPITAL renew the Directors’ power to allot shares and buy back shares in the As at 31 March 2009, the Company’s share capital comprised a single Company and to renew the disapplication of pre-emption rights. class of ordinary shares of 5 pence each. As at 31 March 2009 the authorised share capital of the Company was £3,000,000 comprising CHANGE OF CONTROL SIGNIFICANT AGREEMENTS 60,000,000 ordinary shares of 5 pence each, and the issued share There are no significant agreements to which the Company is a party capital was £2,548,105 comprising 50,962,100 ordinary shares of 5 that may take effect, alter or terminate upon a change of control pence each. There are no special rights or obligations attaching to the following a takeover bid other than in relation to (i) employee share ordinary shares. schemes and (ii) the Company’s borrowings, which would become repayable on a takeover being completed. RESTRICTIONS ON SHARE TRANSFERS The Company’s articles of association provide that the Company may Shares in the Company are held in the Speedy Hire Employee Benefits refuse to transfer shares in the following customary circumstances: Trust for the purpose of satisfying awards made under the Company’s Performance Plan and Co-Investment Plan. Unless otherwise directed by where the share is not a fully paid share; the Company, the Trustees of the Trust abstain from voting on any shares where the share transfer has not been duly stamped with the held in the Trust in respect of which the beneficial interest has not vested correct amount of stamp duty; in any beneficiary. In relation to shares held in the Trust where the where the transfer is in favour of more than four joint transferees; beneficial interest has vested in a beneficiary, the beneficiary can direct where the share is a certificated share and is not accompanied by the Trustees how to vote. the relevant share certificate(s) and such other evidence as the COMPENSATION FOR LOSS OF OFFICE Board may reasonably require to prove the title of the transferor; or There are no agreements between the Company and its Directors or in certain circumstances where the shareholder in question has been employees providing for compensation for loss office or employment issued with a notice under section 793 of the Companies Act 2006. (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid. These restrictions are in addition to any which are applicable to all UK listed companies imposed by law or regulation. DIRECTORS’ INDEMNITIES SHARES WITH SPECIAL RIGHTS As permitted by the Companies Act 2006, the Company has indemnified There are no shares in the Company with special rights with regard to each of the Directors who held office during the year and the Directors control of the Company. who have been appointed since the end of the financial year. RESTRICTIONS ON VOTING RIGHTS ANNuAL GENERAL MEETING The notice of the AGM specifies deadlines for exercising voting rights The Company’s AGM will be held at Mere Court Hotel and Conference and appointing a proxy or proxies to vote in relation to resolutions to Centre, Warrington Road, Mere, Knutsford, Cheshire, WA16 0RW at be passed at the AGM. All proxy votes are counted and the numbers 11 am on Tuesday 21 July 2009. A formal notice of meeting, an for, against or withheld in relation to each resolution are announced at explanatory circular and a form of proxy have each been sent the AGM and published on the Company’s website after the meeting. separately to shareholders. AGREEMENTS WHICH MAY RESuLT IN RESTRICTIONS ON SHARE TRANSFERS By order of the Board The Company is not aware of any agreements between shareholders which may result in restrictions on the transfer of securities and/or on voting rights. PATRICK RAWNSLEY COMPANY SECRETARY 26 MAY 2009 APPOINTMENT AND REPLACEMENT OF DIRECTORS The Company’s articles of association provide that all Directors must stand for election at the first AGM after having been appointed by the Board. 34 Speedy Hire Plc Annual Report and Accounts 2009 CORPORATE GOVERNANCE HIGHLIGHTS brief exception of the note made in the Annual Report 2008, which explains that subsequent to the end of the year, and prior to the Continued full compliance with Combined Code appointment of Michael Averill on 1 May 2008, the Board was for one Risk management input from Marsh month non-compliant in terms of balance between Executive and Ongoing review of the effectiveness of the Board’s operation Non-Executive Directors. This was attributable to the Group’s desire to Combined Code Compliance Statement, including terms of keep the services of Neil O’Brien to ensure a period of orderly reference of the Board and each Committee, available on the handover to the incoming Group Finance Director, Justin Read. The Company’s website Board believes the benefit of retaining Neil O’Brien’s services After the end of the financial year, appointment of James Morley as outweighed this short period of non-compliance under the Code. a Non-Executive Director on 2 April 2009 and with effect from Since the appointment of Michael Averill and the retirement of Neil 8 May 2009 appointment of James Morley as Chair of the Audit O’Brien, the Company is once again fully compliant. Committee After the end of the financial year, retirement of David Galloway as DIRECTORS Non- Executive Director on 31 May 2009 THE BOARD The Board is committed to maintaining high standards of Corporate The Board normally meets at least ten times per annum for scheduled Governance. The Board first reported its compliance with the new Board meetings including a two day off-site meeting solely to discuss Combined Code in 2004 and since then has continued in its efforts to strategy. In the year ended 31 March 2009, the Board met 9 times due develop further its approach to corporate governance and the to one meeting falling just before the year end. The Board also meets effective management of risk in the context of a rapidly growing as required on an ad hoc basis to deal with urgent business, including business. the consideration and approval of transactions. The table below lists the number of Board Meetings, Board Committee Meetings and Accordingly, the following paragraphs together with the flow diagram Directors’ attendance during the year. on page 35 explain how the Company has applied the principles of good governance and the code of best practice set out in the current The Board has approved a schedule of matters reserved for decision by edition of the Combined Code. it. This schedule, which forms part of a Combined Code Compliance Statement formally adopted by the Board, is available for inspection at Throughout the year ended 31 March 2009, the Company has been in the Company’s registered office and on the Company’s website. compliance with the provisions set out in the Combined Code with the Audit Remuneration Nomination Plc Board Committee Committee Committee David Wallis 9 3* – 1 David Galloway (to retire on 31 May 2009) 9 3 2 1 Steve Corcoran 9 2* – 1 Neil O’Brien (resigned 31 May 2008) 3 – – – Peter Atkinson 9 3 2 1 Mike McGrath 9 – – – Ishbel Macpherson 9 3 2 1 Claudio Veritiero 9 – – – Justin Read (appointed 1 April 2008) 9 3* – – Michael Averill (appointed 1 May 2008) 8 3 2 1 * by invitation James Morley joined on 2 April 2009 and accordingly attended no meetings during the year. Speedy Hire Plc Annual Report and Accounts 2009 35 CORPORATE GOVERNANCE Corporate governance structure The Combined Code Compliance Statement was last revised on CORPORATE GOVERNANCE STRuCTuRE 22 May 2008. The matters reserved for specific approval by the Board can be subdivided into a number of key areas including but not Committees limited to: Financial reporting (including the approval of interim and final Audit Remuneration Nomination financial statements, interim management statements and dividends). The Group’s finance, banking and capital structure arrangements. Group strategy and transactions. External Stock Exchange/Listing Authority matters (including the issue of evaluation Group Board of projects shares, the approval of circulars and communications to the market). (consultants) Approval of the policies and framework in relation to remuneration across the Group (following appropriate recommendations from the Remuneration Committee). Executive Management Team Strategic Projects Group Approval of the Group’s risk management and control framework • Executive Management Team • Chief Executive (following appropriate recommendations from the Audit • Finance Director • Project Team Committee). • Chief Operating Oﬃcer e.g. The constitution of the Board itself, including its various • Commercial Director • Business processes/IT • Divisional heads • Sales/customers Committees, and succession planning (following appropriate • Group sales/marketing • HR/people recommendations from the Nomination Committee). Director of Environment, • Asset management Safety and Health • Property Approving the Group’s policies in relation to, inter alia, the environment, Health & Safety and Corporate Responsibility. Project teams drive through Operating businesses projects into the businesses Matters requiring Board and Committee approval are generally the (see separate structure diagram in the OFR, page 15) subject of a proposal by the Executive Directors submitted to the Board, together with supporting information, as part of the Board or Committee papers circulated prior to the relevant meeting. The implementation of matters approved by the Board, particularly in The posts of Chairman and Chief Executive are held by David Wallis relation to matters such as significant acquisitions or other material and Steve Corcoran respectively. In addition to the Chairman, the projects, sometimes includes the establishment of a sub-committee Board includes four independent Non-Executive Directors, Ishbel comprising at least one Non-Executive Director. Risk management process Macpherson, Peter Atkinson, Michael Averill and James Morley (from 2 April 2009) (David Galloway is also a Non-Executive Director until his regular reporting resignation with effect from 31 May 2009). Together they bring a strong and independent Non-Executive element to the Board. The Senior Independent Director is Ishbel Macpherson. risk working Group Morley Management team The Audit Committee is chaired by James executivewho replaced David • identify and evaluate risksMay 2009. Its other members are sponsor Macpherson, Galloway on 8 • Board Ishbel for each • develop and monitor identiﬁed area of risk Peter Atkinson and Michael Averill. In accordance with the Smith action plans • liaison with line management Guidance • on Audit Committees, the Chairman, David Wallis, is not a line management responsibility member of the Audit Committee. Quarterly review of risk register and trends in changes in risk independent evaluation (Marsh) Group Board • evaluation of risk independent • review of risk review management plans • review of progress audit committee against plans oversee process annual reporting Keep it simple, do it well! 36 Speedy Hire Plc Annual Report and Accounts 2009 CORPORATE GOVERNANCE The Remuneration Committee is chaired by Ishbel Macpherson. Its CHAIRMAN AND CHIEF EXECuTIVE other members are Peter Atkinson, Michael Averill and James Morley. A statement as to the division of the responsibilities of the Chairman and Chief Executive is included in the Combined Code Compliance The Nomination Committee comprises the four Non-Executive Statement formally adopted by the Board referred to above. The Directors and the Chairman, and is chaired by David Wallis. Board considers that the Chairman on his appointment met the independence criteria set out in paragraph A.3.1 of the Combined The Chairman and other Non-Executive Directors meet at least twice a Code. It is the policy of the Board that the Chief Executive should not year without the Executive Directors present. In addition, the Chairman go on to become Chairman. regularly briefs the other Non-Executive Directors on relevant developments regarding the Company and Group as necessary. The BOARD BALANCE AND INDEPENDENCE Senior Independent Director, Ishbel Macpherson, and the other Non- Currently there are, in addition to the Chairman, four Non-Executive Executive Directors meet at least annually without the Chairman Directors on the Board out of a total of nine Directors (David Galloway present to appraise the Chairman’s performance as part of the overall is also a Non-Executive Director until his resignation with effect from Board annual appraisal process. 31 May 2009) and their respective experience, details of which are set out on page 29, clearly indicates that they are of sufficient calibre and The minutes of all meetings of the Board and each Committee are number for their views to carry appropriate weight in the Board’s taken by the Company Secretary. In addition to constituting a record of decisions. The Senior Independent Director, Ishbel Macpherson, is decisions taken, the minutes reflect questions raised by the Directors available to shareholders if they have concerns which contact through relating to the Company’s businesses and, in particular, issues raised the normal channels of Chief Executive and Chairman or Group from the monthly reports included in the Board or Committee papers Finance Director fail to resolve or for which such contact is circulated prior to the relevant meeting. Any unresolved concerns are inappropriate. recorded in the minutes. The Board considers that all of the Non-Executive Directors are On resignation, concerns (if any) raised by an outgoing Non-Executive independent, on the basis of the criteria specified in paragraph A.3.1 of Director are circulated by the Chairman to the remaining members of the Combined Code and generally, and are free from any business or the Board. other relationship which could materially interfere with the exercise of their independent judgement. Appropriate Directors’ and Officers’ insurance cover is arranged and maintained via the Company’s insurance brokers, Marsh, and its terms Four members of the Board are also Non-Executive Directors of are reviewed annually. companies which are customers of or suppliers to the Group. David Galloway is a Non-Executive Director of May Gurney Integrated The Companies Act 2006 allows Directors of public companies to Services plc, a customer of the Group. Ishbel Macpherson is a Non- authorise conflicts and potential conflicts of interest of Directors where Executive Director of MITIE Group plc, which is both a customer, of and the Articles of Association contain a provision to that effect. At the a supplier to the Group. David Wallis is Non-Executive Chairman of 2008 AGM, shareholders approved amendments to the Articles of Directorbank Group Ltd, which is a supplier to the Group. James Association giving the Board authority to authorise matters which may Morley (who was appointed after the end of the financial year) is a result in the Directors breaching their duty to avoid a conflict of Non-Executive Director of Costain Group plc and W S Atkins plc which interest. Directors who have an interest in matters under discussion at are both customers of the Group. a Board meeting must declare that interest and abstain from voting. Only Directors who have no interest in the matter being considered The Group’s trading with each of these companies is conducted are able to approve a conflict of interest and, in taking that decision entirely on arm’s length terms and in the ordinary and normal course the Directors must act in a way they consider, in good faith, would be of the Group’s business. Additionally, the Board considers that, in each most likely to promote the success of the Company. The Directors are case, the sums involved are de minimus. These potential conflicts of able to impose limits or conditions when giving authorisation if they interest have been approved by the Board in accordance with previous feel this is appropriate. Any conflicts considered by the Board and any Board procedures and also under the new procedures established authorisations given will be recorded in the Board minutes and in the under the Companies Act 2006. In order to ensure that there can be no register of conflicts which will be reviewed annually by the Board. The possible suggestion of a conflict of interest, it has been resolved by the Board considers that its procedures to approve conflicts of interest and Board that, in the event that the Board should ever be required to potential conflicts of interest are operating effectively. discuss or make decisions in relation to the Group’s relationships with these companies, the affected Directors would not take part in, or receive any material information in relation to those discussions. None of these Directors has been involved in any commercial negotiations between the Group and the other companies. Speedy Hire Plc Annual Report and Accounts 2009 37 APPOINTMENTS TO THE BOARD The Company makes available a business coach to help Executive The Board has established a Nomination Committee. Its terms of Directors with their overall development as business leaders. reference are also included in the Combined Code Compliance Statement referred to above. The Committee meets formally as All the Non-Executive Directors have, during the course of the year, necessary, but at least once a year and met once during this financial attended briefings and seminars relevant to their role, including year. The principal functions of the Nomination Committee are to updates on best practice in audit and remuneration issues and consider and review the structure and composition of the Board and economic affairs in general, as well as bringing knowledge and membership of Board Committees. It also considers candidates for information gathered from their other business interests. Board nomination at both Plc and operating level, including job description, re-election to the Board for those candidates retiring by The Chairman and the Company Secretary meet on a regular basis to rotation and succession planning generally. A specification for the role discuss corporate governance and other issues including, inter alia, of Chairman, including anticipated time commitment, is included as information flows, induction and training programmes for Directors part of the written statement of division of responsibilities between and operational management. Chairman and Chief Executive which was revised and updated in May 2008. Details of the Chairman’s other material commitments are set Procedures are in place to enable Directors to take independent out on page 29 and are disclosed to the Board in advance and professional advice, if necessary, at the Company’s expense, in the included in a register of the same maintained by the Company furtherance of their duties. The procedure to enable such advice to be Secretary. obtained is included in the Company’s Combined Code Compliance Statement. The terms and conditions of appointment of all the Non-Executive Directors, including those of the Chairman, are available for inspection All Directors have access to the advice and services of the Company at the Company’s registered office during normal business hours. Each Secretary, whose role is to ensure that all procedures are followed and letter of appointment specifies the anticipated level of time that applicable rules and regulations are complied with. The removal commitment including, where relevant, additional responsibilities of the Company Secretary is a matter specifically reserved for decision derived from involvement with the Audit, Remuneration or by the Board. Nomination Committees. Details of other material commitments are disclosed to the Board and a register of the same maintained by the PERFORMANCE EVALuATION Company Secretary. The Chairman appraises all Board members annually. This takes the form of a review of the degree of success in achieving objectives set for None of the Directors is a Non-Executive Director or Chairman of a the year and agreeing areas for improvement going forward. During FTSE 100 company. the financial year ended 31 March 2006, the Chairman and Company Secretary had engaged the services of specialist performance A more detailed summary of the work of the Nomination Committee consultants, Lintstock, to carry out a detailed independent review of during the year is contained in the separate report of the Committee the Board’s processes and procedures, and in the past two years the on page 58. Chairman has undertaken an internal review of the Board’s processes and procedures. The results of the exercise carried out this past year INFORMATION AND PROFESSIONAL DEVELOPMENT are referred to in the Directors’ section on page 28. Before each scheduled Board meeting, all Directors receive appropriate information regarding the Group comprising a financial report and briefings from senior executives. The Chief Executive also briefs Directors on results, key issues and strategy. During Board Meetings, the Non-Executives regularly make further enquiries of the Executive Directors and seek further information which is provided either at the relevant meeting or subsequently. A monthly information pack is compiled on market data, including information and activity in relation to competitors and the construction industry generally. This information is drawn from a number of respected sources and provides a current, constantly updated summary of trends in the Group’s market. The Board offers appropriate training to any Director whose appointment to the Board is the first appointment of that Director to the Board of a listed company. The Board also recognises the importance of ongoing training and education, particularly regarding new laws and regulations which relate to or affect the Group. Such training and education is obtained by the Directors individually through the Company or through other companies of which they are Directors. 38 Speedy Hire Plc Annual Report and Accounts 2009 CORPORATE GOVERNANCE RE-ELECTION PROCEDuRE Under the Company’s Articles of Association, all Directors are subject to The Board has constituted a Remuneration Committee which met two election by shareholders at the first AGM following appointment and all times during the year. Its terms of reference are included in the Directors are subject to retirement by rotation provisions requiring re- Combined Code Compliance Statement and are fully compatible with election at intervals of no more than three years. Sufficient biographical the provisions of paragraph B.2.1 of the Combined Code. The details of all the Directors, including those subject to election or re- Remuneration Committee consists of the Non-Executive Directors, election, are included in this Report in order to enable shareholders to excluding the Chairman, who are independent of management and take an informed decision on any re-election resolution. The letters of free from any business or other relationship which could materially appointment of each of the Non-Executive Directors and the Chairman interfere with the exercise of their independent judgement. The Chief confirm that appointments are for specified terms and that Executive regularly attends by invitation but is not present for reappointment is not automatic. Peter Atkinson commenced a second discussions relating to his own remuneration. The Remuneration three year term in June 2008. Ishbel Macpherson and Michael Averill Committee has appointed HNBS to advise it in relation to the design of commenced their first three year terms in July 2007 and May 2008 appropriate Executive remuneration structures. HNBS have no other respectively. James Morley commenced his first three year term on connection with the Company. 2 April 2009. The appointment of the Chairman has been renewed for a further one year term to 31 March 2010. The responsibilities of the Remuneration Committee include setting remuneration policy, ensuring that remuneration (including pension DIRECTORS’ REMuNERATION rights and compensation payments) and the terms of service of the THE LEVEL AND MAKE-uP OF REMuNERATION Executive Directors, the Chairman and the tier of operating The performance-related elements of the remuneration of the management immediately below Board level are appropriate and that Executive Directors form a significant proportion of their total they are fairly rewarded for the contribution which they make to the remuneration packages. The performance-related elements of the Group’s overall performance. It is also responsible for the allocation of schemes in which the Executive Directors are entitled to participate are shares under long-term incentive arrangements approved by set out in more detail in the Remuneration report. The Remuneration shareholders and in accordance with agreed criteria. In addition, it Committee, with the advice of Hewitt New Bridge Street (“HNBS”), monitors current best practice in remuneration and related issues. reviews on a regular basis the Company’s remuneration policy including the design of performance-related remuneration schemes. The Remuneration of Non-Executive Directors is dealt with by a Such performance-related elements have been designed with a view Committee of the Board specifically established for this purpose to aligning the interests of the Executive Directors with those of comprising the Chief Executive, the Group Finance Director, the shareholders and to incentivise performance at the highest level. The Commercial Director and the Chief Operating Officer without the Board’s policy is that no executive share options should be offered at a presence of the Non-Executive Directors. The Remuneration of the discount save as permitted by the Listing Rules. Non-Executive Directors is the subject of regular benchmarking reviews usually carried out every two years with the assistance of Levels of remuneration payable to Non-Executive Directors are HNBS. The last such benchmarking exercise was carried out in regularly benchmarked, with the assistance of external advisers, February 2007. No such benchmarking exercise was necessary this against companies of a similar size. The levels of remuneration also year as there were no salary increases. reflect the time, commitment and responsibilities of each role including, where relevant, Chairmanship of Board Committees. It is the The Board’s policy is that all new long-term incentive schemes (as policy of the Board that remuneration for Non-Executive Directors defined in the Listing Rules) and significant changes to existing should not include share options. No current Executive Director serves schemes should be specifically approved by shareholders, while as a Non-Executive Director elsewhere. recognising that the Remuneration Committee must have appropriate flexibility to alter the operation of these arrangements to reflect On a regular basis, the Remuneration Committee, with the assistance changing circumstances. In addition, as part of the Company’s of HNBS, reviews the compensation commitments the Executive commitment to transparency as regards its remuneration policy and Directors’ service contracts would entail in the event of early maintaining a continuous dialogue with shareholders, the Chair of the termination. The Committee also from time to time considers the Remuneration Committee, Ishbel Macpherson, has held discussions advantages of liquidated damages clauses in service contracts. In any with shareholders to take soundings on the key features of the event, the Committee’s policy remains that compensation for proposed changes to the Executive Directors’ incentive arrangements. termination of the service contract of an Executive Director would not be paid in the case of removal for misconduct and that a robust line should be taken as regards departing Directors’ obligations to mitigate loss. The service contracts of all Executive Directors provide for termination by the Company on one year’s notice. Speedy Hire Plc Annual Report and Accounts 2009 39 ACCOuNTABILITY AND AuDIT A more detailed description of the work of the Audit Committee during the year is contained in the separate report of the Committee FINANCIAL REPORTING on page 57. The Directors’ Report and Auditors’ Report appear on pages 30 to 33 and 59 respectively and comply with the provisions of paragraphs RELATIONS WITH SHAREHOLDERS C.1.1 and C.1.2 of the Combined Code. DIALOGuE WITH INSTITuTIONAL SHAREHOLDERS INTERNAL CONTROL The Chairman routinely attends brokers’ and analysts’ presentations in The Board is responsible for the Company’s schemes of internal control relation to the Company’s interim and full year results. The Chairman, and reviewing the effectiveness of such systems. with assistance from the Company’s brokers, collates feedback from such presentations and reports the findings to the next meeting of the The Board, via the Audit Committee, conducts a review, at least Board. The Chairman also maintains a regular dialogue with major annually, of the Group’s systems of internal control. Such review shareholders in relation to, inter alia, strategy and corporate examines all material controls, including financial, operational and governance issues. The Senior Independent Director, Ishbel compliance controls and risk management systems, and accords with Macpherson, is available to attend meetings with major shareholders the recommendations contained in the Turnbull Guidance. A formal in order to understand their issues and concerns should the normal report is prepared by KPMG Audit Plc (“KPMG”) highlighting matters communication channels with the Chairman and Chief Executive be identified in the course of its statutory audit work and reviewed by the ineffective or inappropriate. Audit Committee in the presence of KPMG, the Chief Executive, the Group Finance Director and the head of the Group’s Internal Audit CONSTRuCTIVE uSE OF THE AGM function. The Committee also considers formal reports prepared and The Company’s AGM procedures indicate, as a matter of course, the presented by the Internal Audit function. The findings and level of proxies lodged on each resolution and the balance for and recommendations of the Committee are then reported to the Board against each resolution and votes withheld after it has been dealt with for detailed consideration. on a show of hands. It is also the Company’s policy to propose a separate resolution at the AGM on each substantive separate issue, AuDIT COMMITTEE AND AuDITORS including in relation to the Report and Accounts and the Directors’ The terms of reference of the Audit Committee are set out in full in the Remuneration Report. Combined Code Compliance Statement. Such terms of reference are compatible with the provisions of paragraph C.3 of the Combined All Committee Chairs are available at the AGM. Code. The Board is satisfied that the Chair of the Audit Committee, James Morley, has appropriate recent and relevant financial The Company’s standard procedure is to ensure that the notice of AGM experience. and related papers are sent to shareholders at least 20 working days before the meeting in compliance with paragraph D.2.4 of the In addition to its work in relation to the Group’s systems of internal Combined Code. control set out above, the Committee is also responsible for reviewing the integrity of the Company’s accounts, including the annual and RESPONSIBLE INVESTMENT DISCLOSuRE GuIDELINES interim results, and recommending their approval to the Board. The Environmental, social and governance risks are considered by the Committee’s work also includes reviewing the adequacy of the Group’s Board as part of the ongoing process of risk assessment. The impact of “whistle-blowing” procedures. risk is evaluated not only in financial terms but also according to their effects on employees, operational efficiency and stakeholder relations. The Committee meets on a regular basis with the external auditors and For further details regarding the steps which the Board takes through internal audit function, without the Executive Directors being present the risk management process in managing and mitigating risk, please as appropriate, to review and discuss issues arising from internal and see page 40. external audits and to agree the scope and planning of future work. Paragraphs 10 to 14 of the Operating and Financial Review outline the The effectiveness of the Group’s internal audit function is one of the Company’s approach to risk, corporate responsibility and matters reviewed in conjunction with KPMG. sustainability. For more detail concerning the opportunity for stakeholders, which the Board sees in sustainable growth through The Audit Committee has primary responsibility for making a sound corporate responsibility, please refer to the Speedy Corporate recommendation on the appointment, reappointment and removal of Responsibility Report which is due to be published in July 2009. This the external auditors. The policy of the Audit Committee is to ensure report refers to the KPI targets (running through to 31 March 2010) auditor objectivity and independence is safeguarded at all times. which have been established for monitoring progress against the Specifically, non-audit services, including taxation and consultancy Group’s environmental, community and workplace strategies, together advice and due diligence in relation to significant acquisitions, are with an evaluation of performance from previous financial years. routinely put out to tender to other external accounting firms. During the year the Company used two such additional firms. Accordingly, the Audit Committee considers that the Company’s auditors are independent. 40 Speedy Hire Plc Annual Report and Accounts 2009 CORPORATE GOVERNANCE PRINCIPAL RISKS & uNCERTAINTIES The Board is fully committed to identifying, evaluating and managing significant risks facing the Group and has developed a set of processes that enable it to do so. The Board maintains a register listing the strategic, financial and operational risks potentially affecting the Group. These include, but are not limited to, the macro-market and economic conditions in which the Group operates, competitor activities, gearing, regulation and current business projects, including those risks associated with acquisitions. Risks are prioritised according to their expected likelihood of occurring and impact if they were to occur. Impact is evaluated not only in terms of possible financial impact on the Group – loss of income/additional expenditure – but also according to their effects on employees, operational efficiency and stakeholder relations. From the list of risks compiled, ten risk issues have been identified, the successful management of which is seen as key to the Group’s ability to achieve its corporate goals. An Executive Board Director has been assigned to take responsibility for the management of each of these risk issues. Overall responsibility for the risk management process rests at Board level with the Group Finance Director. The Board reviews and evaluates the risks of the Group on a half-yearly basis, which ensures that as new risks emerge in connection with projects or general market developments, appropriate actions can be discussed, agreed and taken in a flexible manner. Marsh, the Group’s external risk adviser, has continued to provide independent advice and input to the Group as risks are identified, prioritised and managed. This table below summaries the small group of risks that were identified as key, together with a short description of monitoring/mitigation. Risk number Risk Risk description Mitigation 1 Reduction in market A downturn in construction/industrial activity, The Group continually monitors and or a decline in the desirability of hiring tools assesses market capacity by reference to a and equipment to fulfil such activity, may number of external sources, together decrease the demand for hiring tools and with internal data which reports equipment or reduce the prices that the customer, product and geographical Group can charge for its services. demand. It operates a flexible model that can react to prevailing market conditions. 2 Inability to obtain If the Group is unable to obtain sufficient The Group has committed bank facilities capital capital in the future, it may be required to which are reviewed in comparison reduce or delay capital expenditure, resulting to capital requirements on a regular in the ageing of the fleet. This could basis. Potential sources of finance disadvantage the Group relative to its are assessed on a regular basis. competitors and may adversely impact its ability to command acceptable levels The Group has a long standing relationship of pricing. with its banking syndicate and manages its capital requirement through maintaining a short lead time for purchasing equipment and other expenses. 3 Operating & financial The Group’s operating and financial flexibility The Group performs regular financial restrictions resulting is restricted by its level of indebtedness forecasts covering both short and longer- from existing debt and financial covenants, which in the longer term projections. The forecasts are facilities term could materially adversely affect its intended to provide the Group with business, financial position or ability to early warning of potential capital pay dividends. constraints, or potential breaches of financial covenants. The Group can then take appropriate action. Speedy Hire Plc Annual Report and Accounts 2009 41 Risk number Risk Risk description Mitigation 4 Project In situations where there is a lack of The Group operates a ‘project board’ which implementation coordination of key strategic projects this reviews the status and progress of each of the may lead to the Group operating in an key initiatives. Each major project maintains its inefficient manner and, therefore, having own risk register and implementation plan, the an adverse effect on the profitability and/or size and scope of which varies depending on financial state of the Group. the complexity of the particular project. The Board receives regular progress reports on project developments as part of Board meeting agendas. 5 Business Due to the size and nature of the Group, The Group is implementing the ‘One Speedy’ co-ordination the coordination of individual and collective initiative, which has as one of its primary business and management strategies can principles, the simplification and harmonisation be an inherent problem, which may impact of Group processes. The intention is to align and upon the Group’s financial position and/or integrate the Speedy businesses to customers profitability. and markets. 6 Interruption or Any interruptions to the Group’s IT systems Responsibility for the integrity of the Group’s IT failure of IT and could have a material adverse effect on the systems rests with the IT Director. Back-up and related systems Group’s business, communication, capabilities, recovery procedures are in place for key systems. management of projects and overall financial Changes to Group systems are considered performance. as part of wider change management programmes, and implemented in phases The Group is currently in the process of wherever possible. consolidating its back office function into a new shared service centre (“SSC”). There is a risk of A Project Director has been appointed to oversee disruption to the business as a result of this change. the SSC implementation and is following the Group’s project implementation methodology outlined above. A project board is in place to co-ordinate the transfer of existing functions and processes into the new structure. 7 Increase in The equipment rental industry is extremely The Group monitors its competitive position competition competitive and highly fragmented. closely, with a view to ensuring that it is able to Many of the markets in which the Group operates offer its customers the best solution to their are served by numerous competitors, ranging requirements. Capital expenditure requirements from national equipment rental companies to are assessed as part of the budgeting process, and regional independents. throughout the year via regular forecasts. Day-to- day capital expenditure requirements are Some of the Group’s principal competition may assessed on a needs basis, with limited long-term have greater financial resources, be more future ordering commitments. geographically diversified, have greater brand recognition in certain market sectors and may The Group monitors the performance of its be better able to withstand adverse market major accounts against market forecasts and conditions within the industry. The Group is individual expectations with a view to ensuring generally able to compete on the basis of that the opportunities for the Group are quality and breadth of service, expertise, reliability, maximised. and the price, size, mix and attractiveness of its tool and equipment fleet. These factors are significantly affected by the level of the Group’s capital expenditure. If the Group is required to reduce or delay capital expenditure for any reason, any resultant ageing of the hire fleet may place the Group at a disadvantage to its competitors and may adversely impact its ability to command acceptable levels of pricing. 42 Speedy Hire Plc Annual Report and Accounts 2009 CORPORATE GOVERNANCE Risk number Risk Risk description Mitigation 8 Failure/insolvency Whilst no single customer accounts for more Credit control processes are in place to of major customer than 5% of revenue in the event of the loss of monitor the potential for credit defaults a major customer, the revenue generated by and exposures. This is reported on a the Group could be reduced with a regular basis to the executive corresponding impact on the Group’s management team, and where market position. necessary, issues are escalated to resolve payment issues as soon as practicable. Visibility of exposures to individual customer groups is improving through the implementation of the new business information and credit management systems. The Group does not maintain credit insurance since nearly all of its debt exposure is with UK-based customers, and management of the risk of debt default is managed as part of the day-to-day operations of the business. 9 Failure/insolvency Availability of supplier credit is an important The Group undertakes regular reviews of major supplier aspect of the Group’s continued operation and discussions with suppliers to and financial performance. Any reduction understand potential changes in the in the availability of supplier credit could marketplace. Reviews are also held with adversely impact the Group. key credit insurers to ensure that they have an up-to-date view of the Group’s financial position, allowing supplier credit to be available if necessary. 10 Government spending Government expenditure is important The Group assesses changes in cut-back across the wider construction industry in the Government spending as part of its UK. Any reduction in Government expenditure wider market analysis. The impact could adversely impact the Group. on the Group of reduction in expenditure is assessed as part of the ongoing financial and operational budgeting and forecasting process. Speedy Hire Plc Annual Report and Accounts 2009 43 CORPORATE GOVERNANCE SuMMARY In June 2006 the Financial Reporting Council published a revised version of the Combined Code on Corporate Governance (“the Code”). For financial years commencing on or after 1 November 2006, a listed company is required to state in its annual financial report whether it complies with the Code. The Company confirms that throughout the year ended 31 March 2009, the Company has remained fully compliant. The Code comprises a set of main principles which cover the general themes of Directors’ remuneration, financial reporting, internal control and communication with shareholders. Each main principle is expanded by a set of supporting principles as well as detailed provisions. This Corporate Governance report and the Directors’ Remuneration Report on pages 47 to 56 contain a detailed explanation of how Speedy applied the main and supporting principles of the Code. For ease of reference, a summary of Speedy compliance with the Code’s provisions is included here with cross-references to the relevant pages of the Company’s Corporate Governance Report, Remuneration Report, other sections of the Annual Report and the Notice of Meeting in respect of the 2009 AGM. Combined Directors Code provision Comment Page The Board meets sufficiently regularly to discharge its duties effectively. There is a formal schedule A.1.1 Compliant 34 to 38 of matters specifically reserved for its decision. The Corporate Governance Report includes a statement of how the Board operates and which issues are delegated to management. The 2009 Annual Report identifies the Chairman, the Chief Executive, the Senior Independent Director A.1.2 Compliant 29 and 34 and the Chairs and members of the Audit, Remuneration and Nomination Committees. The number of meetings of the Board and the Committees and individual attendance by Directors is provided. In 2009, the Chairman met the Non-Executive Directors without the Executive Directors present and A.1.3 Compliant 36 the Non-Executive Directors met without the Chairman and Executive Directors present at least once. Where Directors have concerns about the running of the Company or a proposed action which A.1.4 Compliant 36 cannot be resolved, they ensure that their concerns are recorded in the Board minutes. The Company arranges comprehensive Directors’ and Officers’ liability insurance cover. A.1.5 Compliant 36 The roles of the Chairman and Chief Executive are not exercised by the same individual. The A.2.1 Compliant 36 division of responsibilities between the Chairman and Chief Executive is set out in the Combined Code Compliance Statement available on the Company’s website. On appointment, the Chairman met the independence criteria set out in A.3.1 of the Code and the A.2.2 Compliant 36 Chief Executive will not go on to be the Chairman of the same company. The Board considers all of its Non-Executive Directors to be independent. A.3.1 Compliant 36 There are, in addition to the Chairman, four independent Non-Executive Directors (out of a total A.3.2 Compliant 36 of nine Directors). The Board has appointed Ishbel Macpherson as Senior Independent Director. Ishbel Macpherson is A.3.3 Compliant 35 and 36 available to shareholders if they have concerns which have not been resolved through the normal channels of communication or for which such contact is inappropriate. The Nomination Committee, comprising the Chairman and the four other Non-Executive Directors A.4.1 Compliant 34 and 37 meets as necessary and at least once a year. The Chairman of the Company chairs the Nomination Committee. The Nomination Committee’s terms of reference are set out in the Combined Code Compliance Statement available on the Company’s website. The Nomination Committee’s principal functions are to review the structure, size and composition A.4.2 Compliant 37 of the Board, the membership of Board Committees and succession planning. The Chairman is not Chairman of another FTSE 100 company. The chairman discloses to the Board A.4.3 Compliant 37 any changes to his other significant commitments as they arise. The Chairman and other Non-Executive Directors each have a letter of appointment for specified A.4.4 Compliant 37 and 52 terms of three years or less containing reciprocal notice provisions of six months (in the case of the Chairman) and three months in the case of Ishbel Macpherson, David Galloway, Peter Atkinson, and Michael Averill. The letters of appointment of the Chairman and the other Non-Executive Directors will be available A.4.4 Compliant Notice of for inspection at the 2009 AGM. AGM 44 Speedy Hire Plc Annual Report and Accounts 2009 CORPORATE GOVERNANCE Combined Directors Code provision Comment Page The letters of appointment of the Non-Executive Directors state that they should exercise such A.4.4 Compliant 37 powers and perform such duties as are appropriate to the role. The Non-Executive Directors undertake that they will have sufficient time to meet what is expected of them. Details of other material commitments are disclosed and a register of the same maintained by the Company Secretary. None of the Directors is a Non-Executive Director or Chairman of a FTSE 100 company. A.4.5 Compliant 37 The work of the Nomination Committee and the process used in relation to Board appointments A.4.6 Compliant 37-39 and 58 is described in the Corporate Governance and Nomination Committee Reports. The process for inducting new Directors to the Board and details of ongoing training is described A.5.1 Compliant 37 in the Corporate Governance Report. A procedure is in place so that Directors are able, if required, to seek independent professional A.5.2 Compliant 37 advice at the Company’s expense in connection with their duties. This is set out in the Combined Code Compliance Statement available on the Company’s website. All Directors have direct access to the advice and services of the Company Secretary. The A.5.3 Compliant 37 Company Secretary has responsibility for ensuring that Board procedures are followed. The appointment and removal of the Company Secretary is a matter reserved for the Board as a whole. The Corporate Governance Report contains a description of how performance evaluation of the Board, A.6.1 Compliant 37 its Committees and the individual Directors was conducted in the year ended 31 March 2009. The Non- Executive Directors, led by the Senior Independent Director, reviewed the performance of the Chairman. All Directors are subject to election by shareholders at the first opportunity after their appointment A.7.1 Compliant 38 and a minimum of one-third of Directors must retire at each AGM. The Notice of Meeting for the 2009 Notice of AGM contains sufficient biographical details to enable shareholders to take an informed decision in AGM relation to those Directors seeking election or re-election. David Wallis has served on the Board for more than six years. David Wallis’s proposed re-election A.7.2 Compliant 32 has been subject to review and takes into account the need for progressive refreshing of the Board. Directors’ remuneration Performance-related elements of the remuneration of Executive Directors form a significant B.1.1 Compliant 47 proportion of the total remuneration and are designed to align their interests with those of shareholders and to give the Directors keen incentives to perform at the highest levels. The Remuneration Committee followed the provisions of Schedule A to the Code in designing B.1.1 Compliant 48 the share plans approved by shareholders at the 2004 AGM. The Company does not offer executive share options at a discount save as permitted by the B.1.2 Compliant 38 Listing Rules. The Board sets levels of remuneration for Non-Executive Directors which reflect the time commitment B.1.3 Compliant 38 and responsibilities of the role. Non-Executive Directors are not awarded share options. None of the Executive Directors served as a Non-Executive Director elsewhere. B.1.4 Compliant 38 The Remuneration Committee has carefully considered what compensation commitments B.1.5 Compliant 51 (including pension contributions and all other elements) the Directors’ terms of appointment would entail in the event of termination and this is explained in the Directors’ Remuneration Report. Notice or contract periods for all Executive Directors are set at one year. Justin Read’s service contract B.1.6 Compliant 38 and 51 contained a longer notice period but this expired on 1 April 2009. The Remuneration Committee comprises all the independent Non-Executive Directors excluding the B.2.1 Compliant 38 Chairman. A description of the role of the Remuneration Committee and the authority delegated to it by the Board is included in the Directors’ Remuneration Report. The Remuneration Committee’s terms of reference are contained in the Combined Code Compliance Statement available on the Company’s website. The Directors’ Remuneration Report includes a statement on whether the remuneration B.2.1 Compliant 38 and 48 consultants appointed by the Remuneration Committee have any other connection with the Company. The Board has delegated responsibility to the Remuneration Committee for setting remuneration for B.2.2 Compliant 38 all Executive Directors and the Chairman. The Committee also recommends and monitors the level and structure of remuneration for senior management. Speedy Hire Plc Annual Report and Accounts 2009 45 Combined Directors remuneration Code provision Comment Page The Non-Executive Directors’ fees, excluding those of the Chairman, are determined by a B.2.3 Compliant 38 Committee comprising the Chief Executive, the Group Finance Director, the Commercial Director, and the Chief Operating Officer without the Non-Executive Directors present. Shareholders are invited specifically to approve all new long-term incentive schemes and significant B.2.4 Compliant 38 changes to existing schemes. Notice of EGM (2009) Accountability and audit The Directors explain their responsibility for preparing the Accounts and there is a statement by the C.1.1 Compliant 32 auditors on their reporting responsibilities. The Directors report that the business is a going concern. C.1.2 Compliant 31 The Board conducted a review of the effectiveness of the Group’s system of internal controls in C.2.1 Compliant 39 2009. The review covered all material controls, including financial, operational and compliance controls and risk management systems. The Audit Committee, comprising the independent Non-Executive Directors excluding the Chairman, C.3.1 Compliant 39 and 57 meets at least three times a year and met on three occasions during the year ended 31 March 2009. David Galloway and James Morley respectively former and current Chair of the Audit Committee, have recent and relevant financial experience. The main role and responsibilities of the Audit Committee are set out in its terms of reference, C.3.3 Compliant 57 details of which are included in the Combined Code Compliance Statement available on the Company’s website, and these include all the requirements set out in the Code. The terms of reference of the Audit Committee have recently been reviewed and are available on C.3.3 Compliant 39 and 57 the Company’s website. The responsibilities of the Audit Committee are described in the Corporate Governance Report and separate report of the Audit Committee. The Audit Committee has reviewed arrangements by which employees of the Company may, in C.3.4 Compliant 39 confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. Arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action. The Audit Committee monitors and reviews the effectiveness of internal audit activities. C.3.5 Compliant 39 The Audit Committee has primary responsibility for making recommendations on the appointment, C.3.6 Compliant 39 reappointment and removal of the external auditors. A statement on how auditor objectivity and independence is safeguarded is included in the C.3.7 Compliant 39 Corporate Governance Report. Relations with shareholders The Chairman ensures that the views of major shareholders are communicated to the Board as a D.1.1 Compliant 39 whole. Non-Executive Directors are offered the opportunity to meet major shareholders and the Senior Independent Director is available to meet with shareholders to listen to their views in order to develop a balanced understanding of the issues and concerns of the major shareholders. The Corporate Governance Report sets out the steps taken by the Board to ensure that Directors D.1.2 Compliant 39 develop an understanding of the views of major shareholders about the Company. 46 Speedy Hire Plc Annual Report and Accounts 2009 CORPORATE GOVERNANCE Combined Constructive use of the AGM Code provision Comment Page It is the policy of the Company to propose a separate resolution at its AGM on each substantially D.2.1 Compliant Notice of separate issue and there will be a resolution to receive the Annual Report and Accounts for 2009. AGM For each resolution proxy appointment forms provide shareholders with the option to direct their D.2.1 Compliant Notice of proxy to vote either for or against the resolution or to withhold their vote. The proxy form makes AGM it clear that a “vote withheld” is not a vote in law and will not be counted in the calculation of the Form of proportion of the votes for and against the resolution. proxy It is the policy of the Company to ensure all valid proxy appointments received are properly D.2.2 Compliant Notice of recorded and counted. AGM It is the policy of the Company to ensure that for each resolution, after a vote has been taken, unless D.2.2 Compliant 33 and 39 a poll is taken, to give at the meeting and then make available on its website details of the number of (i) shares in respect of which proxy appointments have been made; (ii) votes for and against the resolution; and (iii) shares regarding which votes were withheld. The Chairs of the Audit, Remuneration and Nomination Committees will be available to answer D.2.3 Compliant 39 questions at the 2009 AGM and all Directors will attend. The Notice of Meeting for the 2009 AGM was sent to shareholders at least 20 working days before D.2.4 Compliant 39 the meeting. Speedy Hire Plc Annual Report and Accounts 2009 47 REMuNERATION REPORT As a result, the Committee has conducted a review of the Company’s executive pay practices, with a particular focus on the structure of performance-related pay. The main changes to incentive pay practices that are intended to be made following this review are as follows: Mindful of the need to ensure that the interests of Executive Directors are fully aligned to the long-term interests of shareholders, no annual bonus opportunity will be offered to the Executive Directors in the forthcoming year (provided that the changes to the long-term incentive policy set out below are made). This, together ISHBEL MACPHERSON with the fact that the Executive Directors waived any entitlement NON-EXECuTIVE DIRECTOR under their personal objectives to any bonus for the year ended 31 March 2009, will result in no awards being made under the Dear Shareholder Company’s Co-Investment Plan (“CIP“) – which requires the investment of bonus – in either 2009 or 2010. The Remuneration Committee (the “Committee”) is responsible for A “one-off” award over, in aggregate, up to 10,621,349 shares will be formulating Speedy’s remuneration policy as it applies to senior made under the Performance Plan this year to the top 30 executives executives. A core aim of this policy is to ensure that pay practices at in the Group, which will vest three years later subject to continued Speedy remain appropriate for both the Company and its employment and the satisfaction of a primarily relative Total shareholders. Shareholder Return (“TSR“) based performance condition (the Performance Plan awards made last year were subject to both Our policy continues to be based upon our wish to attract and retain Earnings Per Share (“EPS“) and TSR targets as explained later in this the best talent to deliver Speedy’s strategy and to drive shareholder report). The rationale for this higher TSR-focused grant is to ensure value within a framework of good corporate governance. that rewards (if any) ultimately delivered to the Executive Directors in connection with this award, which is to be made at a crucial stage The key principles of this policy are: in the Company’s development, are commensurate with the market’s view of how successful the Company has been in (i) Between lower quartile and median salaries, but with the potential generating and appropriately utilising cash and (ii) delivering to earn upper quartile rewards for exceptional performance. against its other strategic objectives. Performance-related pay for all employees – every employee should be in some form of incentive scheme as soon as practicable after While the primary focus of the Committee’s review has been on the joining the Group. structure of performance-related pay, consideration has also been Encouraging share ownership. Executive Directors have share given to the base salary levels of the Executive Directors. The ownership guidelines. The entire senior executive team is eligible to Committee has come to the view that no increases in these base salary participate in the Company’s long-term incentive schemes. Every levels should be made this year, with the next review due in April 2010. employee in the Group has the opportunity to become a shareholder in the Company under our all-employee SAYE Schemes. Formal shareholder approval will be sought at the Extraordinary General Meeting (“EGM”) of the Company to be held on 24 June 2009 The Committee believes that it is incumbent upon it to ensure that the to an amendment to the rules of the Performance Plan relating to the remuneration policy as it applies to these senior executives is individual participation limits so as to allow the proposed one-off effectively delivered in a manner that takes full account of the grants under the Performance Plan to be made. Details of these Company’s specific and developing circumstances. This has proved a changes are set out in the Notice of the EGM. The Committee is firmly particular challenge for the Committee this year, against a backdrop of of the belief that these changes are entirely in the interests of unprecedented economic turmoil. shareholders. I am keen to encourage an ongoing dialogue with shareholders. Accordingly, please feel free to contact me, either by writing to me at the Company’s head office or by e-mail at ishbel.macpherson@ speedyhire.com if you would like to discuss any matters arising from this report, the matters to be tabled at the EGM or remuneration issues generally. ISHBEL MACPHERSON CHAIR OF THE REMuNERATION COMMITTEE 26 MAY 2009 48 Speedy Hire Plc Annual Report and Accounts 2009 REMuNERATION REPORT This report has been prepared by the Remuneration Committee COMPLIANCE WITH THE BEST PRACTICE PROVISIONS (“Committee”) of Speedy Hire Plc and approved by the Board of Reflecting the Board’s commitment to maintaining high standards of Speedy Hire Plc. The report complies with the UK Directors’ Corporate Governance, the Committee has complied during the year Remuneration Report Regulations 2002 and, in compliance with such with Schedule A of the Combined Code (provisions on the design of Regulations, a separate resolution approving this report is being put to performance-related remuneration). shareholders at this year’s AGM. REMuNERATION POLICY Information relating to the emoluments and pension contributions of the Directors on pages 52 to 53 and Executive Directors’ interests in the When setting its policy on senior executive remuneration, the Company’s Performance Plan, CIP and UK SAYE Scheme on pages 54 to Committee’s main aims are to attract, retain and motivate people of 55 has been audited. the highest calibre and experience needed to shape and execute the Company’s strategy and to deliver shareholder value in the context of REMuNERATION COMMITTEE a competitive employment market. To support this, the long-term general policy of the Committee is for basic salaries of Executive The Committee is responsible for recommending to the Board the Directors to be between the lower quartile and median but for overall remuneration and the other terms and conditions of employment of remuneration, by virtue of awards made under the incentive plans the Executive Directors and the Chairman. It also provides advice to described later in this report, to have the potential to be in the upper the Chief Executive on major policy issues affecting the remuneration quartile for exceptional performance. of executives at a senior level below the Board. When applying this policy, the Committee exercises its discretion The members of the Committee during the year were the Company’s appropriately and consistently. In recent years such discretion has independent Non-Executive Directors, David Galloway (who will retire been used sparingly and, where used, has been explained fully to from the Board with effect from 31 May 2009), Peter Atkinson, Michael shareholders. Averill and Ishbel Macpherson. Ishbel Macpherson is the Chair of the Committee. James Morley joined the Committee following his When setting the Executive Directors’ pay, the Committee attempts to: appointment to the Board on 2 April 2009. Ensure that it encourages optimum performance by Directors and The Committee has appointed HNBS, an external consultancy which fairly recognises the contribution of individual Directors to Speedy’s has wide experience of executive remuneration in UK listed Hire’s success, whilst also encouraging a team approach which will companies, to advise in developing its remuneration policy, work towards achieving the Company’s long-term strategic particularly in relation to performance-related pay, and in objectives. benchmarking the remuneration of senior executives. HNBS has no Link reward to individual Directors’ performance and Group other connection with the Company. performance so that the interests of the Directors are fully aligned with Speedy’s shareholders. The Committee has also sought advice on a regular basis from the Ensure that it maintains a package of pay and benefits that is Company’s solicitors, Pinsent Masons LLP, in connection with the terms competitive (but not excessive) when compared to packages of service contracts for Executive Directors and other members of available within other similar companies operating in similar senior management and in relation to the operation of the markets. Performance Plan, CIP and SAYE Schemes described later in this report. Be mindful of the link between the pay of Directors and others in the Group. In addition, input was received by the Committee during the year from the Chief Executive and the Company Secretary. However, no To meet these objectives, a significant proportion of the Executive individual is present for discussions directly relating to his own Directors’ and senior executives’ pay is performance-linked. remuneration. Executive Directors’ remuneration generally consists of the following There is no restriction on the Committee which prevents it from taking elements although, as alluded to in the table below (in italicised text) into account performance on environmental, social and governance and as explained in more detail in this report, the Committee is issues. The Committee notes with approval the continued effort being proposing to adopt some one-off changes to the general policy in the made by the Company in motivating responsible behaviour in relation forthcoming year to take account of the current specific circumstances: to these issues by encouraging reduced energy consumption and providing incentives to choose more efficient Company vehicles. In addition, the Committee ensures that the Company’s pay policies do not encourage inappropriate operational risk-taking. The terms of reference of the Committee are included as part of the Company’s Combined Code Compliance Statement, which can be viewed on the Company’s website: www.speedyhire.plc.uk. Speedy Hire Plc Annual Report and Accounts 2009 49 Purpose Delivery Detailed policy Basic Salary – Reflect the value of the – Cash – Normally reviewed annually on or individual, his or her role, skills and experience – Monthly around 1 April and benchmarked – Pensionable against comparable companies – However, no increases were made in April 2009. Next review in April 2010 Annual bonus – Incentivise delivery of – Annual payment (subject to – Payments based on Group specific Group, divisional performance) performance and project based KPIs and personal annual goals – Cash up to 50% of salary, – Bonus potential of up to120% of salary – Deferred share element rest in shares (but all can – Any bonus above 50% of salary paid provides retention and be invested in shares) in shares (Executive Directors can alignment with – Performance-related choose to take all of bonus in shares), shareholders – Non-pensionable linked to CIP – However, it is currently proposed that no annual bonus will be operated this year Long-term incentives – Encourage long-term value – In shares Performance Plan creation – Annual awards – Normal maximum award 100% of – Encourage co-investment – Shares may be released salary, with EPS and TSR targets – Align executives’ interests after 3 years – However, for 2009, it is intended with those of shareholders – Performance-related that one-off awards over specified – Retention – Non-pensionable numbers of shares will be primarily based on comparative TSR performance with an underpin CIP – Matching shares, based on investment of bonus, up to 2:1 – Vesting based on real EPS growth – However, it is currently proposed that no awards will be made this year or next Benefits – To provide competitive – Ongoing – Car allowance, medical insurance and post-retirement benefits life assurance Pension – To provide competitive – Ongoing – 10%–20% of basic salary depending benefits – Payable on retirement on length of service – Retention Share ownership guidelines – To align the interests of – Ongoing – Must build a shareholding of 100% Executive Directors with of salary shareholders BASIC SALARY Executive Directors’ salaries will remain at the following levels for the Basic salaries are set annually by the Committee, taking into account a forthcoming year: Steve Corcoran – £340,000; Mike McGrath – number of factors including (i) that part of the Group’s assets under the £220,000; Claudio Veritiero – £203,000; Justin Read – £250,000. These individual’s control, (ii) past performance of the individual and (iii) salaries will next be reviewed in April 2010. comparative information from independent sources, including HNBS, on the rates of salary in selected groups of comparable companies. In ANNuAL BONuS selecting comparator companies to benchmark base salaries, the The Committee‘s general policy is that every employee in the Group is Committee reviews practice in both (i) companies which operate brought within some form of annual incentive scheme as soon as within the same broad business space as Speedy and with which possible after joining the Group. Speedy competes for key talent and (ii) companies of a similar size to Speedy measured by turnover, market capitalisation and geographic For the Company’s Group-wide annual bonus plan, at the start of each operations. financial year, each subsidiary company in the Group is set a number of challenging financial targets relating to key operational metrics. For the current year, taking into account the challenging environment Examples of metrics previously used include profit performance, in which the Company finds itself, the Committee has decided not to capital efficiency, debtor control, margin improvement, ongoing apply any increase to the Executive Directors’ salaries. Therefore, the employee and customer satisfaction and return on capital. 50 Speedy Hire Plc Annual Report and Accounts 2009 REMuNERATION REPORT Bonuses paid to Executive Directors and senior management based at No re-testing is permitted. head office (which are not pensionable) have historically been set on a similar basis to the subsidiaries. b) CIP The key features of the CIP, as operated last year, are as follows: Last year, the bonus for Executive Directors was capped at 120% of salary. Targets were linked to Group financial performance (including Executive Directors were required to defer any annual bonus over Earnings Before Tax and Amortisation (“EBTA”)) (35% of the total bonus 50% of basic salary, which was used to acquire Speedy shares and opportunity), cash flow generation (10%), working capital could defer the rest (likewise used to acquire Speedy shares) at the management (20%), EPS (10%) and specific project-based KPIs (25%). Executive Director’s option. Deferral is for three years. Notwithstanding the fact that certain specific KPIs were met for the Matching shares were awarded by the Committee which vest at the year ended 31 March 2009, the Executive Directors have waived any end of the three year deferral period if pre-determined performance bonus entitlement for that year and, therefore, no bonus will be criteria are satisfied. The maximum matching, which was only payable. awarded for exceptional performance, could be on a 2:1, or 200%, basis, by reference to the gross amount of bonus deferred. As stated above, the Committee has reviewed the Executive Directors’ Performance targets were based on EPS growth over the deferral incentive pay policy, which includes the annual bonus. An output of the period. To obtain maximum matching, EPS growth is required to review is that, provided the proposed changes to the Company’s be greater than CPI plus 12.5% per annum, calculated on a long-term incentive policy described elsewhere in the report are made, compound basis. No awards vest if EPS growth is less than CPI no annual bonus opportunity will be offered to Executive Directors (nor plus 7.5% per annum, also calculated on a compound basis (with to around 26 other senior managers) in the forthcoming year. straight-line vesting in between). No re-testing is permitted. Non-Executive Directors do not receive a bonus. TSR and EPS were used as the performance measures for these plans LONG-TERM INCENTIVES as they were, at the time of grant, considered the most appropriate In line with the overall remuneration policy of the Committee, the measures of Speedy’s long-term performance. The Committee will objectives of the Company’s share-based long-term incentive ensure that appropriate independent verification is sought as to the arrangements (which were approved by shareholders in 2004) are: extent to which these performance conditions are satisfied. To support the Company’s strong performance culture and provide c) Proposed policy for the forthcoming year exceptional rewards for exceptional performance. CIP To provide a competitive total compensation package. As no annual bonus was paid for performance last year, there will be To link rewards to Group performance so that the interests of no deferral of bonus into shares. Therefore, no corresponding award executives are fully aligned with Speedy’s shareholders. will be made in the forthcoming year under the CIP. To create an expectation of ownership on the part of executives in accordance with shareholding guidelines established by the PERFORMANCE PLAN Committee, requiring Executive Directors to hold shares in the As stated above, the Committee has reviewed the Executive Directors’ Company of a value equivalent to not less than 100% of basic salary. incentive pay policy, encompassing a review of long-term incentive provision. An output of this review is that it is intended that “one-off“ The two main share-based long-term incentive plans operated for Performance Plan awards will be made in the forthcoming year which senior Executives are (i) the Performance Plan and (ii) the CIP. will be structured differently from the operation of the Performance Plan as set out above. More particularly, it is proposed that awards will a) Performance Plan be made to Executive Directors and other senior executives over a set The key features of the Performance Plan, as operated last year, are as number of shares whose value may exceed the normal 100% of salary follows: individual limit, with vesting of these awards subject to the same relative TSR-based performance condition that was applied to 50% of Annual awards were made to executives that may vest at the end of Performance Plan awards granted last year. 20% of each award will vest a three year performance period. if Speedy ranks at the median compared to the FTSE 250 (excluding Maximum annual awards up to 100% of basic salary could be made. investment trusts) measured over the three year performance period, 50% of the award was based on comparative TSR against the FTSE 250 with full vesting at the upper quartile (and straight-line vesting (excluding investment trusts). 20% of this portion of the award will vest between these points). An underpin will also apply to this primary TSR at median, with straight-line vesting to upper quartile performance at measure, under which the Committee may reduce the number of which point this portion of the award will vest in full. The balance of shares that provisionally vest by reference to performance against the the award was based on EPS growth targets. 20% of this portion of the relative TSR condition if this performance is not considered to be truly award will vest for the achievement of a threshold level of EPS growth, representative of the Company’s underlying performance over the being at least Consumer Prices Index (“CPI“) plus 7.5% per annum, relevant period. When considering the Company’s underlying calculated on a compound basis, with the entire portion of this award performance, the Committee will take account of performance against vesting if EPS growth is at least CPI plus 15% per annum, also on a a range of targets including operating cash flow, profit against targets, compound basis (with straight-line vesting in between). working capital management and share price progression. Speedy Hire Plc Annual Report and Accounts 2009 51 Formal shareholder approval will be required for amendments to the TOTAL SHAREHOLDER RETuRN Total shareholder return individual participation limit contained in the rules of the Performance Plan so as to allow these grants to be made. This approval will be 500 sought at the EGM convened for 24 June 2009. 450 The Committee is also considering the possibility of structuring future 400 Performance Plan awards (including the one-off awards referred to 350 above) in a potentially more tax efficient manner for participants. 300 Benefits under the Performance Plan and the CIP are non-pensionable. 250 In the event that shareholders do not approve the awards referred to 200 above at the EGM on 24 June 2009, the Committee will consult with 150 shareholders about alternative remuneration proposals. 100 BENEFITS IN KIND 50 The Group operates a policy whereby Executive Directors and senior management are offered a car or cash alternative, as appropriate, 0 health insurance and life cover and pension contributions (further Mar Mar Mar Mar Mar Mar 2004 2005 2006 2007 2008 2009 details of which are set out below). Source: Thomson Financial I Speedy The Group does not operate a defined benefit pension scheme and This graph shows the value, by 31 March 2008, of £100 invested in Speedy Hire Plc on 31 March 2003 compared with the value of £100 invested in the FTSE 250 I FTSE 250 investment trusts) Index. The other points are the values at intervening has no plans to introduce such a scheme. (excluding ﬁnancial year-ends. SHARE OWNERSHIP GuIDELINES shows Hire Plc This graphSpeedythe value, by 31 March 2009, (excluding investment trusts) Index FTSE 250 of £100 invested in Speedy Hire Plc on Executive Directors are expected to build a shareholding equivalent to 31 March 2004 compared with the value of £100 invested in the FTSE 250 Index (excluding 100% of their basic salaries. The Committee expects this to be achieved investment trusts). The other points are the values at intervening financial year ends. over a reasonable timeframe and may be achieved through the retention of shares acquired through the vesting of share awards. SERVICE CONTRACTS TOTAL SHAREHOLDER RETuRN It is the Committee’s general policy that the service contracts of Executive Directors (none of which are for a fixed term) should provide The accompanying graph shows Speedy’s performance, measured by for termination of employment by giving 12 months’ notice or by TSR, compared with the performance of the FTSE 250 Index (excluding making a payment of an amount equal to 12 months’ basic salary and investment trusts), also measured by TSR. The graph illustrates the pension contributions in lieu of notice together with any accrued bonus movement of Speedy’s TSR, assuming dividends are reinvested on the entitlement. It is also the Committee’s general policy that no Executive ex dividend date, against that of the FTSE 250 Index (excluding Director should be entitled to a notice period or payment on investment trusts) for the five year period to 31 March 2009. The FTSE termination of employment in excess of these levels. In determining 250 Index (excluding investment trusts) has been used as it provides amounts payable on termination, the Committee also considers, where consistency with the performance measurement of the Group’s it is able to do so, appropriate adjustments to take into account executive share incentive plans. accelerated receipt and the Executive Director’s duty to mitigate his loss. As reported last year, the provision in Justin Read’s service contract which provided him with an enhanced notice period (in the event of change in control of Speedy in the first year of his employment) expired on 1 April 2009. His notice period is now 12 months. The service contracts of Steve Corcoran, Mike McGrath, Claudio Veritiero and Justin Read contain express provisions relating to their duty to mitigate their loss and for accelerated receipt in the event of termination. Subject to the above, no Executive Director has the benefit of provisions in his service contract for the payment of pre-determined compensation in the event of termination of employment. 52 Speedy Hire Plc Annual Report and Accounts 2009 REMuNERATION REPORT The execution dates of the service contracts of the Executive Directors Non-Executive Directors’ remuneration levels are unchanged from those are set out below: paid last year. Non-Executive Directors receive an annual fee and are reimbursed expenses incurred in attending meetings. They do not Contract date receive any performance-related bonuses, pension contributions, share S J Corcoran 7 January 2002 awards or other forms of benefit. N C O’Brien* 15 January 2002 M A McGrath 10 March 2006 The Chairman and Non-Executive Directors do not have contracts of C Veritiero 16 July 2007 service but their terms are set out in letters of appointment. David J Read 1 April 2008 Galloway will retire as a Non-Executive Director on 31 May 2009. Peter Atkinson commenced a second three year term on 1 June 2008. Ishbel * Neil O’Brien stepped down as Group Finance Director on 1 April 2008 Macpherson and Michael Averill commenced their first three year terms and ceased to be a Director of the Company on 31 May 2008. in July 2007 and May 2008 respectively. James Morley joined on 2 April 2009 commencing his first three year term. Appointments are ARRANGEMENTS RELATING TO JOHN BROWN subject to earlier termination by six months’ notice on either side in the case of David Wallis and three months’ notice on either side in the case of Former Chief Executive John Brown played an integral role for 27 years each of David Galloway, Peter Atkinson, Ishbel Macpherson, Michael in the building of our business. Averill and James Morley. The letters of appointment, copies of which are available for inspection at the Company’s registered office during normal To ensure Speedy retained access to John’s wealth of experience, and as business hours, specify an anticipated time commitment of 50 days per reported in previous years, it was agreed to engage him for three years annum in relation to David Wallis, 21 days per annum in the case of Ishbel from 1 October 2005 as a consultant. John undertook an ambassadorial Macpherson, David Galloway and James Morley and 19 days per annum role with both our major customers and suppliers, in relation to many of in the case of Peter Atkinson and Michael Averill. whom John forged the original relationship with Speedy. He also remained available in an advisory capacity to the Executive Directors, EMOLuMENTS OF THE DIRECTORS supporting special project work up to a maximum of 30 days per year. The emoluments of the Directors of Speedy were as follows: The Committee, after careful consideration of the value of these arrangements in protecting and enhancing shareholder value, agreed AGGREGATE EMOLuMENTS AuDITED at that time that John should receive a consultancy fee for the 2009 2008 provision of such services of £30,000 per annum. £000 £000 Salaries and fees 1,320 1,075 This arrangement ended in October 2008. Benefits 43 33 Annual performance-related bonuses – 749 NON-EXECuTIVE DIRECTORS Pension contributions 154 130 The remuneration of the Non-Executive Directors is set by the Executive Total 1,517 1,987 Directors. The policy of the Board is that the remuneration of the Non- Executive Directors should be consistent with the levels of remuneration A payment of £18,000 was also made to the widow of a former paid by companies of a similar size and has due regard to their expected Director (2008: £18,000). time commitment and responsibility in performing their duties. The levels of Non-Executive Director remuneration are the subject of a Benefits include a car allowance, medical insurance and life assurance. benchmarking exercise, carried out with the assistance of HNBS, typically at least every two years. No such benchmarking exercise was necessary None of the Executive Directors serves as a Non-Executive Director this year as there were no salary increases and therefore the continuing elsewhere. PAYMENTS TO EXECuTIVE DIRECTORS AuDITED Base salaries for Executive Directors and remuneration levels for Non-Executive Directors were not increased. Pension Salaries and fees contributions Total Total Salary Benefits Bonus 2009 2008 2009 2008 £000 £000 £000 £000 £000 £000 £000 S J Corcoran 340 12 – 352 638 68 65 M A McGrath 220 10 – 230 415 26 23 C Veritiero 203 9 – 212 115‡ 29 9 J R Read 250 10 – 260 – 25 – N C O’Brien* 40 2 – 42 427 6 33 Former Executive Directors J E Brown† 15 – – 15 30 – – Total 1,068 43 – 1,111 1,625 154 130 Speedy Hire Plc Annual Report and Accounts 2009 53 * Neil O’Brien stepped down as Group Finance Director on 1 April DIRECTORS’ INTERESTS IN SHARES AND OPTIONS AuDITED 2008 and ceased to be a Director of the Company on 31 May 2008, INTERESTS IN SHARES following a handover period to Justin Read who was appointed as The interests of the Directors of Speedy Hire Plc in the issued share Group Financial Director with effect from 1 April 2008. The terms of capital of Speedy Hire Plc at the beginning and end of the year or date Neil O’Brien’s termination were in accordance with the rights and of appointment where appropriate are shown below: obligations set out in his service contract and in line with the rules of the incentive arrangements in which he participated. Speedy Hire Plc Ordinary shares † Received consultancy fees of £15,000 in 2008/09 year (half year). 31 March 2009 1 April 2008 ‡ Part year as an Executive Director. Number Number PENSIONS S J Corcoran 274,786 202,348 The Committee reviews the pension arrangements for the Executive M A McGrath 43,499 23,076 Directors to ensure that the benefits provided are consistent with C Veritiero 24,943 5,464 those provided by other similar companies and take account of D W Wallis 50,000 50,000 changes in relevant legislation. D A Galloway 22,000 22,000 P D Atkinson 4,280 4,280 The Company does not offer a defined benefit pension scheme. I J S Macpherson 21,694 4,016 Instead, it makes contributions to an approved pension scheme of the J R Read 22,800 – Executive Director’s choice. M C E Averill 5,000 – Pensions contributions range between 10% and 20% of basic salary James Morley was appointed as a Non-Executive Director of the depending on length of service. Company on 2 April 2009. The amount of pension contributions made in respect of each Any ordinary shares required to satisfy awards under the Performance Executive Director is set out above. Plan and CIP are provided by the Speedy Hire Employee Benefits Trust (“EBT”). As a potential beneficiary under the EBT, each Executive Save as set out above, there are no other pension arrangements for the Director is deemed to be interested in all the shares held by the EBT Executive Directors. which, at 31 March 2009, amounted to 281,673 Speedy Hire Plc ordinary shares (2008: 383,366). INDIVIDuAL EMOLuMENTS OF NON-EXECuTIVE DIRECTORS AuDITED The fees of the Non-Executive Directors are set out below: There have been no changes in the interests of the Directors in the share capital of Speedy Hire Plc since 31 March 2009. 2009 2008 £’000 £’000 DIRECTORS’ INTERESTS IN SHARE OPTIONS The options under the SAYE Scheme were granted for nil D W Wallis 105 100 consideration. D A Galloway (will resign on 31 May 2009) 41 38 P D Atkinson 34 33 The market price of Speedy ordinary shares at 31 March 2009 was 126 I J S Macpherson 41 23† pence and the range during the year was 39 pence to 804 pence M C E Averill (appointed 1 May 2008) 31† – per share. Total 252 194 Awards in respect of the Performance Plan and the CIP were granted † Part year. for nil consideration. The price of an ordinary share on 1 July 2008, when the Performance Plan and CIP awards were made, was 538 James Morley was appointed as a Non-Executive Director of the pence. The exercise price for the Performance Plan awards and Company on 2 April 2009. Matching Share awards under the CIP is an aggregate £1 for all the award shares. 54 Speedy Hire Plc Annual Report and Accounts 2009 REMuNERATION REPORT Details of the Executive Directors’ interests in the UK SAYE Scheme, Performance Plan and CIP are as follows: Options/ Options/ awards Options/ Share price awards exercised/ awards on date of Interests at granted vested lapsed Interests at Exercise exercise/ Expected date 1 April during the during the during the 31 March price vesting from which 2008 year year year 20091, 8 pence pence exercisable S J Corcoran Save As You Earn 2007 1,426 – – 1,426 673 Feb–July 2011 Performance Plan 20052, 3 40,260 – (14,292) (25,968) – nil 551 June 2008 Performance Plan 20064 33,646 – – – 33,646 nil June 2009 Performance Plan 20074 26,133 – – – 26,133 nil June 2010 Performance Plan 20085 – 49,351 – – 49,351 nil June 2011 Co-Investment Plan 20053 20,542 – (20,542) – – nil 551 June 2008 Co-Investment Plan 20064 45,876 – – – 45,876 nil June 2009 Co-Investment Plan 20074 21,936 – – – 21,936 nil June 2010 Co-Investment Plan 20085 – 92,966 – – 92,966 nil June 2011 189,819 142,317 (34,834) (25,968) 271,334 M A McGrath Save As You Earn 20066 1,102 – – (1,102) – 857 Feb–July 2010 Performance Plan 20064 21,870 – – – 21,870 nil June 2009 Performance Plan 20074 16,885 – – – 16,885 nil June 2010 Performance Plan 20085 – 31,933 – – 31,933 nil June 2011 Co-Investment Plan 20064 44,728 – – – 44,728 nil June 2009 Co-Investment Plan 20074 30,998 – – – 30,998 nil June 2010 Co-Investment Plan 20085 – 69,888 – – 69,888 nil June 2011 115,583 101,821 – (1,102) 216,302 C Veritiero Save As You Earn 2005 1,498 – – – 1,498 624 Feb-July 2009 Performance Plan 20085 – 27,941 – – 27,941 nil June 2011 Co-Investment Plan 20053 4,996 – (4,996) – – nil 551 June 2008 Co-Investment Plan 20064 4,586 – – – 4,586 nil June 2009 Co-Investment Plan 20074 7,446 – – – 7,446 nil June 2010 Co-Investment Plan 20085 – 56,576 – – 56,576 nil June 2011 18,526 84,517 (4,996) – 98,047 J R Read Performance Plan 20085 – 36,288 – – 36,288 nil June 2011 Co-Investment Plan 20085 – 77,288 – – 77,288 nil June 2011 – 113,576 – – 113,576 N C O’Brien Performance Plan 20052, 3 27,450 – (9,744) (17,706) – nil 551 June 2008 Performance Plan 20064, 7 22,992 – – (22,992) – nil June 2009 Performance Plan 20074, 7 17,690 – – (17,690) – nil June 2010 Co-Investment Plan 20053 20,820 – (20,820) – – nil 551 June 2008 Co-Investment Plan 20064 , 7 22,938 – – (22,938) – nil June 2009 Co-Investment Plan 20074, 7 15,168 – – (15,168) – nil June 2010 127,058 – (30,564) (96,494) – 450,986 442,231 (70,394) (123,564) 699,259 Speedy Hire Plc Annual Report and Accounts 2009 55 1 Or date of cessation as a Director of the Company, if earlier. 2 The number of shares that vested during the year under the 2005 Performance Plan award includes additional shares awarded as dividend equivalents in accordance with the Plan rules. See table on page 56. 3 The 2005 awards under the Performance Plan and CIP were granted on 14 July 2005 and the share price on the date of grant was 732 pence. The awards vested on 19 June 2008 and were exercised on 26 June 2008. The 2005 Performance Plan awards were subject to a TSR performance condition, measuring the TSR of Speedy against the TSR of companies within the FTSE 250 index (excluding investment trusts) over the performance period, with 20% of the award vesting at median and straight-line vesting to upper quartile performance, at which point awards would vest in full. In addition, awards under the Performance Plan were subject to an underpin, requiring growth in EPS over the performance period to be at least equal to the CPI plus 2% per annum on a compound basis for any award to vest. 2005 awards under the Performance Plan vested as to 35.5%. The 2005 awards under the CIP were subject to an EPS performance condition over the performance period, requiring growth in EPS to exceed growth in the CPI over the performance period, with maximum vesting of matching shares, if EPS growth exceeded CPI growth by 12.5% per annum on a compound basis. No awards would vest if EPS growth were less than CPI growth plus 7.5% per annum on a compound basis over the performance period, with straight-line vesting in between the two limits. 2005 awards under the CIP vested in full. 4 The 2006 and 2007 Performance Plan and CIP awards were subject to the same performance conditions as described in Note 3 above. 5 The 2008 Performance Plan and CIP awards were subject to the performance conditions as described on page 50 above. 6 The Save As You Earn options lapsed following the closure of the associated savings contract. 7 Neil O’Brien’s 2006 and 2007 Performance Plan and CIP awards lapsed on his resignation from the Company on 31 May 2008. 8 Where permitted by the rules of the relevant plan or scheme, the Committee may propose to make appropriate adjustments to subsisting options and awards to reflect the effect of the rights issue. Any such adjustments will not be made until after the rights issue has been effected and will be subject to confirmation by the Company’s auditors and, as appropriate, to approval of HMRC and consent of the trustee of the EBT. 56 Speedy Hire Plc Annual Report and Accounts 2009 REMuNERATION REPORT AWARDS EXERCISED DuRING THE YEAR LONG-TERM SERVICE AWARDS The aggregate gains made by Directors on exercise of the 2005 Consistent with the Speedy approach of recognising the contribution Performance Plan and CIP awards in the year were as follows: of its employees at all levels in the business, the Group operates a No. of Total gain long-term service award scheme under which employees serving 10, shares1 (£) 20 and 25 years receive a range of additional benefits, including S J Corcoran additional days of annual holiday entitlement (including the Performance Plan 15,258 85,903 employee’s birthday for reaching 20 years’ service). Employees serving Co-Investment Plan 20,542 115,651 20 years receive an additional £1,000 in basic salary and those serving 35,800 201,554 25 years a further increase of £1,000 and an award of shares in the C Veritiero Company to the value of £1,000. Members of the 20 and 25 year clubs Co-Investment Plan 4,996 28,127 attend an annual luncheon hosted by the Chief Executive. N C O’Brien These benefits are popular amongst employees and Speedy believes Performance Plan 10,402 58,563 that they fulfil a business need by encouraging and rewarding the Co-Investment Plan 20,820 117,217 loyalty and motivation of long-serving employees and by rewarding 31,222 175,780 those employees with higher levels of experience. 1 Includes dividend shares in respect of S J Corcoran’s Performance Approved by the Remuneration Committee and Board of Speedy Hire Plan award (966 shares) and N C O’Brien’s Performance Plan award Plc on 26 May 2009. (658 shares). ISHBEL MACPHERSON SAYE SCHEME CHAIR OF THE REMuNERATION COMMITTEE Options may be granted over shares in Speedy under the Speedy 26 MAY 2009 Sharesave Scheme (the “SAYE Scheme”), in which all eligible employees are entitled to participate. At the end of a three year period, employees have the right, if they choose, to use funds accumulated under the savings contract linked to the SAYE Scheme, to purchase shares in Speedy at up to a 20% discount to the price of Speedy’s shares at the date employees are invited to join the Scheme. No performance targets are attached to options granted under this Scheme. Executive Directors are entitled to participate. The Committee is keen to encourage ownership of Speedy’s shares by employees at all levels in the Group and grants under the SAYE Scheme have been made on a regular, normally annual, basis. In November 2007 the Committee established an Irish Revenue approved Irish Sharesave Scheme to enable Irish employees of the Group to participate in a comparable tax-favoured manner to their English counterparts for which shareholder approval was obtained at the 2008 AGM. Speedy Hire Plc Annual Report and Accounts 2009 57 AuDIT COMMITTEE REPORT The Audit Committee comprised Peter Atkinson, Ishbel Macpherson, Michael Averill and David Galloway until his retirement from the Committee and James Morley from 8 May 2009, all of whom are independent. The Chairman, Chief Executive, and Finance Director were in attendance, as were the external and internal auditors. During the year the Committee met 3 times. In addition, the external auditors met privately with the Audit Committee members. James Morley has joined the Committee with effect from 8 May 2009 and has succeeded David Galloway as Chair. James Morley is a JAMES MORLEY Chartered Accountant with over 25 years’ experience as a board NON-EXECuTIVE DIRECTOR member of both listed and private companies. The Committee’s principal responsibilities are to: Monitor the integrity of the Group’s financial statements and formal announcements relating to the Group’s performance. Monitor the effectiveness of the external process including the appointment, cost and independence of the auditors. Review the effectiveness of internal controls and the internal audit function. Approve the appointment of the Head of Internal audit. Review the Board process for reviewing and managing significant risk in the business. The full terms of reference, which are in compliance with Paragraph C3 of the Combined Code, are reviewed annually and were most recently amended on 22 May 2008. During the year the Committee reviewed: The Group’s interim and final accounts together with the external auditors’ detailed reports. The Board’s process for identifying and managing risk. The appropriateness of the Group’s accounting policies. The policy for tendering of non-audit advice. The external audit plans and associated cost. The independence of the external auditors. Post-project reports on the integration of acquisitions. Internal audit plans, reports and resourcing levels. A report from the Company’s external provider of security advice and fraud prevention services. Trading statements and press releases on acquisitions were also reviewed by the Board. JAMES MORLEY CHAIR OF THE AuDIT COMMITTEE 26 MAY 2009 58 Speedy Hire Plc Annual Report and Accounts 2009 NOMINATION COMMITTEE REPORT The Nomination Committee comprised David Galloway, Ishbel Macpherson, Peter Atkinson, James Morley, Michael Averill and David Wallis as Chair of the Committee. The terms of reference of the Nomination Committee set out its responsibilities. These include inter alia: reviewing the size and composition of the Board and membership of Board Committees; ensuring that succession planning is in place; DAVID WALLIS making recommendations to the Board on the appointment of NON-EXECuTIVE CHAIRMAN Executive and Non-Executive Directors at both Plc and operating level, including job description; and the reappointment of Directors following their retirement by rotation. During the course of the year, the Committee met three times. The main business of the year was to ensure the appointment of a suitable replacement for Chair of the Audit Committee, as David Galloway, its Chair for the last eight years, was due to retire. An appropriate brief for the appointment was prepared and a shortlist of search firms discussed. As Chairman of the Board, I did not participate in this discussion because of a potential conflict of interest. The Senior Independent Director eventually appointed Hanson Green, a member of the Directorbank Group, which is chaired by David Wallis. The Nomination Committee was presented with an excellent choice of candidates, finally appointing James Morley as Chair of the Audit Committee. The Chairman’s report on the functioning of the Board on page 28 outlines many of the issues discussed by the Nomination Committee during the course of the year. Succession planning will remain as a key agenda item during the course of the current financial year. As the Company has developed an effective HR function and HR strategy, there is increasing communication and interaction with the Committee, particularly with regard to succession planning. In a growing business, it is essential that its rising stars are identified early and given a career path to ensure that they maximise their potential. This also ensures that the Committee internally has the largest possible pool of talented individuals from which to choose, as well as the option of recruiting externally. DAVID WALLIS CHAIR OF THE NOMINATION COMMITTEE 26 MAY 2009 Speedy Hire Plc Annual Report and Accounts 2009 59 INDEPENDENT AuDITORS’ REPORT TO THE MEMBERS OF SPEEDY HIRE PLC We have audited the Group and Parent Company financial statements We read the other information contained in the Annual Report and (the ‘’financial statements’’) of Speedy Hire Plc for the year ended consider whether it is consistent with the audited financial statements. 31 March 2009 which comprise the Consolidated Income Statement, We consider the implications for our report if we become aware of any the Consolidated and Parent Company Balance Sheet, the apparent misstatements or material inconsistencies with the financial Consolidated and Company Cash Flow Statement, the Consolidated statements. Our responsibilities do not extend to any other and Company Statement of Recognised Income and Expense, and the information. related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the BASIS OF AuDIT OPINION information in the Directors’ Remuneration Report that is described as We conducted our audit in accordance with International Standards on having been audited. Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the This report is made solely to the Company’s members, as a body, in amounts and disclosures in the financial statements and the part of accordance with section 235 of the Companies Act 1985. Our audit the Directors’ Remuneration Report to be audited. It also includes an work has been undertaken so that we might state to the Company’s assessment of the significant estimates and judgments made by the members those matters we are required to state to them in an Directors in the preparation of the financial statements, and of auditor’s report and for no other purpose. To the fullest extent whether the accounting policies are appropriate to the Group’s and permitted by law, we do not accept or assume responsibility to anyone Company’s circumstances, consistently applied and adequately other than the Company and the Company’s members as a body, for disclosed. our audit work, for this report, or for the opinions we have formed. We planned and performed our audit so as to obtain all the RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AuDITORS information and explanations which we considered necessary in order The Directors’ responsibilities for preparing the Annual Report, the to provide us with sufficient evidence to give reasonable assurance Directors’ Remuneration Report and the financial statements in that the financial statements and the part of the Directors’ accordance with applicable law and International Financial Reporting Remuneration Report to be audited are free from material Standards (IFRSs) as adopted by the EU are set out in the Statement of misstatement, whether caused by fraud or other irregularity or error. In Directors’ Responsibilities on page 32. forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited. the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International OPINION Standards on Auditing (UK and Ireland). In our opinion: the Group financial statements give a true and fair view, in We report to you our opinion as to whether the financial statements accordance with IFRSs as adopted by the EU, of the state of the give a true and fair view and whether the financial statements and the Group’s and the Parent Company’s affairs as at 31 March 2009 and of part of the Directors’ Remuneration Report to be audited have been its loss for the year then ended; properly prepared in accordance with the Companies Act 1985 and, as the Parent Company financial statements give a true and fair view, regards the Group financial statements, Article 4 of the IAS Regulation. in accordance with IFRSs as adopted by the EU, as applied in We also report to you whether in our opinion the information given in accordance with the provisions of the Companies Act 1985, of the the Directors’ Report is consistent with the financial statements. The state of the Parent Company’s affairs as at 31 March 2009; information given in the Directors’ Report includes that information the financial statements and the part of the Directors’ Remuneration presented in the Operating and Financial Review that is cross referred Report to be audited have been properly prepared in accordance from the Review of the business and future developments section of with the Companies Act 1985 and, as regards the Group financial the Directors’ Report. statements, Article 4 of the IAS Regulation; and the information given in the Directors’ Report is consistent with the In addition we report to you if, in our opinion, the Company has not financial statements. kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information KPMG AUDIT PLC specified by law regarding Directors’ remuneration and other CHARTERED ACCOuNTANTS transactions is not disclosed. REGISTERED AuDITOR 26 MAY 2009 We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. 60 Speedy Hire Plc Annual Report and Accounts 2009 CONSOLIDATED INCOME STATEMENT for the year ended 31 March 2009 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total 2009 2009 2009 2008 2008 2008 Note £m £m £m £m £m £m Revenue 2 476.1 – 476.1 465.5 – 465.5 Cost of sales (188.1) – (188.1) (167.1) – (167.1) Gross proﬁt 288.0 – 288.0 298.4 – 298.4 Distribution costs (50.5) – (50.5) (49.8) – (49.8) Administrative expenses (197.0) (90.7) (287.7) (191.8) (10.0) (201.8) Analysis of operating proﬁt Operating proﬁt before amortisation and exceptional items 49.7 – 49.7 64.0 – 64.0 Amortisation (9.2) – (9.2) (7.2) – (7.2) Impairment of intangible assets 3 – (60.9) (60.9) – – – Impairment of property, plant and equipment 3 – (8.8) (8.8) – – – Exceptional restructuring costs 3 – (21.0) (21.0) – – Exceptional integration costs 3 – – – – (10.0) (10.0) Operating (loss)/proﬁt 4 40.5 (90.7) (50.2) 56.8 (10.0) 46.8 Financial income 7 0.2 – 0.2 0.9 – 0.9 Financial expense 3,7 (16.0) (4.6) (20.6) (16.8) (0.4) (17.2) (Loss)/proﬁt before taxation 24.7 (95.3) (70.6) 40.9 (10.4) 30.5 Taxation 3,8 (7.0) 23.0 16.0 (9.2) 3.1 (6.1) (Loss)/proﬁt for the ﬁnancial year 17.7 (72.3) (54.6) 31.7 (7.3) 24.4 Attributable to: Equity holders of the parent (54.6) 23.3 Minority interests – 1.1 (54.6) 24.4 Pence Pence Earnings per share – Basic 9 (107.93) 47.89 – Diluted 9 (107.93) 47.49 Dividend per share 12.8 19.8 Speedy Hire Plc Annual Report and Accounts 2009 61 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 31 March 2009 2009 2008 £m £m Cash ﬂow hedges: losses taken to equity (net of tax) (5.3) (1.2) Net loss recognised directly in equity (net of tax) (5.3) (1.2) (Loss)/proﬁt for the ﬁnancial year (54.6) 24.4 Total recognised income and expense for the ﬁnancial year (59.9) 23.2 Attributable to: Equity holders of the parent (59.9) 22.1 Minority interests – 1.1 (59.9) 23.2 COMPANY STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 31 March 2009 2009 2008 £m £m Cash ﬂow hedges: losses taken to equity (net of tax) (5.3) (1.2) Net loss recognised directly in equity (net of tax) (5.3) (1.2) (Loss)/proﬁt for the ﬁnancial year (10.8) 13.4 Total recognised income and expense for the ﬁnancial year (16.1) 12.2 62 Speedy Hire Plc Annual Report and Accounts 2009 CONSOLIDATED BALANCE SHEET at 31 March 2009 2009 2008 Note £m £m ASSETS Non-current asset Intangible assets 11 71.2 128.9 Property, plant and equipment 12 323.2 372.9 394.4 501.8 Current assets Inventories 14 12.2 16.2 Trade and other receivables 15 104.4 143.6 Tax receivable 6.9 – Cash 11.0 4.4 134.5 164.2 Total assets 528.9 666.0 LIABILITIES Current liabilities Borrowings 18 (0.2) – Trade & other payables 16 (64.1) (120.0) Other ﬁnancial liabilities 17 (5.7) (0.5) Provisions 19 (4.1) (1.0) Current income tax – (5.9) (74.1) (127.4) Non-current liabilities Borrowings 18 (259.2) (260.0) Provisions 19 (3.8) (1.2) Deferred tax liabilities 20 (24.3) (37.3) (287.3) (298.5) Total liabilities (361.4) (425.9) Net assets 167.5 240.1 EquITY Share capital 21 2.5 2.5 Share premium account 22 111.0 111.0 Merger reserve 22 3.7 3.7 Hedging reserve 22 (6.0) (0.7) Retained earnings 22 56.3 122.3 Total equity attributable to equity holders of the parent 167.5 238.8 Minority interests 22 – 1.3 Total equity 167.5 240.1 The ﬁnancial statements on pages 60 to 92 were approved by the Board of Directors on 26 May 2009 and were signed on its behalf by: STEVE CORCORAN JUSTIN READ DIRECTOR DIRECTOR Speedy Hire Plc Annual Report and Accounts 2009 63 COMPANY BALANCE SHEET at 31 March 2009 2009 2008 Note £m £m ASSETS Non-current assets Investments 13 94.3 111.7 Deferred tax asset 20 0.1 0.2 94.4 111.9 Current assets Trade and other receivables 15 322.6 337.6 Tax receivable 0.9 1.3 Cash 0.1 – 323.6 338.9 Total assets 418.0 450.8 LIABILITIES Current liabilities Bank borrowings 18 (7.6) (14.0) Trade & other payables 16 (17.1) (20.0) Other ﬁnancial liabilities 17 (5.7) (0.5) (30.4) (34.5) Non-current liabilities Borrowings 18 (258.6) (260.0) Total liabilities (289.0) (294.5) Net assets 129.0 156.3 EquITY Share capital 21 2.5 2.5 Share premium account 22 111.0 111.0 Merger reserve 22 8.6 8.6 Hedging reserve 22 (6.0) (0.7) Retained earnings 22 12.9 34.9 Total equity 129.0 156.3 The ﬁnancial statements on pages 60 to 92 were approved by the Board of Directors on 26 May 2009 and were signed on its behalf by: STEVE CORCORAN JUSTIN READ DIRECTOR DIRECTOR 64 Speedy Hire Plc Annual Report and Accounts 2009 CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 2009 2009 2008 £m £m Cash ﬂow from operating activities (Loss)/proﬁt before tax (70.6) 30.5 Adjustments for: Movement in provisions 5.7 – Financial income (0.2) (0.9) Financial expense 20.6 17.2 Exceptional impairment of intangible assets 60.9 – Exceptional impairment of property, plant and equipment 8.8 – Amortisation 9.2 7.2 Depreciation 75.9 67.6 Loss/(proﬁt) on disposal of property, plant and equipment 1.6 (9.7) Equity-settled share-based payments (1.2) 2.2 110.7 114.1 Decrease/(increase) in inventories 4.0 (3.1) Decrease/(increase) in trade and other receivables 39.2 (27.6) (Decrease)/increase in trade and other payables (55.8) 18.9 Cash generated from operations 98.1 102.3 Interest received 0.2 0.9 Interest paid (21.4) (15.5) Income tax paid (9.8) (4.7) Net cash ﬂow from operating activities 67.1 83.0 Cash ﬂow from investing activities Acquisition of businesses (14.6) (137.4) Purchase of property, plant and equipment (75.1) (104.1) Disposal of property, plant and equipment 39.4 34.4 Net cash ﬂow from investing activities (50.3) (207.1) Net cash ﬂow before ﬁnancing activities 16.8 (124.1) Cash ﬂow from ﬁnancing activities Proceeds from shares issued – 56.2 Share issue costs – (2.8) Finance lease payments (0.2) – Proceeds from new loans – 73.5 Dividends paid (10.0) (8.7) Net cash ﬂow from ﬁnancing activities (10.2) 118.2 Increase/(decrease) in cash 6.6 (5.9) Cash at the start of the ﬁnancial year 4.4 10.3 Cash at the end of the ﬁnancial year 11.0 4.4 Speedy Hire Plc Annual Report and Accounts 2009 65 COMPANY CASH FLOW STATEMENT for the year ended 31 March 2009 2009 2008 £m £m Cash ﬂow from operating activities (Loss)/proﬁt before tax (10.8) 11.5 Adjustments for: Dividends received (13.8) (17.4) Financial income (14.3) (17.0) Financial expense 20.7 21.8 Impairment of non-current investments 18.7 – Equity-settled share-based payments (1.2) 2.2 (0.7) 1.1 Decrease/(increase) in trade and other receivables 15.0 (151.5) (Decrease)/increase in trade and other payables (3.5) 3.2 Cash generated from operations 10.8 (147.2) Interest received 14.3 17.0 Interest paid (21.5) (20.5) Tax received 0.4 3.6 Net cash ﬂow from operating activities 4.0 (147.1) Cash ﬂow from investing activities Acquisition of minority interest (1.3) – Investment in shares – (5.0) Dividends received 13.8 17.4 12.5 12.4 Net cash ﬂow before ﬁnancing activities 16.5 (134.7) Cash ﬂow from ﬁnancing activities Proceeds from shares issued – 56.2 Share issue costs – (2.8) Proceeds from new loans – 86.4 Repayment of borrowings (6.4) – Dividends paid (10.0) (8.7) Net cash ﬂow from ﬁnancing activities (16.4) 131.1 Increase/(decrease) in cash 0.1 (3.6) Cash at the start of the ﬁnancial year – 3.6 Cash at the end of the ﬁnancial year 0.1 – 66 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 1 ACCOuNTING POLICIES Speedy Hire Plc is a company incorporated in the United Kingdom. The consolidated ﬁnancial statements of the Company for the year ended 31 March 2009 comprise the Company and its subsidiaries (together referred to as the “Group”). The consolidated and Parent Company ﬁnancial statements were approved by the Board of Directors on 26 May 2009. STATEMENT OF COMPLIANCE Both the Group and Parent Company ﬁnancial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). On publishing the Parent Company ﬁnancial statements here together with the Group ﬁnancial statements, the Company is taking advantage of the exemption in s230(4) of the Companies Act 1985 not to present its individual income statement and related notes that form part of the approved ﬁnancial statements. BASIS OF PREPARATION The ﬁnancial statements are prepared on the historical cost basis except that derivative ﬁnancial instruments are held at fair value. The accounting policies set out below have been applied consistently to all periods presented in these consolidated ﬁnancial statements. GOING CONCERN As detailed on page 31, the Directors continue to adopt the going concern basis in preparing the Annual Report and ﬁnancial statements. BASIS OF CONSOLIDATION Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the ﬁnancial and operating policies of an entity so as to obtain beneﬁts from its activities. The ﬁnancial statements of subsidiaries are included in the consolidated ﬁnancial statements from the date that control commences until the date that control ceases. Intra-Group balances, and any unrealised gains and losses or income and expenses arising from intra-Group transactions, are eliminated in preparing the consolidated ﬁnancial statements. ACCOuNTING STANDARDS NOT YET EFFECTIVE These consolidated and Company ﬁnancial statements have been prepared in accordance with IFRS and related IFRIC interpretations in issue that have been endorsed by the European Commission and are eﬀective as at 31 March 2009. The International Accounting Standards Board (“IASB”) has introduced a number of accounting standards which have been adopted by the European Commission, and are available for early adoption. However, the Group has not applied these in the ﬁnancial statements for the year ended 31 March 2009. The relevant standards and interpretations that will impact the Group are as follows: – IFRS 8 “Operating Segments” is eﬀective for accounting periods commencing on or after 1 January 2009. The Group has decided not to adopt the standard in the ﬁnancial statements for the year ended 31 March 2009. The application of IFRS 8 in 2009 would not have aﬀected the balance sheet or income statement as the standard is concerned only with disclosure. The Group and Parent Company plan to adopt it in the ﬁnancial statements for the year ended 31 March 2010. REVENuE Revenue is measured at the fair value of consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised in the income statement on a straight-line basis over the period of the hire. Revenue from the sale of goods is recognised in the income statement when the signiﬁcant risks and rewards of ownership have been transferred to the buyer. Transfers of risks and rewards are consistent across all hire contracts. Transfer occurs when the product is received at the customer’s location. DEPRECIATION Depreciation of property, plant and equipment is charged to the income statement so as to write oﬀ the cost of the assets over the estimated useful lives after taking account of estimated residual values. Residual values are reassessed annually. Land is not depreciated. Hire equipment assets are depreciated so as to write them down to their residual value over their normal working lives which range from three to ﬁfteen years depending on the category of the asset. Losses and disposals of such assets are accounted for on a FIFO basis. The principal rates and methods of depreciation used are as follows: HIRE EquIPMENT Tools and general equipment – between three and seven years straight-line Surveying equipment – ﬁve years straight-line Power equipment – between ﬁve and ten years straight-line Accommodation and storage units – between eight and ﬁfteen years straight-line NON-HIRE ASSETS Freehold buildings, and long leasehold improvements – over the shorter of the lease period and 50 years straight-line Short leasehold property improvements – over the period of the lease Fixtures and ﬁttings and oﬃce equipment (excluding IT) – 25%–45% per annum reducing balance IT equipment and software – between three and ﬁve years straight-line, or over the period of software licence (if shorter) Motor vehicles – 25% per annum reducing balance Speedy Hire Plc Annual Report and Accounts 2009 67 1 ACCOuNTING POLICIES continued START-uP EXPENSES AND LEASE INCENTIVES Legal and start–up expenses incurred in respect of new hire depots are written oﬀ as incurred. Premiums paid or incentives received (including rent-free periods extending beyond a depot’s opening date) on the acquisition of trading locations are written oﬀ over the period of the lease. LEASES Leases in which the Group assumes substantially all of the risks and rewards of ownership are classiﬁed as ﬁnance leases. These assets are included in the balance sheet at the lower of the fair value or present value of minimum lease payments at inception and are depreciated accordingly. The capital element of the corresponding ﬁnancing commitments is included in the balance sheet. Lease payments in respect of ﬁnance leases are apportioned between the ﬁnance charge and the reduction of the outstanding liability. The ﬁnance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. FINANCING INCOME AND COSTS Financing costs comprise interest payable on borrowings, and gains and losses on ﬁnancial instruments that are recognised in the income statement (see below). Interest income is recognised in the income statement as it accrues, using the eﬀective interest rate. Interest payable on borrowings includes a charge in respect of attributable transaction costs, which are recognised in the income statement over the period of the borrowings on an eﬀective interest basis. The interest expense component of ﬁnance lease payments is recognised in the income statement using the lease’s implicit interest rate. INCOME TAX Income tax is recognised in the income statement except to the extent it relates to items recognised directly in equity, in which case it is recognised in equity. Income tax comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet liability method, providing for temporary diﬀerences between the carrying amounts of assets and liabilities for ﬁnancial reporting purposes and the amounts used for taxation purposes. The following temporary diﬀerences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities aﬀecting neither accounting nor taxable proﬁt, and diﬀerences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable proﬁts will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax beneﬁt will be realised. SEGMENT REPORTING A segment is a distinguishable component of the Group that is engaged in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are diﬀerent from those of other segments. The Group primarily analyses its activities based on class of business. Its operational activities are principally undertaken within the UK and Republic of Ireland, and accordingly the Group’s operating activities are derived from only one geographical segment. PROPERTY, PLANT AND EquIPMENT Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment. The cost of self-constructed assets includes the cost of materials, direct labour, and an appropriate proportion of directly attributable overheads. When parts of an item of property, plant and equipment have diﬀerent useful economic lives, those components are accounted for as separate items of property, plant and equipment. 68 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 1 ACCOuNTING POLICIES continued INTANGIBLE ASSETS As part of its transaction to IFRS, the Group elected to restate only those business combinations that occurred on or after 1 April 2004. In respect of acquisitions prior to 1 April 2004, goodwill represents the amount recognised under the Group’s previous accounting framework, UK GAAP. Goodwill All business combinations are accounted for by applying the purchase method. In respect of acquisitions since 1 April 2004, goodwill represents the diﬀerence between the cost of acquisition and the fair value of the identiﬁable assets, liabilities and contingent liabilities acquired. Goodwill is stated at cost less any accumulated impairment losses, and is included as an intangible asset. It is allocated to cash- generating units and is tested annually for impairment. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Other intangible assets Intangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses (note 11). Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred. Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful economic lives of identiﬁed intangible assets. Intangible assets excluding goodwill are amortised from the date that they are available for use. For a number of its acquisitions, the Group has identiﬁed intangible assets in respect of sole supply contracts, customer lists, brands and non-compete agreements. The values of these intangibles are recognised as part of the identiﬁable assets, liabilities and contingent liabilities acquired. The useful lives are estimated as follows: Sole supply contracts – over the unexpired period of the contracts, up to ﬁve years Customer lists – over the period of the agreement, up to ten years Brand – over the period of use in the business, up to four years Non-compete agreements – over the period of the agreement IMPAIRMENTS The carrying amounts of the Group’s non-ﬁnancial assets, other than inventory and deferred tax, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing the value in use, the estimated future cash ﬂows of the identiﬁed cash-generating units 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. A cash-generating unit is the smallest identiﬁable asset group that generates cash ﬂows that are largely independent from the other assets and groups. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated ﬁrst to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. OWN SHARES HELD BY EMPLOYEE BENEFITS TRuST Transactions of the Company-sponsored Employee Beneﬁts Trust are treated as being those of the Company and are therefore reﬂected in the Parent Company and Group ﬁnancial statements. In particular, the Trust’s purchases of shares in the Company are debited directly to equity. Speedy Hire Plc Annual Report and Accounts 2009 69 1 ACCOuNTING POLICIES continued INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where appropriate, overheads that have been incurred in bringing the inventory to its present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. DERIVATIVE FINANCIAL INSTRuMENTS The Group uses derivative ﬁnancial instruments to hedge its exposure to interest rate risks arising from ﬁnancing activities. In accordance with its treasury policy, the Group does not hold or issue derivative ﬁnancial instruments for trading purposes; however, derivatives that do not qualify for hedge accounting are accounted for as trading instruments and the movement in fair value is recognised in the income statement. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in proﬁt or loss when incurred. Subsequent to initial recognition, changes in the fair value of the derivative hedging instrument designated as a cash ﬂow hedge are recognised directly in equity to the extent that the hedge is eﬀective. To the extent that the hedge is ineﬀective, changes in fair value are recognised in proﬁt or loss. If the hedging instrument expires, no longer meets the criteria for hedge accounting, is sold, is terminated or is exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non-ﬁnancial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to proﬁt or loss in the same period that the hedged items aﬀects proﬁt or loss. INTRA-GROuP FINANCIAL INSTRuMENTS Where the Company enters into ﬁnancial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. TRADE AND OTHER RECEIVABLES Trade and other receivables are stated at their nominal amount less impairment losses. CASH AND CASH EquIVALENTS Cash and cash equivalents comprise cash balances and overnight deposits. INTEREST-BEARING BORROWINGS Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest- bearing borrowings are stated at amortised cost, with any diﬀerence between cost and redemption value being recognised in the income statement over the period of the borrowings on an eﬀective interest basis. TRANSLATION OF FOREIGN CuRRENCIES Transactions in foreign currencies are initially recorded at the rate of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates of exchange ruling at the balance sheet date. Exchange gains and losses arising on settlement or retranslation of monetary assets and liabilities are included in the income statement. Assets and liabilities of overseas subsidiaries are translated at the rate of exchange ruling at the balance sheet date. The results of overseas subsidiary undertakings are translated into sterling at the average rates of exchange during the period. Exchange diﬀerences resulting from the translation of the results and balances of overseas subsidiary undertakings are charged or credited directly to the foreign currency translation reserve. Such translation diﬀerences become recognised in the income statement in the period in which the subsidiary undertaking is disposed. EMPLOYEE BENEFITS Pension schemes The Group oﬀers a stakeholder pension arrangement to employees and in addition makes contributions to personal pension schemes for certain employees. Obligations for contributions to these deﬁned contribution pension plans are recognised as an expense in the income statement as incurred. Share-based payment transactions The Group operates a number of schemes which allow certain employees to acquire shares in the Company, including the Performance Plan, the Co-investment Plan, and the all employee Sharesave Schemes. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured, using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reﬂect the actual number of share options that vest except where forfeiture is only due to total shareholder return not achieving the threshold for vesting. 70 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 1 ACCOuNTING POLICIES continued PROVISIONS A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, the obligation can be measured reliably, and it is probable that an outﬂow of economic beneﬁts will be required to settle the obligation. If the eﬀect is material, provisions are determined by discounting the expected future cash ﬂows at a pre-tax rate that reﬂects current market assessments of the time value of money and, where appropriate, the risks speciﬁc to the liability. EXCEPTIONAL ITEMS Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the income statement to enable a full understanding of the Group’s ﬁnancial performance. Transactions which may give rise to exceptional items include the restructuring of business activities. SIGNIFICANT JuDGEMENTS AND ESTIMATES The preparation of ﬁnancial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that aﬀect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. 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 in the period of the revision and future periods if the revision aﬀects both current and future periods. In relation to the Group’s property, plant and equipment (note 12), useful economic lives and residual values of assets have been established using historical experience and an assessment of the nature of the assets involved. Assets are assessed on an ongoing basis to determine whether circumstances exist that could lead to potential impairment of the carrying value of such assets. The Group has a number of properties which are leased but no longer occupied. The future cost of these ongoing lease obligations is provided for by way of an onerous property contract provision (see note 19). In determining the level of provision required, the Group assesses the likelihood of mitigating future lease costs as a result of break clauses in leases, or the lkelihood of sub-letting the property to third parties. In doing so, the Group obtains external professional advice where the amounts involved are material. Goodwill is reviewed annually to assess the requirement for impairment. Other intangible assets are assessed on an ongoing basis to determine whether circumstances exist that could lead to the conclusion that the carrying value of such assets is not supportable. Impairment testing on goodwill is carried out in accordance with the analyses described in note 11. Such calculations require judgement relating to the appropriate discount factors and long-term growth prevalent in particular markets as well as short-term business performance. The Directors draw upon experience as well as external resources in making these judgements. In the year to 31 March 2009, an impairment review was undertaken in respect of intangible assets and property, plant and equipment, using the basis and key assumptions set out in note 11. The charge for share-based payment is calculated in accordance with the analysis described in note 23. The option valuation models used require subjective assumptions to be made including the future volatility of the Company’s share price, expected dividend yields, risk-free interest rates and expected staﬀ turnover. The Directors draw upon a variety of external sources to aid in the determination of the appropriate data to use in such calculations. 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. Where possible, for example in respect of the acquisition of hire assets, comparison is made to the carrying value of assets of a similar condition and age in the existing business. Speedy Hire Plc Annual Report and Accounts 2009 71 2 SEGMENTAL ANALYSIS The Group’s primary segmental reporting format is class of business, as the Group’s management and internal reporting are structured in this manner. The Group’s activity is conducted principally within the United Kingdom and Republic of Ireland. Tools Equipment Total 2009 2008 2009 2008 2009 2008 £m £m £m £m £m £m Analysis of segmental result Total revenue 240.1 257.8 247.7 217.3 487.8 475.1 Intra-group revenue (2.9) (1.2) (8.8) (8.4) (11.7) (9.6) Revenue 237.2 256.6 238.9 208.9 476.1 465.5 Segmental result before depreciation, amortisation and exceptional items 53.2 67.8 74.4 69.9 127.6 137.7 Impairment of intangible assets (43.2) – (17.7) – (60.9) – Impairment of property, plant and equipment – – (8.8) – (8.8) – Exceptional restructuring provision (13.0) – (4.6) – (17.6) – Exceptional integration costs – (10.0) – – – (10.0) Depreciation (32.7) (33.0) (35.3) (29.9) (68.0) (62.9) Amortisation (3.9) (2.0) (5.3) (5.2) (9.2) (7.2) Result before corporate costs (39.6) 22.8 2.7 34.8 (36.9) 57.6 Corporate costs (including exceptional costs of £3.4 million (2008: nil)) (13.3) (10.8) Operating (loss)/proﬁt (50.2) 46.8 Net ﬁnancing costs (20.4) (16.3) (Loss)/proﬁt before tax (70.6) 30.5 Taxation 16.0 (6.1) (Loss)/proﬁt for the ﬁnancial year (54.6) 24.4 Tools Equipment Total 2009 2008 2009 2008 2009 2008 £m £m £m £m £m £m Analysis of segment net assets Segmental non-current assets Intangible assets 27.8 61.7 43.4 67.2 71.2 128.9 Property, plant and equipment 155.5 175.5 167.3 169.3 322.8 344.8 183.3 237.2 210.7 236.5 394.0 473.7 Segmental current assets 71.1 82.7 40.5 94.7 111.6 177.4 Segmental total assets 254.4 319.9 251.2 331.2 505.6 651.1 Cash 11.0 4.4 Unallocated assets 12.3 10.5 Total assets 528.9 666.0 Segmental liabilities (45.3) (91.0) (42.7) (55.1) (88.0) (146.1) Borrowings (258.6) (260.0) Unallocated liabilities (14.8) (19.8) Total liabilities (361.4) (425.9) Net assets 167.5 240.1 72 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 2 SEGMENTAL ANALYSIS continued Tools Equipment Total 2009 2008 2009 2008 2009 2008 £m £m £m £m £m £m Analysis of capital expenditure Intangible assets 8.9 62.6 3.5 2.2 12.4 64.8 Property, plant and equipment 24.7 118.2 37.4 37.9 62.1 156.1 Segmental capital expenditure 33.6 180.8 40.9 40.1 74.5 220.9 Unallocated capital expenditure 13.9 13.4 Total capital expenditure 88.4 234.3 Intra-group transactions are undertaken on an arm’s length basis. Corporate costs comprise the costs of operating the head oﬃce of Speedy Hire Plc and also certain central activities. These are not directly related to the activities of the segments. The ﬁnancing of the Group’s activities is undertaken at head oﬃce level and consequently net ﬁnancing costs cannot be analysed segmentally. The unallocated net assets comprise principally computer and information systems, working capital balances held by the Support Services function and liabilities relating to dividends and taxation and are not directly attributable to the activities of the segments. 3 EXCEPTIONAL ITEMS 2009 Impairment of non–current assets A provision of £60.9 million has been made against the Group’s goodwill and intangible assets following a review of their carrying values as part of the annual impairment testing process. Deterioration in the markets in which the Group operates, notably the construction markets, has resulted in the Group revising its assumptions regarding future activity levels. This has resulted in revised forecasts of cash ﬂows arising in cash-generating units. An impairment loss has been calculated on a value in use basis and consists of a £48.0 million write- down in goodwill and £12.9 million write-down of other acquired intangibles. Further information on the impairment testing process is contained in note 11. In addition, an impairment loss has been identiﬁed in respect of the carrying value of tangible assets in respect of the Accommodation business, and accordingly £8.8 million has been written oﬀ the carrying value during the year. Exceptional restructuring costs As part of the Group’s cost reduction programme, a number of initiatives were undertaken to reduce the Group’s operating structure to a more appropriate level in light of the changes in market conditions. The main elements of cost incurred as part of these processes include provisions for onerous lease obligations on depot closures (£5.3 million) together with provisions against the carrying value of related ﬁxtures & ﬁttings and leasehold improvements (£0.5 million), redundancy costs (£4.0 million), losses incurred on the one-oﬀ disposal of surplus hire ﬂeet assets (£7.1 million), re-organisation of back-oﬃce structures and the ongoing creation of a central shared-service facility (£0.8 million). In addition, costs of £1.9 million were incurred arising from the acquisition and integration of the Amec LSS and Carillion Asset Management businesses (relating primarily to redundancy, relocation and asset reorganisation costs). Other exceptional items During the year, the Group negotiated amendments to its bank facility to establish more appropriate ﬁnancial covenants. As part of this process, £1.4 million of costs were incurred in respect of various advisers working for either the Group or the bank syndicate (included within operating expenses), and fees amounting to £4.6 million (included within ﬁnancing costs) were paid to the bank syndicate. The resulting tax credit arising in relation to exceptional items amounts to £23.0 million, of which £16.8 million relates to current tax and £6.2 million relates to deferred tax. 2008 Exceptional integration costs relate to the costs associated with the integration of the Hewden Tools acquisition. On 1 August 2007, the Group acquired the trade and assets of the tool hire operation of Hewden Stuart Plc. The costs incurred related to a provision for lease costs associated with properties made vacant by the relocation of the business into the other depots within the tool network (£2.9 million), write-oﬀ of related ﬁxtures and ﬁttings in the closed depots (£1.3 million), re-branding and sales and marketing costs (£1.5 million), costs associated with the transitional services arrangements (£1.2 million), consultancy and other one-oﬀ costs associated with the integration (£3.1 million). In addition, £0.4 million of exceptional bank facility fees were incurred. The resulting tax credit arising from the costs associated with the integration and acquisition amounted to £3.1 million. Speedy Hire Plc Annual Report and Accounts 2009 73 4 OPERATING LOSS/PROFIT Operating (loss)/proﬁt is stated after charging/(crediting): 2009 2008 £m £m Amortisation of intangible assets 9.2 7.2 Depreciation: – of owned property, plant and equipment 75.8 67.6 – of property, plant and equipment held under ﬁnance lease 0.1 – Loss/(proﬁt) on disposal of property, plant and equipment 1.6 (9.7) Operating lease rentals – of plant and equipment 2.3 1.2 – of land and buildings 15.1 12.8 – of vehicles 14.5 12.8 Auditors’ remuneration – audit of these ﬁnancial statements 0.1 0.1 – amounts receivable by auditors in respect of: – audit of ﬁnancial statements of subsidiaries pursuant to legislation 0.2 0.2 – services relating to consultancy advice provided in connection with acquisitions – 1.0 – other non-audit services 0.6 – – other services relating to taxation 0.1 0.2 The (loss)/proﬁt on disposal of hire equipment is included within (loss)/proﬁt before ﬁnancing as it results from the routine disposal of tools and equipment and is no more than required adjustments to depreciation previously charged. 5 EMPLOYEES The average number of people employed by the Group (including Directors) during the year was as follows: Number of employees 2009 2008 Tools 3,085 2,856 Equipment 1,596 1,452 Central 428 384 5,109 4,692 At 31 March 2009, the number of people employed by the Group (including Directors) was 4,471 (2008: 5,177). The aggregate payroll costs of these employees were as follows: 2009 2008 £m £m Wages and salaries 129.3 150.8 Share-based payments – 2.5 Social security costs 12.4 11.6 Other pension costs 0.6 0.6 142.3 165.5 The Company does not have any employees. 74 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 6 DIRECTORS’ REMuNERATION 2009 2008 £000 £000 Directors’ emoluments Basic remuneration, including beneﬁts 1,348 1,077 Performance-related bonuses – 749 Payments to former Directors 33 48 Company pension contributions to personal pension plans 154 130 1,535 2,004 Emolument of the highest paid Director Basic remuneration, including beneﬁts 352 335 Performance-related bonuses – 303 Company pension contributions to personal pension plans 68 65 420 703 Further analysis of Directors’ remuneration can be found in the Remuneration Report on pages 47 to 56. All of the Directors’ remuneration is paid by Speedy Support Services Limited, a wholly owned subsidiary of Speedy Hire Plc. No charge is incurred by the Parent Company. 7 FINANCIAL INCOME AND EXPENSE 2009 2008 £m £m Financial income Bank interest received 0.2 0.2 Other interest received – 0.7 0.2 0.9 Financial expense Interest on bank loans and overdrafts (15.0) (16.1) Hedge interest payable (0.3) – Amortisation of issue costs (0.5) (0.5) Exceptional amortisation of issue costs – (0.4) Exceptional amortisation of bank fees (4.6) – Other ﬁnance costs (0.2) (0.2) (20.6) (17.2) Net ﬁnancial expense (20.4) (16.3) Speedy Hire Plc Annual Report and Accounts 2009 75 8 TAXATION 2009 2008 £m £m Current tax UK corporation tax at 28% (2008: 30%) (5.1) 4.2 Adjustment in respect of prior years 2.3 0.4 Total current tax (2.8) 4.6 Deferred tax UK deferred tax at 28% (2008: 28%) (9.2) 2.8 Adjustment in respect of prior years (4.0) (1.3) Total deferred tax (13.2) 1.5 Total tax (credit)/expense (16.0) 6.1 The tax credit for the year is lower than the standard rate of corporation tax in the UK and is explained as follows: 2009 2008 £m £m (Loss)/proﬁt before tax (70.6) 30.5 Tax (credit)/charge at 28% (2008: 30%) (19.8) 9.2 Expenses not deductible for tax purposes 2.5 1.8 Non-taxable income (0.6) (0.9) Impact of change in UK corporation tax rate to 28% on deferred tax – (2.6) Share-based payments 0.4 (0.5) Impairment of goodwill arising on consolidation 3.2 – Adjustment to tax in respect of prior years (1.7) (0.9) Tax (credit)/charge for the year (16.0) 6.1 Tax recognised directly in equity (note 20) Deferred tax charge 0.2 1.1 9 EARNINGS PER SHARE Basic earnings per share is based on the loss after income tax attributable to equity holders of the Parent of £54.6 million (2008: proﬁt £23.3 million) and the weighted average number of 5 pence ordinary shares in issue during the year of 50,619,978 (2008: 48,764,167). The weighted average number of ordinary shares used for the diluted earnings per share is calculated as follows: 2009 2008 Weighted Weighted average Earnings average Earnings number of per number of per Earnings shares share Earnings shares share £m million pence £m million pence Basic earnings (54.6) 50.6 (107.93) 23.3 48.8 47.89 Share options – – – – 0.3 (0.07) Employee share scheme – – – – 0.1 (0.33) Diluted earnings (54.6) 50.6 (107.93) 23.3 49.2 47.49 The table below reconciles basic earnings per share to earnings per share pre-amortisation and exceptional items: 2009 2008 pence pence Basic earnings per share (107.93) 47.89 Intangible amortisation charge after tax per share 14.13 10.31 Exceptional items after tax per share 142.68 14.99 Basic earnings per share pre-amortisation and exceptional items 48.88 73.19 76 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 10 DIVIDENDS The aggregate amount of dividend comprises: 2009 2008 £m £m 2008 ﬁnal – 13.4pps (2007: 11.5pps) on 50.7 million shares (2007: 48.2 million) 6.8 5.5 2009 interim – 6.4pps (2008: 6.4pps) on 50.7 million shares (2008: 50.4 million) 3.2 3.2 Aggregate amount of dividends paid in the ﬁnancial year 10.0 8.7 Subsequent to the end of the year, the Directors proposed a ﬁnal dividend of 6.4 pence (2008: 13.4 pence) per share, bringing the total amount payable in respect of the 2009 year (if approved) to 12.8 pence (2008: 19.8 pence). The Employee Beneﬁts Trust established to hold shares for the Performance Plan and Co-Investment Plan has waived its right to the interim and ﬁnal proposed dividends. At 31 March 2009, the trust held 281,673 5p ordinary shares (2008: 383,366). 11 INTANGIBLE FIXED ASSETS Customer Non-compete Supply Goodwill lists agreements Brand agreements Total £m £m £m £m £m £m Cost At 1 April 2007 48.1 18.5 – 3.8 9.0 79.4 Additions through business combinations 41.2 13.0 4.6 0.3 5.7 64.8 At 31 March 2008 89.3 31.5 4.6 4.1 14.7 144.2 Additions through business combinations 4.2 4.7 0.3 – 3.2 12.4 At 31 March 2009 93.5 36.2 4.9 4.1 17.9 156.6 Amortisation At 1 April 2007 1.2 1.6 – 0.7 4.6 8.1 Charged in year – 2.7 0.8 2.2 1.5 7.2 At 31 March 2008 1.2 4.3 0.8 2.9 6.1 15.3 Charged in year – 4.0 1.2 0.6 3.4 9.2 Impairment (note 3) 48.0 7.1 1.0 – 4.8 60.9 At 31 March 2009 49.2 15.4 3.0 3.5 14.3 85.4 Net book value At 31 March 2009 44.3 20.8 1.9 0.6 3.6 71.2 At 31 March 2008 88.1 27.2 3.8 1.2 8.6 128.9 At 31 March 2007 46.9 16.9 – 3.1 4.4 71.3 All goodwill has arisen from business combinations. On transition to IFRS, the balance of goodwill as measured under UK GAAP was allocated to cash-generating units (CGUs). These are independent sources of income streams, and represent the lowest level within the Group at which the associated goodwill is monitored for management purposes. The Group’s reportable business segments, Tools and Equipment, are the CGUs assessed for impairment testing. Speedy Hire Plc Annual Report and Accounts 2009 77 11 INTANGIBLE FIXED ASSETS continued Goodwill arising on business combinations after 1 April 2004 has been allocated to the CGUs that are expected to beneﬁt from that business combination. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the goodwill and intangible assets allocated to CGUs are determined by value in use calculations. These calculations use cash ﬂow projections based on ﬁve-year ﬁnancial forecasts approved by management. The key assumptions for these forecasts are those regarding revenue growth, net margin and the level of capital expenditure required to support trading, which management estimates based on past experience adjusted for current market trends and expectations of future changes in the market. To prepare value in use calculations, the Group uses cash ﬂow projections for a ﬁfteen year period, based on the 2009–10 budget and subsequent four years’ business plans. Cash ﬂows beyond this period are extrapolated at an estimated average long-term nominal growth rate which has been estimated at 2.5% (2008: 5.0%) being an estimate of inﬂation, and discounted back to present value, using the Group’s pre-tax discount rate. The discount rate assumptions use an estimate of the Group’s weighted average cost of capital. The pre-tax discount rate used to discount cash ﬂow forecasts is 13.9% (2008: 9.4%). The pre-tax discount rate has been adjusted for Company and market speciﬁc risks which the Directors consider to be consistent across both CGUs. Deterioration in the markets in which the Group operates, notably the construction markets, has resulted in the Group revising its expectations about the level of activity which will be sustainable in the long term. An impairment loss has been calculated on a value in use basis and consists of a £48.0 million write-down in goodwill and £12.9 million write-down of other acquired intangibles. Following this there is no diﬀerence between the carrying amount and the recoverable amount of the goodwill and intangibles balances at the balance sheet date. £14.8 million of the remaining goodwill net book value relates to the Tools division, and £29.5 million to the Equipment division. Of the total goodwill value, £1.5 million relates to 2009 acquisitions, £10.4 million to 2008 acquisitions, £25.0 million to 2007 acquisitions, and £7.4 million in respect of acquisitions in prior years. Impairment calculations are sensitive to changes in key assumptions of revenue growth and discount rate. An increase of 1% in the discount rate, with all other assumptions held constant, would give rise to an additional impairment charge of £5.4 million in Tools and £4.0 million in Equipment. A decrease of 1% in the forecast revenue growth, with all the other assumptions held constant, would give rise to an additional impairment charge of £5.3 million in Tools and £2.4 million in Equipment. 78 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 12 PROPERTY, PLANT AND EquIPMENT Fixtures, Land and Hire ﬁttings and buildings equipment motor vehicles Total £m £m £m £m Cost At 1 April 2007 20.4 438.3 28.6 487.3 Additions 4.0 85.9 14.2 104.1 Arising on acquisition of businesses 0.7 91.4 14.7 106.8 Disposals (0.3) (45.8) (7.7) (53.8) At 31 March 2008 24.8 569.8 49.8 644.4 Additions 5.2 59.7 10.2 75.1 Arising on acquisition of businesses – 0.9 – 0.9 Disposals (2.0) (116.1) (1.7) (119.8) At 31 March 2009 28.0 514.3 58.3 600.6 Depreciation At 1 April 2007 9.3 167.9 14.4 191.6 Charged in year 3.2 60.7 3.7 67.6 Arising on acquisition of businesses 0.2 34.0 7.2 41.4 Disposals (0.1) (27.0) (2.0) (29.1) At 31 March 2008 12.6 235.6 23.3 271.5 Charged in year 2.8 63.5 9.6 75.9 Impairment (note 3) – 8.8 – 8.8 Disposals (0.4) (77.0) (1.4) (78.8) At 31 March 2009 15.0 230.9 31.5 277.4 Net book value At 31 March 2009 13.0 283.4 26.8 323.2 At 31 March 2008 12.2 334.2 26.5 372.9 At 31 March 2007 11.1 270.4 14.2 295.7 The net book value of land and buildings comprises: 2009 2008 £m £m Freehold properties 0.4 2.2 Long leasehold properties 0.7 0.4 Short leasehold properties 11.9 9.6 13.0 12.2 An impairment review has been completed during the year using the basis set out in note 11. An increase of 1% in the discount rate, with all other assumptions held constant, would give rise to an additional impairment provision against hire equipment of £2.7 million. A decrease of 1% in the forecast revenue growth, with all the other assumptions held constant, would give rise to an additional impairment charge of £3.9 million. Speedy Hire Plc Annual Report and Accounts 2009 79 13 INVESTMENTS Investments in subsidiary Other undertakings investments Total £m £m £m Cost At 1 April 2007 106.7 0.1 106.8 Additions 5.0 – 5.0 At 31 March 2008 111.7 0.1 111.8 Additions 1.3 – 1.3 At 31 March 2009 113.0 0.1 113.1 Provisions At 1 April 2007 and 31 March 2008 (0.1) – (0.1) Impairment (18.7) – (18.7) At 31 March 2009 (18.8) – (18.8) Net book value At 31 March 2009 94.2 0.1 94.3 At 31 March 2008 111.6 0.1 111.7 At 31 March 2007 106.6 0.1 106.7 Following the impairment testing performed in accordance with IAS 36 (see note 11), the Company’s carrying value of investments in subsidiary undertakings has been reviewed and an impairment made against certain values accordingly. In accordance with s251 of the Companies Act 1985, the Company’s principal subsidiary undertakings are as follows: Ordinary Principal share capital activity held Speedy Hire Centres (Northern) Limited Hire services 100% Speedy Hire Centres (Southern) Limited Hire services 100% Speedy Hire Centres (Western) Limited Hire services 100% Speedy Hire Centres Limited Hire services 100% Speedy Hire (Scotland) Limited Hire services 100% Speedy Hire (Ireland) Limited* Hire services 100% Waterford Hire Services Limited Hire services 100% Speedy Hire Direct Limited* Hire services 100% Speedy Lifting Limited Hire services 100% Speedy LGH Limited Hire services 100% Speedy Space Limited Hire services 100% Speedy Power Limited Hire services 100% Speedy LCH Generators Limited Hire services 100% Speedy Pumps Limited Hire services 100% Speedy Survey Limited Hire services 100% Speedy Engineering Services Limited Hire services 100% Speedy Support Services Limited Provision of Group services 100% Speedy Transport Limited Provision of Group services 100% Allen Investments Limited Property management 100% Speedy Asset Leasing Limited Leasing services 100% * Indirect holding via a 100% subsidiary undertaking. The Company holds voting rights in each subsidiary undertaking in the same proportion to its holdings in the ordinary share capital of the respective subsidiaries. All subsidiary undertakings, with the exception of Speedy Hire (Ireland) Limited and Waterford Hire Services Limited, are incorporated and operate in the United Kingdom. Speedy Hire (Ireland) Limited and Waterford Hire Services Limited are incorporated and operate in the Republic of Ireland. 80 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 14 INVENTORIES Group 2009 2008 £m £m Finished goods and goods for resale 12.2 16.2 15 TRADE AND OTHER RECEIVABLES Group Company 2009 2008 2009 2008 £m £m £m £m Trade receivables 98.8 128.4 – 0.1 Amounts owed by Group undertakings – – 317.5 332.3 Other receivables 0.7 8.5 3.3 0.3 Prepayments and accrued income 4.9 6.7 1.8 4.9 104.4 143.6 322.6 337.6 16 TRADE AND OTHER PAYABLES Group Company 2009 2008 2009 2008 £m £m £m £m Trade payables 36.8 63.4 0.7 0.1 Amounts owed to Group undertakings – – 13.8 13.3 Other payables 8.0 11.4 – – Accruals 19.3 45.2 2.6 6.6 64.1 120.0 17.1 20.0 17 FINANCIAL INSTRuMENTS The Group holds and uses ﬁnancial instruments to ﬁnance its operations and to manage its interest rate and liquidity risks. The Group primarily ﬁnances its operations using share capital, retained proﬁts and borrowings. The Group does not engage in trading or speculative activities using derivative ﬁnancial instruments. A Group oﬀset arrangement exists for cash balances to take advantage of the most rewarding short-term investment opportunities. FAIR VALuE OF FINANCIAL ASSETS AND LIABILITIES The fair values of ﬁnancial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: 2009 2008 Carrying Fair Carrying Fair amount value amount value £m £m £m £m Trade and other receivables 99.5 99.5 136.9 136.9 Cash 11.0 11.0 4.4 4.4 Secured bank borrowings (258.6) (258.6) (260.0) (260.0) Finance lease liabilities (0.8) (0.8) – – Interest rate swaps, caps and collars, used for hedging (5.7) (5.7) (0.5) (0.5) Trade and other payables (64.1) (64.1) (120.0) (120.0) (218.7) (218.7) (239.2) (239.2) Unrecognised gain/(loss) – – Speedy Hire Plc Annual Report and Accounts 2009 81 17 FINANCIAL INSTRuMENTS continued BASIS FOR DETERMINING FAIR VALuES The following summarises the principal methods and assumptions used in estimating the fair value of ﬁnancial instruments reﬂected in the table above: (a) Derivatives Broker quotes are used for all interest rate swaps, caps and collars. (b) Interest-bearing loans and borrowings Fair value is calculated based on discounted expected future principal and interest cash ﬂows. (c) Trade and other receivables/payables For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reﬂect the fair value. All other receivables/payables are discounted to determine the fair value. The main risks arising from the Group’s ﬁnancial instruments are credit, interest rate, foreign currency, and liquidity risk. The Board reviews and agrees the policies for managing each of these risks on an annual basis. CREDIT RISK Credit risk is the risk of ﬁnancial loss to the Group if a customer or counterparty to a ﬁnancial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. The exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. At the balance sheet date there were no signiﬁcant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each ﬁnancial asset, including derivative ﬁnancial instruments, in the balance sheet. No individual customer accounts for more than 5% of the Group’s sales transactions, and the Group’s exposure to outstanding indebtedness follows this proﬁle. No collateral is held as security in respect of amounts outstanding; however, in a number of instances, deposits are held against the value of hire equipment provided. The extent of deposit taken is assessed on a case-by-case basis, and is not considered signiﬁcant in comparison to the overall amounts receivable from customers. Transactions involving derivative ﬁnancial instruments are undertaken with counterparties within the syndicate of banks which provide the Group’s term loan revolving credit facility. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations. The Group establishes an allowance for impairment that is based on historical experience of dealing with customers within the same risk proﬁle. The maximum exposure to credit risk is represented by the carrying amount of each ﬁnancial asset recorded in the balance sheet. There are £52.2 million (2008: £53.8 million) of trade receivables that are past due at the balance sheet date that have not been provided against. There is no indication as at 31 March 2009 that debtors will not meet their payment obligations in respect of trade receivables recognised in the balance sheet that are past due and unprovided. The ageing of trade receivables (net of impairment provision) at the year end was as follows: 2009 2008 Group £m £m Not past due 46.6 74.6 Past due 0–30 days 23.4 25.1 Past due 31–120 days 18.5 24.9 More than 120 days past due 10.3 3.8 98.8 128.4 The movement in the allowance for impairment in respect of trade receivables during the year was as follows: 2009 2008 Group £m £m At 1 April 10.0 2.6 Impairment loss charged to the income statement 9.4 5.3 Arising on acquisition – 4.9 Written oﬀ in the year (10.0) (2.8) At 31 March 9.4 10.0 82 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 17 FINANCIAL INSTRuMENTS continued LIquIDITY RISK Liquidity risk is the risk that the Group will not be able to meet its ﬁnancial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have suﬃcient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group uses both short and long-term cash forecasts to assist in monitoring cash ﬂow requirements. Typically, the Group uses short-term forecasting to ensure that it has suﬃcient cash on demand to meet operational expenses and to service ﬁnancing obligations for a period of 12 weeks. Longer-term forecasts are performed on a regular basis to assess compliance with bank covenants on existing facilities, ensuring that activities can be managed within reason to ensure covenant breaches are avoided. The Group maintains the following lines of credit: The term and revolving loan facility was originally entered into in June 2007, and was amended and restated in June 2008 and March 2009. The current facility is sub-divided into: (i) An ‘A Facility’ of £90 million, which is repayable in varying quarterly instalments commencing in September 2009, with the ﬁnal repayment in June 2012; and (ii) A ‘B Facility’ of £210 million repayable on the ﬁfth anniversary of the issue date, which reduces by £20 million over the course of the year to March 2010. Of these facilities, £40 million remained unutilised at the balance sheet date comprising £35 million of the revolving credit facility and £5 million of the overdraft facility. The total B Facility is for £210 million, but is reduced to the extent that ancilliary facilities are provided. The Group has secured an overdraft facility, provided by Barclays Bank PLC, which secures by cross-guarantees and debentures, the bank deposits and overdrafts of the Parent and certain subsidiary companies up to a maximum overdraft of £5 million. The revolving credit facility is secured by a ﬁxed and ﬂoating charge over all the assets of the Group. The Group monitors available facilities against forward requirements on a regular basis and where necessary, obtains additional sources of ﬁnancing to provide the Group with the appropriate level of headroom against the required borrowing. The Group has obtained additional bank and equity funding in recent years as the business has grown, and maintains close contact with its syndicate of banks. MARKET RISK Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will aﬀect the Group’s income or the value of its holdings of ﬁnancial instruments. Generally, the Group seeks to apply hedge accounting in order to manage volatility in proﬁt. Currency risk The Group is exposed to currency risk on the translation of the results of its subsidiaries which are resident in the Republic of Ireland, Speedy Hire (Ireland) Limited and Waterford Hire Services Limited. It is the Group’s policy to review the net investment in both companies on a regular basis, and to hedge against potential exposures to movements in foreign currency where considered appropriate. At 31 March 2009, the total shareholders’ equity of Speedy Hire (Ireland) Limited had net liabilities of £3.6 million (2008: £1.5 million) and Waterford Hire Services Limited had net assets of £1.5 million (2008: £1.5 million) and no hedging instruments are in place to cover potential movements in foreign currency. Interest rate risk The Group is exposed to a risk of a change in cash ﬂows due to changes in interest rates as a result of its use of variable rate borrowings. The Group’s policy is to review regularly the terms of its borrowing facilities, and to assess and manage the long-term borrowing commitment accordingly, and to put in place interest rate hedges to reduce the Group’s exposure to signiﬁcant ﬂuctuations in interest rates. The Group adopts a policy of ensuring that between 40% and 70% of its borrowings are covered by some sort of interest rate hedge. The principal derivative ﬁnancial instruments used by the Group are interest rate swaps, caps and collars. The notional contract amount and the related fair value of the Group’s ﬁnancial instruments can be analysed as follows: 2009 2009 2008 2008 Fair Notional Fair Notional value amount value amount Group and Company £m £m £m £m Designated as cash ﬂow hedges Fixed interest rate swaps (2.6) 50.0 (0.1) 45.0 Interest rate collars (2.5) 70.0 (0.4) 82.0 Interest rate caps (0.6) 20.0 – 25.0 (5.7) 140.0 (0.5) 152.0 Speedy Hire Plc Annual Report and Accounts 2009 83 17 FINANCIAL INSTRuMENTS continued Future cash ﬂows associated with the above instruments are dependent upon movements in LIBOR over the contractual period. Interest is paid or received under the instruments on a quarterly or monthly basis, depending on the individual instrument, referenced to the relevant prevailing UK LIBOR rates. The weighted average interest rate of the ﬁxed interest rate hedge is 5.026% (2008: 5.251%) and the instruments are for a weighted average period of 23 months (2008: 21 months). The maximum contractual period is 27 months. Collar instruments bear interest rates between 4.300% and 6.500% (2008: between 4.010% and 6.500%), for a weighted average period of 13 months (2008: 23 months). The maximum contractual period is 21 months. Capped rate instruments bear a weighted average maximum interest rate of 6.245% (2008: 5.845%) for a weighted average period of 22 months (2008: 22 months). The maximum contractual period is 27 months. SENSITIVITY ANALYSIS In managing interest rate and currency risk the Group aims to reduce the impact of short-term ﬂuctuation on the Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings. At 31 March 2009 it is estimated that a general increase of one percentage point in interest rates would decrease the Group’s proﬁt before tax by approximately £2.1 million. Interest rate swaps, caps and collars have been included in this calculation. CAPITAL MANAGEMENT The Group requires capital for, amongst other things, purchasing hire equipment to replace the existing asset base that has reached the end of its useful life, and for growth, including growth by establishing new rental locations, completing acquisitions and reﬁnancing existing debts in the longer term. The Group deﬁnes Gross Capital as net debt (cash less borrowings) plus shareholders’ funds, and seeks to ensure an acceptable return on Gross Capital. The Group has obtained additional bank borrowings and equity in recent years as the business has grown. The Board seeks to maintain a balance between debt and equity funding such that it maintains a sound capital position relevant for the prevailing economic environment. The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market conﬁdence and to sustain future development of the business. The Board of Directors monitors both the demographic spread of shareholders in order to ensure that the most attractive mix of capital growth and income return is made available to investors. The Group encourages participation in ownership of Speedy Hire Plc shares by employees at all levels within the Group, and has developed this objective through the introduction of Long Term Incentive Plans and Save As You Earn Schemes. There were no changes in the Group’s approach to Capital Management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. 84 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 18 BORROWINGS The Group’s bank overdrafts are secured by cross guarantees and debentures given by Group companies in favour of Barclays Bank PLC. The bank loans are secured by a ﬁxed and ﬂoating charge over all the assets of the Group. The majority proﬁle of the borrowings is as follows: Group Company 2009 2008 2009 2008 £m £m £m £m Current borrowings – ﬁnance leases 0.2 – – – – bank overdraft – – 7.6 – – term loan – – – 14.0 0.2 – 7.6 14.0 Non-current borrowings Maturing between two and ﬁve years – ﬁnance leases 0.6 – – – – term loan 90.0 100.0 90.0 100.0 – revolving credit facility 170.0 161.8 170.0 161.8 – unamortised issue costs (1.4) (1.8) (1.4) (1.8) Total non-current borrowings 259.2 260.0 258.6 260.0 Total borrowings 259.4 260.0 266.2 274.0 Less: cash at bank and in hand (11.0) (4.4) (0.1) – Net debt 248.4 255.6 266.1 274.0 The Group agreed revised terms for its loan facilities on 31 March 2009, resulting in changes to the total facility available, repayment schedule, and margin applied to borrowings. The revised facilities comprise a £90 million term loan, and a £210 million revolving credit facility, both of which expire in June 2012. An ancillary £5 million overdraft facility has been made available, which reduces the revolving credit facility by a corresponding amount. The term loan facility reduces by £20 million in the year to March 2010, £40 million in the year to March 2011, and £30 million in the year to March 2012. The revolving credit facility reduces by £20 million in the year to March 2010. The revolving credit facility can be drawn for various periods speciﬁed by the Company, up to the maturity date, with interest being calculated for the drawn period by reference to the London Inter Bank Oﬀer Rate applicable to the period drawn, plus a margin which during the year ranged from 67.5 to 400 basis points. The eﬀective interest rate applicable to cash deposits during the year was 3.50%. The eﬀective interest rates on bank overdraft and term loans & revolving credit facilities were 3.79% and 5.04% respectively. 19 PROVISIONS Onerous property contracts Group £m At 1 April 2007 – Created in the year 2.9 Provision utilised in the year (0.7) At 31 March 2008 2.2 Created in the year 7.6 Provision utilised in the year (1.7) Unwinding of discount (0.2) At 31 March 2009 7.9 The key assumption underlying the calculation of the provision relates to the assumed sublet period. The provision is calculated based on a gross liability to the earlier of 3 years and the sublet, or break clause, and includes estimated dilapidations at current market rates. The total liability is discounted at the Group’s risk-adjusted pre-tax discount rate of 13.9%. If leases on properties which are forecast to be exited in 2012 are not exited until 2013, the increase required in the discounted provision would amount to £0.4 million, after taking account of leases that expire during the additional year. Speedy Hire Plc Annual Report and Accounts 2009 85 20 DEFERRED TAX Property, plant and Intangible Share-based equipment assets payments Other items Total Group £m £m £m £m £m At 1 April 2007 30.7 7.1 (2.3) (0.8) 34.7 Recognised in income 3.0 (1.6) 0.5 (0.4) 1.5 Recognised in equity – – 1.1 – 1.1 At 31 March 2008 33.7 5.5 (0.7) (1.2) 37.3 Recognised in income (11.2) (2.1) 0.5 (0.4) (13.2) Recognised in equity – – 0.2 – 0.2 At 31 March 2009 22.5 3.4 – (1.6) 24.3 The Group has capital losses carried forward at 31 March 2009 amounting to approximately £4.3 million (2008: £4.0 million). No deferred tax asset has been recognised in respect of these losses. Other items Total Company £m £m At 1 April 2007 – – Recognised in income (0.2) (0.2) At 31 March 2008 (0.2) (0.2) Recognised in income 0.1 0.1 At 31 March 2009 (0.1) (0.1) 21 SHARE CAPITAL 2009 2008 £m £m Authorised 60 million (2008: 60 million) ordinary shares of 5p each 3.0 3.0 Allotted, called up and fully paid 50.9 million (2008: 50.8 million) ordinary shares of 5p each 2.5 2.5 An Employee Beneﬁts Trust was established in 2004 (the “Trust”). The Trust holds shares issued by the Company in connection with the Performance Plan and Co-investment Plan. During the year the Company allotted nil (2008: nil) shares to the Trust; 106,693 shares were transferred to employees during the year (2008: 250,422). At 31 March 2009, the Trust held 281,673 (2008: 383,366) shares. The movement in issued share capital was as follows: Number million £m At 1 April 2007 46.0 2.3 Employee Beneﬁts Trust allotments 0.4 – Placing of ordinary shares 4.4 0.2 At 31 March 2008 50.8 2.5 Employee Beneﬁts Trust allotments 0.1 – At 31 March 2009 50.9 2.5 86 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 22 RECONCILIATION OF MOVEMENT IN EquITY CONSOLIDATED EquITY Share Share Merger Hedging Retained Minority Total capital premium reserve reserve earnings Subtotal interest equity £m £m £m £m £m £m £m £m At 1 April 2007 2.3 57.8 3.7 0.5 106.6 170.9 0.2 171.1 Proﬁt for the year – – – – 23.3 23.3 1.1 24.4 Losses on cash ﬂow hedges – – – (1.2) – (1.2) – (1.2) Dividends – – – – (8.7) (8.7) (8.7) Cost of share-based payments – – – – 2.2 2.2 – 2.2 Tax on items taken directly to equity – – – – (1.1) (1.1) – (1.1) Issue of ordinary shares 0.2 53.2 – – – 53.4 – 53.4 At 31 March 2008 2.5 111.0 3.7 (0.7) 122.3 238.8 1.3 240.1 Loss for the year – – – – (54.6) (54.6) – (54.6) Losses on cash ﬂow hedges – – – (5.3) – (5.3) – (5.3) Dividends – – – – (10.0) (10.0) – (10.0) Cost of share-based payments – – – – (1.2) (1.2) – (1.2) Tax on items taken directly to equity – – – – (0.2) (0.2) – (0.2) Purchase of minority interest – – – – – – (1.3) (1.3) At 31 March 2009 2.5 111.0 3.7 (6.0) 56.3 167.5 – 167.5 COMPANY EquITY Share Share Merger Hedging Retained Total capital premium reserve reserve earnings equity £m £m £m £m £m £m At 1 April 2007 2.3 57.8 8.6 0.5 28.0 97.2 Proﬁt for the year – – – – 13.4 13.4 Dividends – – – – (8.7) (8.7) Losses on cash ﬂow hedges – – – (1.2) – (1.2) Cost of share-based payments – – – – 2.2 2.2 Issue of ordinary shares 0.2 53.2 – – – 53.4 At 31 March 2008 2.5 111.0 8.6 (0.7) 34.9 156.3 Loss for the year – – – – (10.8) (10.8) Dividends – – – – (10.0) (10.0) Losses on cash ﬂow hedges – – – (5.3) – (5.3) Cost of share-based payments – – – – (1.2) (1.2) At 31 March 2009 2.5 111.0 8.6 (6.0) 12.9 129.0 Speedy Hire Plc Annual Report and Accounts 2009 87 23 SHARE OPTIONS At 31 March 2009 options over 1,610,332 shares (2008: 1,457,100 shares) were outstanding under employee share schemes. The Group operates a number of share incentive schemes, which are described in the Remuneration Report on pages 50 to 56. During the year 145,865 (2008: 718,562) options were exercised by employees comprising 93,013 (2008: 247,304) nil cost options in respect of the Co-Investment and Performance Share Plans and 52,852 (2008: 471,258) at 383 pence in respect of the Sharesave schemes. At 31 March 2009 options to acquire 328,755 (2008: 797,372) Speedy Hire Plc shares were outstanding under the Speedy Hire Sharesave Schemes. These options are exercisable by employees of the Group at prices between 624 and 940 pence (2008: 383 pence and 940 pence) at dates between 1 February 2009 and 31 July 2011 (2008: 1 February 2008 and 31 July 2011). At 31 March 2009 options to acquire 1,281,577 shares (2008: 659,728) were outstanding under the Performance and Co-Investment Plans. These options were exercisable at eﬀectively nil cost between June 2008 and June 2010. The number and weighted average exercise price (“WAEP”) of share options under all the share option schemes are as follows: 2009 2008 WAEP 2009 WAEP 2008 pence number pence number Options outstanding at 1 April 378 1,457,100 311 1,524,663 Granted – 842,901 605 912,136 Exercised 139 (145,865) 252 (718,562) Lapsed 547 (543,804) 749 (261,137) Options outstanding at 31 March 145 1,610,332 445 1,457,100 Options exercisable at 31 March 624 97,339 383 52,852 Options outstanding at 31 March 2009 have weighted average remaining contractual lives as follows: 2009 2008 years years Exercisable at nil pence 1.8 1.3 Exercisable at 383 pence – 0.1 Exercisable at 624 pence – 0.8 Exercisable at 673 pence 1.8 2.8 Exercisable at 857 pence 0.8 1.8 Exercisable at 940 pence 1.4 2.4 88 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 23 SHARE OPTIONS continued The fair value of services received in return for share options granted and shares awarded is measured by reference to the fair value of those instruments. The pricing models and inputs used for the outstanding options (on a weighted average basis where appropriate) are as follows: Speedy Hire Sharesave Schemes December September December December December 2007 2007 2006 2005 2004 Pricing model used Stochastic Stochastic Stochastic Stochastic Black–Scholes Fair value at issue 246p 366p 441p 331p 203p Share price at issue 838p 1164p 1071p 780p 479p Exercise price 673p 940p 857p 624p 383p Share price volatility 25.5% 22.9% 22.9% 25.0% 26.1% Option life 3.25 years 3.25 years 3 years 3 years 3 years Expected dividend yield 2.14% 1.46% 1.25% 1.58% 2.01% Risk-free interest rate 4.45% 5.27% 5.14% 4.20% – Co-Investment Plan July July July July 2008 2007 2006 2005 Pricing model used Stochastic Stochastic Stochastic Stochastic Fair value at issue 534p 1223p 888p 696p Share price at issue 534p 1223p 888p 732p Exercise price Nil Nil Nil Nil Share price volatility – – – – Option life 3 years 3 years 3 years 3 years Expected dividend yield 3.7% 1.39% 1.61% 1.68% Risk-free interest rate 5.2% 5.8% 4.2% 4.1% Performance Share Plan July July July July 2008 2007 2006 2005 Pricing model used Stochastic Stochastic Stochastic Stochastic Fair value at issue 339p 687p 426p 436p Share price at issue 534p 1223p 888p 732p Exercise price Nil Nil Nil Nil Share price volatility 29.3% 23.6% 22.4% 24.7% Option life 3 years 3 years 3 years 3 years Expected dividend yield 3.71% 1.39% 1.61% 1.68% Risk-free interest rate 5.2% 5.8% 4.2% 4.1% Speedy Hire Plc Annual Report and Accounts 2009 89 24 ACquISITIONS All acquisitions in the current and prior year have been accounted for under the acquisition method of accounting. An assessment has been made of the fair value to the Group of the assets and liabilities acquired on all acquisitions. The Group acquired the trade and assets of the Carillion Accommodation Services (“CAS”) business from Carillion Plc in May 2008, for a total consideration of £12.6 million, comprising cash and acquisition costs. CAS hires and sells portable and modular accommodation, servicing both the Carillion group’s internal accommodation requirements and those of a number of external customers. CAS’s accommodation business operates from three UK depots and has 23 employees, all of whom transferred to Speedy as part of the transaction. CAS has been integrated within Speedy’s Accommodation Division, which specialises in the hire of accommodation and storage units. The Group also acquired the trade and assets of Apollo Hire Centres from Connaught Plc in August 2008 for a consideration of £0.7 million. The initial fair values of the assets and liabilities acquired in total from the two acquisitions are as follows: Book value at Fair value acquisition adjustment Fair value £m £m £m Intangible assets – 8.2 8.2 Hire equipment assets 0.9 – 0.9 0.9 8.2 9.1 Goodwill capitalised 4.2 Total consideration 13.3 Satisﬁed by: – cash consideration 12.7 – costs of acquisition 0.6 13.3 The customer list intangible has been valued using the ‘excess earnings’ method, and is based on income forecast to be generated over the next ten years. The valuation assumes that the customer attrition rate will be 10% per annum, based on management estimates and historical rates recorded by the Company. Capital asset charges have been applied using risk-adjusted weighted average costs of capital in respect of ﬁxed assets, working capital and the workforce. Other assumptions used in the valuation include an assumed growth in income from customers of 2.5% per annum. The customer list intangible is being amortised over ﬁve years, which is considered to be the period over which the majority of the beneﬁts are expected to arise. The non-compete intangible has been valued using the incremental income method. In addition, the Group acquired the remaining minority interest in Speedy Asset Leasing Limited in April 2008 for a cash consideration of £1.3 million. During 2007–8, the Group acquired the trade and certain assets of the Hewden Hire Centres business from Hewden Stuart Plc and the Amec Logistics and Support Services (“LSS”) from Amec Plc. The 31 March 2008 balance sheet has been restated to accommodate adjustments to fair values in respect of the acquired assets. These adjustments arose from the estimation and ﬁnalisation of determining the fair value of the hire ﬂeet, taking into account changes in the value of the acquired ﬂeet which were lost at the time of the acquisition. As a result of these adjustments, the carrying value of tangible assets has decreased by £1.9 million compared to the values adopted in the March 2008 ﬁnancial statements. An equal and opposite adjustment has been made to goodwill. Goodwill has been recognised on the acquisitions as a result of their operational eﬀectiveness in their marketplaces. 90 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 24 ACquISITIONS continued Acquisitions completed in the prior year were as follows: HEWDEN TOOLS The Group acquired the trade and assets of the Hewden Tools business from Hewden Stuart Plc on 1 August 2007, for a total consideration of £118.0 million, comprising entirely of cash and acquisition costs. The Hewden Tools business was a national network of 188 depots, with approximately 1,200 employees. The provisional fair values of the assets and liabilities acquired were as follows: Book value at Accounting policy Fair value acquisition alignment adjustment Fair value £m £m £m £m Intangible assets – – 19.8 19.8 Hire equipment assets 32.8 17.9 (2.3) 48.4 Other property, plant and equipment 7.9 – (0.5) 7.4 Inventory 1.9 – 0.3 2.2 Trade and other receivables 17.4 – (3.6) 13.8 Trade and other payables (9.4) – – (9.4) 50.6 17.9 13.7 82.2 Goodwill capitalised 35.8 Total consideration 118.0 Satisﬁed by: – cash consideration 115.0 – costs of acquisition 3.0 118.0 The accounting policy alignment relates to the adjustment of ﬁxed asset lives and residual values to bring the basis into line with the Group’s own accounting policy. An independent valuation to identify and determine the value of any intangible assets was performed following the acquisition. Separable intangible assets were identiﬁed in respect of the business’s customer list (£13.0 million) non-complete agreements (£4.6 million) and the use of the Hewden brand for the ﬁve-month period to 31 December 2007 (£0.3 million). The customer list intangible was valued using the “excess earnings” method, based on income forecast to be generated over the next ten years. The valuation assumed a customer attrition rate of 12.4% per annum, based on management estimates and historical rates recorded by the Company. Capital asset charges were applied using risk-adjusted weighted average costs of capital in respect of ﬁxed assets, working capital and the workforce. Other assumptions used in the valuation included an assumed growth in income from customers of 2.1% per annum. The customer list intangible is being amortised over ten years, which is considered to be the period over which the majority of the beneﬁts are expected to arise. The non-compete intangible was valued using the incremental income method, based on estimated income saved by virtue of the non-compete agreement over the contractual period of three years. The brand intangible was valued using the “relief- from-royalty” method, using a royalty rate of 1% of income for the period of ownership. The intangible was amortised in full during the year to 31 March 2008 as use of the trade name ceased in December 2007. The Group completed a further three acquisitions during the prior year. The Group acquired the trade and certain assets of Network Plant Limited for a total consideration of £2.0 million in April 2007. The Group acquired the entire share capital of Waterford Hire Services Limited, a company registered in the Republic of Ireland, in July 2007. The company is a long-standing, well-respected tool and equipment hire business, with two outlets in Waterford and Kilkenny in the Republic of Ireland. Total consideration was a maximum of €6.5 million, comprising €5.2 million in cash and acquisition costs, together with a maximum of 74,587 shares in Speedy Hire Plc. In February 2008 the Group acquired the trade and certain assets of Amec Logistics and Support Services (“LSS”) for a total consideration including fees of £12.7 million. As part of the transaction, AMEC’s Industrial division entered into a four year exclusive supply agreement with Speedy to provide for hire a wide range of equipment in a variety of industrial related sectors. A preferred supplier agreement was also established for other UK AMEC divisions. Speedy Hire Plc Annual Report and Accounts 2009 91 24 ACquISITIONS continued The initial fair values of the assets and liabilities acquired in total from the three acquisitions were as follows: Book value at Fair value acquisition adjustment Fair value £m £m £m Intangible assets – 5.7 5.7 Hire equipment assets 9.1 0.4 9.5 Trade and other receivables 1.2 – 1.2 Trade and other payables (0.6) – (0.6) 9.7 6.1 15.8 Goodwill capitalised 4.2 Total consideration 20.0 Satisﬁed by: – cash consideration 18.4 – shares in Speedy Hire Plc 0.4 – costs of acquisition 1.2 20.0 Intangible assets were identiﬁed in respect of the supply contract related to the Amec LSS acquisition. The contract was for a period of four years and the intangible is being amortised over the life of the contract. The fair value adjustments relate to the recognition of the supply contract intangible and the revaluation of certain property, plant and equipment which was sold shortly after acquisition. Goodwill has been recognised on the acquisitions as a result of their operational eﬀectiveness in their marketplaces. 25 CONTINGENT LIABILITIES The Group has given warranties (including taxation warranties and indemnities) to the purchasers of ﬁve businesses disposed of over the last ten years. These warranties and indemnities expire at various dates up to twelve years from the date of disposal. The Group has given guarantees with a value of up to £0.3 million (2008: £0.3 million) in respect of ongoing contractual commitments. 26 COMMITMENTS The Group had contracted capital commitments amounting to £0.3 million (2008: £4.5 million) at the end of the ﬁnancial year for which no provision has been made. The total of future minimum lease payments under non-cancellable operating leases are as follows: Land and buildings Other 2009 2008 2009 2008 £m £m £m £m Total future minimum lease payments – not later than one year 19.1 18.7 12.6 11.8 – later than one year and not later than ﬁve years 54.2 48.6 12.5 8.8 – later than ﬁve years 49.0 50.0 0.1 – 122.3 117.3 25.2 20.6 92 Speedy Hire Plc Annual Report and Accounts 2009 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2009 27 ANALYSIS OF CONSOLIDATED NET DEBT At Non-cash At 1 April 2008 movement Cash ﬂow 31 March 2009 £m £m £m £m Cash at bank and in hand 4.4 – 6.6 11.0 Borrowings (260.0) 0.4 0.2 (259.4) (255.6) 0.4 6.8 (248.4) 28 POST BALANCE SHEET EVENTS DIVIDENDS The Directors have proposed a dividend of 6.4 pence per share as a ﬁnal dividend in respect of the year ended 31 March 2009. No charge in respect of the proposed dividend has been made in the income statement for the year, and there were no tax consequences. The total amount payable if the dividend is approved at the AGM is as follows: 2009 2008 £m £m 6.4 pps (2008: 13.4 pps) on 50.9 million (2008: 50.8 million) ordinary shares 3.2 6.8 29 RELATED PARTY DISCLOSuRES KEY MANAGEMENT REMuNERATION The Group’s key management personnel are the Executive and Non-Executive Directors as identiﬁed in the Remuneration Report on page 47. In addition to their salaries, the Group also provides non-cash beneﬁts to Executive Directors, and contributes to approved pension schemes on their behalf. Executive Directors also participate in the Group’s share option schemes. Non-Executive Directors receive a fee for their services to the Speedy Hire Plc Board. Full details of key management personnel compensation and interests in the share capital of the Company as at 31 March 2009 are given in the Remuneration Report on pages 47 to 56. COMPANY The Company has entered into transactions with its subsidiary undertakings primarily in respect of the provision of ﬁnance, and the provision of share options to subsidiary employees. Recharges are made to subsidiary undertakings for Group loans based on funding provided at an interest rate linked to the prevailing base rate. No recharges are made in respect of balances due to or from otherwise dormant subsidiaries. The cost of providing employees of subsidiary companies with share options is recharged to the relevant company based on the accounting charge suﬀered by the Company in respect of those options. The amount outstanding from subsidiary undertakings to the Company at 31 March 2009 totalled £317.5 million (2008: £332.3 million). Amounts owed to subsidiary undertakings by the Company at 31 March 2009 totalled £13.8 million (2008: £13.3 million). The Company has had no expense in respect of bad or doubtful debts of subsidiary undertakings in the year (2008: £nil). Speedy Hire Plc Annual Report and Accounts 2009 93 FIVE YEAR SuMMARY CONSOLIDATED INCOME STATEMENT 2009 2008 2007 2006 2005 £m £m £m £m £m Revenue 476.1 465.5 335.5 254.3 206.5 Cost of sales (188.1) (167.1) (118.7) (81.8) (58.2) Gross proﬁt 288.0 298.4 216.8 172.5 148.3 Other operating income – – – 0.1 0.2 Distribution costs (50.5) (49.8) (43.2) (23.5) (22.0) Administrative expenses (287.7) (201.8) (127.7) (112.5) (96.5) Analysis of operating proﬁt Operating proﬁt before amortisation and exceptional items 49.7 64.0 50.0 38.1 30.6 Exceptional items (90.7) (10.0) – – – Amortisation (9.2) (7.2) (4.1) (1.5) (0.6) Operating (loss)/proﬁt (50.2) 46.8 45.9 36.6 30.0 Loss on disposal of operation – – – – (0.7) Net ﬁnancial expense (20.4) (16.3) (9.5) (5.9) (4.8) (Loss)/proﬁt before taxation (70.6) 30.5 36.4 30.7 24.5 Taxation 16.0 (6.1) (9.8) (8.4) (6.3) (Loss)/proﬁt for the ﬁnancial year (54.6) 24.4 26.6 22.3 18.2 CONSOLIDATED BALANCE SHEET 2009 2008 2007 2006 2005 £m £m £m £m £m ASSETS Non-current assets Intangible assets 71.2 128.9 71.3 23.9 10.7 Property, plant and equipment 323.2 372.9 295.7 241.4 187.9 394.4 501.8 367.0 265.3 198.6 Current assets Inventories 12.2 16.2 10.9 6.9 4.8 Trade and other receivables 104.4 143.6 101.2 72.6 55.1 Tax receivable 6.9 – – – – Other ﬁnancial assets – – 0.7 – – Assets classiﬁed as held for sale – – – – 1.7 Cash 11.0 4.4 10.3 6.4 5.9 134.5 164.2 123.1 85.9 67.5 Total assets 528.9 666.0 490.1 351.2 266.1 LIABILITIES Current liabilities Borrowings (0.2) – – – (0.3) Trade and other payables (64.1) (120.0) (91.8) (69.5) (47.7) Other ﬁnancial liabilities (5.7) (0.5) – – – Provisions (4.1) (1.0) – – – Current income tax – (5.9) (6.0) (6.7) (2.6) (74.1) (127.4) (97.8) (76.2) (50.3) Non-current liabilities Borrowings (259.2) (260.0) (186.5) (109.4) (88.7) Provisions (3.8) (1.2) – – – Deferred tax liabilities (24.3) (37.3) (34.7) (24.3) (18.6) (287.3) (298.5) (221.2) (133.7) (107.3) Total liabilities (361.4) (425.9) (319.0) (209.9) (157.6) Net assets 167.5 240.1 171.1 141.3 108.5 94 Speedy Hire Plc Annual Report and Accounts 2009 SHAREHOLDER INFORMATION ANNuAL GENERAL MEETING ELECTRONIC COMMuNICATIONS The AGM will be held on Tuesday 21 July 2009 at 11 am at Mere Court Speedy offers shareholders the opportunity to receive electronic Hotel and Conference Centre, Warrington Road, Mere, Knutsford, notification of the Company’s latest press releases via e-mail. To take Cheshire WA16 0RW. advantage of this service you will need to register online. To register, log on to www.speedyhire.plc.uk, click on the investors section of the Shareholders will be asked to approve the Directors’ remuneration website and register for news. report, the election of James Morley to the Board and the re-election of David Wallis, Mike McGrath and Steve Corcoran. ENquIRIES ON SHAREHOLDINGS Any administrative enquiries relating to shareholdings in Speedy such Other resolutions will include proposals to renew, for a further year, the as dividend payment instructions or a change of address should be Directors’ general authority to allot shares in the Company, to allot a notified direct to the registrar (details on page 95). Your limited number of shares for cash on a non-pre-emptive basis, and to correspondence should state Speedy Hire Plc and the registered name buy back its own shares and resolutions to amend the articles of and address of the shareholder. For further details of the shareholder association and to approve certain matters relating to share incentive services offered by our registrars, visit www.shareview.co.uk. plans. CONTACT DETAILS SHARE PRICE INFORMATION/PERFORMANCE We are happy to answer queries from current and potential The latest share price information is available at shareholders. Similarly, please let us know if you wish to receive past, www.speedyhire.plc.uk. By selecting our shares under the investor present or future copies of our Annual Report and Accounts. Please information section, shareholders can check the value of their contact us by phone, e-mail, fax or via the website. shareholding online or review share charts illustrating annual share price performance trends. Speedy Hire Plc e-mail Chase House email@example.com Shareholders can also download copies of our Annual Report and 16 The Parks Telephone Accounts and Interim Accounts. Newton-le-Willows 01942 720000 Merseyside Facsimile Shareholders within the UK can also use Teletext and the FT Cityline WA12 0JQ 01942 402870 service (telephone 0906 843 0000 – please note, this is charged at United Kingdom premium rate). a) Shareholders analysed by number of shares held (at 26 May 2009) Total number Percentage of Total number Percentage of Balance ranges of holdings holders of shares issued capital 1–1,000 1,236 56.33% 569,382 1.12% 1,001–5,000 600 27.35% 1,364,828 2.68% 5,001–10,000 88 4.01% 626,119 1.23% 10,001–50,000 155 7.06% 3,877,101 7.61% 50,001–100,000 43 1.96% 3,086,332 6.06% 100,001–500,000 53 2.42% 11,657,319 22.87% 500,001–1,000,000 10 0.46% 7,838,967 15.38% 1,000,001 and above 9 0.41% 21,942,052 43.05% Total 2,194 100.00% 50,962,100 100.00% b) Shareholders analysed by type of holding (at 26 May 2009) Number of Percentage Number of Number Holder holdings of holdings shares of shares + Directors 9 0.36% 469,002 0.92% Private individuals 1,457 66.41% 3,888,668 7.63% Nominee accounts 662 30.17% 46,045,613 90.35% Institutions & investment companies 48 2.19% 390,056 0.77% Other organisations 19 0.87% 168,761 0.33% Total 2,194 100.00% 50,962,100 100.00% + Figure includes David Galloway who has resigned with effect from 31 May 2009. Speedy Hire Plc Annual Report and Accounts 2009 95 REGISTERED OFFICE AND ADVISERS REGISTERED OFFICE FINANCIAL ADVISERS AuDITORS PuBLIC RELATIONS FINANCIAL Speedy Hire Plc NM Rothschild & Sons KPMG Audit Plc Hudson Sandler Chase House Limited St James Square 29 Cloth Fair 16 The Parks 82 King Street Manchester London Newton-le-Willows Manchester M2 6DS EC1A 7NN Merseyside M2 4WQ WA12 0JQ BANKERS PuBLIC RELATIONS TRADE STOCKBROKERS Barclays Bank PLC Citypress Telephone 01942 720000 KBC Peel Hunt Ltd No. 1 Marsden Street 2nd Floor Facsimile 01942 402870 111 Old Broad Street Manchester Bank House e-mail London M2 1HW Faulkner Street firstname.lastname@example.org EC2N 1PH Manchester Website The Royal Bank of Scotland plc M1 4EH www.speedyhire.plc.uk Oriel Securities Limited Corporate Banking 125 Wood Street 1 Spinningfields Square REGISTRARS AND TRANSFER OFFICE Registered number: 927680 London Manchester Equiniti Limited EC2V 7AN M3 3AP Aspect House Spencer Road SOLICITORS Lancing Pinsent Masons LLP West Sussex 1 Park Row BN 99 6DA Leeds LS1 5AB INSuRANCE BROKERS Marsh uK Limited 1 City Road East Manchester M15 4PN 96 Speedy Hire Plc Annual Report and Accounts 2009 AWARDS AND ACCREDITATIONS 2009 National Business Awards – Highly Commended: The HSE Health & Safety Award Business in the Community – Reaccreditation of “Big Tick Award” for Responsible Marketing National Business Awards – Highly Commended: Customer Focus British Safety Council – International Safety Award Hire Association of Europe –“Awards of Excellence” – Unsung Hero Hire Association Europe – Catalogue of the Year Hire Association of Europe –“Awards of Excellence” – Best Contribution to Health and Safety 2008 Hire Association Europe – Hire Company of the Year (over five outlets) PLC Awards – Best Investor Communications Strategy 2006 Hire Association Europe – Best Contribution to Environmental Issues See our website www.speedyhire.plc.uk for awards prior to 2006 BSIF Safety Awards – Service Excellence ACCREDITATIONS ISO 9001 National Business Awards – Finalist: Business of the Year Speedy Hire Direct, Speedy Compressors, Speedy Pumps, Speedy Institute of Directors – North West Director of the Year (Steve Corcoran) Engineering, Speedy Generators, Speedy Lifting and Speedy Survey European Rental Association – European Rental Person of the Year ISO 14001 (Steve Corcoran) Speedy Compressors, Speedy Pumps, Speedy Engineering, Speedy Generators and Speedy Survey Business in the Community – Reaccreditation of “Big Tick Award” for Responsible Marketing ISO 18001 Speedy Engineering, Speedy Generators and Speedy Survey Business in the Community – Silver ranking in the Top 100 Companies Corporate Responsibility (CR) Index 2008 All Speedy equipment businesses have Investors in People accreditation 2007 INDuSTRY SuPPLIER ACCREDITATIONS CorpComms Awards – Annual Report 2007 Link-up – rail supplier qualification & verification scheme National Business Awards – Winner Marketing Strategy of the Year UVDB – utilities pre-qualification scheme Business in the Community – F-Pal – oil and gas industry pre-qualification scheme “Big Tick Award” for Responsible Marketing Constructionline – UK register of pre-qualified construction services Hire Association Europe – Best Contribution to Health and Safety and/or Environmental Issues PROFESSIONAL BODY & TRADE ASSOCIATION MEMBERSHIP HAE: Hire Association of Europe Contract Journal – Plant Hire Company of the Year PASMA: Prefabricated Access Suppliers & Manufacturers Association The Observer’s Good Company Guide – Number One Ethical Investment Choice LEEA: Lifting Equipment Engineers Association PLC Awards – Best Investor Communications Strategy 2007 OPERC: Off-Highway Plant and Equipment Research Centre Contract Journal, Construction Industry Awards – Plant Hire Company European Rental Association of the Year 2007 British Safety Council Business in the Community – Silver ranking in the Top 100 Companies Corporate Responsibility (CR) Index 2007 Confederation of British Industry (Steve Corcoran member of Construction Council) 2006 OPERC Award – In recognition of our contribution to HAV FTSE4Good Construction Marketing Awards – Best Use of Research in a Campaign Business in the Community B2B Marketing Awards – Best Customer Relationship Campaign Lighthouse Club B2B Marketing Awards – Best Use of Market Research HAE’s Safe-HIRE USEFUL INFORMATION FINANCIAL CALENDAR Preliminary announcement of 2009 results and final dividend 27 May 2009 Annual Report posted 20 June 2009 Ex dividend date 24 June 2009 Dividend record date 26 June 2009 Annual General Meeting 21 July 2009 Payment of 2009 final dividend 25 August 2009 Announcement of 2009 interim results November 2009 2009 year end 31 March 2010 WEBSITES You can find further investor information about Speedy, including electronic copies of the Annual Report and Corporate Responsibility Report, at the Group’s corporate website: www.speedyhire.plc.uk Information about Speedy’s products and services can be found at our trade website: www.speedyhire.com Merchant in collaboration with Ammunition Printed and typeset by Jones & Palmer Limited NEXT RESULTS NOVEMBER 2009 Speedy Hire Plc Chase House 16 The Parks Newton-le-Willows Merseyside WA12 0JQ Tel 01942 720000 Fax 01942 402870 e-mail email@example.com www.speedyhire.plc.uk Registered Number 927680
Pages to are hidden for
"Speedy Asset Services Ltd 2009 Annual Report"Please download to view full document