AB Dynamics plc 2014 Annual Report & Accounts For the year ended 31 August 2014 Company Registration No. 08393914 234217 AB Dynamics AR cover 12/11/2014 16:22 Page 2 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Table of contents Officers and professional advisers Chairman’s & Managing Director’s statement Business Unit Focus Strategic report Directors’ report Finance Director’s report Corporate governance statement Independent auditor’s report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Accounting policies for the consolidated financial statements Company balance sheet Notes to the company financial statements Page 1 2 4 6 12 15 17 18 20 21 22 23 24 26 46 47 Image on cover: The Company’s Guided Soft Target (GST) in controlled collision with Ford Focus. The GST is an integral part of testing of latest the vehicle Advanced Driving Assistance System. 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 1 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Officers and professional advisers DIRECTORS Anthony Best, Executive Chairman Timothy John Rogers, Managing Director Robert Andrew Leonard Hart, Finance Director Graham Dudley Eves, Non-Executive Director Frederick Bryan Smart, Non-Executive Director SECRETARY Robert Andrew Leonard Hart REGISTERED OFFICE AB Dynamics Plc Holt Road Bradford on Avon Wiltshire BA15 1AJ Registered number: 08393914 (England and Wales) INDEPENDENT AUDITOR Crowe Clark Whitehill LLP St Bride's House 10 Salisbury Square London EC4Y 8EH NOMINATED ADVISER Cairn Financial Advisers LLP 61 Cheapside London EC2V 6AX BROKER Charles Stanley Securities Ltd 131 Finsbury Pavement London EC2A 1NT BANKERS Bank of Scotland Phase 2 2nd Floor North East Canons House Canons Way Bristol BS99 7LB LEGAL ADVISER Pinsent Masons LLP 30 Crown Place Earl Street London EC2A 4ES REGISTRARS Share Registrars Ltd Suite E, First Floor 9 Lion & Lamb Yard Farnham GU9 7LL PUBLIC RELATIONS ADVISER Newgate Threadneedle 5th Floor 33 King William Street London EC4R 9AS Page 1 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 2 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Chairman’s and Managing Director’s Statement Overview We are very pleased to be publishing the second annual report for AB Dynamics Plc since its debut on the AIM market in May 2013.The Company continues to operate in the niche automotive research sector which has, for the past 5 years, experienced steady year on year growth. The management seeks to consolidate the Company’s base to create a sound platform for expansion by continuing in its investment strategy to fund product development, the expansion and improvement of facilities and the retention and recruitment of high quality personnel. Results The Business has built on its strong first half performance and delivered what has become a record year, both financially and operationally, since the business was founded in 1982. We have seen continued strong demand for our products and services as our customers in the global automotive testing sector expand their testing capabilities to meet new safety standards and remain competitive. Our traditional markets in Europe and Japan which, when combined with significant growth in sales from China, has resulted in our “Track Testing” revenues exceeding our expectations and sales of our “Laboratory Testing” product, the Suspension Parameter Measuring Machine (“SPMM” ) remaining in line with our forecasts. This has resulted in an excellent set of financial results for the year, in line with market expectations, with revenues of £13.85 million, representing an increase of 14% over last year’s £12.17 million and Profit before Tax at £2.68 million, up 43% from last year’s £1.87 million. Operating profit margin increased to 19.1% (2013:15.6% post AIM transaction costs), reflecting the change in product mix throughout the year with Laboratory Test equipment now accounting for 68% of our turnover (2013:60%). Operations Placing On the 5 June 2014, with the assistance of Charles Stanley Securities, we undertook a Placing of New Ordinary Shares, representing the exercise of options, and existing ordinary shares on behalf of certain directors, founders and employees. This was in response to investor demand and was significantly oversubscribed. Many of our existing shareholders took the opportunity to add to their holdings and we were also very pleased to welcome new private and institutional investors as shareholders. We continue to be extremely pleased by the support we have received from our shareholders. Facilities In the year, we have continued with our plans to build and locate to a new dedicated facility. We do, however, continue to experience delays in the planning process, which has led us to lease a further 3,500ft of production space to meet the immediate need to support increased capacity demand. It should be noted that since our IPO in May 2013, we have created an additional 6,900 sq ft (70%) of new office and production space and as announced at the time of our Interim statement on 28 April 2014, the Directors are confident that this will meet capacity requirements until such time as the new facility becomes available, estimated to be in Q3 2016. Product Development Our “Track Testing” business has shown strong growth over the year and to maintain our ability to deliver high quality solutions to our customers we look to improve our products regularly. During the year, we have completed a comprehensive upgrade to our SPMM. The upgraded SPMM 5000 meets the requirements of testing larger SUV type vehicles and keeps the product relevant for the future. We have received a number of new orders for this upgraded version and made a recent delivery to MIRA UK, the second SPMM we have sold to this company, the first being 17 years ago, which is still in regular use. Employees The business has, since inception, considered its staff an important aspect of the model. We continue to attract and retain some of the very best talent in UK engineering, with the Group reaching a landmark of 61 direct employees. The Company has an ownership sharing structure so as to include its staff in the value creation of the business. The board continues to review these arrangements balanced as always against the best interests of shareholders. Page 2 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 3 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Dividend Our strong balance sheet provides a good underpinning for a final dividend and we are pleased to announce that the Directors are recommending the payment of a final dividend of 1.5 p per share payable in December 2014 subject to shareholder approval at the AGM. The record date will be 21 November 2014 and the ex dividend date will be 20 November 2014. This will take the total dividend for the year to 2.5p. Current Trading and Outlook Since the beginning of the new financial year, trading has been in line with expectations with significant visibility provided by our existing order book for the remainder of the year. The next year will see the company focus on finalising planning and design of the new factory HQ near our current facility in Bradford on Avon. We will be participating in a number of Advanced Driver Assistance Systems ( ADAS) demonstrations around the world With a promising pipeline of orders, the expanded team and the new infrastructure that we have in place, we look forward to the future with confidence. The Board would like to take this opportunity to thank all of ABD’s employees for the hard work and commitment they have given to the business over the last year. Tony Best Executive Chairman 12 November 2014 Tim Rogers Managing Director 12 November 2014 Page 3 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 4 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Business Unit Focus – ADAS development using AB Dynamics’ driving robots Advanced driver assistance systems (ADAS) are systems developed to automate/adapt/enhance vehicle systems for safety and better driving. Safety features are designed to avoid collisions and accidents by offering technologies that alert the driver to potential problems, or to avoid collisions by implementing safeguards and taking over control of the vehicle. Adaptive features may automate lighting, provide adaptive cruise control, automate braking, incorporate GPS/traffic warnings, connect to smartphones, alert driver to other cars or dangers, keep the driver in the correct lane, or show what is in blind spots. ADAS has been among the fastest growing field in automotive market and is expected to register a CAGR of 34% during 2013-2017. Currently, developed countries in Europe and America have had nearly 8% of new vehicles equipped with ADAS, compared to merely about 2% in emerging markets. It is predicted that 50% of new vehicles will carry ADAS by 2022 globally. Advanced Driver Assistance Systems (ADAS) are now fitted to many mainstream cars, and testing them requires particular equipment and capabilities, often including the ability to control relative position between vehicles. With both future EuroNCAP and US NHTSA prioritising the fitment of technology to warn drivers of an impending collision, AB Dynamics robots have been adopted worldwide as the first choice for ADAS testing. ADAS testing checklist: 1 - Drive along a defined path with 1 cm accuracy? 2 - Precisely maintain a vehicle speed profile? 3 - Brake at a fixed rate of deceleration? 4 - Control the relative distance between two vehicles? 5 - Trigger an event when multiple conditions are met? ADAS testing typically involves creating complex scenarios with multiple vehicles (or soft targets) to see whether the vehicle’s own systems detect an imminent crash. Using AB Dynamics robots enable these test scenarios to be programmed and run quickly and accurately, giving high repeatability and consistent data. AB Dynamics robots – solutions for ADAS testing Path Following AB Dynamics pioneered robot path-following using a GPS motion-pack in 2001 and has been the market leader ever since. Any AB Dynamics steering robot can be used for path-following. The Company’s path- following software has been regularly updated to include all of the functionality needed for ADAS testing. AB Dynamics now offers a range of path-following software modules, enabling customers to save money by purchasing only the features that they require. Path-following allows complex manoeuvres to be repeated with unrivalled precision, but it can also be used for very simple functions such as driving in a straight line. The EuroNCAP Autonomous Emergency Braking procedure requires that test vehicle and the towed target should both achieve a lateral position deviation of <0.1m, easy to achieve with ABD path-following. Three path-following runs along a 300m straight line at 80kph. Maximum lateral the less deviation was 18mm, than measurement uncertainty of the GPS motion pack! Page 4 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 5 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Combined Brake and Accelerator Robot (CBAR) The CBAR is the most popular pedal robot for ADAS testing worldwide; a compact but powerful actuator which controls the vehicle’s throttle and brake pedals. Like all of ABD’s robots, it has been designed such that the driver can still drive the car manually, which is a major advantage for preparing tests and manoeuvring the vehicle. The CBAR can be upgraded for use in Driverless Testing and to add a clutch actuator for use with The Companies gearshift robot. Using a brake robot or a CBAR, it is possible to achieve consistent accurate braking inputs such as are required for Autonomous Emergency Braking (AEB) and Forward Collision Warning (FCW) tests. A range of control modes is available, including pedal travel, pedal force and vehicle deceleration. Using a robot enables far more accurate and repeatable braking than can be achieved by a human driver. Brake Pedal Force Step (Driver) Brake Pedal Force Step (Robot) Brake force control (to 400N) from 130kph to zero. Violent deceleration and a long-travel brake pedal made this almost impossible for a human driver, but no problem for a brake robot. ABD also supplies a range of controllable soft target systems which can be synchronised with robot- or human- driven vehicles, to reduce the risk of damage to test vehicles when performing ADAS testing. Pedestrian Target Guided Soft Target Vehicle Page 5 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 6 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Strategic report for the year ended 31 August 2014 The Directors present the Strategic Report of AB Dynamics Plc Limited for the year ended 31 August 2014. Review of the Business in the year The Group this year experienced a record year in terms of sales, with a significant increase in the sales of its Track Testing products. This increase has been driven by the global market for Automotive Testing equipment expanding rapidly in both new sectors and geographies, notably in the Group’s case, in the field of testing of the vehicle manufacturers latest Advanced Driver Assistance Systems (ADAS) and the continued rise of China’s automotive sector. As a result Track Testing now represents over 68% of the Group’s revenue. The Group’s current Track Testing order book takes it well into the second half of the next financial year. Furthermore a large amount of orders received in the later part of the year, has unavoidably led to longer lead times to the customer. To address this, the Group has focussed heavily on improving and resolving its supply chain and capacity issues and these activities are starting to bring benefits to the Group’s overall order fulfilment performance. Sales in the Group’s Lab Testing business have remained broadly flat, partly due to competitive pressure in this relatively mature sector and partly down to capacity constraints in the factory. In response to this, the Group recently announced to the industry that it had redeveloped the SPMM product, which in turn has allowed it to reposition the product in the market place and streamline the manufacturing/supply chain process. The Group continues to invest heavily in new product development. Aside from the aforementioned upgrade to the SPMM, this year we have seen orders for a new generation of guided soft target vehicle, the GST, which is the culmination of nearly two years of work in collaboration with our US partners Dynamics Research Inc. The GST fits neatly into our existing portfolio of Track Testing products and adds to our Soft Target offering essential for ADAS testing. The Group as ever, undertakes a program of continual improvement and upgrades to existing products, which benefit the customers in terms of better usability and function, allowing us to stay ahead of competition. Position of the Group’s business at the end of the year The Group continues to operate in the niche automotive research sector which has, for the past 5 years, experienced steady year on year growth. Management seeks to consolidate the Group’s base to create a sound platform for the Group’s expansion by investing in product development, facilities and retaining and recruiting high quality personnel. Measurements of the Group’s performance are provided in the Key Performance Indicators in this section. Key activities under taken this year to support the Group’s strategy include: 1. The development of, and expansion in, the Group’s core manufacturing and final assembly capabilities, with the utilisation of new Annex facility onsite and a commitment to an additional 3500 sq ft of new offsite assembly facilities coming on stream later this year. 2. The active recruitment of key personnel to new roles in the Group, including new software and electrical development engineers, combined with skilled assembly technicians and toolmakers. Our fulltime head count has now reached 61, with new appointments expected by the end of 2014. 3. Significant effort improving the supply chain, order performance monitoring and business management systems, has led to initial shortening of delivery times and an increase in the units delivered. The Group’s new enlarged facility at the Kingston Farm development nearby remains on course for 2016 subject to final S106 approval. It should be noted that, planning delays have necessitated the Group having to secure the aforementioned additional facilities nearby at Holt, these should give sufficient capacity to the Group for the foreseeable future and certainly until such time the new facility comes on line. Page 6 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 7 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Group’s Key performance indicators 1. Maintain sustainable growth in revenue and operating profit The Directors aim to achieve steady sustainable growth in turnover and operating profit. Strong cash management is fundamental to delivering sustainable profit growth and the consistent delivery of cash-backed profit remains a key performance indicator for the Group. In 2014, there were a net cash outflow from operations of £0.7 million (2013: inflow £2.1 million) as our working capital increased by £1.94m to £9.19m (2013: £7.25m). Trade receivables increased by £3.2m compared to the prior year. This reflects the impact of significant levels of invoicing in August 2014 with cash being received post year end. Aside from maintaining its focus on its current product lines, the Directors are ensuring that new product offerings are developed in order to meet customer requirements and demands. 2. Retain, develop and ensure the safety of our people The recruitment, development, retention and health and safety of our people and everyone who works with us or is affected by our operations is paramount. We have the objective of ensuring that safe working practices are consistently adopted and supported by rigorous reviews and training. In 2014, no issue arose. We moved significantly in our provision of HSE procedures and retain an external contractor to manage our systems in this respect. 3. Facilities The Group needs to expand its factory space over time and this year has added significantly to the capacity of the Group. The Directors remain focused on increasing the facilities further, as explained previously in this section. These matters remain key areas of focus for the forthcoming financial year. Page 7 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 8 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Principal risks and uncertainties facing the business Principal risks and uncertainties Set out below are certain risk factors which could have an impact on the Group's long term performance. The factors discussed below should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties facing the Group. 1. Risks relating to the business and operations of the group The Group is reliant on key executives and personnel The Group’s business, development and prospects are dependent upon the continued services and performance of its Directors and other key personnel. The experience and commercial relationships of the Group’s personnel help provide the Group with a competitive advantage. The Directors believe that the loss of services of any existing key executives, for any reason, or failure to attract and retain necessary additional personnel, could adversely impact on the business, development, financial condition, results of operations and prospects of the Group. However, several members of staff have worked for the Group for over 20 years and the Group continues to recruit and develop intelligent and motivated individuals. In addition, key man insurance exists for all key personnel in the Group, save for Anthony Best. The Group may not successfully manage its growth Expansion of the business of the Group may place additional demands on the Group’s management, administrative and technological resources and marketing capabilities, and may require additional capital expenditure. If the Group is unable to manage any such expansion effectively, then this may adversely impact the business, development, financial condition, results of operations, prospects, profits, cash flow and reputation of the Group. The Group’s growth and future success will be dependent to some extent on the successful completion of such expansion strategies proposed to be undertaken by the Group and the sufficiency of demand for the Group’s products. The execution of the Group’s expansion strategies may also place a strain on its managerial, operational and financial reserves. Should the Group fail to implement such expansion strategies or should there be insufficient demand for the Group’s products and services, the Group’s business operations, financial performance and prospects may be adversely affected. Potential requirement for further investment The Group may require additional capital in the future for expansion, its activities and/or business development, whether from equity or debt sources. There can be no guarantee that the necessary funds will be available on a timely basis, on favourable terms, or at all, or that such funds if raised, would be sufficient. If additional funds are raised by issuing equity securities, material dilution to the existing shareholdings may result. The level and timing of future expenditure will depend on a number of factors, many of which are outside of the Group’s control. If the Group is not able to obtain additional capital on acceptable terms, or at all, it may be forced to curtail or abandon such expansion, activities and/or business development which could adversely impact upon the Group, its business, development, financial condition, operating results or prospects. Litigation Legal proceedings, with or without merit, may arise from time to time in the course of the Group’s business, including in connection with intellectual property rights. The Directors cannot preclude litigation being brought against the Group and any litigation brought against the Group could have a material adverse effect on the financial condition, results or operations of the Group. The Group’s business may be materially adversely affected if the Group and/or its employees or agents are found not to have met the appropriate standard of care or exercised their discretion or authority in a prudent or appropriate manner in accordance with accepted standards. Page 8 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 9 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Internal controls Future growth and prospects for the Group will depend on its management’s ability to manage the business of the Group and to continue to expand and improve operational, financial and management information and quality control systems on a timely basis, whilst at the same time maintaining effective cost controls. Any failure to expand and improve operational, financial and management information and quality control systems in line with the Group’s growth could have a material adverse effect on the Group’s business, financial condition and results of operations. New facility Plans for the Group’s new facility are still in the development and planning stage. No formal documentation has yet been entered into and, although the Group has established estimated total costs, there can be no guarantee that the project will proceed or that it will proceed as planned. It is possible that costs will increase or other unforeseen issues will mean that the current development project does not proceed. If the facility is not constructed, this may have an adverse impact on the Group’s future growth. The Group is reliant on overseas sales representatives, agents and distributors The Group has appointed a number of sales representatives, agents and distributors for certain of its products in overseas jurisdictions, including the US, Canada, India, Japan, Malaysia, Mexico, Germany, China and Taiwan. However, for the majority of these individuals, there are no formal written terms of engagement. Terms concerning, inter alia, notice and termination are therefore uncertain, meaning that there are potential issues regarding the Group’s ability to sell and distribute in certain jurisdictions should such sales representatives, agents and distributors cease to work with the Group at short notice. In addition, provisions as to termination payments and/or compensation are also uncertain, meaning the Group is at risk of being liable to pay uncapped compensation to these individuals, either under the Commercial Agents (Council Directive) Regulations 1993 or local law equivalent, as well as possible common law damages if statutory minimum notice periods are not complied with. Uninsured liabilities The Group may be subject to substantial liability claims due to the technical nature of its business and products or for acts or omissions of its sales representatives, agents or distributors. The Group can give no assurance that the proceeds of insurance applicable to covered risks will be adequate to cover expenses relating to losses or liabilities. Accordingly, the Group may suffer material losses from uninsurable or uninsured risks or insufficient insurance coverage. Competitors While the Directors are unaware of any single competitor that provides the range of products and services offered by the Group, there are a number of competitors for each of the Group’s product categories. The acquisition of market share by any of these competitors may have a material adverse impact on the Group’s revenues and profitability. Limited IP protection The Group does not have a formal policy on intellectual property. While the Directors believe that the barriers to entry in its market are high, the ability of a competitor to develop similar products to those manufactured by the Group may have a material adverse impact on the Group’s revenues and profitability. Page 9 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 10 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 2. Risks relating to the market in which the group operates Research & development budgets of global automotive corporations can get squeezed or significantly reduced The global automotive market is highly competitive and continues its recovery from the significant downturn in 2008. Competition is expected to intensify further in light of continuing globalisation in the industry, possibly resulting in industry reorganisation. Factors affecting competition include product quality and features, safety, reliability, fuel economy, the amount of time required for innovation and development, pricing, customer service and financing terms. Increased competition may lead to lower vehicle unit sales, which may result in downward pressure on research and development budgets. Furthermore, adverse issues arising in the automotive industry or in the global economy may significantly reduce the level of these research and development budgets. The Group’s ability to respond adequately to changes in the automotive industry and to maintain its position as a leading technology supplier will be fundamental to its future success in existing and new markets and to maintain its market share. There can be no assurance that the Group will be able to compete successfully in the future. Key suppliers Over the past 30 years, the Group has built up a reliable supplier base for its externally sourced components. At present, a significant proportion of these components are supplied by certain key suppliers. While the Group uses its design capabilities to dual source components, there remains a risk of material impact in the short term if one of its key suppliers were to fail. In certain instances, the Group has taken out an insurance policy to protect its profits should a key supplier be unable to supply for whatever reason. Exposure to exchange rate fluctuations The Group is exposed to exchange rate fluctuations, principally the GBP, the US$, the Euro and, to a lesser extent, the Japanese Yen. Changes in foreign currency exchange rates may affect the Group’s pricing of products sold and materials purchased in foreign currencies. The Directors believe that its use of certain derivative financial instruments, including foreign currency forward contracts used to hedge sale commitments denominated in foreign currencies, reduces the Group’s exposure to this risk. Exposure to economic cycle Market conditions may affect the value of the Group’s share price regardless of operating performance. The Group could be affected by unforeseen events outside of its control including economic and political events and trends, inflation and deflation, terrorist attacks or currency exchange fluctuation. The combined effect of these factors is difficult to predict and an investment in the Group could be affected adversely by changes in economic, political, administrative, taxation or other regulatory factors in any jurisdiction in which the Group may operate. Deterioration in the economic climate could result in a delay or cancellation of clients’ projects. Force majeure events There is a risk that the markets in which the Group currently operates could be affected by events such as war, civil war, riot or armed conflict, acts of terrorism, floods, explosions or other catastrophes, epidemics or quarantine restrictions, which are outside of the Directors’ control and generally not covered by insurance. Such events could have a variety of materially adverse consequences for the Group, including risks and costs related to decline in revenues or reputational damage, and injury or loss of life, as well as litigation related thereto. Page 10 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 11 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Laws and regulations The Group is subject to the laws of the United Kingdom. Existing and future legislation and regulation could cause additional expense, capital expenditure and restrictions and delays in the activities of the Group, the extent of which cannot be predicted. No assurance can be given that new laws, rules and regulations will not be enacted or existing laws, rules and regulations will not be applied in a manner which could limit or curtail certain of the Group’s activities or services. In addition, the Group may have to defend itself against legal proceedings which could have an adverse effect on trading performance and, in turn, future profits. The Group also exports its products overseas and therefore its exports may be subject to existing and future overseas legislation and regulation and similar risks therefore also applying in relation to such overseas existing and future legislation and regulation. Approved by the board on 12 November 2014 Tim Rogers Director Page 11 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 12 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Directors’ report The directors present their report and the audited financial statements of AB Dynamics plc for the year ended 31 August 2014. Dividends During the year an interim dividend of £0.01 per share was paid and the Board has proposed a final dividend of £0.015 per share. Research and development The Group continues to invest in research and development associated with the design and manufacture of test equipment for vehicle suspension, steering, noise and vibration. Costs attributed to this process have been charged to the consolidated statement of comprehensive income to the extent that they do not meet all of the criteria for capitalisation as set out in IAS 38 ‘Intangible Assets’. Financial instruments The Company's principal financial instruments comprise cash at bank, bank facilities, and various items within current assets and current liabilities that arise directly from its operations. The Group’s financial risk management objectives and policies are set out in note 19 to the financial statements. Directors The following directors have held office during the year: Anthony Best Timothy John Rogers Robert Andrew Leonard Hart Graham Dudley Eves Frederick Bryan Smart At the forthcoming Annual General Meeting in accordance with the Company’s articles of association, Anthony Best will retire by rotation and being eligible will offer himself for re-election. Conflicts of interest Under the articles of association of the company and in accordance with the provisions of the Companies Act 2006, a director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict with the company's interests. However, the directors may authorise conflicts and potential conflicts, as they deem appropriate. As a safeguard, only directors who have no interest in the matter being considered will be able to take the relevant decision, and the directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate. During the financial year ended 31 August 2014, the directors have authorised no such conflicts or potential conflicts. Page 12 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 13 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Directors’ interests in shares Directors' interests in the shares of the Company, including family interests, were as follows: Anthony Best Timothy John Rogers Robert Andrew Leonard Hart Ordinary shares of 1p each 6,797,107 152,101 11,389 There have been no changes in the Directors' shareholdings since the year end. Directors’ interests in share options Exercise Timothy John Rogers Timothy John Rogers Timothy John Rogers Robert Andrew Leonard Hart Robert Andrew Leonard Hart Robert Andrew Leonard Hart price1 September 2013 186,100 186,100 186,100 (pence) 12.52 12.52 12.52 12.52 12.52 12.52 5,133 5,133 5,134 As at Exercised As at during 31 August 2014 – 186,100 186,100 the year 186,100 – – Latest date Earliest date for exercise for exercise 22 May 2014 1 February 2023 22 May 2015 1 February 2023 22 May 2016 1 February 2023 5,133 – 22 May 2014 1 February 2023 – – 5,133 22 May 2015 1 February 2023 5,134 22 May 2016 1 February 2023 Directors’ remuneration and service contracts The remuneration paid to the directors during 2014 is shown below: Short term Post benefits employment benefits £ (Incl. bonus) £ Anthony Best Timothy John Rogers Robert Andrew Leonard Hart Graham Dudley Eves Frederick Bryan Smart 107,841 177,245 113,569 30,000 30,000 –––––––––––– 458,655 –––––––––––– –––––––––––– – 6,300 3,938 – – –––––––––––– 10,238 –––––––––––– –––––––––––– Share based payments £ – 11,941 329 – – –––––––––––– 12,270 –––––––––––– –––––––––––– 2014 Total £ 2013 Total £ 107,841 195,486 117,836 30,000 30,000 –––––––––––– 481,163 –––––––––––– –––––––––––– 84,471 150,390 100,373 10,000 10,000 –––––––––––– 355,234 –––––––––––– –––––––––––– Other substantial shareholdings As at 11 November 2014, being the latest practicable date before the issue of these financial statements, the company had been notified of the following shareholdings which constitute 3% or more of the total issued shares of the company. Ordinary shares No. 5,597,107 1,800,000 1,200,000 1,088,539 920,877 651,960 537,175 Shareholding % 33.4 10.7 7.2 6.5 5.5 3.8 3.2 Anthony Best Anne Middleton Naemi Best UK Multicap Income The Diverse Income Trust Plc Amati Global Investors YFM Private Equity Limited Page 13 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 14 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Statement of Directors’ responsibilities The Directors are responsible for preparing the annual report and the group and parent company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law, they are required to prepare the group financial statements in accordance with International Reporting Standards (IFRSs) as adopted by the European Union (EU) and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that year. In preparing each of the group and parent company financial statements, the Directors are required to: ● select suitable accounting policies and then apply them consistently; ● make judgments and estimates that are reasonable and prudent; ● ● state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and the parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ report that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the website. Legislation in the United Kingdom concerning the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Provision of information to auditors Each of the persons who are directors at the time when this Directors’ Report is approved has confirmed that: ● ● so far as that director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and that director has taken all the steps that ought to have been taken as a director in order to be aware of any information needed by the Company’s auditors in connection with preparing their report and to establish that the Company’s auditors are aware of the information. Auditor The auditors, Crowe Clark Whitehill LLP, will be proposed for re-appointment in accordance with Section 489 of the Companies Act 2006. This report was approved by the board and signed on its behalf. Anthony Best Director Page 14 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 15 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Finance Director’s Report Revenue £m 13.85 12.17 8.91 6.5 2.65 2010 2011 2012 2013 2014 Operating Profit £m 2.65 1.80 1.89 0.73 -0.18 2010 2011 2012 2013 2014 Operating Profit Margin % 20.2 19.1 15.6 11.2 -6.6 2010 2011 2012 2013 2014 Revenue The Group’s revenue grew to £13.85m (2013: £12.17m). The growth of 13.8% was driven by strong demand for Track testing products, notably for the testing of Advanced Driver Assistance Systems (ADAS). A segmental analysis of revenue is provided below which illustrates particularly strong growth from Track Testing products. Profitability Operating profit increased to 19.1% (2013:15.6% post AIM transaction costs), reflecting the change in product mix throughout the year with Track Testing equipment now accounting for 68% of turnover (2013: 60%). In accordance with IFRS 2 Share Based Payments, we have included a £27,861 charge for Director and employee share options. Further details can be found in note 22 to the financial statements. Taxation The effective tax rate for the Group in 2014 was 19.6%. This was lower than the corresponding figure of 23.70% in 2013 as a result of lower rates of mainstream corporation tax and the introduction of the Patent Box tax relief. Foreign exchange risk During 2014 the Group continued to generate significant surplus US Dollars through sales to customers. Significant amounts were sold into Sterling at spot rates towards the end of the financial year thus reducing our exposure to future adverse foreign exchange movements. The Group continues to monitor the need for forward contracts depending upon the level of natural hedging achievable and the extent to which surplus currencies are expected to be generated. Exchange losses incurred in the year amounted to £33,887 compared to a gain of £80,823 in 2013. Working Capital Working capital increased by £1.94m to £9.19m (2013: £7.25m). Trade receivables increased by £3.2m compared to the prior year. This reflects the impact of significant levels of invoicing in August 2014 with cash being received post year end. Page 15 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 16 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Total assets 13.59 11.62 6.95 4.96 3.48 2010 2011 2012 2013 2014 Turnover by region £m Turnover by product £m 0.2 4.2 9.4 Track Testing Laboratory Test equipment TMS Cash flow Cash flows generated from operations before working capital movements were strong at £2.82m (2013: £2.01m). The Group has a strong balance sheet with net funds of £4.9m (2013: £6.0). Capital expenditure tangible assets was Capital expenditure on £347,486 included (2013: £678,461) and approximately £60,000 of costs incurred in respect of the new facility. Capital expenditure in 2015 and 2016 is expected to be significantly higher given the new building project. Earnings per share Underlying basic earnings per share was 13.08p (2013: 10.01p). This calculation is based on the underlying profit after tax of £2.15m and 16,452,254 shares, being the weighted average number in shares in issue during the year. Diluted earnings per share were 12.11p (2013: 9.48p). Further details of the earnings per share calculations are provided in note 8 to the financial statements. Critical accounting policies Revenue is recognised on a pro-rata basis according to the work performed and the degree of completion of the contract. Where the value of the the work performed on a contract exceeds aggregate of payments received on account from customers, the resulting balance is included in trade and other receivables. Where the aggregate of payments received on account from customers exceeds the value of work performed on a contract, the resulting balance is included in current liabilities. Dividends The Board has proposed a final dividend of 1.5p per share payable in December 2014 subject to shareholder approval at the 9 December 2014. The record date will be 21 November 2014 and the ex dividend date will be 20 November 2014. This will take the total dividend for the year to 2.5p. the AGM on Page 16 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 17 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Corporate governance statement The Board of AB Dynamics plc appreciate the value of good corporate governance and intend to respect the requirements of the UK Corporate Governance Code (the “Code”) on corporate governance, as far as applicable to the Company given its current size and stage of development. The Board is responsible for the direction and overall performance of the Group with emphasis on policy and strategy, financial results and major operational issues. The Code recommends that at least one-third of Board members should be non-executive Directors. Board structure The Board consists of five directors of which three are executive and two non-executive. The Board meets as and when required and is satisfied that it is provided with information in an appropriate form and quality to enable it to discharge its duties. All directors are required to retire by rotation with one third of the board seeking re-election each year, with the exception of the first year The board has undertaken a formal assessment of the auditor's independence and will continue to do so at least annually. This assessment includes: ● ● ● a review of non-audit services provided to the company and the related fees; a review of the auditor's own procedures for ensuring the independence of the audit firm and parties and staff involved in the audit; and obtaining confirmation from the auditor that, in their professional judgement, they are independent. Internal controls The Board is responsible for the Company's system of internal controls and for reviewing their effectiveness. The internal controls are designed to ensure the reliability of financial information for both internal and external purposes. The Directors are satisfied that the current controls are effective with regard to the size of the Company. Any internal control system can only provide reasonable, but not absolute assurance against material mis-statement or loss. Given the size of the Company, there is currently no need for an internal audit function. Rob Hart Finance Director – Company Secretary Page 17 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 18 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Independent Auditor’s report to the members of AB Dynamics plc We have audited the financial statements of AB Dynamics plc for the year ended 31 August 2014 which comprise of the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. We read all the financial and non-financial information in the Chairman’s Statement, Strategic Report, Directors’ Report, Finance Director’s Report and Corporate Governance Statement and any other surround information to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: ● ● ● ● the financial statements give a true and fair view of the state of the group’s and of the parent company's affairs as at 31 August 2014 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Page 18 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 19 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: ● ● ● adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors' remuneration specified by law are not made; or ● we have not received all the information and explanations we require for our audit. Leo Malkin Senior Statutory Auditor for and on behalf of Crowe Clark Whitehill LLP, Statutory Auditor St Bride’s House, 10 Salisbury Square London EC4Y 8EH 12 November 2014 Page 19 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 20 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements Consolidated statement of comprehensive income Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating profit before AIM transaction costs AIM transaction costs Operating profit Net finance income and (costs) Profit before taxation Corporation tax expense Profit after taxation Other comprehensive income Total comprehensive income for the year attributed to equity holders Earnings per share – Basic (pence) Earnings per share – Diluted (pence) Adjusted EPS (before AIM transaction costs): Adjusted earnings per share – Basic (pence) Adjusted earnings per share – Diluted (pence) Year ended 31 August 2014 £ Year ended 31 August 2013 £ Note 13,846,562 (9,816,570) –––––––––––––– 4,029,992 (1,378,718) –––––––––––––– 2,651,274 – –––––––––––––– 2,651,274 25,692 –––––––––––––– 2,676,966 (525,055) –––––––––––––– 2,151,911 – –––––––––––––– 12,171,473 (9,048,895) –––––––––––––– 3,122,578 (914,344) –––––––––––––– 2,208,234 (315,305) –––––––––––––– 1,892,929 (27,698) –––––––––––––– 1,865,231 (441,974) –––––––––––––– 1,423,257 – –––––––––––––– 2,151,911 –––––––––––––– –––––––––––––– 1,423,257 –––––––––––––– –––––––––––––– 13.08p 12.11p 13.08p 12.11p 10.01p 9.48p 12.23p 11.58p 4 5 6 8 8 8 8 Page 20 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 21 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements Consolidated statement of financial position as at 31 August 2014 ASSETS NON-CURRENT ASSETS Property, plant and equipment CURRENT ASSETS Inventories Trade receivables Other receivables, deposits and prepayments Amount owing by contract customers Financial instruments Cash and cash equivalents TOTAL ASSETS EQUITY AND LIABILITIES Share capital Share premium Reconstruction reserve Merger relief reserve Retained profits Total equity attributable to owners of the Company and total equity NON-CURRENT LIABILITIES Deferred tax liabilities CURRENT LIABILITIES Trade and other payables and accruals Provision for taxation Note 2014 £ 2013 £ 9 10 11 12 13 14 15 16 17 18 1,219,983 –––––––––––––– 1,219,983 –––––––––––––– 1,998,831 4,339,755 185,007 949,197 – 4,896,206 –––––––––––––– 12,368,996 1,012,109 –––––––––––––– 1,012,109 –––––––––––––– 1,486,390 1,132,625 266,950 1,736,598 – 5,990,176 –––––––––––––– 10,612,739 13,588,979 –––––––––––––– 11,624,848 –––––––––––––– 167,757 2,385,910 (11,284,500) 11,390,000 7,666,718 –––––––––––––– 163,070 2,302,528 (11,284,500) 11,390,000 5,650,416 –––––––––––––– 10,325,885 –––––––––––––– 8,221,514 –––––––––––––– 79,273 –––––––––––––– 41,923 –––––––––––––– 2,913,843 269,978 –––––––––––––– 3,183,821 3,163,093 198,318 –––––––––––––– 3,361,411 TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES 3,403,334 –––––––––––––– 11,624,848 –––––––––––––– –––––––––––––– The financial statements were approved by the Board of Directors and authorised for issue on 12 November 2014 and are signed on its behalf by: 3,263,094 –––––––––––––– 13,588,979 –––––––––––––– –––––––––––––– Anthony Best Director Robert Hart Director COMPANY REGISTRATION NUMBER: 08393914 Page 21 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 22 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements Consolidated statement of changes in equity Share capital £ Share premium £ Note Merger relief reserve £ Recon- struction reserve £ Retained profits £ Total equity £ Balance at 1 September 2012 134,000 43,000 – 62,500 4,443,046 4,682,546 (43,000) 11,390,000 (11,347,000) – – Group reconstruction Share based payment reserve Profit after taxation and total comprehensive income for the financial year Dividend paid prior to group reconstruction Issue of shares, net of share issue costs Balance at 31 August 2013 Balance at 1 September 2013 Share based payment reserve Profit after taxation and total comprehensive income for the financial year Dividend paid Issue of shares, net of share issue costs Balance at 31 August 2014 7 7 – – – – – – – – – – – – – – – 18,613 18,613 1,423,257 1,423,257 (234,500) (234,500) – 2,331,598 29,070 2,302,528 163,070 ––––––––––– 163,070 ––––––––––– ––––––––––– 2,302,528 11,390,000 (11,284,500) ––––––––––– ––––––––––– ––––––––––– 2,302,528 11,390,000 (11,284,500) ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– 5,650,416 ––––––––––– 5,650,416 ––––––––––– ––––––––––– 8,221,514 ––––––––––– 8,221,514 ––––––––––– ––––––––––– – – – – – – – – – – – – 27,861 27,861 2,151,911 2,151,911 (163,470) (163,470) 4,687 ––––––––––– 167,757 ––––––––––– ––––––––––– 83,382 – – ––––––––––– ––––––––––– ––––––––––– 2,385,910 11,390,000 (11,284,500) ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– – 88,069 ––––––––––– ––––––––––– 7,666,718 10,325,885 ––––––––––– ––––––––––– ––––––––––– ––––––––––– The share premium account is a non-distributable reserve representing the difference between the nominal value of shares in issue and the amounts subscribed for those shares. The reconstruction reserve has arisen as follows: The acquisition by the Company of the entire issued share capital of Anthony Best Dynamics Limited in 2013 has been accounted for as a reverse acquisition under IFRS3 (revised). Consequently, the previously recognised book values and assets and liabilities have been retained and the consolidated financial information for the period to 31 August 2013 has been presented as if the Company had always been the parent company of the Group and includes a capital redemption reserve arising in the subsidiary amounting to £62,500. The share capital for the period covered by these consolidated financial statements and the comparative periods is stated at the nominal value of the shares issued pursuant to the above share arrangement. Any differences between the nominal value of these shares and previously reported nominal values of shares and applicable share premium issued by Anthony Best Dynamics Limited have been transferred to the reconstruction reserve. Retained profits represent the cumulative value of the profits not distributed to shareholders, but retained to finance the future capital requirements of the Group. Costs related directly to the new issue of shares have been deducted from the share premium account. Attributable IPO costs are allocated between the share premium account and profit and loss account in proportion to the number of primary and secondary shares traded on Admission. Page 22 234217 AB Dynamics AR pp01-pp23 12/11/2014 16:24 Page 23 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements Consolidated statement of cash flows Cash flow from operating activities Profit before taxation Adjustments for: Depreciation of property, plant and equipment Loss on sale of property, plant and equipment Finance income and costs Interest income Share based payment Operating profit before working capital changes Increase in inventories Increase in trade and other receivables Increase in other payables Cash flow from operations Interest received Income tax paid Net cash flow from operating activities Cash flow from investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Cash flow used in investing activities Cash flow from financing activities Dividends paid/prior to group reconstruction Proceeds from issue of share capital, net of share issue costs Net cash flow from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the financial year Cash and cash equivalents at end of the financial year 2014 £ 2013 £ 2,676,966 1,865,231 135,645 257 – (25,692) 27,861 –––––––––––––– 2,815,037 (512,441) (2,337,786) (249,250) –––––––––––––– (284,440) 25,692 (416,046) –––––––––––––– (674,794) –––––––––––––– (344,942) 1,167 –––––––––––––– (343,775) –––––––––––––– (163,470) 88,069 –––––––––––––– (75,401) –––––––––––––– (1,093,970) –––––––––––––– 5,990,176 –––––––––––––– 4,896,206 –––––––––––––– 92,127 2,753 44,821 (17,123) 18,613 –––––––––––––– 2,006,422 (11,285) (611,510) 1,391,872 –––––––––––––– 2,775,499 17,123 (702,869) –––––––––––––– 2,089,753 –––––––––––––– (678,461) 310 –––––––––––––– (678,151) –––––––––––––– (234,500) 2,331,598 –––––––––––––– 2,097,098 –––––––––––––– 3,508,700 –––––––––––––– 2,481,476 –––––––––––––– 5,990,176 –––––––––––––– Page 23 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 24 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements Notes to the consolidated financial statements 1. General information The Company is a public company limited by shares and incorporated under the UK Companies Act. The Company is domiciled in the United Kingdom and the registered office and principal place of business is Holt Road, Bradford on Avon, Wiltshire, BA15 1AJ. The principal activity is the specialised area of design and manufacture of test equipment for vehicle suspension, steering, noise and vibration. The company also offers a range of services which include analysis, design, prototype manufacture, testing and development. Basis of preparation The Company was incorporated on 7 February 2013 and on 8 May 2013 acquired the entire share capital of Anthony Best Dynamics Limited. As a result of this transaction, the ultimate shareholders in Anthony Best Dynamics Limited received shares in the Company in direct proportion to their original shareholdings in Anthony Best Dynamics Limited. Under IFRS 3 (revised) “Business Combinations”, the acquisition of Anthony Best Dynamics Limited by the Company has been accounted for as a reverse acquisition and the consolidated IFRS financial information of the Company is therefore a continuation of the financial information of Anthony Best Dynamics Limited. As a result any financial information after 8 May 2013 represents consolidated financial information of the Group. Prior to this date, the historical financial information represents the financial information of the Company’s only operating subsidiary, Anthony Best Dynamics Limited (see Note 3 of the Company financial statements). The financial statements are measured and presented in sterling (£), unless otherwise stated, which is the currency of the primary economic environment in which the entities operate. They have been prepared under the historical cost convention, except for financial instruments that have been measured at fair value through profit and loss. The financial statements have been prepared on the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as they fall due for the foreseeable future. The financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”) issued by the International Accounting Standards Board (“IASB”), including related interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”). Page 24 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 25 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements Standards, amendments and interpretations to published standards not yet effective As at the date of approval of these financial statements, the following standards and interpretations were in issue but not yet effective: Issued and EU adopted: ● ● ● ● ● ● ● ● ● IFRS 10 – Consolidated financial statements IFRS 11 – Joint arrangements IFRS 12 – Disclosure of interests in other entities IAS 27 – Separate financial statements IAS 28 – Investments in associates and joint ventures Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39) Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) IAS 36 Amendments Recoverable Amount Disclosures for non-Financial Assets IFRIC 21 Levies Issued but not yet EU adopted: ● ● ● ● ● ● ● ● ● IAS 19 Amendment – Defined Benefit Plans: Employee Contributions IFRS 10 and IAS 28 Amendments: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture IAS 27 Amendment – Equity Method in Separate Financial Statements IAS 16 and IAS 41 Amendments: Agriculture: Bearer Plants IFRS 14 Regulatory Deferral Accounts IAS 16 and IAS 38 Amendments: Clarification of Acceptable Methods of Depreciation and Amortisation IFRS 11 Amendments: Accounting for Acquisitions of Interests in Joint Operations IFRS 15 Revenue from Contracts with Customers IFRS 9 Financial Instruments The Directors are aware of the potential changes that may occur under IFRS 15 “Revenue from Contracts with Customers” and are in the process of developing a method to assess the impact that this might have on the results of the group. This assessment will be made over the next year and reported in the next financial statements. The Directors do not anticipate that the adoption of any of the other standards and interpretations in future reporting periods will have a material impact on the Group’s results. The Group financial statements are presented in sterling and all values are rounded to the nearest pound except where otherwise indicated. Page 25 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 26 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 2. Summary of significant accounting policies (a) Going concern The Group’s activities and an outline of the developments taking place in relation to its products, services and marketplace are considered in the Chairman’s & Managing Director’s Statement on page 2. Note 19 to the Consolidated Financial Statements sets out the company’s financial risks and the management of capital risks. Accordingly, after careful enquiry and review of available financial information, including projections of profitability and cash flows, the Directors believe that the company has adequate resources to continue to operate for the foreseeable future and that it is therefore appropriate to continue to adopt the going concern basis of accounting in the preparation of the consolidated and company financial statements. (b) Critical accounting estimates and judgements Estimates and judgements are continually evaluated by the directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are as stated below: Assessment of the percentage of completion of construction projects Where the outcome of a construction contract can be estimated reliably, the Group recognises revenue and costs by reference to the stage of completion of the contract activity at the statement of financial position, based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs. Variations in contract work, rectification claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent it is probable that contract costs incurred will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. The above estimates are made internally by the Group and any changes of these estimates will result in a corresponding change on revenue and profit. The Group’s accounting approach reflects a sound judgement as potential losses on contract are being considered and reflected with its probability immediately upon occurrence, while contract revenue which cannot be estimated reliably is realised only after confirmed by written agreement. (c) Basis of consolidation The consolidated financial statements include the financial statements of all subsidiaries. The financial year ends of all entities in the Group are coterminous. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control over the operating and financial decisions is obtained and cease to be consolidated from the date on which control is transferred out of the Group. 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 economic benefits from its activities. Page 26 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 27 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 2. Summary of significant accounting policies (continued) (c) Basis of consolidation (continued) On 8 May 2013, the Group, previously made of Anthony Best Dynamics Limited, underwent a re-organisation by virtue of which Anthony Best Dynamics Limited’s shareholders in their entirety exchanged their shares for shares in AB Dynamics plc, a newly formed company, which then became the ultimate parent company of the Group. Notwithstanding the change in the legal parent of the Group, this transaction has been accounted for as a reverse acquisition and the consolidated financial statements are prepared on the basis of the new legal parent having been acquired by the existing Group. All intercompany balances and transactions, including recognised gains arising from inter-group transactions, have been eliminated in full. Unrealised losses are eliminated in the same manner as recognised gains except to the extent that they provide evidence of impairment. (d) Work in progress Contract revenue and contract costs are recognised over the period of the contract, respectively, as revenue and expenses. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to recognise in a given period. This is normally measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. The aggregate of the cost incurred and the profit/loss recognised on each contract is compared against the progress billings up to the year end. Where costs incurred and recognised profits (less recognised losses) exceed progress billings, the balance is shown as amount owing from contract customers. Where the progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as payments in advance, under trade and other payables and accruals. (e) Inventories Inventories are valued on a first in, first out basis at the lower of cost and net realisable value. Cost includes all expenditure incurred during the normal course of business in bringing in inventories to their present location and condition, including in the case of work-in-progress and finished goods an appropriate proportion of production overheads. Net realisable value is based on the estimated useful selling price less further costs expected to be incurred to completion and subsequent disposal. (f) Financial instruments Financial instruments are recognised in the statements of financial position when the Company has become a party to the contractual provisions of the instruments. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability, are reported as an expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Page 27 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 28 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 2. Summary of significant accounting policies (continued) (f) Financial instruments (continued) Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. Financial instruments recognised in the statements of financial position are disclosed in the individual policy statement associated with each item. (i) Financial assets On initial recognition, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables financial assets, or available-for-sale financial assets, as appropriate. ● ● ● ● Financial assets at fair value through profit or loss As at the end of the reporting period, there were no financial assets classified under this category. Held-to-maturity investments As at the end of the reporting period, there were no financial assets classified under this category. Loans and receivables financial assets Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables financial assets. Loans and receivables financial assets are measured at amortised cost using the effective interest method, less any impairment loss. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Available-for-sale financial assets As at the end of the reporting period, there were no financial assets classified under this category. (ii) Financial liabilities All financial liabilities are initially recorded at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method other than those categorised as fair value through profit or loss. Fair value through profit or loss category comprises financial liabilities that are either held for trading or are designated to eliminate or significantly reduce a measurement or recognition inconsistency that would otherwise arise. Derivatives are also classified as held for trading unless they are designated as hedges. (iii) Equity instruments Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from proceeds. Dividends on ordinary shares are recognised as liabilities when approved for appropriation. Page 28 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 29 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 2. Summary of significant accounting policies (continued) (g) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Depreciation is calculated under the straight-line method to write off the depreciable amount of the assets over their estimated useful lives. Depreciation of an asset does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. The principal annual rates used for this purpose are: Plant and machinery Motor vehicles Furniture and fittings Computer equipment General equipment Proprietorial equipment Test equipment Buildings 10% straight line 25% reducing balance 10% straight line 25% straight line 10% straight line 20% straight line Between 10-20% straight line 5% straight line The depreciation method, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period to ensure that the amounts, method and periods of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of the property, plant and equipment. Assets under construction are not depreciated until they are ready for use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day- to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Cost also comprises the initial estimate of dismantling and removing the asset and restoring the site on which it is located for which the Group is obligated to incur when the asset is acquired, if applicable. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from derecognition of the asset is recognised in profit or loss. The revaluation reserve included in equity is transferred directly to retained profits on retirement or disposal of the asset. (h) Impairment (i) Impairment of non-financial assets The carrying values of assets, other than those to which IAS 36 Impairment of Assets does not apply, are reviewed at the end of each reporting period for impairment when there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts. The recoverable amount of the assets is the higher of the assets’ fair value less costs to sell and their value in use, which is measured by reference to discounted future cash flow. An impairment loss is recognised in profit or loss immediately. When there is a change in the estimates used to determine the recoverable amount, a subsequent increase in the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in profit or loss immediately. Page 29 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 30 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 2. Summary of significant accounting policies (continued) (i) Income taxes The income tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (j) (k) (l) The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Cash and cash equivalents Cash and cash equivalents comprise cash in hand, bank balances, deposits with financial institutions and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Employee benefits (i) Short-term benefits Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. (ii) Defined contribution plans The Group’s contributions to defined contribution plans are recognised in profit or loss in the period to which they relate. Once the contributions have been paid, the Group has no further liability in respect of the defined contribution plans. Provisions, contingent liabilities and contingent assets Provisions are recognised when the Group has a present or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are reviewed at the end of each financial reporting period and adjusted to reflect the current best estimate. Where effect of the time value of money is material, the provision is the present value of the estimated expenditure required to settle the obligation. A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision. Page 30 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 31 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 2. Summary of significant accounting policies (continued) (l) Provisions, contingent liabilities and contingent assets (continued) A contingent asset is a probable asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. Contingent assets are not recognised by the Group but are disclosed where inflows of economic benefits are probable, but not virtually certain. (m) Revenue and other income Revenue represents the value, net of sales taxes, of goods sold and services provided to customers. Revenues on long-term contracts are recognised according to the percentage of completion method. Revenue is recognised on a pro-rata basis according to the work performed and the degree of completion of the contract. Where the value of the work performed on a contract exceeds the aggregate of payments received on account from customers, the resulting balance is included in trade and other receivables. Where the aggregate of payments received on account from customers exceeds the value of work performed on a contract, the resulting balance is included in current liabilities. Interest income is recognised as other income on an accruals basis based on the effective yield on the investment. (n) Share-based payments Employees (including Directors and Senior Executives) of the Group receive remuneration in the form of share-based payment transactions, whereby these individuals render services as consideration for equity instruments (“equity-settled transactions”). These individuals are granted share option rights approved by the Board which can only be settled in shares of the respective companies that award the equity-settled transactions. Share options rights are also granted to these individuals by majority shareholders over their shares held. No cash settled awards have been made or are planned. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant individuals become fully entitled to the award (“vesting point”). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments and value that will ultimately vest. The statement of comprehensive income charge for the year represents the movement in the cumulative expense recognised as at the beginning and end of that period. The fair value of share-based remuneration is determined at the date of grant and recognised as an expense in the statement of comprehensive income on a straight line basis over the vesting period, taking account of the estimated number of shares that will vest. The fair value is determined by use of Black Scholes model method. Page 31 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 32 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 3. Segment reporting The Group derives revenue from the sale of its advanced measurement and testing products derived in assisting the global automotive industry in the laboratory and on the test track. The income streams are all derived from the utilisation of these products which, in all aspects except details of revenue, are reviewed and managed together within the Group and as such are considered to be the only segment. Per IFRS 8, the operating segment is based on internal reports about components of the group, which are regularly reviewed and used by the board of directors being the Chief Operating Decision Maker (“CODM”). All of the Group’s non-current assets are held in the UK. Material revenues attributable to individual foreign countries are as follows: United Kingdom Rest of the European Union North America Rest of the World 2014 £ 2013 £ 1,705,775 3,752,538 1,388,510 6,999,739 –––––––––––––– 13,846,562 –––––––––––––– –––––––––––––– 2,206,917 3,364,214 973,702 5,626,640 –––––––––––––– 12,171,473 –––––––––––––– –––––––––––––– Revenues derived from major customers, which individually represent 10% or more of total revenue are as follows: Customer A Customer B Customer C Customer D Customer E Other customers 2014 £ 2013 £ 24,989 7,500 – 41,394 1,411,745 12,360,934 –––––––––––––– 13,846,562 –––––––––––––– –––––––––––––– 653,976 70,966 40,566 1,743,998 111,475 9,550,492 –––––––––––––– 12,171,473 –––––––––––––– –––––––––––––– There were no material non-current assets located outside the United Kingdom. Revenues are derived from the following: Revenue from sale of goods Revenue from construction contracts 4. Finance income and (costs) Interest received Fair value gains (losses) on financial instruments: – Foreign currency forward contracts Page 32 9,609,493 4,237,069 –––––––––––––– 13,846,562 –––––––––––––– –––––––––––––– 7,346,430 4,825,043 –––––––––––––– 12,171,473 –––––––––––––– –––––––––––––– 2014 £ 2013 £ 25,692 17,123 – –––––––––––––– 25,692 –––––––––––––– –––––––––––––– (44,821) –––––––––––––– (27,698) –––––––––––––– –––––––––––––– 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 33 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 5. Profit before taxation The profit before taxation is arrived at after charging/(crediting): Fees payable to the Company’s auditors for the audit of the Company’s financial statements Fees payable to the Company’s auditors for other services: The audit of the company’s subsidiary subject to legislation Fees payable to the Company’s auditors for tax compliance services Fees payable to the Company’s auditors for corporate finance services * Total Depreciation Loss/(profit) on sale of assets Realised loss/(gain) on foreign exchange: Staff costs: – salaries, allowances and bonuses Social security costs Defined contribution pension scheme costs Share based payments Rental of property Research 2014 £ 15,000 15,000 9,617 2013 £ 15,000 15,000 7,300 – –––––––––––––– 39,617 –––––––––––––– 76,122 –––––––––––––– 113,422 –––––––––––––– 135,645 257 33,887 2,948,318 324,013 113,874 27,861 51,591 152,069 92,127 2,753 (80,823) 2,509,101 269,431 87,070 18,613 41,458 210,997 * The Corporate finance services were in respect of the Group’s listing on AIM. The average monthly number of employees, including the directors, during the year was as follows: Directors & Commercial Engineers & Technicians Administration 2014 No. 2013 No. 9 41 6 –––––––––––––– 56 –––––––––––––– –––––––––––––– 7 35 5 –––––––––––––– 47 –––––––––––––– –––––––––––––– Total remuneration of key management personnel, being the directors of the company and its subsidiary, is set out below in aggregate for each of the categories specified in IAS24, related party disclosures: Short term employee benefits Post employment benefits Social security costs Share based payments – equity settled 2014 £ 2013 £ 702,087 27,580 86,379 17,329 –––––––––––––– 833,375 –––––––––––––– –––––––––––––– 591,340 16,280 66,220 11,577 –––––––––––––– 685,417 –––––––––––––– –––––––––––––– Further details relating to the remuneration of each member of key management can be found in the Directors report on page 13. Page 33 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 34 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 6. Income tax expense Current tax expense: – for the financial year – overprovision in the previous financial year Deferred tax liabilities: (Note 17): – origination and reversal of temporary differences 2014 £ 2013 £ 507,068 471,200 (19,363) –––––––––––––– 487,705 –––––––––––––– 37,350 –––––––––––––– 525,055 –––––––––––––– –––––––––––––– (13) –––––––––––––– 471,187 –––––––––––––– (29,213) –––––––––––––– 441,974 –––––––––––––– –––––––––––––– A reconciliation of income tax expense applicable to the profit before taxation at the effective tax rate to the income tax expense at the effective tax rate of the Group are as follows: Profit before taxation Tax at the applicable statutory tax rate of 22.16% (2013 – 23.58%) Tax effects of: Non-deductible expenses Capital allowance in excess of depreciation Adjustment in research and development tax credit Over provision in the previous financial year Non-taxable foreign currency forward contracts Patent box relief Other differences including change in rate of deferred tax provision Income tax expense for the financial year 7. Dividends paid Interim dividend paid of £0.01 per share Final dividends paid prior to group reconstruction 2014 £ 2013 £ 2,676,966 –––––––––––––– –––––––––––––– 1,865,231 –––––––––––––– –––––––––––––– 593,215 439,821 47,214 (34,308) (42,126) (19,363) – (56,927) 89,981 (6,970) (62,201) (13) 10,569 – 37,350 –––––––––––––– 525,055 –––––––––––––– –––––––––––––– (29,213) –––––––––––––– 441,974 –––––––––––––– –––––––––––––– 2014 £ 2013 £ 163,470 – –––––––––––––– –––––––––––––– – 234,500 –––––––––––––– –––––––––––––– 8. Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders by the weighted average number of ordinary shares in issue during the period, adjusted to reflect the conversion of the ordinary shares from Anthony Best Dynamics Limited to AB Dynamics plc on a 1:1 basis on 8 May 2013 and the subsequent subdivision of shares of each issued ordinary share of £1 each into 100 ordinary shares of £0.01 each. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential shares, adjusted to reflect the conversion and subsequent subdivision of the ordinary shares as mentioned above. The Company has two categories of potentially dilutive shares, namely share options and warrants. Page 34 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 35 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 8. Earnings per share (continued) The calculation of earnings per share is based on the following earnings and number of shares. Profit after tax attributable to owners of the Group (£) Weighted average number of shares: Basic Diluted Earnings per share (pence) Basic Diluted Profit for the year attributable to owners of the Group (£) Adjustments for: AIM transaction costs Profit for the year attributable to owners of the Group before AIM transaction costs (£) Adjusted earnings per share before AIM transaction costs (pence) Basic Diluted 9. Property, plant and equipment Years ended 31 August 2013 2014 £2,151,911 £1,423,257 16,452,254 17,772,645 14,212,360 15,010,940 13.08p 12.11p 10.01p 9.48p £2,151,911 £1,423,257 – £315,305 £2,151,911 £1,738,562 13.08p 12.11p 12.23p 11.58p Cost At 31 August 2013 Additions Disposals At 31 August 2014 Accumulated depreciation At 31 August 2013 Charge for the year Disposals At 31 August 2014 Net book value At 31 August 2013 At 31 August 2014 Test Equipment £ 578,310 ––––––––– ––––––––– 41,940 – ––––––––– 620,250 ––––––––– ––––––––– 461,263 22,782 – ––––––––– 484,045 ––––––––– ––––––––– 117,047 ––––––––– ––––––––– 136,205 ––––––––– ––––––––– Furniture and fittings £ 497,566 ––––––––– ––––––––– 149,246 (40,827) ––––––––– 605,985 ––––––––– ––––––––– 334,980 51,359 (38,807) ––––––––– 347,532 ––––––––– ––––––––– 162,586 ––––––––– ––––––––– 258,453 ––––––––– ––––––––– Motor Vehicles machinery £ Plant and Other fixed assets £ £ 66,107 ––––––––– ––––––––– 4,995 – ––––––––– 71,102 ––––––––– ––––––––– 24,200 11,446 – ––––––––– 35,646 ––––––––– ––––––––– 41,907 ––––––––– ––––––––– 35,456 ––––––––– ––––––––– 220,289 ––––––––– ––––––––– 61,222 (3,850) ––––––––– 277,661 ––––––––– ––––––––– 147,334 18,556 (2,503) ––––––––– 163,387 ––––––––– ––––––––– 72,955 ––––––––– ––––––––– 114,274 ––––––––– ––––––––– 581,698 ––––––––– ––––––––– 7,598 (600) ––––––––– 588,696 ––––––––– ––––––––– 553,404 8,177 – ––––––––– 561,581 ––––––––– ––––––––– 28,294 ––––––––– ––––––––– 27,115 ––––––––– ––––––––– Land & Buildings £ 589,320 ––––––––– ––––––––– 82,485 – ––––––––– 671,805 ––––––––– ––––––––– – 23,325 – ––––––––– 23,325 ––––––––– ––––––––– 589,320 ––––––––– ––––––––– 648,480 ––––––––– ––––––––– Total £ 2,533,290 ––––––––– ––––––––– 347,486 (45,277) ––––––––– 2,835,499 ––––––––– ––––––––– 1,521,181 135,645 (41,310) ––––––––– 1,615,516 ––––––––– ––––––––– 1,012,109 ––––––––– ––––––––– 1,219,983 ––––––––– ––––––––– Included within land and buildings is property under the course of construction with a total net book value of £186,196 (2013: £38,664). Depreciation will not be charged until the property is ready for use. Page 35 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 36 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 9. Property, plant and equipment (continued) Cost At 31 August 2012 Additions Disposals At 31 August 2013 Accumulated depreciation At 31 August 2012 Charge for the year Disposals At 31 August 2013 Net book value At 31 August 2012 At 31 August 2013 Test Equipment £ 559,877 ––––––––– ––––––––– 18,433 – ––––––––– 578,310 ––––––––– ––––––––– 441,113 20,150 – ––––––––– 461,263 ––––––––– ––––––––– 118,764 ––––––––– ––––––––– 117,047 ––––––––– ––––––––– Furniture and fittings £ 439,515 ––––––––– ––––––––– 69,146 (11,095) ––––––––– 497,566 ––––––––– ––––––––– 304,890 38,122 (8,032) ––––––––– 334,980 ––––––––– ––––––––– 134,625 ––––––––– ––––––––– 162,586 ––––––––– ––––––––– 10. Inventories Work in progress Raw materials Motor Vehicles machinery £ Plant and Other fixed assets £ £ 45,605 ––––––––– ––––––––– 20,502 – ––––––––– 66,107 ––––––––– ––––––––– 15,168 9,032 – ––––––––– 24,200 ––––––––– ––––––––– 30,437 ––––––––– ––––––––– 41,907 ––––––––– ––––––––– 218,709 ––––––––– ––––––––– 1,580 – ––––––––– 220,289 ––––––––– ––––––––– 129,733 17,601 – ––––––––– 147,334 ––––––––– ––––––––– 88,976 ––––––––– ––––––––– 72,955 ––––––––– ––––––––– 565,354 ––––––––– ––––––––– 16,344 – ––––––––– 581,698 ––––––––– ––––––––– 546,182 7,222 – ––––––––– 553,404 ––––––––– ––––––––– 19,172 ––––––––– ––––––––– 28,294 ––––––––– ––––––––– Land & Buildings £ 36,864 ––––––––– ––––––––– 552,456 – ––––––––– 589,320 ––––––––– ––––––––– – – – ––––––––– – ––––––––– ––––––––– 36,864 ––––––––– ––––––––– 589,320 ––––––––– ––––––––– Total £ 1,865,924 ––––––––– ––––––––– 678,461 (11,095) ––––––––– 2,533,290 ––––––––– ––––––––– 1,437,086 92,127 (8,032) ––––––––– 1,521,181 ––––––––– ––––––––– 428,838 ––––––––– ––––––––– 1,012,109 ––––––––– ––––––––– 2014 £ 2013 £ 855,709 1,143,122 –––––––––––––– 1,998,831 –––––––––––––– –––––––––––––– 288,782 1,197,608 –––––––––––––– 1,486,390 –––––––––––––– –––––––––––––– The value of inventories (being materials used and consumables) recognised as an expense was £4,012,273 (2013: £3,272,446). The amount of write down of inventories recognised as an expense was £NIL (2013: £28,504). 11. Trade receivables Trade receivables 2014 £ 2013 £ 4,339,755 –––––––––––––– –––––––––––––– 1,132,625 –––––––––––––– –––––––––––––– No provision is considered necessary in respect of trade receivables. The Group’s normal trade credit term is 30 to 60 days. Other credit terms are assessed and approved on a case by case basis. 12. Other receivables and prepayments Other receivables Prepayments 2014 £ 2013 £ – 185,007 –––––––––––––– 185,007 –––––––––––––– –––––––––––––– 164,988 101,962 –––––––––––––– 266,950 –––––––––––––– –––––––––––––– Page 36 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 37 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 13. Amount owing by contract customers Cost incurred to date Attributable profits Progress billings Represented by: Amounts received in advance Amount owing by contract customers Amount of contract revenue recognised to date No retentions were held by customers for contract work. 14. Derivative financial instruments Derivative financial instrument balances comprise: Forward foreign exchange contracts 2014 £ 2013 £ 7,863,520 2,818,838 –––––––––––––– 10,682,358 (9,812,622) –––––––––––––– 869,736 –––––––––––––– –––––––––––––– 6,013,485 2,157,660 –––––––––––––– 8,171,145 (6,921,827) –––––––––––––– 1,249,318 –––––––––––––– –––––––––––––– (79,461) 949,197 –––––––––––––– 869,736 –––––––––––––– –––––––––––––– (487,280) 1,736,598 –––––––––––––– 1,249,318 –––––––––––––– –––––––––––––– 4,237,069 –––––––––––––– –––––––––––––– 4,825,043 –––––––––––––– –––––––––––––– 2014 £ 2013 £ – –––––––––––––– – –––––––––––––– –––––––––––––– – –––––––––––––– – –––––––––––––– –––––––––––––– Further analysis of financial instruments is given in note 19. 15. Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise the following: Cash and bank balances 2014 £ 2013 £ 4,896,206 –––––––––––––– –––––––––––––– 5,990,176 –––––––––––––– –––––––––––––– Page 37 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 38 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 16. Share capital The allotted, called up and full paid share capital is made up of 16,775,640 ordinary shares of £0.01 each. On incorporation On 8 May 2013 Sub-division of shares On 22 May 2013 Less share issue costs At 1 September 2013 On 21 December 2013 On 24 May 2014 At 31 August 2014 Note (i) (ii) (iii) (iv) (v) (vi) Number of shares 1 133,999 13,266,000 2,906,976 – ––––––––––––– 16,306,976 ––––––––––––– ––––––––––––– 40,000 428,664 ––––––––––––– 16,775,640 ––––––––––––– ––––––––––––– Share Capital £ 1 133,999 – 29,070 – ––––––––––––– 163,070 ––––––––––––– ––––––––––––– 400 4,287 ––––––––––––– 167,757 ––––––––––––– ––––––––––––– Share premium £ – – – 2,470,930 (168,402) ––––––––––––– 2,302,528 ––––––––––––– ––––––––––––– 34,000 49,382 ––––––––––––– 2,385,910 ––––––––––––– ––––––––––––– Total £ 1 133,999 – 2,500,000 (168,402) ––––––––––––– 2,465,598 ––––––––––––– ––––––––––––– 34,400 53,669 ––––––––––––– 2,553,667 ––––––––––––– ––––––––––––– (i) (ii) On incorporation, one ordinary share of £1.00 was subscribed by and issued to Mr. A. Best. On 8 May 2013, the Company issued 133,999 ordinary shares of £1.00 each to the shareholders of Anthony Best Dynamics Ltd in consideration for the transfer of the entire issued share capital of Anthony Best Dynamics Ltd to the Company. (iii) By a resolution dated 8 May 2013, each of the issued ordinary shares of £1.00 was subdivided into 100 ordinary shares of £0.01. (iv) On 22 May 2013, the Company issued 2,906,976 ordinary shares of £0.01 each for £0.86. (v) On 21 December 2013, Cairn Financial Advisers LLP exercised 40,000 warrants of £0.01 each for £0.86. (vi) On 24 May 2014, a total of 428,664 share options were exercised of £0.01 each for £0.1252. 17. Deferred tax liabilities At 1 September Recognised in profit or loss At 31 August The deferred tax liabilities are attributable to. Accelerated capital allowances Derivative financial instruments Page 38 2014 £ 2013 £ 41,923 37,350 –––––––––––––– 79,273 –––––––––––––– –––––––––––––– 71,136 (29,213) –––––––––––––– 41,923 –––––––––––––– –––––––––––––– 2014 £ 2013 £ 79,273 – –––––––––––––– 79,273 –––––––––––––– –––––––––––––– 41,923 – –––––––––––––– 41,923 –––––––––––––– –––––––––––––– 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 39 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 18. Trade and other payables and accruals Trade payables Payments in advance Social security and other taxes Other payables and accruals 2014 £ 2013 £ 798,460 464,712 132,414 1,518,257 –––––––––––––– 2,913,843 –––––––––––––– –––––––––––––– 795,229 1,139,292 66,436 1,162,136 –––––––––––––– 3,163,093 –––––––––––––– –––––––––––––– Payments in advance relate to contractual revenue billed in advance and the income to be recognised upon delivery of goods and completion of services. 19. Financial instruments The Group’s activities are exposed to a variety of market risk (including foreign currency risk, interest rate risk and equity price risk), credit risk and liquidity risk. The overall financial risk management policy focuses on the potential adverse effects on the Group’s financial performance, through the use of such instruments as hedging foreign exchange exposure at appropriate points during the year. (a) Financial risk management policies The Group’s policies in respect of the major areas of treasury activity are as follows: (i) Market risk (i) Foreign currency risk The Group is exposed to foreign currency risk on transactions and balances that are denominated in currencies other than the Great Britain Pound. The currencies giving rise to this risk are primarily the Euro and United States Dollar. Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level. The Group maintains a natural hedge whenever possible, by matching the cash inflows (revenue stream) and cash outflows used for purposes such as capital expenditure, operational expenditure and debt service requirements in the respective currencies. Where appropriate the Group has also utilised derivative financial instruments in the form of forward contracts to sell currency in respect of sales denominated in currencies other than Great Britain Pound. Page 39 234217 AB Dynamics AR pp24-pp52 12/11/2014 17:15 Page 40 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 19. Financial instruments (continued) (a) Financial risk management policies (continued) (i) Market risk (continued) (i) Foreign currency risk (continued) The Group’s exposure to foreign currency is as follows: 2014 Financial assets Trade receivables Construction contract receivables Other receivables Cash and bank balances Financial liabilities Trade payables Other payables and accruals Construction contract payments on account Net financial assets Less: Net financial assets denominated in the functional currency Currency exposure Great Britain Pound £ United States Dollar £ Euro £ Japan Yen £ Total £ 3,943,764 263,394 132,597 – 4,339,755 611,413 – 4,214,024 ––––––––– 8,769,201 ––––––––– – – 405,695 ––––––––– 669,089 ––––––––– 337,784 – 276,415 ––––––––– 746,796 ––––––––– – – 72 ––––––––– 72 ––––––––– 949,197 – 4,896,206 –––––––––– 10,185,158 –––––––––– 777,898 19,787 918,455 – 775 – – – 798,460 918,455 327,241 ––––––––– 2,023,594 ––––––––– 65,580 ––––––––– 85,367 ––––––––– 71,891 ––––––––– 72,666 ––––––––– – ––––––––– – ––––––––– 464,712 –––––––––– 2,181,627 –––––––––– 8,003,531 6,745,607 –––––––––– 1,257,924 –––––––––– –––––––––– The Group’s exposure to foreign currency is as follows: 2013 Financial assets Trade receivables Construction contract receivables Other receivables Cash and bank balances Financial liabilities Trade payables Other payables and accruals Construction contract payments on account Net financial assets Less: Net financial assets denominated in the functional currency Currency exposure Great Britain Pound £ United States Dollar £ Euro £ Japan Yen £ Total £ 892,523 129,921 110,181 – 1,132,625 1,657,894 164,988 5,572,609 ––––––––– 8,288,014 ––––––––– 536,608 745,816 78,704 – 191,637 ––––––––– 400,262 ––––––––– – – 225,848 ––––––––– 336,029 ––––––––– – – 82 ––––––––– 82 ––––––––– 1,736,598 164,988 5,990,176 –––––––––– 9,024,387 –––––––––– 166 580 11,821 246,634 795,229 11,065 – 757,461 988,931 ––––––––– 2,271,355 ––––––––– 36,152 ––––––––– 36,898 ––––––––– 114,209 ––––––––– 137,095 ––––––––– – ––––––––– 246,634 ––––––––– 1,139,292 –––––––––– 2,691,982 –––––––––– 6,332,405 6,016,659 –––––––––– 315,746 –––––––––– –––––––––– Page 40 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 41 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 19. Financial instruments (continued) (a) Financial risk management policies (continued) (i) Market risk (continued) (i) Foreign currency risk (continued) Although there is no formal hedge the Group seeks to offset foreign currency risk exposure by way of forward exchange contracts. At 31 August 2014 and 31 August 2013 the Group had no forward contracts in place. The consolidated statement of comprehensive income would be affected by a gain/loss of approximately £67k (2013 – £20k) by a reasonable 10 percentage point fluctuation down/up in the exchange rate between sterling and the US dollar, a gain/loss of approximately £58k (2013 – £36k) by a reasonable 10 percentage point fluctuation down/up in the exchange rate between sterling and the Euro, and a gain/loss of approximately £Nil (2013 – £25k) by a reasonable 10 percentage point fluctuation down/up in the exchange rate between sterling and the Japanese Yen. (ii) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk arises mainly from interest-bearing financial assets being interest bearing bank deposits. The Group’s policy is to obtain the most favourable interest rates available whilst ensuring that cash is deposited with a financial institution with a credit rating of “AA” or better. Any surplus funds are placed with licensed financial institutions to generate interest income. Interest rate risk sensitivity analysis A 100 basis points strengthening/weakening of the interest rate as at the end of the reporting period would have immaterial impact on profit after taxation and equity. This assumes that all other variables remain constant. (iii) Equity price risk The Group does not have any quoted investments and hence is not exposed to equity price risk. (ii) Credit risk The Group’s exposure to credit risk, or the risk of counterparties defaulting, arises mainly from trade and other receivables. The Group manages its exposure to credit risk by the application of credit approvals, credit limits and monitoring procedures on an ongoing basis. For other financial assets (including cash and bank balances), the Group seeks to minimise credit risk by dealing exclusively with high credit rating counterparties. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of the trade and other receivables as appropriate. The main components of this allowance are a specific loss component that relates to individually significant exposures. Impairment is estimated by management based on prior experience and the current economic environment. Credit risk concentration profile The Group’s major concentration of credit risk at 31 August 2014 relates to the amounts owing by three customers which constituted approximately 63% of its trade receivables as at the end of the reporting period. Page 41 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 42 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 19. Financial instruments (continued) (a) Financial risk management policies (continued) (ii) Credit risk (continued) Exposure to credit risk As the Group does not hold any collateral, the maximum exposure to credit risk is represented by the carrying amount of the financial assets as at the end of the reporting period. The exposure of credit risk for trade receivables by geographical region is as follows: United States United Kingdom Europe Rest of the World 2014 £ 2013 £ 394,775 1,634,138 1,022,830 1,288,012 –––––––––––––– 4,339,755 –––––––––––––– –––––––––––––– 120,369 37,720 590,565 383,971 –––––––––––––– 1,132,625 –––––––––––––– –––––––––––––– Ageing analysis The ageing analysis of the Group’s trade receivables as at each of the two years ended 31 August 2014 is as follows: 2014 Not past due Past due: – less than 3 months – 3 to 6 months 2013 Not past due Past due: – less than 3 months – 3 to 6 months Gross amount £ Individual impairment £ Carrying value £ 3,004,612 – 3,004,612 962,138 373,005 –––––––––––––– 4,339,755 –––––––––––––– –––––––––––––– – – –––––––––––––– – –––––––––––––– –––––––––––––– 962,138 373,005 –––––––––––––– 4,339,755 –––––––––––––– –––––––––––––– 492,011 – 492,011 575,149 65,465 –––––––––––––– 1,132,625 –––––––––––––– –––––––––––––– – – –––––––––––––– – –––––––––––––– –––––––––––––– 575,149 65,465 –––––––––––––– 1,132,625 –––––––––––––– –––––––––––––– At the end of the reporting period, trade receivables that are individually impaired were those in significant financial difficulties and have defaulted on payments. These receivables are not secured by any collateral or credit enhancement. Trade receivables that are past due but not impaired The Group believes that no impairment allowance is necessary in respect of these trade receivables. They are substantially companies with good collection track record and no recent history of default. Page 42 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 43 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 19. Financial instruments (continued) (a) (b) Financial risk management policies (continued) (iii) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group maintains a level of cash and cash equivalents and bank facilities deemed adequate by the management to ensure as far as possible, that it will have sufficient liquidity to meet its liabilities when they fall due. Capital risk management Capital is defined as the total equity of the Group. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group manages its capital based on debt-to-equity ratio. The strategies adopted were unchanged during the period under review and from those adopted in the previous financial year. The debt-to-equity ratio is calculated as net debt divided by total equity. Net debt is calculated as borrowings plus trade and other payables less cash and cash equivalents. At 31 August 2014, the Group’s cash resources exceed its total debt. The Company hence has no net debt. (c) Classification of financial instruments Apart from derivative financial instruments held for hedging purposes, all financial instruments are categorised as receivables and loans. Financial assets Trade receivables Construction contract receivables Other receivables Derivative financial instruments Cash and bank balances Financial liabilities Trade and accruals and other payables Derivative financial instruments Construction contract payments on account 2014 £ 2013 £ 4,339,755 949,197 – – 4,896,206 –––––––––––––– 10,185,158 –––––––––––––– –––––––––––––– 1,716,914 – 464,713 –––––––––––––– 2,181,627 –––––––––––––– –––––––––––––– 1,132,625 1,736,598 164,988 – 5,990,176 –––––––––––––– 9,024,387 –––––––––––––– –––––––––––––– 1,552,690 – 1,139,292 –––––––––––––– 2,691,982 –––––––––––––– –––––––––––––– Page 43 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 44 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 19. Financial instruments (continued) (d) Fair value hierarchy The fair values of the financial assets and liabilities are analysed into level 1 to 3 as follows: Level 1: Level 2: Level 3: Fair value measurements derive from quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair value measurements derive from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. Fair value measurements derive from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The only financial instruments carried at fair values were derivative financial instruments falling within Level 2 and these were held only at 31 August 2012. 20. Lease commitments The Group had total commitments at the end of each financial year in respect of non-cancellable operating leases of: Property leases Payable within one year Payable within 2-5 years 2014 £ 2013 £ 65,323 71,154 –––––––––––––– 136,477 –––––––––––––– –––––––––––––– 38,000 72,833 –––––––––––––– 110,833 –––––––––––––– –––––––––––––– 21. Related party disclosures Mr. A. Best, a director of the company, is a trustee and beneficiary of the Best Middleton Trust. Rental payments of £38,000 (2013 – £38,000) were made in the year. No amounts were due to or from the trust at any year end. Balances and transactions between the Company and its subsidiaries are eliminated on consolidation and are not disclosed in this note. The remuneration of the key management personnel of the Group is set out in the Directors’ report on page 13. Page 44 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 45 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Consolidated financial statements 22. Share options The share option scheme, which was adopted by the company during the year ending 31 August 2013, was established to reward and incentivise the executive management team and staff for delivering share price growth. The share option scheme is administered by the Remuneration Committee. A charge of £27,861 (2013: £18,613) has been charged to the statement of comprehensive income for the year relating to these options. These fair values were calculated using the Black Scholes option pricing model. The inputs into the model were as follows: Stock price Exercise price Interest rate Volatility Time to maturity 12.52p 12.52p 1% 30% 10 years The expected volatility was determined with reference to similar entities trading on AIM. Details of the share options outstanding at the year end are as follows: Outstanding as at 1 September Granted during the year Forfeited during the year Expired during the year Exercised during the year Options outstanding at 31 August Exercisable at 31 August Number 31 August 2014 1,302,600 – – – (428,664) –––––––––––––– 873,936 –––––––––––––– –––––––––––––– 5,533 –––––––––––––– WAEP (pence) 31 August 2014 12.52 – – – 12.52 –––––––––––––– 12.52 –––––––––––––– –––––––––––––– 12.52 –––––––––––––– Number 31 August 2013 – 1,302,600 – – – –––––––––––––– 1,302,600 –––––––––––––– –––––––––––––– – –––––––––––––– WAEP (pence) 31 August 2013 – 12.52 – – – –––––––––––––– 12.52 –––––––––––––– –––––––––––––– – –––––––––––––– The weighted average remaining contractual life of the options outstanding at the statement of financial position date is 8.5 years. 22. Ultimate controlling party There is no ultimate controlling party. Page 45 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 46 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Company financial statements Company balance sheet Fixed assets Investments Current assets Other debtors Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Capital and reserves Called up share capital Share premium account Profit and loss account Equity – attributable to the owners of the parent Note 2014 £ 2013 £ 3 4 5 6 7 8 9 180,474 –––––––––––––– 152,613 –––––––––––––– 2,741,726 –––––––––––––– 2,741,726 28,167 –––––––––––––– 2,713,559 –––––––––––––– 2,894,033 –––––––––––––– –––––––––––––– 167,757 2,385,910 340,366 –––––––––––––– 2,894,033 –––––––––––––– –––––––––––––– 1,958,566 –––––––––––––– 1,958,566 5,000 –––––––––––––– 1,953,566 –––––––––––––– 2,106,179 –––––––––––––– –––––––––––––– 163,070 2,302,528 (359,419) –––––––––––––– 2,106,179 –––––––––––––– –––––––––––––– The financial statements were approved by the Board of Directors and authorised for issue on 12 November 2014 and are signed on its behalf by: Anthony Best Director Robert Hart Director COMPANY REGISTRATION NUMBER: 08393914 Page 46 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 47 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Company financial statements Notes to the Company financial statements BASIS OF ACCOUNTING The financial statements have been prepared in accordance with the historical cost convention and in accordance with applicable United Kingdom law and United Kingdom accounting standards. The principal accounting policies are described below. They have all been applied consistently throughout the period. No company cash flow statement has been prepared as no cash is held in the company. GOING CONCERN At 31 August 2014, the Company had net current assets of £2,713,559 (2013 – £1,953,566) with the main current asset being amounts owed from its subsidiary Anthony Best Dynamics Ltd, amounting to £2,732,973 (2013 – £1,952,827). The Company has assessed its ongoing costs with cash generated by its subsidiary to ensure that it can continue to settle its debts as they fall due. The Directors have, after careful consideration of the factors set out above, concluded that it is appropriate to adopt the going concern basis for the preparation of the financial statements and the financial statements do not include any adjustments that would result if the going concern basis was not appropriate. INVESTMENTS Investments held as fixed assets are stated at cost less provision for impairment. TAXATION Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is not recognised when fixed assets are revalued unless by the balance sheet date there is a binding agreement to sell the revalued assets and the gain or loss expected to arise on sale has been recognised in the financial statements. Neither is deferred tax recognised when fixed assets are sold and it is more likely than not that the taxable gain will be rolled over, being charged to tax only if and when the replacement assets are sold. Taxation arising on disposal of a revalued asset is split between the profit and loss account and the statement of total recognised gains and losses on the basis of the tax attributable to the gain or loss recognised in each statement. Page 47 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 48 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Company financial statements 1. PROFIT FOR THE FINANCIAL YEAR The company has taken advantage of section 408 of the Companies Act 2006 and, consequently, a profit and loss account for the company alone has not been presented. The company’s profit for the financial year was £835,394 (2013 Loss – £378,032). The company’s profit for the financial year has been arrived at after charging auditor’s remuneration payable to Crowe Clark Whitehill LLP for audit services to the company of £15,000 (2013 – £15,000). 2. EMPLOYEES AND DIRECTORS’ REMUNERATION Staff costs during the year by the Company were as follows: Non-executive directors fees 2014 £ 2013 £ 65,955 –––––––––––––– 65,955 –––––––––––––– –––––––––––––– 22,375 –––––––––––––– 22,375 –––––––––––––– –––––––––––––– The executive management team is remunerated by the operating subsidiary Anthony Best Dynamics Limited. Details of their remuneration is in the Directors’ report on page 13. The average number of employees of the company during the year was: Directors and management 3. INVESTMENTS Subsidiary undertaking Brought forward Addition Carried forward 2014 Number 2013 Number 5 –––––––––––––– –––––––––––––– 5 –––––––––––––– –––––––––––––– 2014 £ 2013 £ 152,613 27,861 –––––––––––––– 180,474 –––––––––––––– –––––––––––––– – 152,613 –––––––––––––– 152,613 –––––––––––––– –––––––––––––– The company owns more than 20% of the following undertakings which are incorporated in the United Kingdom: Subsidiary undertaking: Anthony Best Dynamics Limited Class of share held % shareholding Ordinary 100 On 8 May 2013, the Group, previously headed by Anthony Best Dynamics Limited, underwent a reorganisation by virtue of which Anthony Best Dynamics Limited’s shareholders in their entirety exchanged their shares for shares in AB Dynamics plc, a newly formed company, which then became the ultimate parent company of the Group. Notwithstanding the change in the legal parent of the Group, this transaction has been accounted for as a reverse acquisition under IFRS 3 (revised) “Business Combinations” and the consolidated financial statements are prepared on the basis of the new legal parent having been acquired by the existing Group. Page 48 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 49 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Company financial statements 4. OTHER DEBTORS Amounts owed by group undertakings Prepayment 5. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Accruals and deferred income 2014 £ 2013 £ 2,732,973 8,753 –––––––––––––– 2,741,726 –––––––––––––– –––––––––––––– 1,952,827 5,739 –––––––––––––– 1,958,566 –––––––––––––– –––––––––––––– 2014 £ 2013 £ 28,167 –––––––––––––– 28,167 –––––––––––––– –––––––––––––– 5,000 –––––––––––––– 5,000 –––––––––––––– –––––––––––––– All amounts fall due within 30 days of the year end. 6. SHARE CAPITAL The allotted, called up and full paid share capital is made up of 16,775,640 ordinary shares of £0.01 each. On incorporation On 8 May 2013 Sub-division of shares On 22 May 2013 Less share issue costs At 1 September 2013 On 21 December 2013 On 24 May 2014 At 31 August 2014 Note Number of shares Share Capital £ Share Premium £ (i) (ii) (iii) (iv) (v) (vi) 1 133,999 13,266,000 2,906,976 – ––––––––––––– 16,306,976 ––––––––––––– ––––––––––––– 40,000 428,664 ––––––––––––– 16,775,640 ––––––––––––– ––––––––––––– 1 133,999 – 29,070 – ––––––––––––– 163,070 ––––––––––––– ––––––––––––– 400 4,287 ––––––––––––– 167,757 ––––––––––––– ––––––––––––– – – – 2,470,930 (168,402) ––––––––––––– 2,302,528 ––––––––––––– ––––––––––––– 34,000 49,382 ––––––––––––– 2,385,910 ––––––––––––– ––––––––––––– Total £ 1 133,999 – 2,500,000 (168,402) ––––––––––––– 2,465,598 ––––––––––––– ––––––––––––– 34,400 53,669 ––––––––––––– 2,553,667 ––––––––––––– ––––––––––––– (i) (ii) On incorporation, one ordinary share of £1.00 was subscribed by and issued to Mr. A. Best. On 8 May 2013, the Company issued 133,999 ordinary shares of £1.00 each to the shareholders of Anthony Best Dynamics Ltd in consideration for the transfer of the entire issued share capital of Anthony Best Dynamics Ltd to the Company. (iii) By a resolution dated 8 May 2013, each of the issued ordinary shares of £1.00 was subdivided into 100 ordinary shares of £0.01. (iv) On 22 May 2013, the Company issued 2,906,976 ordinary shares of £0.01 each for £0.86. (v) On 21 December 2013, Cairn Financial Advisers LLP exercised 40,000 warrants of £0.01 each for 86p. (vi) On 24 May 2014, a total of 428,664 share options were exercised of £0.01 each for £0.1252. Page 49 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 50 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Company financial statements 6. SHARE CAPITAL (continued) Share options: The Company had a total of 997,005 options and warrants outstanding over ordinary shares, which includes 123,069 warrants granted to Cairn Financial Advisers LLP. 7. SHARE PREMIUM ACCOUNT Balance brought forward Premium on issue of new shares Share issue costs Balance carried forward 8. PROFIT AND LOSS ACCOUNT Balance brought forward Share based payments Profit/(loss) for the financial period Dividends paid Balance carried forward 2014 £ 2013 £ 2,302,528 83,382 – –––––––––––––– 2,385,910 –––––––––––––– –––––––––––––– – 2,470,930 (168,402) –––––––––––––– 2,302,528 –––––––––––––– –––––––––––––– 2014 £ 2013 £ (359,419) 27,861 835,394 (163,470) –––––––––––––– 340,366 –––––––––––––– –––––––––––––– 18,613 (378,032) – –––––––––––––– (359,419) –––––––––––––– –––––––––––––– 9. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS Profit/(loss) for the financial period Net increase/(decrease) in shareholders’ funds Issue of new shares Exercise of options and warrants Share issue costs Share based payments Dividend paid Opening shareholders’ funds Closing shareholders’ funds 10. DIVIDENDS Interim dividend paid of £0.01 per share 2014 £ 2013 £ 835,394 –––––––––––––– 835,394 – 88,069 – 27,861 (163,470) 2,106,179 –––––––––––––– 2,894,033 –––––––––––––– –––––––––––––– (378,032) –––––––––––––– (378,032) 2,634,000 – (168,402) 18,613 – –––––––––––––– 2,106,179 –––––––––––––– –––––––––––––– 2014 £ 2013 £ 163,470 –––––––––––––– –––––––––––––– – –––––––––––––– –––––––––––––– Page 50 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 51 AB Dynamics plc Annual report and financial statements For the year ended 31 August 2014 Company financial statements 11. RELATED PARTY TRANSACTIONS The only key management personnel of the Company are the Directors. Details of their remuneration are contained in the Director’s Report on page 13 of the consolidated financial statements. During the year dividends were declared by the subsidiary, Anthony Best Dynamics Ltd, totalling £1,050,000 (2013: £Nil) and amounts repaid totalling £269,854 (2013: advanced to £1,952,827). At the year end £2,732,973 (2013: £1,952,827) was due from Anthony Best Dynamics Ltd. Page 51 234217 AB Dynamics AR pp24-pp52 12/11/2014 16:25 Page 52 Perivan Financial Print 234217 AB Dynamics plc Holt Road Bradford on Avon Wiltshire BA15 1AJ T: +44 (0)1225 860 200 F: +44 (0)1225 860 201 E: info@abd.uk.com www.abd.uk.com Stock code: ABDP