A n d r e w s S y k e s G r o u p P l c A n n u a l R e p o r t a n d F n a n c i a l i S t a t e m e n t s 2 0 1 3 a n d r e w s - s y k e s . c o m Andrews Sykes Group plc Annual Report and Financial Statements 2013 DEHUMIDIFICATION VENTILATION Andrew Sykes AR2013 Proof 4.indd 3 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:11 A Thriving Business in a Dynamic Sector Contents 1 2 4 4 4 4 8 17 20 2 1 22 23 24 Summary of Results Chairman’s Statement Strategic Report Principal Objectives and Strategy Future Development of the Business 2013 Operational Performance Review of risks, uncertainties and financial performance Directors’ Report Directors and Advisors Statement of Directors’ Responsibilities in respect of the Annual Report and Financial Statements Independent Auditor’s Report to the Members of Andrews Sykes Group plc only Consolidated Income Statement Consolidated Statement of Comprehensive Total Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Group Accounting Policies Notes to the Consolidated Financial Statements Company Balance Sheet 25 26 27 28 36 67 68 Notes to the Company Financial Statements 74 76 Notice of Annual General Meeting Five Year History Andrew Sykes AR2013 Proof 4.indd 4 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:13 Summary of Results Revenue from continuing operations 61,072 58,380 12 months ended 31 December 2013 £’000 12 months ended 31 December 2012† £’000 EBITDA* from continuing operations Operating profit Profit after tax for the financial period Basic earnings per share from total operations (pence) Interim dividends paid per equity share (pence) Proposed final dividend per equity share (pence) Net cash inflow from operating activities Total dividends paid Net funds † Restated due to the implementation of IAS 19 (2011), see note 18. 18,592 14,683 11,518 27.25p 17.80p 11.90p 14,216 7,523 19,113 17,825 14,221 11,069 26.18p 7.10p — 12,768 3,001 15,642 * Earnings Before Interest, Taxation, Depreciation, profit on sale of property, plant and equipment, Amortisation and non-recurring items as reconciled on the consolidated income statement. Andrew Sykes AR2013 Proof 4.indd 1 23220.04 12 May 2014 3:10 PM Proof 4 1 1 12/05/2014 18:21:13 Chairman’s Statement Overview and financial highlights The group’s revenue for the year ended 31 December 2013 was £61.1 million, an increase of £2.7 million, or 4.6%, compared with the same period last year. This increase had a favourable impact on operating profit which increased by £0.5 million from £14.2 million* last year to £14.7 million in the year under review. This increase is despite the lack of revenue in the current year from contracts in connection with the Olympic and Paralympic games which benefited the performance for 2012. The basic earnings per share increased by 4.1% from 26.18p* last year to 27.25p in the current period. There were no share buybacks in the period and this increase reflects the strong trading performance of the group again this year. The group continues to generate strong cash flows. Net cash inflow from operating activities was £14.2 million, an improvement of £1.4 million compared with last year. Net funds increased from £15.6 million last year to £19.1 million at 31 December 2013 despite shareholder related cash outflows of £7.5 million on equity dividends. The level of external bank borrowings remains unchanged as at 31 December 2013 from the previous year following the refinancing exercise in April 2013. Cost control, cash and working capital management continue to be priorities for the group. Capital expenditure on the hire fleet increased from £4.2 million in 2012 to £4.6 million this year and the group invested a further £0.8 million on property, plant and equipment. These actions will ensure that the group’s infrastructure and revenue generating assets are sufficient to support future growth and profitability. Hire fleet utilisation, condition and availability continue to be the subjects of management focus. Operating performance The following table splits the results between the first and second half years: 1st half 2013 1st half 2012 2nd half 2013 2nd half 2012 Total 2013 Total 2012 Turnover £’000 29,774 28,570 31,298 29,810 61,072 58,380 Operating profit* £’000 6,427 6,396 8,256 7,825 14,683 14,221 Our main hire and sales business in the UK and Europe has again faced challenging trading conditions throughout 2013 mainly as a result of some unhelpful weather conditions but also due to economic conditions particularly in certain European territories. Consequently the business segment had mixed fortunes with Andrews Sykes Hire Limited in the UK performing significantly better than last year and our subsidiaries in Belgium and Northern Italy also returning an improved performance. However, after a very successful year in 2012, Andrews Sykes BV in Holland suffered a reduction in operating profit and, as expected, our business in France returned an operating loss in 2013 during its first year of trading. Overall, the operating profit of this business segment increased from £13.1 million last year to £13.5 million in 2013. The weather at the beginning of the year was relatively cold thereby helping the performance of our heating division. However, this was short lived and was replaced by much milder conditions which lasted until the middle of June when a spell of warmer weather finally arrived giving a boost to our all-important air conditioning hire and sales business. The autumn and winter that followed were exceptionally mild and wet which did nothing for our heating products but which did assist the performance of our UK pumping business. Improvements were apparent in the UK economy but less so in our other European territories with a reduction in the level of construction work throughout Holland. The performance for the year clearly demonstrates our ability to deliver acceptable profit levels even in times of unfavourable external influence and is due, in part, to a diverse product range that is able to return a robust performance during any extreme weather conditions. This is supported by the continuing development of non-weather dependent niche markets which continue to benefit the performance of our specialist hire divisions. We will continue to invest in and develop these businesses as well as our traditional core products and services. Our hire and sales business in the Middle East had a very successful year with the operating profit for this business segment improving from £1.2 million last year to £1.8 million in the current year. This reflects improved market conditions which had a positive impact on our traditional dewatering, sewage and general pump hire activities. In addition our climate rental division which was formed in 2012 returned a positive contribution to the business results. 2 Andrew Sykes AR2013 Proof 4.indd 2 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:17 Chairman’s Statement Overview and financial highlights The operating profit for our fixed installation business sector in the UK fell from nearly £1.0 million in 2012 to £0.4 million in the current year. However, this was expected as the business had a successful year in 2012 due to a significant contract for the supply of equipment in connection with the Olympic and Paralympic Games. Excluding this contract, the business continues to perform broadly in line with last year albeit at relatively modest levels compared with the rest of the group. Profit for the financial year Profit before tax was £15.0 million this year compared with £14.8 million* last year. This is due to the above £0.5 million improvement in operating profit, a reduction of £0.4 million in dividends received from Oasis Sykes, our trade investment in Saudi Arabia, from £0.6 million last year to £0.2 million in 2013, and a £0.1 million reduction in finance costs. Tax charges amounted to £3.5 million, a reduction of £0.2 million compared with 2012, resulting in a profit for the financial year of £11.5 million compared with £11.1 million* last year. Equity dividends The company declared two interim dividends during the year, both of 8.9 pence per ordinary share. The first was declared on 18 June 2013 and was paid on 24 July 2013; the second was declared on 28 October 2013 and was paid on 3 December 2013. Therefore total ordinary dividends paid to shareholders in the year were in excess of £7.5 million. I am pleased to announce that, in view of the group’s ongoing profitability and its significant cash resources, the board has proposed a 2013 final dividend of 11.9 pence per ordinary share. If approved at the forthcoming Annual General Meeting this dividend, which in total amounts to £5.0 million, would be paid on 19 June 2014 to shareholders on the register on 30 May 2014. Net funds At 31 December 2013 the group had net funds of £19.1 million compared with £15.6 million last year, an increase of £3.5 million despite the payment of the above two interim dividends totalling £7.5 million. Renewal of bank loan facilities The group’s previous bank loan agreements expired on 30 April 2013. In order to safeguard the group’s cash position and to ensure that the group has adequate liquid resources available to finance any business opportunities that may arise, a new loan of £8.0 million was taken out on the same day to finance the loan repayment. This new loan is for four years with annual repayments of £1.0 million commencing on 30 April 2014 and a final balloon payment of £5.0 million due on 30 April 2017. Interest is charged based on LIBOR plus a fixed margin of 1.2% and mandatory costs. Share buybacks During the current year the company did not purchase any ordinary shares for cancellation. However, in prior periods such purchases were made and these enhanced earnings per share and were for the benefit of all shareholders. The board believes that it is in the best interest of shareholders if they have this authority in order that market purchases may be made in the right circumstances if the necessary funds are available. Accordingly, at the next Annual General Meeting, shareholders will be asked to vote in favour of a resolution to renew the general authority to make market purchases of up to 12.5% of the ordinary share capital in issue. Outlook The group’s policy to increase investments in new technologically advanced and environmentally friendly non-seasonal products will be continued into 2014. Investments will also continue in our traditional businesses to ensure we are ready to support our customers in times of extreme weather conditions. The group continues to face challenges in all of its geographical markets but our business remains strong, cash generative and well developed, with positive net funds. Improvements have been seen in the UK, especially the pumping business, and the Middle East business sector during 2013 but these have been partially offset by a downturn in trading in Holland. Management is currently addressing this issue and the board is therefore cautiously optimistic for further success in 2014. JG Murray Chairman 6 May 2014 * Restated due to the implementation of IAS 19 (2011), see note 18. Andrew Sykes AR2013 Proof 4.indd 3 23220.04 12 May 2014 3:10 PM Proof 4 3 12/05/2014 18:21:17 Strategic Report Operational Performance Principal objectives and strategy The Andrews Sykes Group is one of the market leaders in the rental of Specialist Climate Control products which include Air Conditioning and Chillers, Heating and Boilers, Dehumidifiers and Ventilation, along with a range of industrial pumping equipment. We aim to provide the most modern, technically advanced and environmentally friendly rental equipment in the market. We offer our products and services throughout the UK, Europe and the Middle East via a network of depots which are supported by regional agents. Having been originally established in the UK since 1857 we now have 40 locations and employ around 500 staff worldwide. Our operations in mainland Europe began over 40 years ago in Rotterdam and now extend to depots located throughout Holland, Belgium, France, Italy and Switzerland. In the Middle East we have been operating from Dubai since the 1970’s and now have locations in Abu Dhabi, Sharjah and agents based in Oman, Qatar, Kuwait and Bahrain. We also have long-established partners in Ireland and North America. In addition to renting our products we provide our equipment for sale along with a full service and repair back up. In the UK we have a specialist Air Conditioning installation, service and maintenance subsidiary which is based in the North West that covers the whole of the UK. By providing a first class level of service 24 hours per day 365 days per year we have become the preferred suppliers to many major businesses and operations spanning a huge range of industries and geographic locations. Our reputation for providing high levels of training to our staff whilst maintaining a strict health and safety workplace, within an environmentally conscious culture, makes us an employer of choice for our Industry. By continual investment in new technology we ensure that we provide our customers with new solutions to overcome their operational challenges. We constantly review and refresh our fleet of rental equipment to ensure that we set the standards within the rental industry throughout the UK, Europe and the Middle East. Future development of the business Our success has been centred on providing technically advanced climate rental products to numerous geographic locations and market sectors. We plan to continue to develop new products and services within our specialist product line whilst continuing to expand our geographic coverage both within existing territories and new markets. For 2014 we have several new products ready for launching which extend our product offering to both new and existing customers. During the year we expect to open a new operation in Luxembourg, as well as expanding our coverage in France and the Middle East. Although our business benefits from extreme climate conditions and is affected by regional economic influences, we aim to provide acceptable levels of success without relying on advantageous market conditions, whilst optimising favourable conditions when they arise. At the same time the company continues to carefully control its cost base to ensure that satisfactory levels of profit can be achieved even during difficult market conditions. 2013 Operational performance The group provided a satisfactory level of success in 2013, even though the weather and economic conditions did little to assist our business. In the summer months we benefited from a short spell of very warm weather throughout Europe, which assisted our Air Conditioning rental operations. The winter was extremely mild and did little to help our heating activities, although the wet weather did provide good opportunities for our pumping products. The economic improvements in the UK allowed us to continue our growth in certain market places, however the economy within some of our European territories was less favourable. The overall group operating profit of £14.7 million is an increase of £0.5 million when compared to the 2012 results. Careful cash management enabled the group to increase its net funds from £15.6 million to £19.1 million. During the year we opened a new subsidiary business in Switzerland. Our operation is located between Geneva and Lausanne, which is ideally positioned to cover the French speaking Cantons. This business was opened in November 2013 and started trading in December of that same year. 4 Andrew Sykes AR2013 Proof 4.indd 4 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:19 Hire and Sales Europe Summary Turnover of the hire and sales business sector increased from £46.3 million last year to £48.7 million in the current year, an increase of £2.4 million or 5.2% compared with last year. Operating profit increased by £0.4 million, or 3.1%, from £13.1 million in 2012 to £13.5 million in 2013. A reconciliation of the result of this and other business sectors to the consolidated results for the year is given in note 5 to the financial statements. Andrews Sykes Hire Ltd Our main UK trading subsidiary, Andrews Sykes Hire, has 30 locations covering the UK and employing over 300 members of staff. This business produced a positive result for the year, with turnover ahead of previous year by more than £1.7 million which resulted in a 16% increase in operating profit despite the absence of the Olympic Games revenue enjoyed in 2012. During the year we continued to develop our product range and service offering with further investment in our hire fleet, depots and infrastructure. The UK business had strong success with Air Conditioning products during the summer months which were assisted by the short but very warm heat wave in July. Our pumping products also produced a strong performance for the year which was further enhanced by the wet weather that hit the UK during the latter part of the year. Andrews Sykes BV Andrews Sykes BV is our long-established Hire business based in the Netherlands. With over 40 years of experience in the Dutch market we now have 4 depots strategically located to offer full coverage of the country as well as providing access into the German market. This subsidiary continues to operate in close co-operation with our UK business and prospers from this strong alliance. The hire fleet equipment is almost identical throughout our European businesses, which enables us to stretch our resource and cover peak demands. Our Dutch business also provides back up support to our newer operations in Belgium and France. Following a very successful performance last year, we experienced a down turn during 2013. Some of this was due to un-favourable weather conditions but was also partly due to the reduction in construction work throughout the Netherlands. Despite these difficult trading conditions this subsidiary continues to provide strong levels of profitability. Andrews Sykes BVBA Our Belgian subsidiary is based in Brussels and provides the full range of Andrews Sykes climate rental products throughout Belgium. Trading in both French and Flemish languages, the business has dual language branding, literature and website for the Belgian market. During 2013 our operations extended into Luxembourg and have now provided foundations for us to establish a new business within the Grand Duchy of Luxembourg in the near future. In 2013 the business produced further growth on the previous year’s revenue and a 7% increase in operating profit. We continue to invest in this successful operation with further growth planned for the near future, this includes investment in the larger of our specialist equipment which will allow the business to penetrate new markets. Andrew Sykes AR2013 Proof 4.indd 5 23220.04 12 May 2014 3:10 PM Proof 4 5 12/05/2014 18:21:19 Strategic Report Operational performance (continued) Nolo Climat SRL Nolo Climat is our Italian subsidiary which opened in 2011. Our business is strategically located close to the centre of Milan where it has good access to the International Exhibition Centre and is in close proximity to Malpensa Airport. Following the strong growth in 2012 this business continued to make good progress throughout the year; this enabled the business to report a profitable performance in only its third year of operation. During 2013 we made extensive investment in the business, this included extra workshop and warehouse facilities to double the size of our resource. Substantial investments were made in our hire fleet focusing on specialist chiller products which have enabled us to become a market leader in this field and gain a local reputation for providing modern efficient equipment. To help support this investment we have increased staff levels and plan further growth during the near future. Andrews Sykes Climat Location SAS Our French subsidiary was established in 2012. Based in Lille, we have successfully entered the French market whilst retaining close ties with our Belgian depot which is based in Brussels within 100 km. The close proximity to the border also allows this depot to support the southern part of Belgium. During the year this new operation has gained good experience with our full product range and a cross section of market sectors. In May we recruited a new Director to take charge of our further development throughout France. We have already experienced further growth and are now preparing to extend our coverage into Paris during the next 12 months. Our business has been well received within the French market place and although the business is newly established we have already gained a good reputation with numerous clients throughout Northern France. New businesses During 2013 we opened our first operation in Switzerland. We are located between Geneva and Lausanne which enables us to provide the full range of our climate rental products throughout the French speaking region. The business commenced trading in November and is now fully prepared to enter the Swiss market place during 2014. Although the territory is smaller in comparison with other target markets, we feel that the requirements of Swiss businesses are well suited to our products and services. The climate around Lake Geneva is particularly favourable for our business with cold winters and warm summers providing good opportunities for climate rental products. UK Installation Business Andrews Air Conditioning & Refrigeration Andrews Air Conditioning & Refrigeration (AAC&R) is our UK based fixed air conditioning, service, maintenance and installation business. This subsidiary provides a specialist service to customers who have, or require permanently installed air conditioning systems. The total revenue for this business is split evenly between the sale of new systems and the service and maintenance of existing systems; however, the maintenance part of the business provides a larger profit contribution. When compared to last year the business produced considerably less revenue and profit, this was predominantly due to the one-off projects that were related to the London Olympic Games in 2012. In total this subsidiary enjoyed a successful result in 2013, exceeding profit expectations, even though the total revenue was some way short of target. This illustrates our success in focusing on the more profitable and less weather related elements of the business. 6 Andrew Sykes AR2013 Proof 4.indd 6 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:21 Hire and Sales Middle East Khansaheb Sykes LLC Khansaheb Sykes is our long-established dewatering and pump hire business, which is based in the UAE with locations in Sharjah, Dubai and Abu Dhabi. These centres also provide a base from which we cover other parts of the Middle East for both pump sales and hire. We have agents based in Oman, Kuwait, Bahrain and Qatar, allowing us to provide our products and services in these local markets. In 2013 the business enjoyed a successful year with total revenue ahead of the previous year by £1.3 million. This enabled a profit performance of £1.8 million which was ahead of the previous year by almost 50%. Having started a climate rental division in 2012 this activity has grown steadily and is now making a positive contribution to our overall performance. This division shares the same properties and back office support with the pump part of our business; it focuses on Chiller and Air Conditioning rental throughout the UAE, covering markets such as event hire, oil industry, retail, hotels and construction. Although the business is still in its infancy we are pleased with the progress made to date and remain optimistic for this new division. During the year we have continued to work on our plans to expand our Middle East coverage into Saudi Arabia. This process has proved to be complicated and slow; however towards the end of the year some developments have been made which should allow further progress during the next 12 months. Group summary The overall group result for 2013 shows an operating profit growth of 3% when compared to the previous year. This year on year growth demonstrates our strategy for continued sustainable growth within our core market competences. It should also be noted that the 2012 result included non-recurring levels of profit that were related to the London Olympic Games. Market conditions were not particularly favourable during the year although the UK economic recovery has provided some degree of optimism. During the year we had the set up costs for 2 new operations (France and Switzerland) who will continue to make operational losses during the early years. The Andrews Sykes business remains strong: the experience of our senior management team, coupled with our development plans, provide optimism for further progress in 2014. The group continues to develop new sales channels and propositions which will enable the business to take advantage of favourable market conditions and opportunities as they arise. At the same time the company continues to carefully control its cost base and ensure that satisfactory levels of profit can be achieved even during difficult market conditions. Andrew Sykes AR2013 Proof 4.indd 7 23220.04 12 May 2014 3:10 PM Proof 4 7 12/05/2014 18:21:21 Strategic Report Review of risks, uncertainties and financial performance Key performance indicators (KPIs) The group’s principal KPIs are as follows: Average revenue per employee Operating cash flow(1) as a percentage of operating assets(1) employed Net funds to equity percentage Basic EPS from continuing operations (pence) 12 months ended 12 months ended 31 December 2013 31 December 2012* £124,000 £124,000 78.0% 43.6% 27.25p 73.3% 38.3% 26.18p Non-financial KPIs monitored by the board include asset utilisation and health and safety statistics. * Restated due to the implementation of IAS 19 (2011). (1) Cash generated from operations before defined benefit pension scheme contributions. Operating assets are net assets employed excluding pension assets and liabilities, loans, deferred and corporation tax balances, bank deposit accounts and cash. The average revenue per employee and the operating cash flow as a percentage of operating assets employed are indicative ratios used to monitor the revenue generation of the group relative to its fixed resources. The average revenue per employee remained unchanged compared with the previous year and the high ratio indicates a strong underlying operating performance and high staff utilisation levels. Operating cash flow as a percentage of operating assets has improved further and continues to be strong demonstrating both strong, working capital management and high levels of asset utilisation. Management continues to monitor the net interest charge. This, despite very low levels of interest received on monies on deposit, is currently negative due to the large level of positive net funds. This, together with strong operating profit, clearly demonstrates that the group is well able to service its external debt which is crucial in the current economic environment. The net funds to equity percentage is indicative of the group’s strength and capacity for taking on additional finance as and when the need arises. A reconciliation of the movement in net funds during the year is provided on page 16. The basic earnings per share (EPS) is the traditional ratio used by the group to monitor its performance relative to its equity base. This, in the long term, ultimately drives the share price and gives a good indication of how well the directors and staff are delivering the success of the company for the benefit of the members as a whole. The EPS increased by 4.1% from 26.18p in 2012 to 27.25p in 2013 and this clearly demonstrates the strong underlying operating profit result achieved by the business in 2013. Operating profit The consolidated operating profit was £14.7 million for the year under review, an increase of £0.5 million, or 3.5%, compared with last year’s operating profit of £14.2 million*. Note 5 to the financial statements analyses these results by business segment and this can be summarised as follows: Hire and sales Europe Hire and sales Middle East UK Installation Business Sub total Unallocated costs and eliminations Consolidated operating profit 12 months ended 12 months ended 31 December 2013 31 December 2012 £’000 13,515 1,773 370 15,658 (975) 14,683 £’000 13,094 1,192 975 15,261 (1,040) 14,221 A review of the performance of each business sector is given in the Operational Performance section of this strategic report. * Restated due to the implementation of IAS 19 (2011). 8 Andrew Sykes AR2013 Proof 4.indd 8 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:23 Income from trade investments During December 2013 the group received a dividend in respect of the 2012 financial year from Oasis Sykes, our trade investment in Saudi Arabia. This amounted to £194,000 less withholding tax of £39,000. Last year two dividends were received, one in respect of the 2010 financial year and the second in respect of the 2011 financial year. In total these amounted to £592,000 less withholding tax of £140,000. Dividend income continues to be accounted for on a cash received basis as the group is unable to exercise significant influence over Oasis Sykes. Net interest credit The net interest credit for the current year is £87,000 compared with a charge of £59,000 in 2012*. This can be analysed as follows: Interest charge on bank loans and overdrafts Finance lease interest charge Interest receivable Fair value gains on interest rate caps Foreign exchange losses on inter-company loans Net IAS 19 pension interest credit Total net interest (credit)/charge * Restated due to the implementation of IAS 19 (2011). 12 months ended 12 months ended 31 December 2013 31 December 2012* £’000 £’000 156 37 (275) — 93 (98) (87) 212 88 (201) (23) 81 (98) 59 The decrease in the interest charge on bank loans and overdrafts is mainly due to a reduction of £6.0 million in the external bank loans in April 2012 from £14.0 million to £8.0 million. The weighted average bank loan capital outstanding in 2012 was therefore £10 million compared with £8 million in 2013. The weighted average interest rate charged on the bank loans has also fallen from 1.79% last year to 1.65% in 2013. The average rate of interest receivable on short term bank deposits has improved from 0.8% last year to just above 1% in 2013. The average cash on deposit in 2013 was approximately £25.6 million compared with £23.0 million last year. These two factors explain the increase in interest receivable in 2013 compared with 2012. Throughout 2012 the group continued to hold interest rate caps to limit the group’s exposure to any significant increases in LIBOR. These interest rate caps expired when the previous bank loan was repaid in April 2013. They have not been replaced as the directors do not consider that these instruments are cost-effective given the current low levels of interest rates and the indications that these will not increase significantly in the immediate future. Consequently there is no fair value gain on the interest rate caps this year. Further details of the interest rate caps held at the end of 2012 are given in note 27 to the consolidated financial statements. There was a relatively modest foreign exchange loss on inter-company loans again this year. The group’s policy continues to be to not hedge its international assets with respect to foreign currency balance sheet translation exposure. The net IAS 19 pension interest credit has been calculated by the group’s actuary based on the assumptions as set out in note 18 to the financial statements. However, as noted in the defined benefit pension scheme section below, IAS 19 (2011) has been adopted for the first time this year which has the effect of limiting the expected percentage return on assets included within the income statement to an equivalent rate used to discount the scheme’s liabilities. The prior year figures have been restated and are on a comparable basis with the current year’s disclosures. * Restated due to the implementation of IAS 19 (2011). Andrew Sykes AR2013 Proof 4.indd 9 23220.04 12 May 2014 3:10 PM Proof 4 9 12/05/2014 18:21:23 Strategic Report Review of risks, uncertainties and financial performance (continued) Tax on profit on ordinary activities The group’s overall effective tax rate is 23.0% which is slightly below the standard effective tax rate in the UK for the current year of 23.25%. A summary of the factors giving rise to this decrease is given in the table below: Profit before taxation Theoretical tax charge at the UK effective tax rate of 23.5% Effects of different tax rates of subsidiaries operating abroad Effect of change in rate of corporation tax Non-tax deductible expenses, overseas tax losses and other factors Total tax charge for the financial year £m 15.0 3.5 (0.3) 0.1 0.2 3.5 A detailed reconciliation of the theoretical corporation tax charge based on the accounts profit multiplied by 23.25% and the actual current tax charge is given in note 11 to the consolidated financial statements. The 2013 Budget on 20 March 2013 announced that the UK corporation tax rate will reduce to 20% by 2015. Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the group’s future current tax charge accordingly. The deferred tax balance at 31 December 2013 has been calculated based on the rate of 20% which was substantively enacted at the balance sheet date. Profit for the financial year Profit after tax for the financial year was £11.5 million compared with £11.1 million* last year. * Restated due to the implementation of IAS 19 (2011). Basic earnings per share (EPS) The basic earnings per share increased by 1.07 pence, or 4.1%, from 26.18 pence* last year to 27.25 pence in 2013. There were no dilutive instruments outstanding in either 2013 or 2012 and therefore there is no difference between the basic and diluted earnings per share figures. Based on a year-end mid-market share price of 321 pence, the basic EPS gives a price to earnings ratio of 11.78. * Restated due to the implementation of IAS 19 (2011). Cash flow from operating activities The table below summarises the group’s cash flow from operating activities compared with the previous year: Operating profit Depreciation and profit on the sale of plant and equipment EBITDA† Defined benefit pension scheme contributions in excess of pension scheme administration expenses Interest paid Tax paid Net working capital movements Net cash inflow from operating activities * Restated due to the implementation of IAS 19 (2011). 12 months ended 12 months ended 31 December 2013 31 December 2012* £’000 14.7 3.9 18.6 (0.8) (0.3) (3.2) (0.1) 14.2 £’000 14.3 3.6 17.9 (0.8) (0.3) (3.5) (0.5) 12.8 † Earnings Before Interest, Taxation, Depreciation, profit on sale of property, plant and equipment, Amortisation and non-recurring items as reconciled on the consolidated income statement. 10 Andrew Sykes AR2013 Proof 4.indd 10 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:25 As demonstrated by the previous table, the group continues to generate strong operating cash flows. As well as cost control, management of working capital continues to be a priority. Collecting cash from our customers continues to receive management focus, particularly in the Middle East, due to the economic recession where it is generally acknowledged that cash collection is a major problem. Across the group generally, attention continues to be made to reduce the level of old debt. Average debtor days for current unimpaired debts decreased from 39 days in 2012 to 38 days this year. In 2013 debts written off against the bad debt provision were £557,000 compared with £20,000 last year and there was a net charge of £703,000 to the income statement from the bad debt provision, which was calculated on a consistent basis each year, compared with a net release of £125,000 last year. Debts written off against the bad debt provision include the unpaid element of old debts arising in the Middle East following court action and settlement agreements. Total debtors accounted for a working capital release of £0.6 million in 2012 compared with an absorption of £0.5 million last year. After adjusting for items capitalised out of opening stock, stock movements absorbed £1.0 million (2012: £0.2 million) of working capital. Creditor movements accounted for a working capital inflow of £0.3 million (2012: £0.2 million). Following the agreement of the triennial recalculation of the pension scheme funding deficit as at 31 December 2010 in March 2012, a schedule of contributions and recovery plan was agreed with the pension scheme trustees. In accordance with this agreement employer contributions of £960,000 have been made by the group to the pension scheme in 2013. Pension scheme administration costs charged to the income statement in accordance with IAS 19 (2011) amounted to £139,000 (2012: £91,000). These items are discussed in more detail on pages 14 and 15. Net funds Despite shareholder related cash outflows of £7.5 million on ordinary dividends, net funds increased by £3.5 million from £15.6 million at 31 December 2012 to £19.1 million at 31 December 2013. The movement can be reconciled as follows: Opening net funds Significant inflows: Cash inflow from operating activities Dividends received from trade investments Sale of plant and equipment Interest received Significant outflows: Capital expenditure — plant and equipment Equity dividends paid Closing net funds Comprises: Bank loans net of finance costs Finance lease obligations Cash at bank Total net funds £m 15.6 14.2 0.2 0.7 0.3 (4.4) (7.5) 19.1 (7.9) (0.4) 27.4 19.1 The bank loan repayment profile is set out in note 24 to the financial statements. Interest is charged based on LIBOR plus a margin of 1.2% and mandatory costs. Costs of raising loan finance are being amortised to the income statement over the period of the loan. Management has been careful to ensure that the hire fleet is up to date and well maintained in order to meet customer demand. Total cash spent on plant and equipment amounted to £4.4 million (2012: £4.4 million) In addition £1.0 million of items held in stock at December 2012 have also been capitalised this year (2012: £0.6 million). Capital expenditure has been concentrated on hire fleet assets with high levels of utilisation and good rates of return as well as business development opportunities. Savings continue to be made in non-essential areas and hire fleet maintenance and utilisation have been prioritised. Andrew Sykes AR2013 Proof 4.indd 11 23220.04 12 May 2014 3:10 PM Proof 4 11 12/05/2014 18:21:26 Strategic Report Review of risks, uncertainties and financial performance (continued) Renewal of bank loan facilities In accordance with the bank loan agreements, the bank loan of £8,000,000 that was outstanding as at 31 December 2012 was repaid in full on 30 April 2013. In order to safeguard the group’s cash position and to ensure that the group has adequate liquid resources available to finance any business opportunities that may arise, a new loan of £8,000,000 was taken out with the group’s existing bankers, Royal Bank of Scotland, on the same day. This new loan is for four years with annual repayments of £1.0 million commencing on 30 April 2014 and a final balloon payment of £5.0 million due on 30 April 2017. Interest is being charged at LIBOR plus 1.2% plus mandatory costs. Risk management The group’s principal risks are as follows: Going concern The board remains satisfied with the group’s funding and liquidity position. The group has operated throughout the 2013 financial year and until the date of signing these accounts within its financial covenants as contained in the bank agreement. Consequently the loans have been analysed between current and non-current liabilities in accordance with the agreed repayment profile. Both loan capital and interest payments have been made in accordance with the bank agreement. On 30 April 2013 the previous bank loan agreement terminated and, in accordance with that agreement, the outstanding loan of £8.0 million plus interest was repaid to the bank. A new loan agreement was taken out for £8.0 million on the same day and the first capital repayment of £1 million was made at the end of April 2014. Interest is paid bi-annually at the end of October and April. The group’s profit and cash flow projections indicate that the financial covenants included within the new bank loan agreement will be met for the foreseeable future. The group continues to have substantial cash resources which at 31 December 2013 amounted to £27.4 million compared with £24.1 million as at 31 December 2012. Profit and cash flow projections for 2014 and 2015, which have been prepared on a conservative basis taking into account reasonably possible changes in trading performance, indicate that the group will be profitable and generate positive cash flows after loan repayments. These forecasts and projections indicate that the group should be able to operate within the current bank facility agreement entered and all associated covenants will be met. The board considers that the group has considerable financial resources and a wide operational base. As a consequence, the board believes that the group is well placed to manage its business risks successfully, as demonstrated by the current year’s result, despite uncertain external influences and the current uncertain economic outlook for certain of our trading territories in Europe. After making enquiries, the board has a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the board continues to adopt the going concern basis when preparing this Annual Report and Financial Statements. 12 Andrew Sykes AR2013 Proof 4.indd 12 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:26 Strategic risks In common with all entities operating in a dynamic marketplace, the group faces a number of strategic risks. Management has developed long term business plans to manage the impact of these risks to ensure that the group continues to deliver a satisfactory performance in future years. The main strategic risks faced by the business, together with the actions taken by management to mitigate their impact, are set out below. Competition, product innovations and industry changes are regarded as the main strategic risks. These are mitigated by investment in new environmentally friendly technologically advanced products and equipment and providing service levels that are recognised as being among the best in the industry. Market research and customer satisfaction studies are undertaken to ensure that our products and services continue to meet the needs of our customers. In order to remain competitive, management recognises the need to invest in appropriate IT equipment and software. Consequently the communication network, website and data capture systems are all being constantly reviewed and updated to ensure they remain at the forefront of industry standards. The potential impact of the weather has been reduced over the past few years by the expansion of our non-weather related business. The group also has a diverse product range of pumps, heaters and air conditioning and environmental control equipment which enables it to take maximum advantage of the opportunities presented by any extremes in weather conditions whenever they arise. This, combined with our policy of reducing fixed costs and linking them to a sustainable level of turnover, enables the group to achieve a satisfactory level of profits even in non-extreme weather conditions. Financial risks There has been no change during the year, or since the year end, to the type of financial risks faced by the group or the group’s management of those risks. The key risks, which are discussed in more detail in note 32 to the consolidated financial statements, are: ●● Interest rate risk ●● Market risk ●● Credit risk ●● Funding and liquidity Pension scheme surplus As set out in note 18 to the consolidated financial statements, as at 31 December 2013 the pension scheme assets were £35.7 million which, after deducting the present value of the pension scheme liabilities of £34.5 million, calculated in accordance with IAS 19, results in a pre-tax surplus of £1.2 million. When assessing the appropriateness of the recognition of this surplus, the directors have considered the guidance in IAS 19 — IFRIC 14 and have concluded that because of the rights upon wind-up it is appropriate to recognise this asset in the financial statements. Management continues to work with the pension scheme trustees to maximise the return from the pension scheme assets and to match that return with the pension scheme liabilities as they crystallise in order to minimise the exposure to the group. The net surplus or deficit is sensitive to changes in assumptions, which are at least in part influenced by changes in external market conditions, and therefore this area continues to be subject to management focus. Andrew Sykes AR2013 Proof 4.indd 13 23220.04 12 May 2014 3:10 PM Proof 4 13 12/05/2014 18:21:27 Strategic Report Review of risks, uncertainties and financial performance (continued) Andrews Sykes Group Pension Schemes Defined benefit pension scheme The group had for many years operated a defined benefit pension scheme for the benefit of the majority of its UK employees. This scheme provided a pension based on the employee’s final salary and length of service. The board reviewed the appropriateness of the scheme taking into account the interests of both the employees and the shareholders. Accordingly, to minimise the impact on the group’s results in the future and with the agreement of the trustees, the scheme was closed to new entrants on 31 December 2002. Existing members are no longer eligible to make contributions to the scheme and no further pension liabilities accrue as a result of any future service. The group has adopted the requirements of IAS 19 (2011) — Employee Benefits and the scheme surplus/deficit has been calculated in accordance with the rules set out in the standard by an independent qualified actuary. The results were based on the last full actuarial valuation as at 31 December 2010 and have been rolled forward by an independent qualified actuary to 31 December 2013. The net surplus, before deferred tax, at the year end amounted to £1.2 million (2012: £1.8 million) and this has been recognised as a separate item, within non-current assets, on the face of the consolidated balance sheet. A reconciliation of the asset at the beginning of the year of £1.8 million to the asset as at 31 December 2013 of £1.2 million is as follows: Opening IAS 19 surplus recognised in the financial statements Contributions paid by the group into the scheme Actual return less expected return on scheme assets Actuarial loss on scheme liabilities Administration expenses Net finance income Closing IAS 19 surplus recognised in the financial statements £m 1.8 0.9 0.9 (2.4) (0.1) 0.1 1.2 From 1 January 2011, the government amended the basis for statutory increases to deferred pensions and pensions in payment. Such increases are now based on inflation measured by the Consumer Price Index (CPI) rather than the Retail Price Index (RPI). Having reviewed the scheme rules and considered the impact of changes on this pension scheme, the directors consider that future increases to all deferred pensions and Guaranteed Minimum Pensions accrued between 6 April 1988 and 5 April 1997 and currently in payment will be based on CPI rather than RPI. Accordingly, this assumption was adopted for the first time as at 31 December 2010 and has continued to be applied in subsequent years. Other assumptions adopted by the directors, including mortality assumptions and discount rates, used to arrive at the above surplus are set out in note 18 to the financial statements. During March 2012 the December 2010 funding valuation was agreed by management with the pension scheme trustees and accordingly an updated schedule of contributions and recovery plan were put into place. These were effective from 1 January 2012 and, in accordance with the schedule of contributions, the group made total employer pension contributions of £840,000 in 2012 and £960,000 in 2013. 14 Andrew Sykes AR2013 Proof 4.indd 14 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:37 The next actuarial funding valuation is due as at 31 December 2013 and this has to be agreed by the pension scheme trustees and the directors by 31 March 2015. It has currently not been agreed, although an initial draft has been presented by the pension scheme trustees to the board for consideration. Until such time that the December 2013 funding valuation has been agreed the previous schedule of contributions and recovery plan continue to be effective. These provide that total employer contributions of £1,080,000 will be made to the pension scheme during 2014 on a monthly basis and that these will be reduced to £840,000 per annum thereafter until 31 December 2018, or until the funding shortfall has been eliminated if sooner. Accordingly it is currently estimated that total employer contributions of £1,080,000 will made by the group to the pension scheme in 2014. Impact of IAS 19 (2011) The International Accounting Standards Board (IASB) has revised IAS 19 and its adoption is mandatory for accounting periods beginning on or after 1 January 2013; early adoption was permitted. The group elected not to adopt IAS 19 (2011) last year and therefore it has been adopted for the first time in these financial statements and the 2012 comparatives have been restated accordingly. The main changes of the revised standard affect the accounting requirements for defined benefit pension schemes and those that have had an impact on the group’s results are as follows: ●● Pension scheme administration costs and the costs of managing the plan assets have been reported as operating expenses and not as a deduction from the expected return on assets within finance income. These amounted to £139,000 in the current year compared with £91,000 in 2012. ●● Interest income included within finance income is no longer calculated based on the expected rate of return from the pension scheme’s assets. The rate applied is now restricted to a rate equivalent to the discount rate as used to discount the pension scheme’s liabilities. This reduced finance income in 2012 by £27,000. ●● There has been a corresponding adjustment to the actuarial gains and losses recognised in the consolidated statement of comprehensive total income as a result of the above two adjustments. Consequently the total value of the pension scheme surplus recognised in these financial statements as at 31 December 2012 and 31 December 2013 has not been affected by the adoption of IAS 19 (2011). In addition the “corridor” method of accounting for certain actuarial gains and losses is no longer permitted, interest on service costs can no longer be included in finance costs and an interest charge is required on any adjustment required by IFRIC 14. However, none of these changes have had any impact on the group’s results for the current or previous year. Andrew Sykes AR2013 Proof 4.indd 15 23220.04 12 May 2014 3:10 PM Proof 4 15 12/05/2014 18:21:37 Strategic Report Review of risks, uncertainties and financial performance (continued) Defined contribution pension scheme A new pension scheme was introduced on 1 January 2003, the Andrews Sykes Stakeholder Pension Plan, for which the majority of UK employees are eligible. The scheme is managed on behalf of the group by Legal & General. The employers’ contribution rates vary from 3% to 15%, the current average being 5.60%. The charge in the income statement in the current year amounts to £246,000. Employee contribution rates normally vary between 3% and 5% with the employees having the option of increasing their contributions after five years of membership. The contributions are used to purchase a specific fund for the individual employee with both gains and losses from changes in the fund’s market value accruing to that employee. Reconciliation of movement in group shareholders’ funds Group shareholders’ funds have increased from £40.8 million at the beginning of the year to £43.8 million at 31 December 2013. The movement can be reconciled as follows: Opening shareholders’ funds Profit for the financial period IAS 19 actuarial losses net of deferred tax Interim dividends declared and paid during the year Currency translation differences on foreign currency net investments Closing shareholders’ funds £m 40.8 11.5 (1.1) (7.5) 0.1 43.8 The directors declared two interim dividends during the year, both of 8.9 pence per ordinary share. The first was declared on 18 June 2013 and was paid on 24 July 2013; the second was declared on 28 October 2013 and was paid on 3 December 2013. Total ordinary dividends paid to shareholders in the year were approximately £7.5 million. An analysis of the net IAS 19 actuarial losses of £1.5 million, before an attributable deferred tax credit of £0.4 million, is given in note 18 to the consolidated financial statements. Share buybacks During the current year the company did not purchase any ordinary shares for cancellation. However, in prior periods such purchases were made and these enhanced earnings per share and were for the benefit of all shareholders. So far the company has not purchased any of its own shares for cancellation during 2014. At the next Annual General Meeting shareholders will be asked to vote in favour of a resolution to renew the general authority to make market purchases of up to 12.5% of the ordinary share capital in issue. Any purchases will only be made on the London Stock Exchange and they will only be bought back for cancellation provided they enhance earnings per share. If this resolution is passed it should not be taken to imply that shares will be purchased but the board believes that it is in the best interest of shareholders if they have this authority in order that market purchases may be made in the right circumstances if the necessary funds are available. Signed on behalf of the board. P Wood Managing Director 6 May 2014 Premier House Darlington Street Wolverhampton WV1 4JJ 16 Andrew Sykes AR2013 Proof 4.indd 16 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:37 Directors’ Report Principal activity The principal activity of the group continues to be the hire, sale and installation of a range of equipment, including pumping, portable heating, air conditioning, drying and ventilation equipment. A review of the group’s activities and an indication of likely future developments are set out in the Chairman’s Statement and the Strategic Report on pages 2 to 16. Results and dividends The results for the financial year are set out in the consolidated income statement on page 23. The directors declared the first interim dividend of 8.9 pence (2012: 7.1 pence) per ordinary share on 18 June 2013. This was paid on 24 July 2013 to shareholders on the register on 28 June 2013. This was followed by a second interim dividend, also of 8.9 pence (2012: Nil) per ordinary share, that the directors declared on 28 October 2013. This was paid on 3 December 2013 to shareholders on the register on 8 November 2013. Total dividend payments amounted to £7,522,650 (2012: £3,000,608). The directors propose a final dividend of 11.9 pence (2012: Nil pence) per ordinary share. If approved at the forthcoming Annual General Meeting this dividend, which in total amounts to £5,029,188 (2012: £Nil), would be paid on 19 June 2014 to shareholders on the register on 30 May 2014. Directors The directors in office at 6 May 2014 are shown on page 20. No director was appointed or resigned during the year or subsequently. In accordance with the Articles of Association, Messrs M Gailer and X Mignolet retire by rotation and being eligible will offer themselves for re-election at the forthcoming Annual General Meeting. Directors’ interests Other than the beneficial interests disclosed below, no director in office at 31 December 2013 had any disclosable interests in share capital of the company or any subsidiary undertaking. JG Murray JP Murray JJ Murray PT Wood Ordinary one pence shares At 31 December 2013 At 31 December 2012 298,749 1,251,786 410,845 7,945 1,292,913 — 410,845 7,945 There were no changes to the above shareholdings between 31 December 2013 and 6 May 2014. Andrew Sykes AR2013 Proof 4.indd 17 23220.04 12 May 2014 3:10 PM Proof 4 17 12/05/2014 18:21:38 Directors’ Report Substantial shareholdings At 6 May 2014 the company had been notified of the following interest of 3% or more in the company’s issued ordinary share capital: EOI Sykes Sarl Number 36,377,213 Percentage 86.08% Directors’ share options None of the directors in office at 31 December 2013 held any options to subscribe for ordinary shares at either 31 December 2013 or 31 December 2012. There have been no changes in the directors’ share options during the period from 31 December 2013 to 6 May 2014. The mid-market price of the company’s ordinary shares on 31 December 2013 was £3.21. The highest and lowest mid-market prices during the year ended 31 December 2013 were £3.42 and £2.07 respectively. Health, safety and the environment Andrews Sykes Group plc aims to achieve world class performance in health and safety by providing our staff with a safe environment in which to work thereby helping to eliminate injuries and work related ill health. Health and safety officers are appointed at each location and receive periodic training to keep abreast of both legislative requirements and technological advances. This is further enhanced with regular internal audits by our own fully qualified health and safety managers, along with training, induction and awareness programmes for our staff. The group aims to continually improve its performance in order to meet changing business and regulatory requirements and to minimise the effect of our activities on the environment. Employment of disabled persons The group makes every reasonable effort to give disabled applicants and existing employees becoming disabled equal opportunities for work, training and career development in keeping with their individual aptitudes and abilities. Employee development and involvement The group operates a training and development programme for its employees. By improving employee skill levels the group aims to encourage staff retention and provide opportunities for internal promotion. Regular personal development reviews are conducted with training and development plans being devised for each employee. The group recognises the need to ensure effective communications with employees to encourage involvement in the group’s performance and achieve a common awareness of factors affecting that performance. Policies and procedures have been developed to suit the needs of each subsidiary undertaking, taking into account factors such as numbers employed and location, including newsletters and communication meetings. Special business Three resolutions are to be proposed at the Annual General Meeting as special business: resolutions 6 and 7 as ordinary resolutions and resolution 8 as a special resolution. 18 Andrew Sykes AR2013 Proof 4.indd 18 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:38 Two resolutions, numbered 6 and 8, will be proposed at the Annual General Meeting, the combined effect of which will be to confer powers on the directors to allot or grant options over ordinary shares up to a maximum nominal value of £63,393 as they see fit. If the resolutions are approved at the Annual General Meeting the directors will then be able to allot or grant options as aforesaid, otherwise than pro rata to existing shareholders, to motivate key employees and to reinforce the link between their personal interest and those of the shareholders. Resolution number 7 would, if approved at the Annual General Meeting, renew the powers of the directors to make market purchases of the company’s own shares of up to a maximum of 5,282,760 ordinary shares of one pence each representing 12.5% of the current ordinary issued share capital. This authority would then enable the directors to carry out the strategy of making own market purchases to increase shareholder value as set out in the Chairman’s Statement and the Strategic Report on page 16. Purchase of own shares The company did not purchase any of its own shares for cancellation during the period from 1 January 2013 to 6 May 2014. Accordingly, as at 6 May 2014, there remained an outstanding general authority for the directors to purchase 5,282,760 ordinary one pence shares that were granted at the Annual General Meeting held on 18 June 2013. The directors are seeking to renew the general authority in respect of 5,282,760 ordinary one pence shares as set out in resolution number 7. Financial Calendar The current financial year will end on 31 December 2014. Auditor In the case of each of the persons who are directors of the company at the date when this report was approved: ●● So far as each director is aware, there is no relevant audit information (that is, information needed by KPMG Audit Plc in connection with preparing their audit report) of which the company’s auditor, KPMG Audit Plc, is unaware. ●● Each director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that KPMG Audit Plc is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. KPMG Audit Plc has expressed its willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. Signed on behalf of the board. M Gailer Director Premier House Darlington Street Wolverhampton 6 May 2014 WV1 4JJ Andrew Sykes AR2013 Proof 4.indd 19 23220.04 12 May 2014 3:10 PM Proof 4 19 12/05/2014 18:21:39 Directors and Advisors Chairman JG Murray Company Secretary MJ Calderbank ACA Age 94. Chairman of London Security plc, Nu Swift Limited and Appointed Company Secretary on 13 October 1999. Formerly a Ansul S.A. Mr Murray has a long successful history in the industrial senior manager at KPMG. services sector. Executive director PT Wood Managing Director Registered Office and Company Number Premier House Darlington Street Wolverhampton Age 51. Industry specialist, having joined the group in August West Midlands 1978. Appointed Director of Operations on 1 March 2006 and WV1 4JJ Group Managing Director on 5 December 2006. Company number 00175912 Non-executive directors JJ Murray MBA Registrar Equiniti Limited Aspect House Non-executive Vice-Chairman, Chairman of the Remuneration Spencer Road Committee. Age 47. Executive Vice-Chairman of London Security plc, Nu Swift Limited and Ansul S.A. M Gailer BSc Senior Independent Non-executive, Chairman of the Audit Lancing West Sussex BN99 6DA Nominated Advisor Committee. Age 78. Non-executive director of London Security plc. Altium Capital Limited MC Leon BS Age 50. Non-executive director of London Security plc. Manchester M2 4AW 5th Floor, Belvedere, Booth Street X Mignolet (HEC-Economics) Age 49. Director of London Security plc, Ansul S.A. and Importe S.A. JP Murray Age 45. Non-executive director of London Security plc. EDOA Sebag MBA Age 46. Director of London Security plc and Nu Swift Limited. Stockbroker Arden Partners plc 125 Old Broad Street London EC2N 1AR Auditor KPMG Audit Plc One Snowhill Snow Hill Queensway Birmingham B4 6GH Bankers Royal Bank of Scotland plc National Westminster Bank plc 20 Andrew Sykes AR2013 Proof 4.indd 20 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:39 Statement of Directors’ Responsibilities in respect of the Annual Report and Financial Statements 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. As required by the AIM Rules of the London Stock Exchange they are required to prepare the group financial statements in accordance with IFRSs as adopted by the 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 period. 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 judgements and estimates that are reasonable and prudent; ●● for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; ●● for the parent company financial statements, state whether applicable UK 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 parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Andrew Sykes AR2013 Proof 4.indd 21 23220.04 12 May 2014 3:10 PM Proof 4 21 12/05/2014 18:21:39 Independent Auditor’s Report to the Members of Andrews Sykes Group Plc only We have audited the financial statements of Andrews Sykes Group plc for the year ended 31 December 2013 set out on pages 23 to 73. The financial reporting framework that has been applied in Opinion on financial statements In our opinion: the preparation of the group financial statements is applicable ●● the financial statements give a true and fair view of the law and International Financial Reporting Standards (IFRSs) as state of the group’s and of the parent company’s affairs as at adopted by the EU. 31 December 2013 and of the group’s profit for the year then The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). ●● the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; ●● the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting ended; 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 auditor As explained more fully in the Statement of Directors’ Responsibilities set out on page 21, 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 (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Practice; ●● the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. 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. Darren Turner, Senior Statutory Auditor, for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants One Snowhill Snow Hill Queensway Birmingham B4 6GH 6 May 2014 22 Andrew Sykes AR2013 Proof 4.indd 22 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:39 Consolidated Income Statement For the 12 months ended 31 December 2013 Continuing operations Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit EBITDA* Depreciation and impairment losses Profit on the sale of plant and equipment Operating profit Income from trade investments Finance income Finance costs Profit before taxation Taxation Profit for the financial period attributable to equity holders of the parent There were no discontinued operations in either of the above periods. Earnings per share from continuing and total operations Basic (pence) Diluted (pence) Interim dividends paid per equity share (pence) Proposed final dividend per equity share † Restated due to the implementation of IAS 19 (2011), see note 18. 12 months ended 31 December 2013 £’000 12 months ended 31 December 2012† £’000 61,072 (25,318) 35,754 (10,994) (10,077) 14,683 18,592 (4,459) 550 14,683 194 1,730 (1,643) 14,964 (3,446) 11,518 58,380 (25,455) 32,925 (10,088) (8,616) 14,221 17,825 (4,006) 402 14,221 592 1,723 (1,782) 14,754 (3,685) 11,069 27.25p 27.25p 17.80p 11.90p 26.18p 26.18p 7.10p — Note 4 16 6 7 8 11 12 12 35 35 * Earnings Before Interest, Taxation, Depreciation, profit on the sale of property, plant and equipment, Amortisation and non-recurring items. Andrew Sykes AR2013 Proof 4.indd 23 23220.04 12 May 2014 3:10 PM Proof 2 23 12/05/2014 18:21:39 Consolidated Statement of Comprehensive Total Income For the 12 months ended 31 December 2013 Profit for the financial period Other comprehensive charges Items that may be reclassified to profit and loss: Currency translation differences on foreign currency net investments Items that will never be reclassified to profit and loss: Remeasurement of defined benefit liabilities and assets Related deferred tax Other comprehensive charges for the period net of tax Total comprehensive income for the period † Restated due to the implementation of IAS 19 (2011), see note 18. 12 months ended 31 December 2013 £’000 12 months ended 31 December 2012† £’000 11,518 11,069 137 (1,524) 388 (999) 10,519 (335) (667) 204 (798) 10,271 Note 18 11 24 Andrew Sykes AR2013 Proof 4.indd 24 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:40 Consolidated Balance Sheet As at 31 December 2013 31 December 2013 31 December 2012 Note £’000 £’000 £’000 £’000 Non-current assets Property, plant and equipment Lease prepayments Trade investments Deferred tax asset Retirement benefit pension surplus Current assets Stocks Trade and other receivables Overseas tax (denominated in Euros) Cash and cash equivalents Current liabilities Trade and other payables Current tax liabilities Bank loans Obligations under finance leases Provisions Net current assets Total assets less current liabilities Non-current liabilities Bank loans Obligations under finance leases Provisions Net assets Equity Called-up share capital Share premium Retained earnings Translation reserve Other reserves 13 14 16 17 18 19 20 21 22 23 24 25 26 24 25 26 28 29 29 29 29 Surplus attributable to equity holders of the parent Minority interest Total equity 3,231 14,631 280 27,417 45,559 (10,271) (1,599) (980) (114) (13) (12,977) (6,955) (255) (8) 16,432 53 164 618 1,204 18,471 32,582 51,053 (7,218) 43,835 423 13 40,684 2,460 245 43,825 10 43,835 3,197 15,248 — 24,108 42,553 (9,881) (1,492) (8,000) (124) (13) (19,510) — (342) (21) 15,522 55 164 609 1,809 18,159 23,043 41,202 (363) 40,839 423 13 37,825 2,323 245 40,829 10 40,839 These consolidated financial statements of Andrews Sykes Group plc, company number 00175912, were approved and authorised for issue by the board of directors on 6 May 2014 and were signed on its behalf by: JJ Murray Vice-Chairman Andrew Sykes AR2013 Proof 4.indd 25 23220.04 12 May 2014 3:10 PM Proof 2 25 12/05/2014 18:21:40 Consolidated Cash Flow Statement For the 12 months ended 31 December 2013 Cash flows from operating activities Cash generated from operations Interest paid Net UK corporation tax paid Withholding tax paid Overseas tax paid Net cash flow from operating activities Investing activities Dividends received from trade investments Sale of property, plant and equipment Purchase of property, plant and equipment Interest received Net cash flow from investing activities Financing activities Loan repayments New loans raised Finance lease capital repayments Equity dividends paid Purchase of own shares Net cash flow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at end of the period Reconciliation of net cash flow to movement in net funds in the period Net increase/(decrease) in cash and cash equivalents Cash outflow from the decrease in debt Cash inflow from the increase in loans Non-cash movements in respect of costs of raising loan finance Non-cash movements in the fair value of derivative instruments Movement in net funds during the period Opening net funds at the beginning of the period Effect of foreign exchange rate changes Closing net funds at the end of the period 12 months ended 12 months ended 31 December 31 December 2013 £’000 17,689 (243) (2,340) (39) (851) 14,216 194 706 (4,392) 281 (3,211) (8,000) 8,000 (97) (7,523) — (7,620) 3,385 24,108 (76) 27,417 3,385 8,097 (8,000) 65 — 3,547 15,642 (76) 19,113 2012 £’000 16,602 (326) (2,543) (140) (825) 12,768 592 559 (4,715) 193 (3,371) (6,000) — (132) (3,001) (825) (9,958) (561) 24,986 (317) 24,108 (561) 6,132 — — 23 5,594 10,365 (317) 15,642 Note 30 21 21 31 26 Andrew Sykes AR2013 Proof 4.indd 26 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:40 Consolidated Statement of Changes in Equity For the 12 months ended 31 December 2013 Attributable to equity holders of the parent company Share capital £’000 Share premium £’000 Retained earnings £’000 Note Capital redemp- tion reserve £’000 Trans- lation reserve £’000 UAE legal reserve £’000 Nether- lands capital reserve £’000 Minority interest £’000 Total equity £’000 Total £’000 At 31 December 2011 427 13 31,035 2,658 153 Profit for the financial period* — — 11,069 — — 79 — 9 — 34,374 10 34,384 11,069 — 11,069 Other comprehensive charges Items that may be reclassified to profit and loss: Currency translation differences on foreign currency net investments Items that will never be reclassified to profit and loss: Remeasurement of defined benefit assets and liabilities* Related deferred tax Total other comprehensive charges Transactions with owners recorded directly in equity: Purchase of own shares Dividends paid Total transactions with owners At 31 December 2012 29 35 Other comprehensive charges Items that may be reclassified to profit and loss: Currency translation differences on foreign currency net investments Items that will never be classified to profit and loss: Remeasurement of defined benefit assets and liabilities Related deferred tax Total other comprehensive charges Transactions with owners recorded directly in equity Dividends paid Total transactions with 35 owners — — — (335) — — — (335) — (335) — — — (4) — (4) 423 — — — — — — 13 (667) 204 — — (463) (335) (815) (3,001) (3,816) — — — — — — 4 — 4 37,825 2,323 157 — — — — — — 79 — — — — — — (667) 204 (798) (815) (3,001) — — — — — (667) 204 (798) (815) (3,001) — (3,816) 9 40,829 — 10 (3,816) 40,839 — 11,518 — 11,518 — — — 137 — — — 137 — — — — — — — (1,524) 388 — — — (1,136) 137 — (7,523) — (7,523) — — — — — — — — — — — — — — 137 (1,524) 388 (1,524) 388 — — — (999) — (999) — (7,523) — (7,523) — 79 — (7,523) 9 43,825 — (7,523) 10 43,835 Profit for the financial period — — 11,518 — — At 31 December 2013 423 13 40,684 2,460 157 * Restated due to the implementation of IAS 19 (2011), see note 18. Andrew Sykes AR2013 Proof 4.indd 27 23220.04 12 May 2014 3:10 PM Proof 2 27 12/05/2014 18:21:40 Group Accounting Policies For the 12 months ended 31 December 2013 1. General information Legal status and country of incorporation Andrews Sykes Group plc, company number 00175912, is incorporated in England and Wales under the Companies Act 2006. The address of the registered office is given on page 20. The nature of the group’s operations and its principal activities are set out in note 5 and in the strategic report and directors’ report on pages 2 to 16. Basis of preparation These financial statements have been prepared in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards as adopted by the European Union (IFRS) and with the Companies Act 2006. Therefore, the group financial statements comply with the AIM rules. The accounts are presented on the historical cost basis of accounting except for: (a) Properties held at the date of transition to IFRS which are stated at deemed cost; (b) Assets held for sale which are stated at the lower of (i) fair value less anticipated disposal costs and (ii) carrying value; (c) Derivative financial instruments (including embedded derivatives) which are valued at fair value; and (d) Pension scheme assets and liabilities calculated at fair value in accordance with IAS 19. Going concern The directors have prepared these financial statements on the fundamental assumption that the group is a going concern and will continue to trade for at least 12 months following the date of approval of the financial statements. Further information explaining why the directors believe that the group is a going concern is given in the strategic report on page 12. Accounting period The current period is for the 12 months ended 31 December 2013 and the comparative period is for the 12 months ended 31 December 2012. Functional and presentational currency The financial statements are presented in pounds Sterling because that is the functional currency of the primary economic environment in which the group’s primary trading subsidiaries operate. Foreign operations are included in accordance with the accounting policy as set out in note 2. Initial adoption of international financial reporting standards These are the group’s seventh consolidated financial statements that have been prepared in accordance with IFRS, the group’s transition date for adoption of IFRS being 1 January 2006. The group has taken advantage of the following exemptions on transition to IFRS as permitted by IFRS 1: ●● The requirements of IFRS 3: Business Combinations have not been applied to business combinations that occurred before the date of transition to IFRS. ●● The carrying values of freehold and leasehold properties are based on previously adopted UK GAAP valuations and these were taken as deemed cost on transition to IFRS. IFRS has only been applied to the group’s consolidated financial statements. Accordingly, the parent company’s financial statements, which are set out on pages 67 to 73, together with those of the UK subsidiary undertakings have been prepared in accordance with UK GAAP. International financial reporting standards (ifrs) adopted for the first time in 2013 The group has applied the following IFRS statements as adopted by the European Union for the first time this year: ●● Amendments to IAS 1: Presentation of items of other comprehensive income. ●● Amendments to IAS 19: Employee Benefits (2011). Whilst there are further new or amended standards to those above, these have not had a material impact on the group and are therefore not disclosed. 28 Andrew Sykes AR2013 Proof 4.indd 28 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:41 1. General information (continued) As a result of the amendments to IAS 1, the group has modified the presentation of items in the Consolidated Statement of Comprehensive Total Income (CSOCTI) and in the Consolidated Statement of Changes in Equity (CSCE) to present separately items that may be reclassified to profit and loss from those that never would be. Comparative information has been represented accordingly. The group elected not to adopt IAS 19: Employee Benefits (2011) last year and therefore it has been adopted for the first time in these financial statements and the 2012 comparatives have been restated accordingly. The main changes that have had an impact on the group’s results are as follows: ●● Pension scheme administration costs and the costs of managing the plan assets have been reported as operating expenses and not as a deduction from the expected return on assets within finance income. These amounted to £139,000 in the current year compared with £91,000 in 2012. ●● Interest income included within finance income is no longer calculated based on the expected rate of return from the pension scheme’s assets. The rate applied is now restricted to a rate equivalent to the discount rate as used to discount the pension scheme’s liabilities. This reduced finance income in 2012 by £27,000. ●● There has been a corresponding adjustment to the actuarial gains and losses recognised in the consolidated statement of comprehensive total income as a result of the above two adjustments. Consequently the total value of the pension scheme surplus recognised in these financial statements as at 31 December 2012 and 31 December 2013 has not been affected by the adoption of the revised accounting standard. In addition the “corridor” method of accounting for certain actuarial gains and losses is no longer permitted, interest on service costs can no longer be included in finance costs and an interest charge is required on any adjustment required by IFRIC 14. However, none of these changes have had any impact on the group’s results for the current or previous year. Future adoption of international financial reporting standards At the date of authorisation of these financial statements the following standards and interpretations, which have not been applied in these financial statements, were in issue and endorsed by the EU but are not yet effective: ●● Amendments to IFRS 7: Financial Instruments: Disclosures and offsetting. Offsetting requirements effective for accounting periods commencing on or after 1 January 2014. ●● Amendments to IFRS 10, IFRS 12 and IAS 27 for Investment Entities. Effective for accounting periods commencing on or after 1 January 2014. ●● Amendments to IAS 32 for offsetting financial assets and liabilities. Effective for accounting periods commencing on or after 1 January 2014. ●● Amendments to IAS 36 for recoverable amount disclosures for non-financial assets. Effective for accounting periods commencing on or after 1 January 2014. ●● Amendments to IAS 39 for continuing hedge accounting after derivative novations. Effective for accounting periods commencing on or after 1 January 2014. ●● Annual improvements to IFRSs effective for accounting periods commencing on or after 1 January 2014. Whilst work has not yet been completed on the above standards the directors do not currently foresee any material impact on the financial statements of the group as a result of adopting these standards. Andrew Sykes AR2013 Proof 4.indd 29 23220.04 12 May 2014 3:10 PM Proof 2 29 12/05/2014 18:21:41 Group Accounting Policies For the 12 months ended 31 December 2013 2. Significant accounting policies Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company (its subsidiaries) made up to 31 December 2013. Control is achieved where the company has the power to govern the financial and operating policies of an investee so as to obtain benefits from its activities. Minority interests in the net assets of consolidated subsidiaries are identified separately from the group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination (see below) and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Business combinations and goodwill The acquisition of subsidiaries is accounted for using the acquisition method. The assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at their acquisition date except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 which are recognised and measured at fair value less costs to sell. Any excess of the cost over the asset valuation as calculated above is recognised as goodwill. Goodwill arising on consolidation represents the excess of consideration over the group’s interest in the fair value of identified assets, liabilities and contingent liabilities recognised. Goodwill is recognised as an asset and is not amortised. It is reviewed for impairment annually as detailed in “impairment of non-financial assets” below. In accordance with the options that were available under IFRS 1 on transition to IFRS, the group elected not to apply IFRS 3 retrospectively to past business combinations that occurred before 1 January 2006, the date of transition to IFRS. Accordingly, goodwill amounting to £37,206,000 that had previously been offset against reserves under UK GAAP was not recognised in the opening IFRS balance sheet. The interest of any minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Investments in associates and trade investments An associate is an entity over which the group is in a position to exercise significant influence, but not control, over its financial and operating policy decisions. Significant influence is defined as the power, whether or not it is exercised, to be able to participate in the financial and operating decisions of the investee. The results and assets and liabilities of associates are incorporated into these financial statements using the equity method of accounting except when they are classified as held for sale, see below. The results of entities over which the group is not in a position to be able to exercise significant influence despite holding a significant shareholding are not accounted for as associates and therefore are not equity accounted. These companies are classified as trade investments and are carried as available for sale financial assets which are measured at cost, as the directors consider that fair value cannot be reliably measured for the reasons set out in note 16, and changes therein, other than impairment losses, are recognised in other comprehensive income. Dividend income is recognised in the income statement on a receipts basis. 30 Andrew Sykes AR2013 Proof 4.indd 30 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:41 2. Significant accounting policies (continued) Property, plant and equipment Property is carried at deemed cost at the date of transition to IFRS based on the previous UK GAAP valuations adopted in 1998. Plant and equipment held at the date of transition and subsequent additions to property, plant and equipment are stated at purchase cost including directly attributable costs. The group does not have a revaluation policy. Freehold land is not depreciated. Depreciation of other property, plant and equipment is provided on a straight-line basis using rates calculated to write down the cost of each asset to its estimated residual value over its estimated useful life as follows: Property: Freehold and long leasehold buildings Short leasehold buildings Equipment for hire: Heating, air conditioning and other environmental control equipment Pumping equipment Accessories Motor vehicles Plant and machinery Fixtures and fittings Annual reviews are made of estimated useful lives and material residual values. Leased assets Lessor accounting The group does not hold any assets for hire under finance leases. 2% Period of the lease 20% 10% to 33% 33% 20% to 25% 7.5% to 33% 20% Assets held for use under operating leases are recorded as hire fleet assets within property, plant and equipment and are depreciated over their useful lives to their estimated residual value. The group does not have any material non-cancellable operating leases. Lessee accounting Initial rental payments in respect of operating leases are included in current and non-current assets as appropriate and amortised to the income statement over the period of the lease. Ongoing rental payments are charged as an expense in the income statement on a straight-line basis until the date of the next rent review. Finance leases are capitalised and depreciated in accordance with the accounting policy for property, plant and equipment. As permitted by IFRS 1 at the date of transition to IFRS, the carrying value of long leasehold properties is based on the previous UK GAAP valuations adopted in 1998 and this has been taken as deemed cost. Immaterial peppercorn rentals and ground rents in respect of all properties are expensed to the income statement on an accruals basis. Plant and equipment held under finance leases is recognised as an asset at fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to give a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Rental costs arising from operating leases are charged as an expense in the income statement on a straight-line basis over the period of the lease. Andrew Sykes AR2013 Proof 4.indd 31 23220.04 12 May 2014 3:10 PM Proof 2 31 12/05/2014 18:21:41 Group Accounting Policies For the 12 months ended 31 December 2013 2. Significant accounting policies (continued) Non-current assets held for sale Non-current assets and disposal groups are reclassified as assets held for sale if they are immediately available for sale in their current condition and their carrying value will be recovered through a sale transaction which is highly probable to be completed within 12 months of the initial classification. Assets held for sale are valued at the lower of carrying amount at the date of initial classification and fair value less costs to sell. Impairment of non-financial assets Property, plant and equipment are reviewed for indications of impairment when events or changes in circumstances indicate that the carrying amount may not be recovered. If there are indications then a test is performed on the asset affected to assess its recoverable amount against carrying value. An impaired asset is written down to the higher of value in use and its fair value less costs to sell. Deferred and current taxation The charge for taxation is based on the taxable profit or loss for the period and takes into account taxation deferred because of differences between the treatment of certain items for taxation and for accounting purposes. Full provision is made for the tax effects of these differences. Deferred tax is measured at the rates expected to apply when the timing differences reverse applying tax rates that have been enacted, or substantively enacted, by the balance sheet date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the group expects, at the end of the reporting period, to recover or settle the carrying value of its assets and liabilities. Deferred tax assets and liabilities are not discounted. The carrying amount of deferred tax assets is reviewed at each balance sheet date to ensure that it is probable that sufficient taxable profits will be available to allow the asset to be recovered. Assets and liabilities, in respect of both deferred and current tax, are only offset when there is a legally enforceable right to offset and the assets and liabilities relate to taxes levied by the same taxation authority. Deferred and current tax are charged or credited in the income statement except when they relate to items charged directly to equity in which case the associated tax is also dealt with in equity. Stocks Stocks are valued at the lower of cost of purchase and net realisable value. Cost comprises actual purchase price and where applicable associated direct costs incurred bringing the stock to its present location and condition. Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow-moving or defective items where appropriate. Financial instruments Recognition criteria, classification and initial carrying value Financial assets and financial liabilities are recognised on the consolidated balance sheet when the group becomes a party to the contractual provisions of the instrument. Financial assets are recognised and de-recognised on a trade date where the purchase or sale of an asset is under a contract whose terms require delivery of the investment within the time frame established by the market concerned. Financial assets are classified as “loans and receivables”, “held to maturity” investments, “available for sale” investments or “assets at fair value through the profit and loss” depending upon the nature and purpose of the financial asset. The classification is determined at the time of the initial recognition. Financial assets are normally classified as “loans and receivables” and are initially measured at fair value including transaction costs incurred. No financial assets are currently classified as “held to maturity” or as “assets at fair value through profit or loss”. The categories of financial assets are trade investments, trade receivables, other receivables and cash. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Financial liabilities are normally classified as “other financial liabilities” and are initially measured at fair value, normally cost, net of transaction costs. The only financial liabilities currently held at “fair value through profit or loss” are those derivative instruments that are not designated and are not effective as hedging instruments. 32 Andrew Sykes AR2013 Proof 4.indd 32 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:41 2. Significant accounting policies (continued) Loans and receivables Trade receivables, loans and other receivables (including cash held on ring-fenced deposit accounts) are measured on initial recognition at fair value and, except for short term receivables where the recognition of interest would be immaterial, are subsequently remeasured at amortised cost using the effective interest rate method. Allowances for irrecoverable amounts, which are dealt with in the income statement, are calculated based on the difference between the asset’s carrying amount and the present value of estimated future cash flows, calculated based on past default experience, discounted at the effective interest rate computed at initial recognition where material. Derivative financial instruments and hedge accounting Last year the group’s bank loans were subject to floating rates based on LIBOR plus a margin of between 0.65% and 1.25%. The group used financial derivatives to cap exposure to LIBOR (interest rate caps) throughout the period of the loan which was repaid on 30 April 2013. Further details of these derivatives are given in note 27. The group does not currently hold any interest rate caps; interest on the group’s bank loans is currently based on LIBOR plus a margin of 1.20% plus mandatory costs. The group’s policy is not to hedge its international assets with respect to foreign currency balance sheet translation exposure, nor against foreign currency transactions. Generally the group does not enter into any forward exchange contracts and it does not use financial instruments for speculative purposes. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts. Derivative financial instruments are initially measured at cost and are remeasured at fair value at the balance sheet date. Changes in the fair value of derivative financial instruments that are designated and are effective as hedges of future cash flows are recognised directly in equity and the ineffective portion is recognised immediately in the income statement. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Cash and cash equivalents Cash and cash equivalents includes cash in hand, cash at bank and short term highly liquid investments that are readily convertible into known amounts of cash within three months from the date of initial acquisition with an insignificant risk of a change in value. Cash held in ring-fenced bank deposit accounts to which the group does not have access within three months from the date of initial acquisition is classified within other financial assets. Impairment of financial assets Financial assets, other than those designated as “assets at fair value through the profit and loss” are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For certain categories of financial asset, such as trade receivables, assets are assessed for impairment on a collective basis. Objective evidence for impairment could include the group’s past history of collecting payments, an increase in the number of days taken by customers to make payment as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of all financial assets, except trade receivables, is reduced by the impairment loss directly. The carrying amount of trade receivables is reduced through the use of a bad debt provision account. If a trade receivable is considered uncollectable it is written off against the bad debt provision account. Subsequent recoveries of amounts written off are credited to the provision account. Changes to the carrying amount of the bad debt provision account are recognised in the income statement. Other financial liabilities Other financial liabilities, including trade payables, are measured on initial recognition at fair value and, except for short term payables where the recognition of interest would be immaterial, are subsequently remeasured at amortised cost using the effective interest rate method. Andrew Sykes AR2013 Proof 4.indd 33 23220.04 12 May 2014 3:10 PM Proof 2 33 12/05/2014 18:21:41 Group Accounting Policies For the 12 months ended 31 December 2013 2. Significant accounting policies (continued) Bank loans Interest bearing bank loans are recorded at the proceeds received less capital repayments made. Initial costs incurred entering into the bank loans are carried as an asset, presented as a deduction from the carrying value of the loans, which is amortised to the income statement over the period of the loans. Ongoing finance charges are accounted for on an accruals basis in the income statement using the effective interest rate method. They are included within accruals to the extent that they are not settled in the period in which they arise. Provisions Provisions are created where the group has a present obligation (legal or constructive) as a result of a past event where it is probable that the group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date. Provisions are only discounted to present value where the effect is material. Retirement benefit costs Defined benefit scheme As disclosed in note 18 the group previously operated a defined benefit pension scheme for the majority of its employees. This scheme was closed to new entrants and all existing members became deferred members on 31 December 2002. Expected return on pension assets and interest on pension scheme liabilities are shown within finance income and finance costs respectively. The rate used to calculate the expected return on pension assets is capped at a rate equivalent to the rate used to discount the scheme’s liabilities. Settlement gains and losses and pension scheme administration expenses are also included within the income statement, either within administration expenses or as part of a separate disclosure where material. Actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Total Income (CSOCTI). The defined benefit scheme is funded with the assets of the scheme held separately in trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities. Full actuarial valuations are obtained triennially and are updated at each balance sheet date in accordance with IAS 19 (2011). Net defined benefit pension scheme surpluses and deficits are presented separately on the balance sheet within non-current assets and liabilities respectively before tax relief. The attributable deferred tax liability/asset is included within deferred tax and is subject to the recognition criteria as set out in the accounting policy on deferred and current taxation. Net defined benefit pension scheme surpluses are only recognised to the extent of any future refunds or reductions in future contributions to the scheme. The group adopted IAS 19 — Employee benefits (2011) for the first time this year, further details of which are given in note 1 on page 29. Defined contribution schemes Employer’s contributions are charged to the income statement on an accruals basis. Net funds Net funds is defined as including cash and cash equivalents, ring-fenced deposit accounts, bank and other loans, finance lease obligations and derivative financial instruments stated at current fair value. Revenue recognition Revenue Revenue represents the fair value of the consideration received and receivable for the hire, sale and installation of environmental control products after deducting trade discounts and volume rebates. Revenue is recognised for sales on despatch of goods and for short term hire items on a straight-line basis over the period of the hire. Installation revenue is recognised as the contract progresses on the basis of work completed. Revenue excludes Value Added Tax. Investment and interest income Dividend income is recognised in the income statement when the group’s right to receive payment has been established. Interest income from bank deposit accounts is accrued on an accruals basis calculated by reference to the principal on deposit and the effective interest rate applicable. 34 Andrew Sykes AR2013 Proof 4.indd 34 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:41 2. Significant accounting policies (continued) Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated into pounds Sterling at the financial year end rates. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. The results of overseas subsidiary undertakings, associates and trade investments are translated into pounds Sterling at average rates for the period unless exchange rates fluctuate significantly during that period in which case exchange rates at the date of transactions are used. The closing balance sheets are translated at the year end rates and the exchange differences arising are transferred to the group’s translation reserve as a separate component of equity and are reported within the CSOCTI. All other exchange differences are included within the Consolidated Income Statement for the year. In accordance with IFRS 1, the translation reserve was set to zero at 1 January 2006, the date of transition to IFRS. Cumulative translation differences that are included within the translation reserve at the date of disposal of the relevant overseas company are recognised as a transfer to retained earnings at that time. Operating profit Operating profit is defined as the profit for the period from continuing operations after all operating costs and income but before investment income, income from other participating interests, finance income, finance costs, other gains and losses and taxation. Operating profit is disclosed as a separate line on the face of the income statement. Normalised operating profit is the same as the above but excludes non-recurring items, for example profit on the sale of property. When applicable, normalised operating profit is reconciled to operating profit on the face of the income statement. Other gains and losses Other gains and losses are material items that arise from unusual non-recurring events. They are disclosed separately, in aggregate, on the face of the income statement after operating profit where in the opinion of the directors such disclosure is necessary in order to fairly present the results for the financial period. Finance costs Finance costs are recognised in the income statement on an accruals basis in the period in which they are incurred. Andrew Sykes AR2013 Proof 4.indd 35 23220.04 12 May 2014 3:10 PM Proof 2 35 12/05/2014 18:21:41 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 3 Use of critical accounting assumptions and estimates Estimates and judgements are continually evaluated and assessed based on historical experience and other factors, including expectations of future events that are believed to be reasonable given the circumstances prevailing when the accounts are approved. The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying value of assets and liabilities are discussed below. Pension scheme assumptions and mortality tables As set out in note 18, the carrying value of the defined benefit pension scheme is calculated using actuarial valuations. These valuations are based on assumptions including the selection of the most appropriate mortality table for the profile of the members in the scheme and the financial assumptions concerning discount rates and inflation. All these are estimates of future events and are therefore uncertain. The choices are based on advice received from the scheme actuaries that are checked from time to time with benchmark surveys. Sensitivity analysis regarding assumptions concerning longevity, discount rates and inflation is provided in note 18 on page 51. When assessing the appropriateness of the recognition of a surplus, the directors have considered the guidance in IAS 19 — IFRIC 14 and have concluded that because of the rights upon wind-up it is appropriate to recognise the asset in the consolidated financial statements. 4 Revenue An analysis of the group’s revenue by income stream is as follows: Continuing operations Hire Sales Installations Group consolidated revenue from the sale of goods and provision of services 12 months ended 12 months ended 31 December 31 December 2013 £’000 50,175 7,035 3,862 61,072 2012 £’000 47,453 6,083 4,844 58,380 5 Business and geographical segmental analysis Explanation The group operates in the United Kingdom, Europe (Holland, Belgium, Italy and France) and the United Arab Emirates providing the hire and sale of a range of environmental control equipment. It also installs fixed air conditioning equipment within the United Kingdom. A new subsidiary, Andrews Sykes Climat Location SA, has been registered in Switzerland and commenced trading in November 2013. The group operates through statutory entities that are based in each of the above locations. In the case of the main UK operation there are separate statutory entities for hire and sales (Andrews Sykes Hire Limited) and installation (Andrews Air Conditioning & Refrigeration Limited) as well as a separate property holding company. Each operating company has its own Divisional Director who is responsible to the board for that company’s operating result. All the group’s external loans are held in the parent company, Andrews Sykes Group plc. No attempt is made in the internal management accounts to allocate the interest charge to either individual entities or activities. Similarly the internal management accounts provided to the board do not include a balance sheet; cash flow information is provided only on an entity and consolidated basis. Capital expenditure and working capital movements are reviewed on an entity basis. 36 Andrew Sykes AR2013 Proof 4.indd 36 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:41 5 Business and geographical segmental analysis (continued) The directors therefore consider that the group’s revenue generating operating segments that are reviewed on a regular basis by the board (who are collectively the Chief Operating Decision Maker) and for which discrete financial information is available are: Activity Hire and sales Entity Andrews Sykes Hire Limited Andrews Sykes BV Andrews Sykes BVBA Nolo Climat S.R.L. Climat Location SAS Climat Location SA Khansaheb Sykes LLC Location United Kingdom Holland Belgium Italy France Switzerland United Arab Emirates Installation Andrews Air Conditioning & Refrigeration Limited United Kingdom The directors consider that the long term economic characteristics of the hire and sales operations based in the United Kingdom, Holland, Belgium, Italy, France and Switzerland are similar. These entities have similar products and services, operate in the same manner providing services to a similar customer base and incur similar risks and rewards. However, the operation based in the United Arab Emirates, whilst similar in many ways, faces significantly different risks due to the local environment in which it operates. The installation business operates in a different manner and regulatory environment to the rest of the group. The reportable segments are therefore: Segment Incorporating the following operating entities Location Hire and sales Europe Andrews Sykes Hire Limited Andrews Sykes Properties Limited Andrews Sykes BV Andrews Sykes BVBA Nolo Climat S.R.L. Climat Location SAS Climat Location SA United Kingdom United Kingdom The Netherlands Belgium Italy France Switzerland Hire and sales Middle East Khansaheb Sykes LLC United Arab Emirates Installation Andrews Air Conditioning & Refrigeration Limited United Kingdom The property holding company, Andrews Sykes Properties Limited, has been included within the Hire and Sales Europe segment as it holds properties mainly for the use of Andrews Sykes Hire Limited. Transactions between the above reportable segments are made on an arm’s length basis after taking into account the reduced levels of risks incurred. The above segments exclude the results of non-revenue earning holding companies including Andrews Sykes Group plc. These entities’ results have been included as unallocated items (overheads and expenses, corporate assets and corporate liabilities as appropriate) in the tables below. The group has a diverse customer base with no single customer accounting for 10% or more of the group’s revenue in either the current or previous financial periods. Andrew Sykes AR2013 Proof 4.indd 37 23220.04 12 May 2014 3:10 PM Proof 2 37 12/05/2014 18:21:41 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 5 Business and geographical segmental analysis (continued) Business segments Income statement analysis 12 months ended 31 December 2013 Hire & sales UK & Hire & sales Fixed Consolidated Europe Middle East installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 48,602 8,608 90 48,692 13,515 — 8,608 1,773 3,862 34 3,896 370 61,072 124 61,196 15,658 — (124) (124) (19) Revenue External sales Inter-segment sales Total revenue Segment result Unallocated overheads and expenses Operating profit Income from trade investments Finance income Finance costs Profit before taxation Taxation Profit for the period from continuing and total operations Balance sheet information As at 31 December 2013 results £’000 61,072 — 61,072 15,639 (956) 14,683 194 1,730 (1,643) 14,964 (3,446) 11,518 Hire & sales UK & Hire & sales Fixed Europe Middle East installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 Consolidated results £’000 53,950 6,996 2,797 63,743 (2,159) 61,584 (9,977) (1,571) (537) (12,085) 2,159 164 618 1,204 280 180 64,030 (9,926) (1,599) (7,935) (369) (366) (20,195) Segment assets Trade investments Deferred tax asset Retirement benefit pension surplus Overseas tax (denominated in Euros) Unallocated corporate assets Consolidated total assets Segment liabilities Current tax liabilities Bank loans Obligations under finance leases Unallocated corporate liabilities Consolidated total liabilities Other information 12 months ended 31 December 2013 Hire & sales UK & Northern Hire & sales Fixed Consolidated Europe £’000 Middle East £’000 installation £’000 Subtotal £’000 Eliminations £’000 Capital additions Depreciation 4,384 3,755 1,004 695 31 9 5,419 4,459 — — results £’000 5,419 4,459 38 Andrew Sykes AR2013 Proof 4.indd 38 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:42 5 Business and geographical segmental analysis (continued) Income statement analysis 12 months ended 31 December 2012 † Hire & sales UK & Hire & sales Fixed Consolidated Europe Middle East installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 46,225 101 46,326 13,094 7,311 — 7,311 1,192 4,844 34 4,878 975 58,380 135 58,515 15,261 — (135) (135) (20) Revenue External sales Inter-segment sales Total revenue Segment result Unallocated overheads and expenses Operating profit Income from trade investments Finance income Finance costs Profit before taxation Taxation Profit for the period from continuing and total operations † Restated due to the implementation of IAS 19 (2011), see note 18. Balance sheet information As at 31 December 2012 results £’000 58,380 — 58,380 15,241 (1,020) 14,221 592 1,723 (1,782) 14,754 (3,685) 11,069 Segment assets Trade investments Deferred tax asset Retirement benefit pension surplus Unallocated corporate assets Consolidated total assets Segment liabilities Current tax liabilities Bank loans Obligations under finance leases Unallocated corporate liabilities Consolidated total liabilities Other information 12 months ended 31 December 2012 Hire & sales UK & Hire & sales Fixed Europe Middle East installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 Consolidated results £’000 50,931 5,861 2,773 59,565 (2,135) 57,430 (9,728) (1,491) (527) (11,746) 2,135 164 609 1,809 700 60,712 (9,611) (1,492) (8,000) (466) (304) (19,873) Hire & sales UK & Northern Hire & sales Fixed Consolidated Europe Middle East installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 Capital additions Depreciation 4,064 3,479 1,233 524 1 3 5,298 4,006 — — Andrew Sykes AR2013 Proof 4.indd 39 23220.04 12 May 2014 3:10 PM Proof 2 results £’000 5,298 4,006 39 12/05/2014 18:21:42 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 5 Business and geographical segmental analysis (continued) Geographical segments The geographical analysis of the group’s revenue is as follows: By origin By destination 12 months 12 months 12 months ended ended ended 12 months ended 31 December 31 December 31 December 31 December 2013 £’000 42,032 10,431 8,609 — 61,072 2012 £’000 40,166 10,903 7,311 — 58,380 2013 £’000 41,408 10,753 8,677 234 61,072 2012 £’000 39,595 11,204 7,312 269 58,380 United Kingdom Rest of Europe Middle East and Africa Rest of the World The carrying amounts of segment assets and non-current assets (excluding trade investments and deferred tax) analysed by the entity’s country of origin are as set out below. There is no significant difference between the analysis by origin and that by physical location of the assets. Segment assets Non-current assets 31 December 31 December 31 December 31 December 2013 £’000 40,946 13,642 6,996 61,584 2012 £’000 40,440 11,129 5,861 57,430 2013 £’000 11,157 3,645 1,683 16,485 2012 £’000 11,392 2,823 1,362 15,577 United Kingdom Rest of Europe Middle East and Africa 6 Finance income Expected return on pension scheme assets (note 18) Interest receivable on bank deposit accounts Fair value gains on interest rate swaps that do not qualify for hedge accounting † Restated due to the implementation of IAS 19 (2011), see note 18. 12 months ended 31 December 2013 £’000 1,455 275 — 1,730 12 months ended 31 December 2012† £’000 1,499 201 23 1,723 40 Andrew Sykes AR2013 Proof 4.indd 40 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:42 7 Finance costs Interest charge on bank loans and overdrafts Finance lease interest charge Inter-company foreign exchange losses Interest on pension scheme liabilities (note 18) 8 Profit before taxation The following have been charged/(credited) in arriving at the profit before taxation: Net foreign exchange trading gains and losses Bank charges Depreciation of property, plant and equipment Net foreign exchange gains and losses on inter-company financing (note 7) Profit on the sale of plant and equipment Compensation receipts from third parties for lost or damaged plant and equipment Operating lease rental payments: Property Plant, machinery and motor vehicles Auditor’s remuneration (see note 9) Staff costs (see note 10) 12 months ended 12 months ended 31 December 31 December 2013 £’000 156 37 93 1,357 1,643 2012 £’000 212 88 81 1,401 1,782 12 months ended 12 months ended 31 December 31 December 2013 £’000 23 79 4,459 93 (550) (1,597) 1,324 1,349 215 16,186 2012 £’000 22 63 4,006 81 (402) (1,297) 1,169 878 211 14,770 Andrew Sykes AR2013 Proof 4.indd 41 23220.04 12 May 2014 3:10 PM Proof 2 41 12/05/2014 18:21:42 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 9 Auditor’s remuneration A more detailed analysis of auditor’s remuneration on a worldwide basis is as follows: Fees payable to the company’s auditor in respect of audit services: The audit of the consolidated accounts The audit of the group’s subsidiaries pursuant to legislation Total audit fees Fees payable to the company’s auditor in respect of non-audit services: Other assurance services — legal Other services pursuant to legislation Tax compliance and advisory services Total non-audit fees 12 months ended 12 months ended 31 December 31 December 2013 £’000 2012 £’000 21 130 151 7 — 57 64 215 20 117 137 6 5 63 74 211 Fees payable to the auditor and associates for non-audit services to the company are not disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis. 10 Employee information Staff costs charged in the income statement The average number of employees employed during the year was: Sales and distribution Engineers Managers and administration Staff costs, including directors’ remuneration, amounted to: Wages and salaries Redundancy Social security costs Other pension costs 42 12 months ended 12 months ended 31 December 31 December 2013 Number 2012 Number 171 210 113 494 162 199 111 472 12 months ended 12 months ended 31 December 31 December 2013 £’000 14,210 35 1,535 406 16,186 2012 £’000 12,945 65 1,390 370 14,770 Andrew Sykes AR2013 Proof 4.indd 42 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:42 10 Employee information (continued) Key management compensation Amounts paid to individuals, including directors, having authority and responsibility for planning, directing and controlling the group’s activities were as follows: Short term employee benefits Post employment benefits — Pensions 12 months ended 12 months ended 31 December 31 December 2013 £’000 2,021 149 2,170 2012 £’000 1,899 128 2,027 Directors’ emoluments Directors’ emoluments for the current and prior financial periods were as follows: Director M Gailer MC Leon JJ Murray JP Murray PT Wood (highest paid director) 12 months ended 31 December 2013 12 months ended 31 December 2012 Pension Total Pension Total Emoluments scheme contributions Emoluments scheme contributions £’000 £’000 £’000 £’000 £’000 £’000 29 20 38 20 365 472 — — — — 34 34 29 20 38 20 399 506 29 20 38 20 345 452 — — — — 26 26 29 20 38 20 371 478 No directors were granted or exercised share options during either the current or previous financial periods. The number of directors in office at the year end to whom retirement benefits are accruing are as follows: Defined contribution Defined benefit 12 months ended 31 December 2013 Number 12 months ended 31 December 2012 Number 1 1 1 1 The highest paid director had an accrued annual pension under the defined benefit pension scheme of £19,838 (2012: £19,383); no contributions were paid during the current or previous financial years. Andrew Sykes AR2013 Proof 4.indd 43 23220.04 12 May 2014 3:10 PM Proof 2 43 12/05/2014 18:21:42 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 11 Taxation Current tax UK corporation tax at 23.25% (2012: 24.5%) based on the taxable profit for the year Adjustments to corporation tax in respect of prior periods Overseas tax based on the taxable profit for the year Adjustments to overseas tax in respect of prior periods Withholding tax Total current tax charge Deferred tax Deferred tax on the origination and reversal of temporary differences Adjustments to deferred tax in respect of prior periods Total deferred tax charge (note 17) Total tax charge for the financial period attributable to continuing operations 12 months ended 31 December 2013 £’000 2,567 (109) 2,458 592 (22) 39 3,067 329 50 379 3,446 12 months ended 31 December 2012† £’000 2,580 (245) 2,335 813 42 140 3,330 162 193 355 3,685 The tax charge for the financial year can be reconciled to the profit before tax per the income statement multiplied by the standard effective corporation tax rate in the UK of 23.25% (2012: 24.5%) as follows: Profit before taxation from continuing and total operations Tax at the UK effective corporation tax rate of 23.25% (2012: 24.5%) Effects of: Expenses not deductible for tax purposes Effects of different tax rates of subsidiaries operating abroad Movement in overseas trading losses Non-taxable income from trade investments Withholding tax Effect of change in tax rate to 20% (2012: 23%) Adjustments to tax charge in respect of previous periods Total tax charge for the financial period Deferred tax recognised in other comprehensive income 12 months ended 31 December 2013 £’000 14,964 3,479 119 (339) 146 (45) 39 128 (81) 12 months ended 31 December 2012† £’000 14,754 3,615 122 (217) 71 (145) 140 109 (10) 3,446 3,685 12 months ended 31 December 2013 £’000 12 months ended 31 December 2012† £’000 Deferred tax credit on remeasurement of defined benefit liabilities and assets (388) (204) † Restated due to the implementation of IAS 19 (2011), see note 18. 44 Andrew Sykes AR2013 Proof 4.indd 44 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:43 11 Taxation (continued) Matters affecting future tax charges The 2013 Budget on 20 March 2013 announced that the UK corporation tax rate will reduce to 20% by 2015. Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the group’s future current tax charge accordingly. The deferred tax balance at 31 December 2013 has been calculated based on the rate of 20% which was substantively enacted at the balance sheet date. 12 Earnings per share Basic earnings per share The basic figures have been calculated by reference to the weighted average number of ordinary shares in issue and the post-tax earnings as set out below. There were no discontinued operations in either period. Basic earnings/weighted average number of shares Basic earnings per ordinary share (pence) Basic earnings/weighted average number of shares Basic earnings per ordinary share (pence) Diluted earnings per share 12 months ended 31 December 2013 Total earnings £’000 Number of shares 11,518 27.25p 42,262,082 12 months ended 31 December 2012† Total earnings £’000 11,069 26.18p Number of shares 42,279,853 There were no dilutive instruments outstanding during either the current or previous financial years. Consequently the diluted earnings per share is the same as the basic earnings per share for both years. † Restated due to the implementation of IAS 19 (2011), see note 18. Andrew Sykes AR2013 Proof 4.indd 45 23220.04 12 May 2014 3:10 PM Proof 2 45 12/05/2014 18:21:43 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 13 Property, plant and equipment Property £’000 Equipment for hire £’000 Motor vehicles £’000 Plant and machinery £’000 Cost As at 31 December 2011 Exchange differences Additions Disposals As at 31 December 2012 Exchange differences Additions Disposals As at 31 December 2013 Accumulated depreciation As at 31 December 2011 Exchange differences Charge for the period Disposals As at 31 December 2012 Exchange differences Charge for the period Disposals As at 31 December 2013 Carrying value At 31 December 2013 At 31 December 2012 7,342 (6) 323 (840) 6,819 6 1 (170) 6,656 2,869 (5) 164 (840) 2,188 5 150 (170) 2,173 4,483 4,631 37,414 (278) 4,165 (1,385) 39,916 116 4,647 (2,194) 42,485 28,324 (191) 3,376 (1,229) 30,280 22 3,708 (2,054) 31,956 10,529 9,636 2,286 (21) 255 (566) 1,954 11 315 (521) 1,759 1,916 (14) 152 (565) 1,489 5 179 (504) 1,169 590 465 4,141 (19) 555 (55) 4,622 7 456 (22) 5,063 3,588 (15) 314 (55) 3,832 1 422 (22) 4,233 830 790 Total £’000 51,183 (324) 5,298 (2,846) 53,311 140 5,419 (2,907) 55,963 36,697 (225) 4,006 (2,689) 37,789 33 4,459 (2,750) 39,531 16,432 15,522 At 31 December 2013 and 31 December 2012 the group did not have any non-cancellable contractual commitments for the acquisition of property, plant and equipment. The carrying value of the group’s property is as follows: Freehold land and buildings Long leasehold buildings Short leasehold buildings 31 December 31 December 2013 £’000 4,042 55 386 4,483 2012 £’000 4,110 57 464 4,631 As disclosed in note 24, the group’s bank loans are secured by fixed and floating charges over the group’s assets including property, plant and equipment. 46 Andrew Sykes AR2013 Proof 4.indd 46 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:43 14 Lease prepayments Long leasehold land prepayments: Total Split: Non-current assets Current assets 31 December 31 December 2013 £’000 2012 £’000 55 53 2 55 57 55 2 57 The current element of long leasehold land premiums is included within trade and other receivables in note 20. 15 Subsidiaries A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given in note 3 to the company’s separate financial statements prepared under UK GAAP. With the exception of Khansaheb Sykes LLC, the group holds 100% of the issued share capital of its subsidiaries. Whilst the group only holds 49% of the issued share capital of Khansaheb Sykes LLC, this shareholding entitles the group to 90% of the profits for the year and control of the company. The 51% shareholder has waived his right to receive the 10% profit share and therefore the group has consolidated 100% of the company’s results for the year. 16 Trade investments Cost and carrying amount Cost and carrying amount 31 December 31 December 2013 £’000 2012 £’000 164 164 The above investment represents a 40% interest in the ordinary share capital of Oasis Sykes Limited, a company incorporated in Saudi Arabia and having an issued share capital of £410,000. The investment is not accounted for as an associate as the group does not and is unable to exercise significant influence, including decisions concerning the declaration and payments of dividends. The investment is stated at cost as the shares do not have a quoted market price in an active market and the directors consider that the fair value cannot be reliably measured. Dividends are accounted for on a receipts basis and the following amounts have been included in the income statement: Income from trade investments Andrew Sykes AR2013 Proof 4.indd 47 23220.04 12 May 2014 3:10 PM Proof 2 12 months 12 months ended ended 31 December 31 December 2013 £’000 2012 £’000 194 592 47 12/05/2014 18:21:43 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 17 Deferred tax asset The deferred tax assets and liabilities recognised by the group and the movements thereon during the current and prior years are as follows: Capital allowances in excess of depreciation £’000 Provisions and other short term timing differences £’000 Pension surplus £’000 Asset/(liability) at 31 December 2011 at 25% Charged to income statement Credited to equity Effect of pension payments in excess of service and administration expenses Asset/(liability) at 31 December 2012† at 23% (see note below) Charged to income statement Credited to equity Effect of pension payments in excess of service and administration expenses Asset/(liability) at 31 December 2013 at 20% (see note below) 305 15 — — 320 21 — — 341 (407) (26) 204 (187) (416) (24) 388 (189) (241) 862 (344) — 187 705 (376) — 189 518 Total £’000 760 (355) 204 — 609 (379) 388 — 618 Deferred tax has been calculated using the substantively enacted tax rate that is expected to apply when the temporary timing differences reverse. Consequently a deferred tax rate of 20% (2012: 23%) has been used. The group does not have any unused capital losses or any unrecognised deferred tax assets or liabilities at either the current or previous year end. The deferred tax asset as at 31 December 2013, excluding the liability on the pension surplus, is £859,000 (2012: £1,025,000). Of this amount, approximately £400,000 (2012: £750,000) is expected to be recovered after more than 12 months. † Restated due to the implementation of IAS 19 (2011). 18 Retirement benefit pension schemes Defined benefit pension scheme The group closed the UK group defined benefit pension scheme to future accrual as at 29 December 2002. The assets of the defined benefit pension scheme continue to be held in a separate trustee administered fund. The group has been making additional contributions to remove the funding deficit in the group pension scheme. These contributions totalled £960,000 during 2013 and were agreed in advance with the trustees of the pension scheme. As at 31 December 2013 the group had a net defined benefit pension scheme surplus, calculated in accordance with IAS 19 (2011) using the assumptions as set out below, of £1,204,000 (2012: £1,809,000). This asset has been recognised in these financial statements as the directors are satisfied that it is recoverable in accordance with IFRIC 14. Following the triennial recalculation of the funding deficit as at 31 December 2010 a revised schedule of contributions and recovery plan was agreed with the pension scheme trustees in March 2012. Based on this schedule of contributions, which was effective from 1 January 2011, the best estimate of the employer contributions to be paid during the year commencing 1 January 2014 is £1,080,000. The next triennial funding valuation is due as at 31 December 2013 but, until such time as this has been agreed, the group’s monthly contributions to the pension scheme will be increased to £90,000 for 2014 and then reduced to £70,000 until December 2018 or until the funding deficit has been eliminated if sooner. 48 Andrew Sykes AR2013 Proof 4.indd 48 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:43 18 Retirement benefit pension schemes (continued) Adoption of IAS 19 (2011): Employee Benefits The group has adopted the amendments to IAS 19 (2011): Employee Benefits that were effective for all accounting periods commencing on ar after 1 January 2013 for the first time this year. The main changes of the revised standard that have had an impact on the group’s results were as follows: ●● Pension scheme administration costs and the costs of managing the plan assets are now reported as operating expenses and not as a deduction from the expected return on assets within finance income. ●● Interest income within finance income is no longer calculated based on the expected return from the pension scheme’s assets but is restricted to a rate equivalent to the discount rate as used to discount the pension scheme’s liabilities. In addition the “corridor” method of accounting for certain actuarial gains and losses permitted by the previous version of IAS 19 has been removed, interest on service costs can no longer be included in finance costs and an interest charge is required on any adjustment required by IFRIC 14. However, none of these changes have had any impact on the group’s results for either the current or previous accounting periods. The comparative figures for the year ended 31 December 2012 have all been restated to comply with IAS 19 (2011). However, the comparative information for 2011 and prior has not been restated to comply with the revised standard as this information is not readily available. Accordingly this information is disclosed in accordance with the previous version of IAS 19. Assumptions The last full actuarial valuation was carried out as at 31 December 2010. A qualified independent actuary has updated the results of this valuation to calculate the surplus as disclosed below. The major assumptions used in this valuation to determine the present value of the scheme’s defined benefit obligation were as follows: 31 December 31 December 31 December 31 December 31 December 2013 2012 2011 2010 2009 Rate of increase in pensionable salaries Rate of increase in pensions in payment Discount rate applied to scheme liabilities Inflation assumption — RPI Inflation assumption — CPI for the first six years Inflation assumption — CPI after the first six years N/A 3.40% 4.40% 3.50% 2.50% 2.50% N/A 2.90% 4.30% 3.00% 2.00% 2.00% N/A 2.90% 4.80% 3.00% 2.00% 2.00% N/A 3.30% 5.50% 3.50% 2.50% 3.00% N/A 3.40% 5.80% 3.60% N/A N/A From 1 January 2011, the government amended the basis for statutory increases to deferred pensions and pensions in payment. Such increases are now based on inflation measured by the Consumer Price Index (CPI) rather than the Retail Price Index (RPI). Having reviewed the scheme rules and considered the impact of the change on this pension scheme, the directors consider that future increases to all deferred pensions and Guaranteed Minimum Pensions accrued between 6 April 1988 and 5 April 1997 and currently in payment will be based on CPI rather than RPI. Accordingly, this assumption has been adopted as at 31 December 2010 and subsequently; in 2009 it was assumed that such pension increases would be linked to RPI. It has been assumed in all years that all other pension increases will be linked to RPI. Assumptions regarding future mortality experience are set based on advice in accordance with published statistics. The current mortality table used is 110% S1NA CMI 2013 (2012: 110% S1NA CMI 2011; 2011: 110% S1NA CMI 2010; 2010 and prior: PA92YOBMC+2). Andrew Sykes AR2013 Proof 4.indd 49 23220.04 12 May 2014 3:10 PM Proof 2 49 12/05/2014 18:21:43 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 18 Retirement benefit pension schemes (continued) The assumed average life expectancy in years of a pensioner retiring at the age of 65 given by the above tables is as follows: 31 December 31 December 31 December 31 December 31 December 2013 2012 2011 2010 2009 Male, current age 45 Female, current age 45 22.7 years 24.0 years 22.6 years 23.9 years 22.8 years 23.9 years 21.3 years 24.1 years 21.3 years 24.1 years The major assumptions used to determine the expected future return on the scheme’s assets were as follows: Long term rate of return on: Equities Corporate bonds Gilts Cash 31 December 31 December 31 December 31 December 31 December 2013 2012 2011 2010 2009 8.00% 4.40% 3.50% 3.50% 7.80% 4.30% 2.30% 2.30% 7.70% 4.80% 2.50% 2.50% 7.60% 5.00% 4.00% 4.00% 7.50% 5.40% 4.40% 4.40% The above expected rates of return have been restricted, where relevant (for 2012 and 2013), to a rate equivalent to the discount rate applied to the scheme’s liabilities. The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescales covered, may not necessarily be borne out in practice. The expected return on plan assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation. Valuations The fair value of the scheme’s assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present value of the scheme’s liabilities, which are derived from cash flow projections over long periods and are inherently uncertain, were as follows: UK equities Corporate bonds Gilts Cash Total fair value of plan assets Present value of defined benefit obligation Scheme surplus calculated in accordance with stated assumptions Net pension surplus not recognised Pension surplus recognised in the balance sheet 31 December 31 December 31 December 31 December 31 December 2013 £’000 12,281 16,880 6,196 350 35,707 (34,503) 1,204 — 1,204 2012 £’000 10,321 17,550 6,233 91 34,195 (32,386) 1,809 — 1,809 2011 £’000 9,247 15,693 6,240 267 31,447 (29,818) 1,629 — 1,629 2010 £’000 9,972 15,335 5,136 290 30,733 (28,743) 1,990 — 1,990 2009 £’000 8,839 14,732 4,776 589 28,936 (28,862) 74 (74) — 50 Andrew Sykes AR2013 Proof 4.indd 50 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:44 18 Retirement benefit pension schemes (continued) The movement in the fair value of the scheme’s assets over the year is as follows: 31 December 2013 £’000 34,195 1,455 908 (139) 960 (1,672) 35,707 31 December 2012† £’000 31,447 1,499 1,794 (91) 840 (1,294) 34,195 31 December 31 December 31 December 2011 £’000 30,733 1,628 104 — 120 (1,138) 31,447 2010 £’000 28,936 1,546 1,309 — 120 (1,178) 30,733 2009 £’000 26,440 1,338 992 — 1,500 (1,334) 28,936 Fair value of plan assets at the start of the period Return on plan assets excluding interest income Actuarial gain/(loss) recognised in the CSOCTI* Administration expenses charged in the income statement Employer contributions — normal Benefits paid Fair value of plan assets at the end of the period † Restated to comply with IAS 19 (2011): Employee Benefits. * Consolidated Statement of Comprehensive Total Income. The above pension scheme assets do not include any investments in the parent company’s own shares or property occupied by the company or its subsidiaries at any period end. The movement in the present value of the defined benefit obligation during the period was as follows: 31 December 2013 £’000 31 December 2012† £’000 2011 £’000 2010 £’000 31 December 31 December 31 December Present value of defined benefit funded obligation at the beginning of the period Interest on defined benefit obligation Actuarial (loss)/gain recognised in the CSOCTI* arising from: — Demographic assumptions — Financial assumptions — Experiance adjustments — Unallocated items (pre IAS 19 (2011)) Benefits paid (32,386) (1,357) (29,818) (1,401) (28,743) (1,550) (28,862) (1,640) (1,176) (1,184) (72) — 1,672 (49) (2,134) (278) — 1,294 — — (260) (403) 1,138 — — 498 83 1,178 2009 £’000 (26,165) (1,530) — — (421) (2,080) 1,334 Present value of defined benefit obligation (34,503) (32,386) (29,818) (28,743) (28,862) Net pension surplus not recognised — — — — (74) Present value of defined benefit funded obligation at the end of the period (34,503) (32,386) (29,818) (28,743) (28,936) † Restated to comply with IAS 19 (2011): Employee Benefits. * Consolidated Statement of Comprehensive Total Income. Key assumptions — sensitivity analysis The key assumptions used to calculate the scheme’s liabilites are longevity, discount rate and the inflation assumptions (RPI and CPI). If the average actual longevity from the age of 65 years is one year greater than that assumed, the pension scheme liabilities would increase by approximately £1.5 million. If the actual longevity is one year less than that assumed, the pension scheme liabilities would reduce by a similar amount. A 0.1% increase in the discount rate applied to the scheme liabilities and a 0.1% increase in the inflation assumptions would reduce/increase the present value of the defined benefit obligation by approxmately £0.5 million and £0.3 million respectively. A 0.1% decrease in these assumptions would increase/reduce the present value of the defined benefit obligation by a similar amount. Andrew Sykes AR2013 Proof 4.indd 51 23220.04 12 May 2014 3:10 PM Proof 2 51 12/05/2014 18:21:44 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 18 Retirement benefit pension schemes (continued) Amounts recognised in the income statement 31 December 2013 £’000 31 December 2012† £’000 31 December 31 December 31 December 2011 £’000 2010 £’000 2009 £’000 1,455 (1,357) (139) (41) 1,499 (1,401) (91) 7 1,628 (1,550) — 78 1,546 (1,640) — (94) 1,338 (1,530) — (192) The amounts credited/(charged) in the income statement were: Expected return on pension scheme assets (note 6) Interest on pension scheme liabilities (note 7) Administration expenses Net pension (charge)/income † Restated to comply with IAS 19 (2011): Employee Benefits. Actuarial gains and losses recognised in the consolidated statement of comprehensive total income (CSOCTI*) 31 December The amounts credited/(charged) in the CSOCTI* were: Actual return less expected return on scheme assets Experience gains and losses arising on plan obligation Changes in demographic and financial assumptions 2013 £’000 908 (72) 31 December 2012† £’000 1,794 (278) 31 December 31 December 31 December 2011 £’000 104 (260) 2010 £’000 1,309 498 2009 £’000 992 (421) underlying the present value of plan obligations (2,360) (2,183) (403) 83 (2,080) Actuarial (loss)/gain calculated in accordance with stated assumptions Net pension surplus not recognised Reverse provision re non-recognition of pension scheme surplus (1,524) (667) (559) — — — — — — Actuarial (loss)/gain recognised in the CSOCTI* (1,524) (667) (559) Cumulative actuarial loss recognised in the 1,890 — 74 1,964 (1,509) (74) 275 (1,308) CSOCTI* (5,236) (3,712) (3,045) (2,486) (4,450) † Restated to comply with IAS 19 (2011): Employee Benefits. * Consolidated Statement of Comprehensive Total Income. The actual return on plan assets can therefore be summarised as follows: 31 December 2013 £’000 31 December 2012† £’000 31 December 31 December 31 December 2011 £’000 2010 £’000 2009 £’000 Expected return on plan assets 1,455 1,499 1,628 1,546 1,338 Actuarial gain recognised in the CSOCTI* representing the difference between expected and actual return on assets Actual return on plan assets 908 2,363 1,794 3,293 104 1,732 1,309 2,855 992 2,330 † Restated to comply with IAS 19 (2011) : Employee Benefits. * Consolidated Statement of Comprehensive Total Income. 52 Andrew Sykes AR2013 Proof 4.indd 52 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:44 18 Retirement benefit pension schemes (continued) The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current investment policy as restricted, in 2013 and 2012, to a rate equal to the assumed discount rate applied to the scheme’s liabilities. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and property investments reflect long term real rates of return experianced in the respective markets. History of experience gains and losses Difference between the expected and actual return on scheme assets: Amount Percentage of scheme assets Experience gains and losses arising on scheme liabilities: Amount Percentage of present value of plan obligation Effects of changes in the demographic and financial assumptions underlying the present value of the scheme liabilities: Amount Percentage of present value of plan obligation Movement in net pension asset not recognised: Amount Percentage of present value of plan obligation Total amount recognised in the CSOCTI*: Amount Percentage of present value of plan obligation † Restated to comply with IAS 19 (2011): Employee Benefits. * Consolidated Statement of Comprehensive Total Income. Defined contribution pension scheme 31 December 2013 £’000 31 December 2012† £’000 31 December 31 December 31 December 2011 £’000 2010 £’000 2009 £’000 908 2.5% 1,794 5.2% 104 0.3% (72) (0.2%) (278) (0.9%) (260) (0.9%) (2,360) (6.8%) — 0.0% (1,524) (4.4%) (2,183) (6.7%) — 0.0% (667) (2.1%) (403) (1.4%) — 0.0% (559) (1.9%) 1,309 4.3% 498 1.7% 83 0.3% 74 0.3% 1,964 6.8% 992 3.4% (421) (1.5%) (2,080) (7.2%) 201 0.7% (1,308) (4.5%) On 1 January 2003 a new pension scheme was introduced, the Andrews Sykes Stakeholder Pension Plan, to which the majority of UK employees are eligible. The scheme is managed on behalf of the group by Legal & General. Both the employer and employee contributions vary generally based upon the individual’s length of service within the company. The employer’s contribution rates vary from 3% to 15%, the current average being 5.60% (2012: 5.35%). The income statement charge in the current period amounted to £246,000 (2012: £241,000). Overseas defined contribution pension scheme arrangements Overseas companies make their own pension arrangements, the charge for the period being £160,000 (2012: £129,000). No additional disclosure is given on the basis of materiality. Andrew Sykes AR2013 Proof 4.indd 53 23220.04 12 May 2014 3:10 PM Proof 2 53 12/05/2014 18:21:44 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 19 Stocks Raw material and consumables Work in progress Finished goods 31 December 31 December 2013 £’000 71 20 3,140 3,231 2012 £’000 44 10 3,143 3,197 As disclosed in note 24, the group’s bank loans are secured by fixed and floating charges over the group’s assets including stocks. The cost of stock recognised as an expense in the year was £15,989,000 (2012: £15,901,000) and the net charge in the income statement for net realisable value provisions was £54,000 (2012: £128,000). 20 Trade and other receivables Current unimpaired debtors Overdue impaired debtors: Gross Less allowance for doubtful debts Net overdue trade debtors Net trade debtors Amounts due from related parties Lease prepayments — long leasehold land premiums Prepayments and accrued income Other debtors No collateral is held in respect of overdue trade debtors. 31 December 31 December 2013 £’000 2012 £’000 6,671 7,661 8,882 (2,660) 6,222 12,893 25 2 1,524 187 14,631 8,747 (2,543) 6,204 13,865 27 2 1,113 241 15,248 Current unimpaired trade debtors represents amounts due from customers that are not overdue in accordance with the specific credit terms agreed with those customers. The average outstanding debtor days for current unimpaired trade debtors at 31 December 2013 is 38 days (2012: 39 days). The age profile of the trade debtors that are past due but not impaired is as follows: Not more than 3 months overdue More than 3 months and not more than 6 months overdue More than 6 months and not more than 12 months overdue More than 12 months overdue Net overdue trade debtors 54 31 December 31 December 2013 £’000 4,557 868 668 129 6,222 2012 £’000 5,198 448 322 236 6,204 Andrew Sykes AR2013 Proof 4.indd 54 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:44 20 Trade and other receivables (continued) The allowance for doubtful debts is based on past default experience. Debts with customers in liquidation or receivership are fully provided against. The movement in the provision during the period is as follows: Balance at the beginning of the period Foreign exchange difference Net amounts written off during the period Income statement charge/(credit) Balance at the end of the period 31 December 31 December 2013 £’000 2,543 (29) (557) 703 2,660 2012 £’000 2,769 (81) (20) (125) 2,543 The directors consider that the carrying value of trade debtors approximates to fair value and that no impairment provisions are required against other receivables. Information concerning credit, liquidity and market risks together with an analysis of monetary assets held in currencies other than pounds Sterling is given in note 32. 21 Cash and cash equivalents Cash at bank Deposit accounts Capital reduction trust account 31 December 31 December 2013 £’000 2,179 25,238 — 27,417 2012 £’000 2,490 21,589 29 24,108 Cash at bank comprises cash held by the group in interest free bank current accounts. Deposit accounts comprise instant access interest bearing accounts and other short term bank deposits with an original maturity of three months or less. Interest was received at an average floating rate of approximately 1.03% (2012: 0.85%). The capital reduction trust account was created by order of the High Court, as a condition of approving the capital reduction programme on 14 September 2005. It is held to protect third party interests and it is recoverable when the group is released from its obligations in the normal course of trading. Interest from the trust account accrued to the company at an average rate of 0.01% (2012: 0.01%). The carrying value of cash and cash equivalents approximates to their fair value. Total cash balances and other monetary assets and liabilities denominated in foreign currencies are disclosed in note 32. Andrew Sykes AR2013 Proof 4.indd 55 23220.04 12 May 2014 3:10 PM Proof 2 55 12/05/2014 18:21:44 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 22 Trade and other payables Trade creditors Amounts due to related parties Other tax and social security Accruals and deferred income Other creditors 31 December 31 December 2013 £’000 3,336 45 1,414 4,957 519 10,271 2012 £’000 3,328 36 1,314 4,782 421 9,881 Trade creditors, accruals and other creditors mainly comprise amounts outstanding from trade purchases and other normal business related costs. The average credit period taken for trade purchases is 39 days (2012: 35 days). Information concerning credit, liquidity and market risks together with an analysis of monetary liabilities held in currencies other than pounds Sterling is given in note 32. The carrying value of trade and other payables approximates to their fair value. 23 Current tax liabilities Corporation tax Overseas tax (denominated in Euros) 24 Bank loans The borrowings are repayable as follows: On demand or within one year In the second year In the third to fifth years inclusive Total Disclosed: Within current liabilities (on demand or within one year) Within non-current liabilities Total Total bank loans may be further analysed as follows: Gross bank loans Unamortised costs of raising loan finance Net carrying value of bank loans 31 December 31 December 2013 £’000 1,599 — 1,599 2012 £’000 1,481 11 1,492 31 December 31 December 2013 £’000 980 980 5,975 7,935 980 6,955 7,935 8,000 (65) 7,935 2012 £’000 8,000 — — 8,000 8,000 — 8,000 8,000 — 8,000 56 Andrew Sykes AR2013 Proof 4.indd 56 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:45 24 Bank loans (continued) The group’s Sterling denominated bank loans are secured by fixed and floating charges over the assets of the group and by cross guarantees between group undertakings. On 30 April 2013, in accordance with the bank loan agreement, the outstanding bank loan of £8,000,000 was repaid. On the same day the group entered into a new loan agreement also for £8,000,000 which was drawn down immediately in full. Costs of raising loan finance amounting to £80,000 were incurred and these are being amortised over the period of the loan. The new loan is for a fixed four year term with three annual repayments of £1 million commencing on 30 April 2014 followed by a final balloon payment of £5 million on 30 April 2017. Until April 2013 interest was charged on the group’s borrowings based on LIBOR plus a margin of between 0.65% and 1.25% (2012: 0.65% to 1.25%). From 1 May 2013 the margin added to the LIBOR was fixed at 1.20%, plus mandatory costs. The weighted average interest rate paid during the year was 1.65% (2012: 1.79%). The directors consider that the fair value of the floating rate bank loans are not materially different from their book values. There are no fixed rate liabilities or undrawn borrowing facilities outstanding at either year end. 25 Obligations under finance leases Amounts payable under finance leases: Within one year In the second to fifth years inclusive After five years Less future finance charges Present value of lease obligations Disclosed: Within current liabilities (payable within one year) Within non-current liabilities Total Present value of Minimum lease payments Minimum lease payments 31 December 31 December 31 December 31 December 2013 £’000 2012 £’000 2013 £’000 2012 £’000 123 319 — 442 (73) 369 134 426 16 576 (110) 466 114 255 — 369 114 255 369 124 332 10 466 124 342 466 As set out in the accounting policies, it is the group’s policy to lease certain properties. The average lease term is 2.5 years (2012: 3.5 years); the present value of the minimum leased payments has been calculated based on the group’s historic weighted average cost of capital at date of initial capitalisation as the interest rates implicit in the lease are not known. All of the above relate to property leases in both periods. All lease obligations are denominated in Sterling and the fair value of the group’s lease obligations is approximately equal to their carrying value. The group’s obligations under finance leases are secured over the short leasehold assets being leased, the carrying values of which are set out in note 13. Andrew Sykes AR2013 Proof 4.indd 57 23220.04 12 May 2014 3:10 PM Proof 2 57 12/05/2014 18:21:45 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 26 Provisions At 31 December 2012 Release of provision in the year At 31 December 2013 Disclosed: Within current liabilities (payable within one year) Within non-current liabilities Total Onerous leases £’000 34 (13) 21 31 December 31 December 2013 £’000 13 8 21 2012 £’000 13 21 34 An onerous lease provision was created in previous years in respect of a vacant property no longer used for the purposes of the group’s trade. The property has been sub-let and a provision is held to cover the potential rent due until the lease expires in August 2015 in the event that the sub-tenant defaults on the rental payments. The provision is released to the income statement as the maximum exposure reduces. The provision has not been discounted on the grounds of materiality. 27 Derivative financial instruments — liabilities Derivative financial instruments classified as liabilities in accordance with IAS 39 were as follows: 31 December 31 December 2013 £’000 2012 £’000 Interest rate caps held for trading — — During 2012 interest was charged on a bi-annual basis on the group’s borrowings based on LIBOR plus a margin of between 0.65% and 1.25%. The group held the following interest rate cap to limit its exposure to increases in LIBOR which was included in the financial statements last year at fair value as set out below: 12 months ended 31 December 2012 Maturity date LIBOR Cap 30/4/2013 6.25% Principal £’000 10,000 10,000 Liability £’000 — — There were no outstanding derivative instruments as at 31 December 2013. 58 Andrew Sykes AR2013 Proof 4.indd 58 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:45 28 Called-up share capital Issued and fully paid: 42,262,082 ordinary shares of one pence each (2012: 42,262,082 ordinary shares of one pence each) 31 December 31 December 2013 £’000 2012 £’000 423 423 During the year the company did not purchase any ordinary shares of 1p each for cancellation (2012: 426,506 ordinary 1p shares purchased for cancellation for a total consideration of: £814,934). The company has one class of ordinary shares which carry no right to fixed income. No share options were exercised, granted, forfeited or expired during either the current or previous financial years. There were no outstanding share options at the end of either the current or previous financial year. 29 Share capital and reserves Share capital £’000 Share Retained Translation premium earnings £’000 £’000 reserve £’000 Other reserves £’000 At 31 December 2011 Total comprehensive income for the period Purchase of own shares Dividends paid At 31 December 2012 Total comprehensive income for the period Dividends paid At 31 December 2013 427 — (4) — 423 — — 423 13 — — — 13 — — 13 31,035 10,606 (815) (3,001) 37,825 10,382 (7,523) 40,684 2,658 (335) — — 2,323 137 — 2,460 Total £’000 34,374 10,271 (815) (3,001) 40,829 10,519 (7,523) 241 — 4 — 245 — — 245 43,825 The translation reserve represents the cumulative translation differences on the foreign currency net investments held at the year end since the date of transition to IFRS. Other reserves comprise: Capital redemption reserve UAE legal reserve Netherlands capital reserve 31 December 31 December 2013 £’000 157 79 9 245 2012 £’000 157 79 9 245 Local legislation in the United Arab Emirates requires Khansaheb Sykes LLC to maintain a non-distributable reserve equal to 50% of its share capital. The capital redemption reserve increased during the prior year by £4,265 due to the purchase and cancellation of 426,506 ordinary shares of 1p each for an aggregate consideration of £814,934. There were no movements on the capital redemption reserve this year or on any of the other reserves during either the current or previous financial periods. Andrew Sykes AR2013 Proof 4.indd 59 23220.04 12 May 2014 3:10 PM Proof 2 59 12/05/2014 18:21:45 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 30 Cash generated from operations Profit for the period attributable to equity shareholders 11,518 11,069 12 months ended 31 December 2013 £’000 12 months ended 31 December 2012† £’000 Adjustments for: Taxation charge Finance costs Finance income Income from trade investments Profit on the sale of property, plant and equipment Depreciation Excess of normal pension contributions compared with service and administration expenses Cash generated from operations before movements in working capital Movement in stocks Movement in trade and other receivables Movement in trade and other payables Movement in provisions Cash generated from operations † Restated due to the implementation of IAS 19 (2011), see note 18. 31 Analysis of net funds Cash and cash equivalents per consolidated cash flow statement and note 21 Gross funds Bank loans per note 24 Obligations under finance leases per note 25 Derivative financial instruments per note 27 Gross debt Net funds 3,446 1,643 (1,730) (194) (550) 4,459 (821) 17,771 (1,059) 613 377 (13) 3,685 1,782 (1,723) (592) (402) 4,006 (749) 17,076 (246) (462) 247 (13) 17,689 16,602 12 months ended 12 months ended 31 December 31 December 2013 £’000 27,417 27,417 (7,935) (369) — (8,304) 19,113 2012 £’000 24,108 24,108 (8,000) (466) — (8,466) 15,642 60 Andrew Sykes AR2013 Proof 4.indd 60 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:45 32 Financial instruments Capital risk management The group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders. The capital structure of the group consists of net funds, which are analysed in note 31, and equity comprising issued share capital, reserves and retained earnings as disclosed in note 29. The net funds to equity percentage is: Net funds per note 31 Equity attributable to equity holders of the parent company as per note 29 Net funds to equity percentage Significant accounting policies 31 December 31 December 2013 £’000 19,113 43,825 43.6% 2012 £’000 15,642 40,829 38.3% Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset and liability, are disclosed in note 2 to the financial statements. Categories of financial instruments The carrying values of each category of financial instrument are as follows: Financial assets Available for sale assets — trade investments Loans and receivables (including cash and cash equivalents): Trade debtors and amounts due by related parties Other debtors Cash and cash equivalents Financial liabilities Fair value through profit and loss — held for trading Amortised cost: Trade creditors and amounts due to related parties Accruals and other creditors Loans Finance lease obligations 31 December 31 December 2013 £’000 2012 £’000 164 164 12,918 187 27,417 40,522 40,686 13,892 241 24,108 38,241 38,405 — — 3,381 8,489 7,935 369 20,174 20,174 3,364 8,009 8,000 466 19,839 19,839 Financial risk management The key risks that potentially impact on the group’s results are market risk, credit risk and liquidity and interest rate risks. The group’s exposure to each of these risks and the management of that exposure is discussed below. There has been no change in the period, or since the period end, to the type of financial risks faced by the group or to the management of those risks. Andrew Sykes AR2013 Proof 4.indd 61 23220.04 12 May 2014 3:10 PM Proof 2 61 12/05/2014 18:21:45 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 32 Financial instruments (continued) Market risk The group’s activities expose it primarily to the financial risks of changes in interest rates. When appropriate, the group enters into derivative financial instruments to manage its exposure to interest rate risk including interest rate caps that limit the group’s exposure to fluctuations in LIBOR on its bank loans. As explained in note 24, the previous bank loan agreement expired on 30 April 2013 and the outstanding loan of £8 million was repaid in full on that date. The group held an interest rate cap to limit the group’s exposure to fluctuations in LIBOR and this cap also expired when the bank loan was repaid. A new bank loan was drawn down on 30 April 2013 but due to the current low interest rates and the indications that these will not increase substantially in the immediate future, the directors do not consider that interest rate caps are currently cost-effective. Accordingly the group does not hold any interest rate caps as at 31 December 2013 although this position is constantly under review. The interest rate caps held as at 31 December 2012 were as follows: Total bank loans Average bank loan agreement rate Notional capital value of interest rate caps and effective cap rate: Cap expired 30 April 2013 Notional capital value Capped interest rate 31 December 2012 £’000 8,000 1.79% 10,000 6.25% A 1% increase in the average bank loan agreement rate for the period would increase net bank loan interest charge by £90,000 (2012: £100,000); a 1% decrease would decrease it by a similar amount. The group’s policy is not to hedge its international assets with respect to foreign currency balance sheet translation exposure, nor against foreign currency transactions. The group generally does not enter into forward exchange contracts and it does not use financial instruments for speculative purposes. The carrying amounts of the group’s foreign currency denominated financial assets and liabilities at the end of the financial period are as follows: Financial assets (excluding cash) denominated in: Euros UAE Dirhams Cash denominated in: Euros UAE Dirhams Liabilities denominated in: Euros UAE Dirhams 31 December 31 December 2013 £’000 2,158 3,182 6,803 1,383 1,261 1,571 2012 £’000 3,178 3,061 4,586 764 1,501 1,491 A 10% increase in the Euro:Sterling exchange rate would reduce the consolidated operating profit by £350,000 (2012: £365,000). A 10% decrease would increase the consolidated operating profit by a similar amount. A 10% increase in the Dirham:Sterling exchange rate would reduce the consolidated operating profit by £160,000 (2012: £105,000). A 10% decrease would increase the consolidated operating profit by a similar amount. Monetary assets and liabilities denominated in currencies other than Sterling, the Euro and UAE Dirhams were not significant at either period end. 62 Andrew Sykes AR2013 Proof 4.indd 62 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:45 32 Financial instruments (continued) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. Creditworthiness is verified by independent rating agencies when available. The group’s exposure to and credit ratings of its counterparties are continuously monitored. Credit exposure is controlled by counterparty limits that are reviewed and approved by senior management on a regular basis. Trade receivables consist of a large number of customers spread across diverse industries and geographical locations. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The group does not have any significant credit risk exposure to any single counterparty or connected counterparties at the reporting date where “significant” is defined as 5% of gross financial assets. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the group’s maximum exposure to credit risk. Liquidity risk management The group manages liquidity risk by maintaining adequate cash reserves, which at 31 December 2013 amounted to £27,417,000 (2012: £24,108,000), by operating within its agreed banking facilities, by continuously monitoring forecast and actual cash flows, by matching the maturity profiles of monetary assets and liabilities and by monitoring and discussing its covenants with the bank. In view of the significant levels of cash reserves held by the group and the increase in net funds from £15,642,000 at 31 December 2012 to £19,113,000 at 31 December 2013, the directors believe that additional unutilised borrowing facilities are not required. Andrew Sykes AR2013 Proof 4.indd 63 23220.04 12 May 2014 3:10 PM Proof 2 63 12/05/2014 18:21:45 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 32 Financial instruments (continued) Liquidity and interest risk tables The following table details the group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been prepared based on the undiscounted contractual maturities of the financial instruments. The future finance charges represents the charges that will be charged to the income statement in future periods based on the current weighted average interest rates and have not been included within the carrying amount of the financial liability: 31 December 2013 Weighted average Due Due 3 1 year and Due over within months less than Due after interest 3 months to 1 year rate £’000 £’000 5 years £’000 5 years £’000 Non-interest bearing Gross variable interest bank loans Fixed interest finance leases N/A 1.65% 8.00% Total 31 December 2012 7,855 — 31 7,886 4,015 1,102 92 5,209 — 7,239 319 7,558 — — — — Weighted average Due within interest 3 months rate £’000 Due over Due 3 1 year and months to 1 year £’000 less than Due after 5 years £’000 5 years £’000 Non-interest bearing Gross variable interest bank loans Fixed interest finance leases N/A 1.79% 8.00% Total 7,757 — 33 7,790 3,616 8,048 101 11,765 — — 426 426 — — 16 16 Future finance charges £’000 — (341) (73) (414) Future finance charges £’000 — (48) (110) (158) Total £’000 11,870 8,000 369 20,239 Total £’000 11,373 8,000 466 19,839 The value and maturity profile of the derivative financial liabilities as at 31 December 2012 carried at fair value through the profit and loss account are disclosed in note 27. Fair value is based on level 2 hierarchy as defined in IFRS 7. There were no derivative financial liabilities as at 31 December 2013 and no derivative financial assets at either year end. 64 Andrew Sykes AR2013 Proof 4.indd 64 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:46 33 Operating lease arrangements At the balance sheet date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: Amounts payable under operating leases: Within one year In the second to fifth years inclusive After five years Property Plant, machinery and equipment 31 December 31 December 31 December 31 December 2013 £’000 1,035 2,499 1,455 4,989 2012 £’000 991 2,399 1,205 4,595 2013 £’000 1,158 2,966 111 4,235 2012 £’000 774 1,407 35 2,216 Property lease payments represent rentals payable by the group for certain of its operating locations and offices. Leases are negotiated over various terms to suit the particular requirements at that time. Break clauses are included wherever appropriate and the above liability has been calculated from the balance sheet date to either the end of the lease or the first break clause, whichever is the earlier. Plant, machinery and equipment leases represent short term leases for motor vehicles, office and general equipment. 34 Related party transactions Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Trading transactions During the year, the group entered into the following transactions with associated companies on an arm’s length basis: Sale of goods and services to associates within the London Security plc group Purchase of goods and services from associates within the London Security plc group Purchase of goods and services from other associates Amounts owed to the group by associates Amount owed by the group to associates 31 December 31 December 2013 £’000 2012 £’000 68 237 7 25 45 17 212 5 27 36 The group did not hold any security and there were no impairment charges in respect of any of the above transactions. Transactions with key management personnel In addition to the management remuneration, which is disclosed in note 10 above, a company controlled by a member of the key management team provided consultancy services to the group totalling £22,857 (2012: £Nil). As at 31 December 2013 £10,496 was owed by the group in respect of these services (2012: £Nil). Andrew Sykes AR2013 Proof 4.indd 65 23220.04 12 May 2014 3:10 PM Proof 2 65 12/05/2014 18:21:46 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2013 35 Dividends The directors declared the following interim dividend in respect of the year ended 31 December 2013: 12 months ended 31 December 2013 12 months ended 31 December 2012 Total dividend Pence paid Pence per share £’000 per share Total dividend paid £’000 First interim dividend declared on 18 June 2013 (2012: 29 October 2012) and paid to shareholders on the register as at 28 June 2013 (2012: 9 November 2012) on 24 July 2013 (2012: 3 December 2012) 8.90 3,761 7.10 3,001 Second interim dividend declared on 28 October 2013 and paid to shareholders on the register as at 8 November 2013 on 3 December 2013 8.90 3,762 7,523 — — 3,001 The above interim dividends were charged against reserves as shown in the consolidated statement of changes in equity and in note 29 to these financial statements. The directors recommend the payment of a final dividend of 11.90 pence (2012: Nil pence) per ordinary share. If approved at the forthcoming Annual General Meeting this dividend, which in total amounts to £5,029,000, would be payable on 19 June 2014 to shareholders on the register on 30 May 2014. 36 Ultimate parent company As at 6 May 2014 EOI Sykes Sarl, which is incorporated in Luxembourg, held 86.08% of the share capital of Andrews Sykes Group plc and is therefore the immediate parent company. The ultimate holding company is the Tristar Corporation, a company incorporated in the Republic of Panama. The Tristar Corporation is held jointly, in equal proportions, by the Ariane Trust and the Eden Trust and therefore the directors consider these trusts to be the ultimate controlling parties of Andrews Sykes Group plc. 66 Andrew Sykes AR2013 Proof 4.indd 66 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:46 Company Balance Sheet As at 31 December 2013 31 December 2013 31 December 2012 Note £’000 £’000 £’000 £’000 Fixed assets Investments Current assets Debtors Cash at bank and in hand Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities Creditors: Amounts falling due after more than one year Provisions Net assets Capital and reserves Called-up share capital Share premium Profit and loss account Other reserves Shareholders’ funds 3 4 5 6 6 7 9 10 10 10 11 32,051 32,040 24,461 10 24,471 (6,780) 21,105 270 21,375 (13,698) 17,691 49,742 (6,955) — 42,787 423 13 39,983 2,368 42,787 7,677 39,717 — (25) 39,692 423 13 36,888 2,368 39,692 These financial statements of Andrews Sykes Group plc, company number 00175912, were approved and authorised for issue by the board of directors on 6 May 2014 and were signed on its behalf by: JJ Murray Vice-Chairman Andrew Sykes AR2013 Proof 4.indd 67 23220.04 12 May 2014 3:10 PM Proof 2 67 12/05/2014 18:21:46 Notes to the Company Financial Statements For the 12 months ended 31 December 2013 1 Significant accounting policies Basis of preparation These separate financial statements of Andrews Sykes Group plc (the company) have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards. The principal accounting policies, which have all been applied consistently throughout the current and preceding accounting periods, are summarised below. Going concern These financial statements have been prepared on the fundamental assumption that the company is a going concern and will continue to trade for at least 12 months following the date of approval of the financial statements. Further information explaining why the directors believe that the group as a whole is a going concern is given in the strategic report on page 12. Investments Investments in subsidiary undertakings are stated at cost less provision for impairment. Cost is defined as the aggregate of: (a) the cash consideration; (b) the nominal value of shares issued as consideration where Section 612 of the Companies Act 2006 applies; (c) the market value of the company’s shares on the date they were issued where Section 612 does not apply; (d) the fair value of any other consideration; and (e) costs of acquisition. Deferred tax Deferred tax is provided in full on timing differences that result in an obligation to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax law enacted or substantively enacted. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided on unremitted earnings where there is no binding commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Current tax Current tax payable and recoverable is based on the taxable profit or loss for the year using tax rates enacted or substantively enacted at the reporting date. Taxable profit differs from the profit as reported in the profit and loss account as it is adjusted for both items that will never be taxable or deductible and temporary timing differences. Borrowing costs All borrowing costs are recognised in the company’s profit and loss account on an accruals basis. Cash flow statement Under the provisions of FRS 1: Cash flow statements, the company has not presented a cash flow statement because the consolidated financial statements contain a cash flow statement which includes the results of the company. Related party transactions Under the provisions of FRS 8: Related Party Disclosures, the company has not disclosed details of intra-group transactions with wholly owned subsidiaries because consolidated financial statements have been prepared. 68 Andrew Sykes AR2013 Proof 4.indd 68 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:46 2 Profit for the financial period As permitted by Section 408 of the Companies Act 2006, the company has elected not to present its own profit and loss account for the period. The profit for the financial period dealt with in the profit and loss account of the company was £10,618,000 (2012: £9,959,000). 3 Fixed asset investments Cost At the beginning and end of the period Provisions At the beginning of the period Release for the period At the end of the period Net book value At 31 December 2013 At 31 December 2012 Subsidiary undertakings shares £’000 40,748 8,708 (11) 8,697 32,051 32,040 The company’s principal subsidiary undertakings (* denotes directly owned by Andrews Sykes Group plc) as at 31 December 2013 were as follows: Andrews Sykes Hire Limited * Andrews Air Conditioning & Refrigeration Limited * Sykes Pumps International Limited (Overseas sales of specialist environmental control products) Andrews Sykes Investments Limited * (Intermediate holding company) A.S. Group Management Limited * (Intermediate holding company) Andrews Sykes International Limited * (Intermediate holding company) Andrews Sykes Properties Limited * (Property holding company) AS Holding B.V. (Netherlands, Intermediate holding company) Khansaheb Sykes LLC (49%, United Arab Emirates) Andrews Sykes B.V. (Netherlands) Andrews Sykes BVBA (Belgium) Nolo Climat S.R.L. (Italy) Andrews Sykes Climat Location SAS (France) Andrews Sykes Climat Location SA (Switzerland) Unless otherwise indicated, all are incorporated in England and Wales and undertake hire, sales, service and/or installation of specialist environmental control products mainly in the country of incorporation. The group holds 100% of the ordinary share capital of all of the above, unless otherwise stated. 100% of the profits of Khansaheb Sykes LLC accrue to the group. A full listing of the company’s subsidiary undertakings will be included with the next Annual Return. The movement in provisions relates to adjustments to the net carrying value of investments in non-trading subsidiaries to underlying net asset value. Andrew Sykes AR2013 Proof 4.indd 69 23220.04 12 May 2014 3:10 PM Proof 2 69 12/05/2014 18:21:46 Notes to the Company Financial Statements For the 12 months ended 31 December 2013 4 Debtors Amounts falling due within one year: Amounts owed by group undertakings Corporation tax and group relief Other debtors Deferred tax Prepayments and accrued income The movements on the deferred tax asset during the year were as follows: Asset at the beginning of the year at 23% Charge to profit and loss account Asset at the end of the period at 20% There were no unprovided deferred tax assets or liabilities at the end of either period. 5 Cash at bank and in hand Cash at bank and in hand Capital reduction trust account 31 December 31 December 2013 £’000 22,799 1,497 159 — 6 2012 £’000 19,277 1,665 157 4 2 24,461 21,105 Short term timing differences £’000 4 (4) — 31 December 31 December 2013 £’000 10 — 10 2012 £’000 241 29 270 The capital reduction trust account was created by order of the High Court, as a condition of approving a capital reduction programme, on 14 September 2005. It is held to protect third party interests and it is recoverable as the company is released from its obligations in the normal course of trading. Interest from the trust account accrues to the company. 70 Andrew Sykes AR2013 Proof 4.indd 70 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:47 6 Creditors Amounts falling due within one year: Bank loans and overdrafts Amounts owed to group undertakings Accruals and deferred income Amounts falling due after more than one year: Bank loans repayable between one and two years Bank loans repayable between two and five years Total bank loans may be further analysed as follows: Gross bank loans Unamortised costs of raising loan finance Net carrying value of bank loans 31 December 31 December 2013 £’000 980 5,758 42 6,780 2012 £’000 8,000 5,671 27 13,698 31 December 31 December 2013 £’000 980 5,975 6,955 2012 £’000 — — — 31 December 31 December 2013 £’000 8,000 (65) 7,935 2012 £’000 8,000 — 8,000 Total company bank loans and overdrafts of £8,000,000 (2012: £8,000,000) are secured by fixed and floating charges on the assets of the group and by cross guarantees between group undertakings. There are no unsecured bank loans at either year end. On 30 April 2013 in accordance with the bank loan agreement the bank loan of £8,000,000 was repaid and on the same day a new loan agreement was entered into for £8,000,000 repayable in full by April 2017. Further details of the new bank loan agreement are given in the financial review within the strategic review on page 12 and in note 24 to the consolidated financial statements. All inter-company loans are repayable on demand and accordingly have been classified within current liabilities. The company did not have any undrawn committed borrowing facilities at either period end. 7 Provisions At 31 December 2012 Profit and loss account release At 31 December 2013 Subsidiary undertakings £’000 25 (25) — The above represented impairment provisions that were required in respect of loss-making subsidiary undertakings with negative shareholder funds. The provision is reassessed at each year end in the light of the performance and net asset values of the subsidiary companies at the balance sheet date. Andrew Sykes AR2013 Proof 4.indd 71 23220.04 12 May 2014 3:10 PM Proof 2 71 12/05/2014 18:21:47 Notes to the Company Financial Statements For the 12 months ended 31 December 2013 8 Financial instruments The group’s policies, objectives and exposure in respect of capital and financial (encompassing market, credit and liquidity) risk management are set out in note 32 to the consolidated financial statements and these are also applicable to the company. The fair values of interest rate caps held by the company at the balance sheet date are disclosed in note 27 to the consolidated financial statements. 9 Called-up share capital Issued and fully paid: 42,262,082 ordinary shares of one pence each (2012: 42,262,082 ordinary shares of one pence each) 31 December 31 December 2013 £’000 2012 £’000 423 423 During the year the company did not purchase any ordinary shares of 1p each for cancellation (2012: 426,506 ordinary 1p shares purchased for cancellation for a total consideration of: £814,934). The company has one class of ordinary shares which carry no right to fixed income. No share options were exercised, granted, forfeited or expired during either the current or previous financial years. There were no outstanding share options at the end of either the current or previous financial year. 10 Reserves At the beginning of the period Profit for the period Dividends declared and paid At the end of the period Other reserves comprise: Share Profit and premium loss account £’000 £’000 13 — — 13 36,888 10,618 (7,523) 39,983 Other reserves £’000 2,368 — — 2,368 Capital redemption reserve Non-distributable dividends received from subsidiaries Total £’000 39,269 10,618 (7,523) 42,364 31 December 2013 £’000 157 2,211 2,368 The capital redemption reserve increased during the prior year by £4,265 due to the purchase and cancellation of 426,506 ordinary shares of 1p each for an aggregate consideration of £814,934. There were no movements on the capital redemption reserve this year or on any of the other reserves during either the current or previous financial periods. Details of dividends declared and paid are given in note 35 to the consolidated financial statements. 72 Andrew Sykes AR2013 Proof 4.indd 72 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:47 11 Reconciliation of movements in shareholders’ funds Profit for the financial period Consideration for the purchase of own shares Dividends declared and paid Net increase in shareholders’ funds Shareholders’ funds at the beginning of the period Shareholders’ funds at the end of the period 12 months ended 12 months ended 31 December 31 December 2013 £’000 10,618 — (7,523) 3,095 39,692 42,787 2012 £’000 9,959 (815) (3,001) 6,143 33,549 39,692 12 Capital commitments and guarantees The company has guaranteed certain property leases of subsidiary undertakings occupied for the purposes of the group’s trade. At 31 December 2013 the annual commitment under such leases totalled £102,350 (2012: £102,350), all of which expires between one and five years from the balance sheet date. 13 Ultimate parent company As at 6 May 2014 EOI Sykes Sarl, which is incorporated in Luxembourg, held 86.08% of the share capital of Andrews Sykes Group plc and is therefore the immediate parent company. The ultimate holding company is the Tristar Corporation, a company incorporated in the Republic of Panama. The Tristar Corporation is held jointly, in equal proportions, by the Ariane Trust and the Eden Trust and therefore the directors consider these trusts to be the ultimate controlling parties of Andrews Sykes Group plc. Andrew Sykes AR2013 Proof 4.indd 73 23220.04 12 May 2014 3:10 PM Proof 2 73 12/05/2014 18:21:47 Notice of Annual General Meeting Notice is hereby given that the ninety-first Annual General Meeting of Andrews Sykes Group plc will be held at Floor 5, 10 Bruton Street, London, W1J 6PX on 17 June 2014 at 10.30 a.m. for the following purposes: AS ORDINARy BUSINESS: Ordinary resolutions 1. That the financial statements for the 12 months ended 31 December 2013, together with the strategic report, directors’ report and auditor’s report, be and they are hereby received and adopted. 2. That Mr M Gailer, who retires by rotation and offers himself for re-election, be and is hereby re-elected. 3. That Mr X Mignolet, who retires by rotation and offers himself for re-election, be and is hereby re-elected. Details of directors are set out on page 20 of the financial statements. 4. That a final dividend of 11.9 pence per share be paid to shareholders on the register on 30 May 2014 on 19 June 2014. 5. That KPMG Audit Plc be and are hereby reappointed as auditor of the company to hold office from the conclusion of this meeting until the conclusion of the next general meeting at which the accounts are laid before the company at a remuneration to be fixed by the directors. AS SPECIAL BUSINESS: Ordinary resolutions 6. That the directors, in substitution for all authorities previously conferred upon them (save to the extent that such authorities shall have been exercised) be and they are hereby authorised generally and unconditionally for the purposes of Section 551 of the Companies Act 2006 to allot or grant options over relevant securities (as therein defined) up to a maximum aggregate nominal amount of £63,393 such authority to expire at the end of the next Annual General Meeting of the company save where the directors exercise such authority pursuant to an offer or agreement made prior to the date of such meeting. 7. That the general authority given by the company to make market purchases (as defined by Section 693(4) of the Companies Act 2006 (previously Section 163(3) of the Companies Act 1985)) of ordinary shares of one pence each in its capital, passed by the company in general meeting on 29 May 1996 and last renewed on 18 June 2013 be, and it is hereby renewed, subject as follows: 7.1 the maximum number of shares which may be so acquired is 5,282,760 ordinary shares of one pence each; 7.2 the minimum price which may be paid for such shares is the nominal value of such shares; 7.3 the maximum price which may be paid per share is a sum equal to 105% of the average of the market values of the ordinary shares of the company in the Daily Official List of the Stock Exchange on the five business days immediately preceding the date of purchase; 7.4 the authority conferred by this resolution shall expire on 30 June 2015 or the date of the Annual General Meeting for the period ending 31 December 2014, whichever is the earlier. Special resolutions 8. That, subject to the passing of resolution numbered 6 above, the directors be and they are hereby generally and unconditionally authorised to allot equity securities (defined in Section 560(1) of the Companies Act 2006) pursuant to the authority conferred by the resolution number 6 above as if Section 561(1) of the said Act did not apply to any such allotment of equity securities and so that references to allotment in this resolution shall be construed in accordance with Section 561(3) of the said Act and the power hereby conferred shall enable the company to make an offer or agreement before the expiry of this authority which would or might require equity securities to be allotted after the expiry of such authority provided that the authority hereby conferred shall be limited (a) to the allotment of equity securities in connection with a rights issue in favour of the holders of equity securities in proportion to their respective holdings of such securities or (as the case may be) in accordance with the rights attached hereto, but subject to such exclusions or arrangements as the directors shall deem necessary in relation to fractional entitlements or pursuant to the laws of any territory or requirements of any regulatory body or any Stock Exchange in any territory, and (b) the allotment (otherwise than pursuant to (a) of this provision) of equity securities up to an aggregate nominal amount of £63,393; this authority to expire at the end of the next Annual General Meeting of the company save to the extent that the directors exercise such authority pursuant to an offer or agreement made prior to the date of such meeting. 74 Andrew Sykes AR2013 Proof 4.indd 74 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:47 Recommendation Your directors unanimously recommend the ordinary shareholders to vote in favour of the resolutions to be proposed at the Annual General Meeting of the company as they intend to do in respect of their own beneficial holdings amounting to 1,969,325 ordinary shares representing approximately 4.66% of the current ordinary shares. You are referred to the directors’ report on pages 18 and 19 for an explanation for each resolution to be considered as special business. In respect of resolution number 7 it is intended that any share purchases by the company will only be made on the London Stock Exchange. This should not be taken to imply that shares will be purchased. The directors believe it is in the best interests of all the shareholders that the company should have the flexibility to make market purchases of its own shares. The effect of such purchases will be to reduce the number of shares in issue and the directors would accordingly only make such purchases after considering the effect on earnings per share and the benefit for shareholders. By order of the board MJ Calderbank ACA Company Secretary 6 May 2014 Notes: Premier House Darlington Street Wolverhampton WV1 4JJ 1. The following documents will be available at the registered office of the company on any weekday during normal business hours and at the Annual General Meeting: a. The register of directors’ share interests. b. Copies of the contracts of service between the company and its directors. 2. a. A member is entitled to appoint a proxy to attend and, on a poll, to vote on his or her behalf. A proxy need not be a member of the company. b. The appointment of the proxy does not preclude a member from attending the meeting and voting in person if he or she so wishes. c. A form of proxy is enclosed for use by ordinary shareholders in relation to the meeting, which, to be effective, must be completed and deposited with the Company’s registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA at least 48 hours before the time appointed for holding the meeting. d. To be entitled to attend and vote at the meeting (and for the purposes of the determination by the company of the votes they may cast) members must be entered on the register of members of the company by 6.00 p.m. on 15 June 2014. Changes to entries on the register of members after 6.00 p.m. on 15 June 2014 shall be disregarded in determining the rights of any person to attend or vote at the meeting. Andrew Sykes AR2013 Proof 4.indd 75 23220.04 12 May 2014 3:10 PM Proof 2 75 12/05/2014 18:21:47 Five Year History 12 months 12 months 12 months 12 months 12 months ended ended ended ended ended 31 December 2013 £’000 31 December 2012† £’000 31 December 31 December 31 December 2011 £’000 2010 £’000 2009 £’000 Revenue 61,072 58,380 53,838 55,951 54,358 Operating profit from continuing activities* Trading profit before exceptional items Profit on the disposal of property Income from trade investments Net interest credit/(charge) Profit before taxation Taxation Profit for the financial period Dividends paid during the year Basic earnings per share from continuing operations Ordinary interim dividends per share paid in the year Proposed ordinary final dividend per share † Restated due to the implementation of IAS 19 (2011). * Defined at the end of each reporting period. 14,683 — 14,683 194 87 14,964 (3,446) 11,518 7,523 27.25p 17.80p 11.90p 14,221 — 14,221 592 (59) 14,754 (3,685) 11,069 3,001 26.18p 7.10p — 11,882 3,113 14,995 — (92) 14,903 (3,337) 11,566 2,818 27.05p 6.60p — 13,942 164 14,106 400 (132) 14,374 (3,812) 10,562 4,800 24.19p 11.10p — 12,937 273 13,210 980 (899) 13,291 (1,648) 11,643 — 26.30p — — 76 Andrew Sykes AR2013 Proof 4.indd 76 23220.04 12 May 2014 3:10 PM Proof 2 12/05/2014 18:21:47 Andrew Sykes AR2013 Proof 4.indd 6 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:13 A n d r e w s S y k e s G r o u p P l c A n n u a l R e p o r t a n d F n a n c i a l i S t a t e m e n t s 2 0 1 3 a n d r e w s - s y k e s . c o m Premier House, Darlington Street Wolverhampton, WV1 4JJ Tel: 01902 328700 Fax: 01902 422466 E-mail: info@andrews-sykes.com andrews-sykes.com Copyright © Andrews Sykes Group plc 2014. Other brand and product names are trademarks or registered trademarks of their respective companies. Andrew Sykes AR2013 Proof 4.indd 1 23220.04 12 May 2014 3:10 PM Proof 4 12/05/2014 18:21:09