Contents 1 2 5 5 5 5 8 17 20 21 22 23 24 25 26 27 28 35 62 63 64 70 71 73 Summary of Results Chairman’s Statement Strategic Report Principal Objectives and Strategy Future Development of the Business 2016 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 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 Company Statement of Changes in Equity Notes to the Company Financial Statements Five Year History Notice of Annual General Meeting Form of Proxy 25372.04 – 12 May 2017 2:20 PM – PROOF 5 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Summary of Results 12 months ended 31 December 2016 £’000 12 months ended 31 December 2015 £’000 Revenue from continuing operations 65,389 60,058 EBITDA* from continuing operations 20,664 17,701 Operating profit Profit after tax for the financial period Basic earnings per share from total operations (pence) Interim and final dividends paid per equity share (pence) Proposed final dividend per equity share (pence) Net cash inflow from operating activities Total interim and final dividends paid Net funds 15,816 14,473 34.25p 23.80p 11.90p 15,133 10,058 17,673 13,208 10,800 25.55p 23.80p 11.90p 12,124 10,058 14,558 * 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 1 Chairman’s Statement Overview and financial highlights Summary The group’s revenue for the year ended 31 December 2016 was £65.4 million, an increase of £5.3 million, or 8.9%, compared with the same period last year. This increase had a more than proportionate impact on operating profit which increased by 19.7%, or £2.6 million, from £13.2 million last year to £15.8 million in the year under review. This increase, which follows a 16.8% increase last year, reflects strong performances from both our hire and sales businesses in the UK and Europe and the Middle East. Part of this increase, in Sterling terms, is due to the relatively weak pound compared with overseas currencies but nevertheless the underlying trading performance in our overseas subsidiaries shows a significant improvement compared to last year. Net finance income was £1.7 million this year compared with £0.2 million in 2015. This is largely attributable to a foreign exchange gain arising on the retranslation of inter-company balances of £1.6 million which is also due to the relatively weak value of Sterling compared with overseas currencies, notably the Euro and the UAE Dirham. Mainly as a consequence of the increase in operating profit and net finance income, our basic earnings per share increased by 34.1% from 25.55p last year to 34.25p in the current period. The basic earnings per share is a positive factor reflecting the strong trading performance of the group’s businesses. The group continues to generate strong cash flows. Net cash inflow from operating activities was £15.1 million compared with £12.1 million last year. Despite shareholder related cash outflows of £10.1 million on ordinary dividends, net funds increased by £3.2 million from £14.5 million at 31 December 2015 to £17.7 million at 31 December 2016. Our policy of returning affordable dividends to shareholders continues. Over the last four financial years the group has paid £37.7 million in cash to shareholders. At the same time the level of external bank borrowings reduced from £6 million as at the end of last year to £5 million as at 31 December 2016. The Board is once again proposing a further final dividend payment amounting to £5.0 million which, if approved at the forthcoming AGM, would be paid in June 2017. Cost control, cash and working capital management continue to be priorities for the group. Capital expenditure is concentrated on assets that give a good return and in total £6.2 million was invested in the hire fleet this year, £0.6 million more than last year and significantly more than the wasting depreciation charge of £4.5 million. In addition, the group invested a further £0.7 million in 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 2016 1st half 2015 2nd half 2016 2nd half 2015 Total 2016 Total 2015 Turnover £’000 Operating profit £’000 30,287 28,240 35,102 31,818 65,389 60,058 6,395 4,973 9,421 8,235 15,816 13,208 The above table demonstrates that the successful performance in the first half of the year continued into the second half. Turnover in the first half of the year showed a 7.2% improvement over the same period in 2015 and, in the second half, the percentage improvement increased to 10.3%. Operating profit for the first half year showed a 28.6% improvement compared with the same period in 2015 and a 14.4% improvement for the second half year. Although the percentage improvement was lower in the second half this year this is in comparison to a much stronger performance in the second half of last year. Traditionally the group makes more profit in the second half year due to the higher profit margins on its air conditioning products which are hired predominantly in the second half of the year. 2 25372.04 – 12 May 2017 2:20 PM – PROOF 5 The above significant improvement in operating profit has been achieved despite any significant extremes in climatic conditions. The operating profit of our main business segment in the UK and Northern Europe increased from £11.3 million last year to £13.8 million in the year under review. Whilst demand for our pumping and dehumidification products was stimulated by the floods in the North of England at the beginning of 2016, the absence of a hot summer did not help our air conditioning business. Generally the underlying performance was better than last year across the business sector due to robust operational management. Our traditional businesses continue to be developed and supported by the expansion of non-weather dependent niche markets which benefit the performance of our specialist hire divisions. This year’s result further demonstrates that with a diverse product range we are able to return a strong performance despite the absence of any significant extreme weather conditions. Our hire and sales business in the Middle East had another excellent trading year. The operating profit for this business segment increased from £2.3 million last year to £2.9 million in 2016. Trading was strong throughout the region and our climate rental division returned a positive contribution to the business results. Our fixed installation business sector in the UK returned a slightly reduced operating profit of £0.3 million this year, £0.1 million behind the result achieved last year. The market continues to be fragmented with high levels of price competition. Central overheads increased from £0.8 million in 2015 to £1.2 million in the current year. Profit for the financial year Profit before tax was £17.5 million this year compared with £13.4 million last year. This is attributable to the above £2.6 million increase in operating profit and the £1.5 million increase in net finance income. No dividends were received in either year from Oasis Sykes, our trade investment in Saudi Arabia. Tax charges increased from £2.6 million in 2015 to £3.1 million this year. The overall effective tax rate reduced from 19.2% in 2015 to 17.5% primarily due to an increase in profits earned by our business based in the Middle East, where corporation tax rates are very low, the utilisation of off balance sheet overseas tax losses and a reduction in the UK corporation tax rate. A detailed reconciliation of the theoretical corporation tax charge based on the accounts profit multiplied by 20% and the actual tax charge is given in note 11 to the consolidated financial statements. Profit for the financial year was £14.4 million compared with £10.8 million last year. Equity dividends The company paid two dividends during the year. On 24 June 2016 a final dividend for the year ended 31 December 2015 of 11.9 pence per ordinary share was paid and this was followed on 2 November 2016 by the payment of an interim dividend for 2016 also of 11.9 pence per share. Therefore, during 2016, a total of £10.1 million in cash dividends has been returned to our ordinary shareholders. I am pleased to announce that, in view of the group’s ongoing profitability and its significant cash resources, the Board has proposed a final dividend for 2016 also 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, will be paid on 26 June 2017 to shareholders on the register as at 26 May 2017. Net funds At 31 December 2016 the group had net funds of £17.7 million compared with £14.5 million last year, an increase of £3.2 million despite the payment of the above equity dividends totalling £10.1 million during the year. Bank loan facilities The final capital repayment of £5 million that was due under the bank loan agreement entered into in April 2013 was made in accordance with the agreed repayment schedule on 30 April 2017. This was financed by a new five year loan of £5 million also with the Royal Bank of Scotland. This will be repaid by four equal annual instalments of £0.5 million per annum commencing in April 2018 followed by a final balloon repayment of £3 million due in April 2022. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 3 Chairman’s Statement Overview and financial highlights (continued) 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 it has 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 2017. 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 both challenges and opportunities in all of its geographical markets but our business remains strong, cash generative and well developed, with positive net funds. The Board is therefore cautiously optimistic for further success in 2017, always being mindful of the favourable or adverse impact that the weather can have on our business. JG Murray Chairman 10 May 2017 4 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Strategic Report Operational performance Principal Objectives and Strategy The Andrews Sykes Group is one of the market leaders in the rental of Pumping equipment and Specialist Climate Control products which include Air Conditioning and Chillers, Heating and Boilers, Dehumidifiers and Ventilation. We aim to provide the most modern, technically advanced and environmentally friendly rental equipment in the market. Our products and services are supplied 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 over 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, Luxembourg, France, Italy and Switzerland. In the Middle East we have been operating from Dubai since the 1970s and now have locations in Abu Dhabi and Sharjah, with agents and partners based in Saudi Arabia, Oman, Qatar, Kuwait and Bahrain. We also have 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 backup. In the UK we also have a specialist Air Conditioning installation, service and maintenance subsidiary which covers the whole of the UK from a base in Manchester. 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. Continual investment in new technology ensures 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 and pumping 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. During 2016 we launched a number of new products into the marketplace; many of these have been focused on environmental improvements and include our new rapid response pump, the Sykes Siltaway and the GP80 eco. We have also extended our range with products such as our new 1.5mW boiler which is now the largest in our range. Further product development projects along with geographical growth are planned for 2017. 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. 2016 Operational Performance The group reported an increase in operating profits from last year of £2.6 million; this increase was driven by improved trading levels throughout the UK, Europe and the Middle East coupled with favourable foreign exchange rates. The UK produced an increase in revenue from the previous year. The floods experienced in the North of England provided a good start for our pumping and dehumidification hire products, which was continued throughout the year. The early summer months failed to produce much opportunity for our air conditioning products, but the warm period of weather during September extended the season. Heating and boiler products benefited from the cold weather in December to trade ahead of the previous year. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 5 Strategic Report Operational performance (continued) In mainland Europe both our total turnover and operating profit increased compared with the previous year. Following a successful year in 2015 our Dutch business continued to grow and provide further improvements, which was enhanced by a strong performance in Belgium. Our newer operations in Luxembourg and France both provided profitable results for the first time since being established. In Italy our operation reported a strong result with significant revenue growth on previous years. This left our Swiss operation as the only loss-making subsidiary. Once again trading in the Middle East was strong throughout 2016, with new projects and business initiatives producing successful results. Turnover increased by 11.9% when compared to 2015, although relatively low oil prices adversely affected the regional economy during the first half of the year. The overall group operating profit of £15.8 million is an increase of £2.6 million when compared to the 2015 results. Net funds increased by £3.2 million from £14.5 million last year to £17.7 million at 31 December 2016 despite shareholder related cash outflows of £10.1 million on equity dividends. Hire and Sales Europe Summary Turnover of the European hire and sales business sector increased from £45.7 million last year to £49.8 million in the current year, an increase of £4.1 million or 8.9% compared with last year. Operating profit increased by £2.5 million, or 21.7%, from £11.3 million in 2015 to £13.8 million in 2016. 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 Limited Our main UK trading subsidiary Andrews Sykes Hire has 28 locations covering the UK and employing over 300 members of staff. During the year we continued to develop our product range and service offering with further investment in our hire fleet, depots and infrastructure. The profit for 2016 was ahead of the 2015 performance, with most products performing ahead of the previous year. Although the weather did little to provide any significant opportunities, the wet start to the year and the warm end to the summer was beneficial to trading levels. 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 currently have four 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 backup support to our newer operations in Belgium and Luxembourg. This subsidiary performed well and produced further growth in 2016, following the significant increase in profit achieved in 2015. 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, the business has dual language branding, literature and website for the Belgian market. Similar to the Dutch business, our Belgian subsidiary also produced a positive result for the year. Andrews Sykes Sarl Our operation in Luxembourg was opened in 2014 and is located within easy reach of the capital, which enables us to provide the full range of our climate rental products throughout the country. During the first two years this newly established operation produced small losses; however, in 2016 we managed to move the business into a profitable performance. This subsidiary works in conjunction with our Brussels operation, with administration and technical support provided from Belgium. 6 25372.04 – 12 May 2017 2:20 PM – PROOF 5 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 progress made in recent years this business provided another record result in 2016 with significant growth when compared to the previous year. From our base in the Lombardy region we are now exploring further growth potential further south in Italy. Andrews Sykes Climat Location SAS Our French subsidiary was established in 2012; we have since successfully developed our operations and now have depots in Lille, Paris and Lyon. During the prior years we have achieved significant year on year revenue growth and in 2016 we were pleased to produce a profitable result for the first time in France. This success will provide a firm foundation for future growth in the region supported by further investment. Climat Location SA Climat Location SA is our Swiss subsidiary which opened in 2013; this operation was established to service the French cantons and works closely with our Lyon depot. This subsidiary remains loss-making; however, this is mainly due to the relatively high level of hire fleet depreciation. From the initial outset we decided to hold high levels of fleet, as transfers in and out of Switzerland are expensive, we also decided to add only new equipment to this location which has increased the fleet asset value even more; however, as the fleet depreciates we expect this operation to move into profit during the next few years. UK Installation Business Andrews Air Conditioning & Refrigeration Limited 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 between the sale of new systems and the service and maintenance of existing systems. Total revenue for the division reduced by 1.7% in 2016 when compared to the previous year, which resulted in a reduction in operating profit of 18%. Hire and Sales Middle East Khansaheb Sykes LLC Khansaheb Sykes is our long-established pump hire and dewatering 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, which allows us to provide our products and services in these local markets. Following a successful year in 2015, this subsidiary produced strong growth once again in 2016 with revenue ahead of the previous year by £1.2 million and operating profit increasing by £0.6 million. Group Summary The overall group result for 2016 shows an increase in operating profit of £2.6 million, or 19.7%, when compared to the previous year. This increase was driven by strong performances from our hire operations in the UK, mainland Europe and the Middle East. The Andrews Sykes business remains strong: the experience of our senior management team, coupled with our development plans, provides optimism for further progress in 2017. 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 7 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 2016 31 December 2015 £124,600 60.4% 36.6% 34.25p £116,000 53.6% 33.4% 25.55p (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. Non-financial KPIs monitored by the Board include asset utilisation and health and safety statistics. 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 shows an improvement this year and indicates a strong underlying operating performance and high staff utilisation levels. Operating cash flow as a percentage of operating assets continues to be strong demonstrating both strong working capital management and high levels of asset utilisation. Management continues to monitor the net interest charge which, excluding inter-company foreign exchange gains, is a net credit of £158,000 this year compared with a net credit of £159,000 last year. Net inter-company foreign exchange gains this year were £1,567,000 (2015: £43,000) which were primarily due to the weakening of Sterling compared with the Euro, the UAE Dirham and the US Dollar. 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 11. 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 34% from 25.55p in 2015 to 34.25p in 2016 which is indicative of the strong underlying business performance as the average number of shares in issue remained unchanged from the previous year. Operating profit The consolidated operating profit was £15.8 million for the year under review, an increase of £2.6 million, or 19.7 %, compared with last year’s operating profit of £13.2 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 2016 31 December 2015 £’000 13,779 2,871 319 16,969 (1,153) 15,816 £’000 11,323 2,299 390 14,012 (804) 13,208 A review of the performance of each business sector is given in the operational performance section of this strategic report. 8 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Income from trade investments The group continues to hold its trade investment in Oasis Sykes, a company based and operating in Saudi Arabia. Dividend income is accounted for on a cash received basis as the group is unable to exercise significant influence over Oasis Sykes, including the timing and payment of dividends. No dividend income was received in either the current or previous financial years although £517,000, less withholding tax of £47,000, was received in 2014. Net interest credit The net interest credit, including inter-company foreign exchange gains, for the current year is £1,725,000 compared with a credit of £159,000 in 2015. This can be analysed as follows: Interest charge on bank loans and overdrafts Finance lease interest charge Interest receivable Foreign exchange gains on inter-company loans Net IAS 19 pension interest credit Total net interest credit 12 months ended 12 months ended 31 December 2016 31 December 2015 £’000 (122) (28) 203 1,567 105 1,725 £’000 (142) (22) 235 43 45 159 The interest charge on bank loans and overdrafts and interest receivable both show small reductions compared with last year’s levels. The weighted average interest rate charged on the bank loans decreased slightly from 1.91% last year to 1.88% in 2016 and the weighted average capital amount of the gross outstanding loans also reduced from £6.3 million last year to £5.3 million in 2016 thereby explaining the reduction in the interest charge. The average rate of interest receivable on short term bank deposits remained virtually unchanged from last year’s level of 1.1%. The reduction in interest receivable was mainly due to a decrease in the average cash on deposit this year to approximately £20 million compared with £21.3 million last year. There was a substantial foreign exchange gain on inter-company loans this year, mainly due to the weakening of Sterling relative to both the Euro and the UAE Dirham. 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. In accordance with IAS 19 (2011) the expected percentage return on assets has been limited to an equivalent rate used to discount the scheme’s liabilities. A net credit arises in both periods as the scheme has a surplus calculated in accordance with IAS 19 (2011) at the end of both the current and previous financial years. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 9 Strategic Report Review of risks, uncertainties and financial performance (continued) Tax on profit on ordinary activities The group’s tax charge on ordinary activities was £3,068,000 (2015: £2,567,000) resulting in an overall effective tax rate of 17.5% (2015: 19.2%) which is below the standard effective tax rate in the UK for the current year of 20% (2015: 20.25%). 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 20% Effects of different tax rates of subsidiaries operating abroad Utilisation of overseas trading losses not recognised in deferred tax Non-tax deductible expenses and other factors Effect of change of rate of tax in the UK and adjustments to prior periods Total tax charge for the financial year £’000 17,541 3,508 (337) (87) 48 (64) 3,068 A detailed reconciliation of the theoretical corporation tax charge based on the accounts profit multiplied by 20% and the actual tax charge is given in note 11 to the consolidated financial statements. A reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017 until 31 March 2020) was substantively enacted in October 2015 and received Royal Assent on 18 November 2015. A further reduction to 17% (effective from 1 April 2020) received Royal Assent on 15 September 2016. These reductions will further reduce the group’s current tax charge. The deferred tax balances at both 31 December 2016 and 31 December 2015 have been calculated based on the rates that were substantively enacted at the balance sheet dates that the directors’ anticipate will apply when the timing differences are expected to reverse. Accordingly, a rate of 19% has been used as at 31 December 2016 and 31 December 2015. Profit for the financial year Profit after tax for the financial year was £14,473,000 compared with £10,800,000 last year. Basic earnings per share (EPS) The basic earnings per share increased by 8.7 pence, or 34%, from 25.55 pence last year to 34.25 pence in 2016. There were no dilutive instruments outstanding in either 2016 or 2015 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 433 pence, the basic EPS gives a price to earnings ratio of 12.64. 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 costs Interest paid Tax paid Net working capital movements Net cash inflow from operating activities 12 months ended 12 months ended 31 December 2016 31 December 2015 £m 15.8 4.9 20.7 (0.8) (0.2) (2.4) (2.2) 15.1 £m 13.2 4.5 17.7 0 (0.2) (2.3) (3.1) 12.1 * 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 25372.04 – 12 May 2017 2:20 PM – PROOF 5 As demonstrated by the table above, the group continues to generate strong operating cash flows. As well as cost control, management of working capital continues to be a priority. The net working capital increase of £2.2 million reflects increases in stocks (£2.3 million), debtors (£1.9 million) and creditors (£2.0 million) compared with last year, all of which reflect the increased level of business. Total outstanding debtor days decreased from 75 days last year to 72 days in 2016. Although still high in UK terms, the debtor day statistic in both years includes our subsidiary in the Middle East whose debtor days were 130 days (2015: 136 days) and this is typical for the region. Average debtor days for current unimpaired debts were a more respectable 36 days compared with 39 days last year. Adequate provisions continue to be made for bad and doubtful debtors. In 2016 debts written off against the bad debt provision were £799,000 compared with £496,000 last year, the majority of which were in the Middle East, and there was a net charge of £568,000 (2015: £367,000) to the income statement from the bad debt provision, which was calculated on a consistent basis each year. Employer pension contributions of £936,000 (2015: £120,000) have been made by the group to the pension scheme in 2016. Pension scheme administration costs charged to the income statement in accordance with IAS 19 (2011) amounted to £122,000 (2015: £132,000). Pension contributions are discussed in more detail on page 15. Net funds Despite shareholder related cash outflows of £10.1 million on ordinary dividends, net funds increased by £3.2 million from £14.5 million at 31 December 2015 to £17.7 million at 31 December 2016. The movement can be reconciled as follows: Opening net funds Significant inflows: Cash inflow from operating activities Sale of plant and equipment Interest received Significant outflows: Capital expenditure Equity dividends paid Significant non-cash movements: Effect of foreign exchange rate changes New hire purchase agreements entered into during the period Closing net funds Comprises: Bank loans net of loan finance costs Finance lease obligations Cash at bank Total net funds £m 14.5 15.1 0.7 0.3 (5.4) (10.1) 2.7 (0.1) 17.7 (5.0) (0.1) 22.8 17.7 The effect of the foreign exchange rates includes the gain on the conversion of the inter-company balances included in the profit and loss account of £1.6 million and a £1.1 million gain on the reconversion of the group’s net external foreign currency denominated assets that arises on consolidation which has been credited to the translation reserve. 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 11 Strategic Report Review of risks, uncertainties and financial performance (continued) 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 the hire fleet, plant, equipment and vehicles amounted to £5.4 million (2015: £5.2 million). In addition, £1.5 million of items held in stock at December 2015 have also been capitalised in the hire fleet this year (2015: £1.5 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. Bank loan facilities The group continues to operate within the bank covenants. In April 2013 a bank loan of £8 million was taken out with the group’s bankers, Royal Bank of Scotland, and, in accordance with the agreed repayment profile, a total of £3 million has been repaid from the original inception of the loan until December 2016 including £1 million during the period under review. The final balloon payment of £5.0 million due for payment on 30 April 2017 has been classified as a current liability as at 31 December 2016. Interest is being charged at LIBOR plus 1.2% plus mandatory costs. The final loan repayment was made on 30 April 2017, financed by a new five year loan of £5 million also with the Royal Bank of Scotland. This will be repaid by four equal annual instalments of £0.5 million per annum commencing on 30 April 2018 followed by a final balloon repayment of £3 million due on 30 April 2022. Interest will be charged at the three month LIBOR rate plus a margin of 1.1%. Principal Risks and Uncertainties 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 2016 financial year and until the date of signing these accounts within its financial covenants as contained in the bank agreement. Both loan capital and interest payments have been made in accordance with the bank agreement. The first two capital repayments of £1 million each were made on the due dates in prior periods and these were followed by a further capital repayment, also of £1 million, on 30 April 2016. Interest is paid biannually at the end of October and April. In addition, as noted above, a new loan has been negotiated with the bank to finance the final balloon repayment of £5 million due under the existing loan on 30 April 2017. 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 2016 amounted to £22.8 million compared with £20.7 million as at 31 December 2015. Profit and cash flow projections for 2017 and 2018, 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 new bank facility agreement and that 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 some uncertain external influences. 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 25372.04 – 12 May 2017 2:20 PM – PROOF 5 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 30 to the consolidated financial statements, are: ●● Interest rate risk ●● Market risk ●● Credit risk ●● Funding and liquidity risk Pension scheme surplus As set out in note 18 to the consolidated financial statements, as at 31 December 2016 the pension scheme assets were £43.4 million which, after deducting the present value of the pension scheme liabilities of £42.2 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 and 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 13 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 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 2013 and have been rolled forward by an independent qualified actuary to 31 December 2016. The net surplus, before deferred tax, at the year end amounted to £1.2 million (2015: £2.4 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 surplus at the beginning of the year of £2.4 million to the surplus as at 31 December 2016 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 2.4 1.0 4.9 (7.1) (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. 14 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Defined benefit scheme funding valuation Following the triennial recalculation of the funding deficit as at 31 December 2013 a revised schedule of contributions and recovery plan was agreed with the pension scheme trustees in June 2014. In accordance with this schedule of contributions, which was effective from 1 January 2014, the group made additional contributions in 2014 to remove the funding deficit calculated as at 31 December 2013 and this has now been eliminated. Throughout 2015 and 2016 the group has continued to make a contribution towards expenses of £10,000 per month. In addition, with effect from January 2016, the group made additional voluntary pension contributions of £32,000 per month and this was increased to £80,000 per month from April 2016. The next formal triennial funding valuation is due as at 31 December 2016. Current indications are that this will show a deficit in the region of £1 million although this has not yet been finalised or agreed with the pension scheme trustees. The group has agreed to continue to make the current level of monthly contributions until either the formal schedule of contributions is approved or the estimated deficit is eliminated, whichever is the earlier. Defined contribution pension scheme and auto enrolment 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. Both the employer and employee contributions vary, generally based upon the individual’s length of service with the company. During 2014 the group adopted the requirements of auto enrolment for all eligible UK employees who were not members of the above pension plan. The staging date was 1 February 2014 and, as permitted by the legislation, commencement was postponed until 1 May 2014 when employee and employer contributions, at the rate of 1% of pensionable salary each, commenced. These contributions are due to increase on 1 October 2017 to 3% for employees and 2% for the employer and then increase again on 1 October 2018 to 5% and 3% respectively. Contributions for both existing members and members that have been auto enrolled are made to the same scheme managed on behalf of the group by Legal & General. The employers’ contribution rates vary from 1% to 15%, the current average being 2.2% (2015: 3.0%). The current period charge in the income statement amounted to £307,000 (2015: £310,000). Employee contribution rates normally vary between 1% 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 15 Strategic Report Review of risks, uncertainties and financial performance (continued) Reconciliation of movement in group shareholders’ funds Group shareholders’ funds have increased from £43.6 million at the beginning of the year to £48.2 million at 31 December 2016. The movement can be reconciled as follows: Opening shareholders’ funds Profit for the financial period IAS 19 actuarial losses net of deferred tax Dividends declared and paid during the year Currency translation differences on foreign currency net investments Closing shareholders’ funds £m 43.6 14.5 (1.8) (10.1) 2.0 48.2 The company paid two dividends during the year. On 24 June 2016 a final dividend for the year ended 31 December 2015 of 11.9 pence per ordinary share was paid and this was followed on 2 November 2016 by the payment of an interim dividend for 2016 also of 11.9 pence per share. Therefore, during 2016, a total of £10.1 million in cash dividends has been returned to ordinary shareholders. An analysis of the net IAS 19 actuarial loss of £2.2 million, before an attributable deferred tax credit of £0.4 million, is given in note 18 to the consolidated financial statements. The currency translation difference on foreign currency net investments arises on consolidation and is primarily due to the weakening of Sterling compared with the Euro and the UAE Dirham. Consequently, the group’s net assets that are denominated in overseas currencies showed an increase in value in Sterling terms and this is split £0.9 million fixed assets and £1.1 million net current assets. Share buybacks During the current and preceding years the company did not purchase any ordinary shares for cancellation. However, in prior periods such purchases were made and these enhanced earnings per share for the benefit of all shareholders. So far the company has not purchased any of its own shares for cancellation during 2017. 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 it has 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. PT Wood Director 10 May 2017 St David’s Court Union Street Wolverhampton WV1 3JE 16 25372.04 – 12 May 2017 2:20 PM – PROOF 5 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. Financial management objectives and policies Financial management objectives and policies are discussed in the Strategic Report on pages 5 to 16. Results and equity dividends The results for the financial year are set out in the consolidated income statement on page 23. The company paid two dividends during the year. On 24 June 2016 a final dividend for the year ended 31 December 2015 of 11.9 pence per share was paid to shareholders on the register on 27 May 2016. This was followed by an interim dividend for 2016, also of 11.9 pence per share, which was paid on 2 November 2016 to shareholders on the register on 7 October 2016. Total dividend payments made during the year amounted to £10,058,376 (2015: £10,058,376). The directors propose a final dividend of 11.9 pence (2015: 11.9 pence) per ordinary share. If approved at the forthcoming Annual General Meeting this dividend, which in total amounts to £5,029,188 (2015: £5,029,188), will be paid on 26 June 2017 to shareholders on the register as at 26 May 2017. Directors The directors in office at 10 May 2017 are shown on page 20. No director was appointed or resigned during the year or subsequently. In accordance with the Articles of Association, Ms MC Leon and Mr 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 2016 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 2016 At 31 December 2015 298,749 1,251,786 410,845 7,945 298,749 1,251,786 410,845 7,945 There were no changes to the above shareholdings between 31 December 2016 and 10 May 2017. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 17 Directors’ Report Substantial shareholdings At 10 May 2017 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 2016 held any options to subscribe for ordinary shares at either 31 December 2016 or 31 December 2015. There have been no changes in the directors’ share options during the period from 31 December 2016 to 10 May 2017. The mid-market price of the company’s ordinary shares on 31 December 2016 was £4.33. The highest and lowest mid-market prices during the year ended 31 December 2016 were £4.40 and £2.53 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, to minimise the effect of our activities on the environment and to provide products and services that fully and consistently meet the requirements of our customers, both now and in the future. In the UK the group has met the mandatory requirements of the Energy Savings Opportunity Scheme (ESOS) and also has certification to the ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007 and CEMARS (in accordance to ISO 14064-1: 2006) standards. In the UAE the group has certification to ISO 9001:2008. 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. 18 25372.04 – 12 May 2017 2:20 PM – PROOF 5 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. Two resolutions, numbered 6 and 8, will be proposed at the Annual General Meeting for the purpose of conferring 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 2016 to 10 May 2017. Accordingly, as at 10 May 2017, 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 21 June 2016. 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 2017. Auditor During the year management carried out a competitive tender process for the group audit in order to ensure that the best value for money was being delivered to shareholders. The existing auditor, KPMG LLP, were not successful in retaining the audit and therefore, on 16 November 2016, they resigned as the group’s auditor. The directors appointed Grant Thornton UK LLP to fill the casual vacancy. Grant Thornton UK LLP 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. 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 Grant Thornton UK LLP in connection with preparing their audit report) of which the company’s auditor, Grant Thornton UK LLP, 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 Grant Thornton UK LLP 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. Signed on behalf of the Board. M Gailer Director 10 May 2017 St David’s Court Union Street Wolverhampton WV1 3JE 25372.04 – 12 May 2017 2:20 PM – PROOF 5 19 Directors and Advisors Chairman JG Murray Company Secretary MJ Calderbank ACA Age 97. 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 Registered Office and Company Number St David’s Court Union Street Wolverhampton Age 54. Managing Director. Industry specialist, having joined West Midlands the group in August 1978. Appointed Director of Operations on WV1 3JE 1 March 2006 and Group Managing Director on 5 December 2006. Company number 00175912 Non-executive directors JJ Murray MBA Registrar Equiniti Limited Aspect House Age 50. Non-executive Vice-Chairman, Chairman of the Spencer Road Remuneration Committee. Executive Vice-Chairman of London Lancing Security plc, Nu Swift Limited and Ansul S.A. M Gailer BSc West Sussex BN99 6DA Age 81. Senior Independent Non-executive director, Chairman of Nominated Advisor the Audit Committee. Non-executive director of London Security GCA Altium Limited plc. MC Leon BS Age 53. Non-executive director of London Security plc. X Mignolet (HEC-Economics) Age 52. Director of London Security plc, Ansul S.A. and Importe S.A. 5th Floor, Belvedere, Booth Street Manchester M2 4AW Stockbroker Arden Partners plc 125 Old Broad Street London EC2N 1AR JP Murray Age 49. Non-executive director of London Security plc. Auditor EDOA Sebag MBA Grant Thornton UK LLP The Colmore Building Age 49. Director of London Security plc and Nu Swift Limited. 20 Colmore Circus Birmingham B4 6AT Bankers Royal Bank of Scotland plc National Westminster Bank plc 20 25372.04 – 12 May 2017 2:20 PM – PROOF 5 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 United Kingdom Accounting Standards (Financial Reporting Standard 102) and the Companies Act 2006. 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 21 Independent Auditor’s Report to the Members of Andrews Sykes Group plc We have audited the financial statements of Andrews Sykes ●● the group financial statements have been properly prepared Group plc for the year ended 31 December 2016 which comprise in accordance with IFRSs as adopted by the European Union; the Consolidated Income Statement, the Consolidated Statement ●● the parent company financial statements have been properly of Comprehensive Total Income, the Consolidated and Company prepared in accordance with United Kingdom Generally Balance Sheet, the Consolidated and Company Statements of Accepted Accounting Practice; and Changes in Equity, the Consolidated Cash flow Statement and the ●● the financial statements have been prepared in accordance related notes. The financial reporting framework that has been with the requirements of the Companies Act 2006. applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of of the parent company financial statements is applicable law the audit: and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. ●● the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; This report is made solely to the company’s members, as a body, ●● the Strategic Report and Directors’ Report has been prepared in accordance with Chapter 3 of Part 16 of the Companies Act in accordance with applicable legal requirements. 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 Matter on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the group and assume responsibility to anyone other than the company and parent company and its environment obtained in the course of the company’s members as a body, for our audit work, for this the audit, we have not identified any material misstatements in report, or for the opinions we have formed. the Strategic Report and Directors’ Report. Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ Matters on which we are required to report by exception We have nothing to report in respect of the following matters Responsibilities set out on page 21, the directors are responsible where the Companies Act 2006 requires us to report to you if, in for the preparation of the financial statements and for being our opinion: satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in ●● adequate accounting records have not been kept by the accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements 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. Opinion on financial statements In our opinion: 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. Rebecca Eagle Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants ●● the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2016 and of the group’s profit for the year Birmingham 10 May 2017 then ended; 22 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Consolidated Income Statement For the 12 months ended 31 December 2016 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 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 and final dividends paid per equity share (pence) Proposed final dividend per equity share (pence) 12 months ended 12 months ended 31 December 31 December 2016 £’000 65,389 (26,677) 38,712 (11,512) (11,384) 15,816 20,664 (5,310) 462 15,816 1,875 (150) 17,541 (3,068) 14,473 2015 £’000 60,058 (25,284) 34,774 (10,828) (10,738) 13,208 17,701 (4,959) 466 13,208 323 (164) 13,367 (2,567) 10,800 34.25p 34.25p 23.80p 11.90p 25.55p 25.55p 23.80p 11.90p Note 4 6 7 8 11 12 12 33 33 * Earnings Before Interest, Taxation, Depreciation, profit on the sale of property, plant and equipment, Amortisation and non-recurring items. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 23 Consolidated Statement of Comprehensive Total Income For the 12 months ended 31 December 2016 Profit for the financial period Other comprehensive income/(charges) Items that may be reclassified to profit and loss: Currency translation differences on foreign currency net investments Items that wlll never be reclassified to profit and loss: Remeasurement of defined benefit assets and liabilities Related deferred tax Other comprehensive income for the period net of tax Total comprehensive income for the period 12 months ended 12 months ended 31 December 31 December 2016 £’000 2015 £’000 14,473 10,800 1,924 (2,201) 418 141 14,614 (175) 1,157 (207) 775 11,575 Note 18 11 24 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Consolidated Balance Sheet As at 31 December 2016 31 December 2016 31 December 2015 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 Net current assets Total assets less current liabilities Non-current liabilities Bank loans Obligations under finance leases 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 24 25 26 27 27 27 27 Surplus attributable to equity holders of the parent Minority interest Total equity 4,994 18,425 — 22,819 46,238 (13,055) (1,825) (4,995) (102) (19,977) — (49) 20,062 49 164 559 1,161 21,995 26,261 48,256 (49) 48,207 423 13 43,619 3,897 245 48,197 10 48,207 4,199 16,584 17 20,715 41,515 (11,090) (1,306) (980) (101) (13,477) (4,995) (81) 17,750 50 164 282 2,443 20,689 28,038 48,727 (5,076) 43,651 423 13 40,987 1,973 245 43,641 10 43,651 These consolidated financial statements of Andrews Sykes Group plc, company number 00175912, were approved and authorised for issue by the Board of directors on 10 May 2017 and were signed on its behalf by: JJ Murray Vice-Chairman 25372.04 – 12 May 2017 2:20 PM – PROOF 5 25 Consolidated Cash Flow Statement For the 12 months ended 31 December 2016 Cash flows from operating activities Cash generated from operations Interest paid Net UK corporation tax paid Overseas tax paid Net cash flow from operating activities Investing activities Sale of property, plant and equipment Purchase of property, plant and equipment Interest received Net cash flow from investing activities Financing activities Loan repayments Finance lease capital repayments Equity dividends paid Net cash flow from financing activities Net 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 the end of the period Reconciliation of net cash flow to movement in net funds in the period Net decrease in cash and cash equivalents Cash outflow from the decrease in debt Non-cash movements in respect of costs of raising loan finance Non-cash movements re new finance lease and hire purchase agreements 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 2016 £’000 17,693 (136) (1,846) (578) 15,133 673 (5,392) 241 (4,478) (1,000) (116) (10,058) (11,174) (519) 20,715 2,623 22,819 (519) 1,115 (20) (84) 492 14,558 2,623 17,673 2015 £’000 14,623 (155) (1,881) (463) 12,124 711 (5,234) 197 (4,326) (1,000) (94) (10,058) (11,152) (3,354) 24,077 (8) 20,715 (3,354) 1,094 (20) — (2,280) 16,846 (8) 14,558 Note 28 21 21 29 26 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Consolidated Statement of Changes in Equity For the 12 months ended 31 December 2016 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 2014 423 13 39,295 2,148 157 Profit for the financial period — — 10,800 — — 79 — 9 42,124 10 42,134 — 10,800 — 10,800 Other comprehensive income and (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 income and (charges) Transactions with owners recorded directly in equity: Dividends paid Total transactions with owners At 31 December 2015 33 — — — (175) — — — (175) — (175) — — — — — — — — 1,157 (207) — — 950 (175) — (10,058) — (10,058) — — — — — — — 423 13 40,987 1,973 157 — — — — — 79 — — — — 1,157 (207) 775 — — — 1,157 (207) 775 — (10,058) — (10,058) — (10,058) 9 43,641 — (10,058) 10 43,651 — 14,473 — 14,473 Profit for the financial period – – 14,473 — — Other comprehensive income and (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 income and (charges) Transactions with owners recorded directly in equity: Dividends paid Total transactions with owners At 31 December 2016 33 — — — 1,924 — — — 1,924 — 1,924 — — — — — — — (2,201) 418 — — — (1,783) 1,924 — (10,058) — (10,058) — — — — — — — 423 13 43,619 3,897 157 — — — — — 79 — (2,201) — — 418 141 — — — (2,201) 418 141 — (10,058) — (10,058) — (10,058) 9 48,197 — (10,058) 10 48,207 25372.04 – 12 May 2017 2:20 PM – PROOF 5 27 Group Accounting Policies For the 12 months ended 31 December 2016 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 5 to 19. 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 2016 and the comparative period is for the 12 months ended 31 December 2015. 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 tenth 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. The parent company’s financial statements, which are set out on pages 62 to 69, have been prepared in accordance with FRS 102 and the Companies Act 2006. The UK subsidiary company financial statements will be prepared in accordance with FRS 101 or FRS 102 depending upon the individual circumstances applicable to each subsidiary. In accordance with note 11 of the 2016 interim financial statements advantage will be taken, where applicable, of the reduced disclosure framework, as set out in paragraph 1.12 of FRS 102, as no objections were received from shareholders to this request. International Financial Reporting Standards (IFRS) adopted for the first time in 2016 There were no new standards or amendments to standards adopted for the first time this year that had a material impact on the results of the group. The prior year comparatives have not been restated for any changes in accounting policies that were required due to the adoption of new standards this year. 28 25372.04 – 12 May 2017 2:20 PM – PROOF 5 1 General information (continued) Future adoption of International Financial Reporting Standards At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective and have not been applied early by the group. Management anticipates that the following pronouncements relevant to the group’s operations will be adopted in the group’s accounting policies for the first period beginning after the effective date of the pronouncement, once adopted by the EU: ●● IFRS 9 Financial Instruments (effective 1 January 2018) ●● IFRS 14 Regulatory Deferral Accounts (not yet adopted by the EU) ●● IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) ●● IFRS 16 Leases (not yet adopted by the EU, effective 1 January 2019) ●● Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) (not yet adopted by the EU) ●● Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) (not yet adopted by the EU) ●● Disclosure Initiative: Amendments to IAS 7 (not yet adopted by the EU) ●● Annual inprovements to IFRS 2014-2016 Cycle (not yet adopted by the EU) ●● IFRIC Interpretation 22 Foreign currency transactions and advance considerations (not yet adopted by the EU) Other than in respect of IFRS 15 and IFRS 16, the directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the group. With regards to IFRS 15 and IFRS 16, the group is not yet in a position to state whether the impact will be material to the group’s reported results or financial position. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the group’s financial statements. 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 2016. Control is achieved when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. 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. 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. 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 29 Group Accounting Policies For the 12 months ended 31 December 2016 2 Significant accounting policies (continued) 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. Dividend income is recognised in the income statement on a receipts basis. 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. Profit on the sale of plant and equipment is credited within operating profit. 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. 30 25372.04 – 12 May 2017 2:20 PM – PROOF 5 2 Significant accounting policies (continued) 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. 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 is assessed for impairment when events or changes in circumstances indicate that the carrying amount may not be recovered. If there are such 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. Current income tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to current or prior periods that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate based on the taxable profit for the year. Deferred tax is calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at their 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 31 Group Accounting Policies For the 12 months ended 31 December 2016 2 Significant accounting policies (continued) 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 derecognised 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 generally classified as “loans and receivables” except for trade investments 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. There are currently no financial liabilities held at “fair value through profit or loss”. 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 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. The group does not hold any derivative financial instruments or embedded derivative financial instruments at either period end. 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 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. 32 25372.04 – 12 May 2017 2:20 PM – PROOF 5 2 Significant accounting policies (continued) 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. 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. Interest income on pension assets less interest on pension scheme liabilities is shown within finance income. 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 remeasurement gains and losses are recognised immediately in other comprehensive income. 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 33 Group Accounting Policies For the 12 months ended 31 December 2016 2 Significant accounting policies (continued) 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. Compensation receipts revenue is recognised on an accruals basis and is credited within revenue. 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 recognised on an accruals basis calculated by reference to the principal on deposit and the effective interest rate applicable. 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. Intercompany foreign exchange gains and losses owing from financing activities are included within finance income and costs respectively. All other exchange differences are included in operating profit. 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 in the consolidated income statement. 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. 34 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 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 50. When assessing the appropriateness of the recognition of a surplus, the directors have considered the guidance in IAS 19 and 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 2016 £’000 54,852 6,386 4,151 65,389 2015 £’000 49,910 5,993 4,155 60,058 25372.04 – 12 May 2017 2:20 PM – PROOF 5 35 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 5. Business and geographical segmental analysis Explanation The group operates in the United Kingdom, Europe (The Netherlands, Belgium, Italy, France, Switzerland and Luxembourg) 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. 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 and 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. 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 Andrews Sykes Luxembourg SARL Location United Kingdom The Netherlands Belgium Italy France Switzerland United Arab Emirates Luxembourg Installation Installation Andrews Air Conditioning and Refrigeration Limited United Kingdom The directors consider that the long term economic characteristics of the hire and sales operations based in the United Kingdom, The Netherlands, Belgium, Italy, France, Luxembourg 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 Andrews Sykes Luxembourg SARL United Kingdom United Kingdom The Netherlands Belgium Italy France Switzerland Luxembourg Hire and sales Middle East Khansaheb Sykes LLC United Arab Emirates Installation Andrews Air Conditioning & Refrigeration Limited United Kingdom 36 25372.04 – 12 May 2017 2:20 PM – PROOF 5 5 Business and geographical segmental analysis (continued) 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 period. Business segments Income statement analysis 12 months ended 31 December 2016 Revenue External sales Inter-segment sales Total revenue Segment result Unallocated overheads and expenses Operating profit Finance income Finance costs Profit before taxation Taxation Hire & sales Hire & sales Consolidated Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 49,708 11,530 51 49,759 13,779 — 11,530 2,871 4,151 7 4,158 319 65,389 58 65,447 16,969 — (58) (58) (9) results £’000 65,389 — 65,389 16,960 (1,144) 15,816 1,875 (150) 17,541 (3,068) 14,473 Profit for the period from continuing and total operations Balance sheet information As at 31 December 2016 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 Hire & sales Hire & sales Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 Consolidated results £’000 55,326 9,976 4,055 69,357 (3,175) 66,182 (13,337) (2,210) (517) (16,064) 3,175 25372.04 – 12 May 2017 2:20 PM – PROOF 5 164 559 1,161 167 68,233 (12,889) (1,825) (4,995) (151) (166) (20,026) 37 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 5 Business and geographical segmental analysis (continued) Other information 12 months ended 31 December 2016 Hire & sales Hire & sales Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 Capital additions Depreciation 5,863 4,274 1,068 1,034 2 1 6,933 5,309 — — Consolidated results £’000 6,933 5,309 Income statement analysis 12 months ended 31 December 2015 Revenue External sales Inter-segment sales Total revenue Segment result Unallocated overheads and expenses Operating profit Finance income Finance costs Profit before taxation Taxation Hire & sales Europe Hire & sales Middle East Installation Subtotal Eliminations Consolidated results £’000 £’000 £’000 £’000 £’000 £’000 45,600 85 45,685 11,323 10,303 — 10,303 2,299 4,155 76 4,231 390 60,058 161 60,219 14,012 — (161) (161) (24) 60,058 — 60,058 13,988 (780) 13,208 323 (164) 13,367 (2,567) 10,800 Profit for the period from continuing and total operations Balance sheet information As at 31 December 2015 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 Hire & sales Hire & sales Consolidated Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 47,989 10,203 3,729 61,921 (2,781) (10,754) (2,165) (511) (13,430) 2,781 results £’000 59,140 164 282 2,443 17 158 62,204 (10,649) (1,306) (5,975) (182) (441) (18,553) 38 25372.04 – 12 May 2017 2:20 PM – PROOF 5 5 Business and geographical segmental analysis (continued) Other information 12 months ended 31 December 2015 Hire & sales Hire & sales Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 5,478 3,901 1,197 1,057 1 1 6,676 4,959 — — Consolidated results £’000 6,676 4,959 Capital additions Depreciation 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 2016 £’000 41,754 12,105 11,530 — 65,389 2015 £’000 39,830 9,925 10,303 — 60,058 2016 £’000 41,451 12,401 11,534 3 65,389 2015 £’000 39,216 10,218 10,555 69 60,058 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 2016 £’000 43,053 13,500 9,629 66,182 2015 £’000 34,053 14,884 10,203 59,140 2016 £’000 12,624 5,154 2,333 20,111 2015 £’000 11,633 4,142 2,025 17,800 United Kingdom Rest of Europe Middle East and Africa 6 Finance income Net pension scheme interest income on pension scheme surplus (note 18) Interest receivable on bank deposit accounts Net inter-company foreign exchange gains 25372.04 – 12 May 2017 2:20 PM – PROOF 5 12 months ended 12 months ended 31 December 31 December 2016 £’000 105 203 1,567 1,875 2015 £’000 45 235 43 323 39 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 7 Finance costs Interest charge on bank loans and overdrafts Finance lease interest charge 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 6) 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 (note 9) Staff costs (note 10) 12 months ended 12 months ended 31 December 31 December 2016 £’000 122 28 150 2015 £’000 142 22 164 12 months ended 12 months ended 31 December 31 December 2016 £’000 (10) 47 5,310 (1,567) (462) (1,856) 1,595 1,841 165 18,463 2015 £’000 3 55 4,959 (43) (466) (1,610) 1,374 1,697 204 17,264 40 25372.04 – 12 May 2017 2:20 PM – PROOF 5 9 Auditor’s remuneration A more detailed analysis of the 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 services pursuant to legislation Tax compliance and advisory services Total non-audit fees 12 months ended 12 months ended 31 December 31 December 2016 £’000 2015 £’000 19 114 133 — 29 29 162 23 121 144 21 39 60 204 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 period 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 12 months ended 12 months ended 31 December 31 December 2016 Number 2015 Number 176 222 127 525 178 215 126 519 12 months ended 12 months ended 31 December 31 December 2016 £’000 16,055 103 1,820 485 18,463 2015 £’000 15,128 25 1,638 473 17,264 25372.04 – 12 May 2017 2:20 PM – PROOF 5 41 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 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 2016 £’000 1,930 166 2,096 2015 £’000 2,346 202 2,548 Directors’ emoluments Directors’ emoluments for the current and prior financial periods were as follows: 12 months ended 31 December 2016 12 months ended 31 December 2015 Pension scheme Pension scheme Emoluments contributions £’000 £’000 Total £’000 Emoluments contributions £’000 £’000 Total £’000 30 20 32 20 374 476 — — — — 37 37 30 20 32 20 411 513 29 20 41 20 346 456 — — — — 37 37 29 20 41 20 383 493 Director M Gailer MC Leon JJ Murray JP Murray PT Wood (highest paid director) 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 12 months ended 31 December 31 December 2016 Number 2015 Number 1 1 1 1 The highest paid director had an accrued annual pension under the defined benefit pension scheme of £20,768 (2015: £20,704); the transfer value of the accumulated fund as at 31 December 2016 was £478,606 (2015: £397,466). No contributions were paid during the current or preceding financial period. 42 25372.04 – 12 May 2017 2:20 PM – PROOF 5 11 Taxation Current tax UK corporation tax at 20% (2015: 20.25%) based on the taxable profit for the period Adjustments to corporation tax in respect of prior periods Overseas tax based on the taxable profit for the period Adjustments to overseas tax in respect of prior periods 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 12 months ended 31 December 31 December 2016 £’000 2,253 (138) 2,115 838 (26) 2,927 38 103 141 3,068 2015 £’000 2,043 (177) 1,866 536 28 2,430 12 125 137 2,567 The tax charge for the financial period can be reconciled to the profit before tax per the income statement multiplied by the standard effective corporation tax rate in the UK of 20% (2015: 20.25%) as follows: Profit before taxation from continuing and total operations Tax at the UK effective corporation tax rate of 20% (2015: 20.25%) Effects of: Expenses not deductible for tax purposes Effects of different tax rates of subsidiaries operating abroad Movement in overseas trading losses Effect of change in tax rate to 19% Adjustments to tax charge in respect of previous periods Total tax charge for the financial period 12 months ended 12 months ended 31 December 31 December 2016 £’000 17,541 3,508 48 (337) (87) (3) (61) 2015 £’000 13,367 2,707 86 (331) 88 41 (24) 3,068 2,567 25372.04 – 12 May 2017 2:20 PM – PROOF 5 43 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 11 Taxation (continued) Deferred tax recognised in other comprehensive income Deferred tax (credit)/charge on remeasurement of defined benefit liabilities and assets 12 months ended 12 months ended 31 December 31 December 2016 £’000 (418) 2015 £’000 207 Matters affecting future tax charges A reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017 until 31 March 2020) was substantively enacted in October 2015 and received Royal Assent on 18 November 2015. A further reduction to 17% (effective from 1 April 2020) received Royal Assent on 15 September 2016. These reductions will further reduce the group’s current tax charge. 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 2016 Total earnings £’000 Number of shares 14,473 42,262,082 34.25p 12 months ended 31 December 2015 Total earnings £’000 10,800 25.55p Number of shares 42,262,082 There were no dilutive instruments outstanding during either the current or preceding financial period. Consequently, the diluted earnings per share is the same as the basic earnings per share for both periods. 44 25372.04 – 12 May 2017 2:20 PM – PROOF 5 13 Property, plant and equipment Property £’000 Equipment for hire £’000 Motor vehicles £’000 Plant and machinery £’000 Cost At 31 December 2014 Exchange differences Additions Disposals At 31 December 2015 Exchange differences Additions Disposals At 31 December 2016 Accumulated depreciation At 31 December 2014 Exchange differences Charge for the period Disposals At 31 December 2015 Exchange differences Charge for the period Disposals At 31 December 2016 Carrying value At 31 December 2016 At 31 December 2015 6,635 (11) 6 (83) 6,547 29 — (14) 6,562 2,281 (10) 140 (83) 2,328 30 132 (14) 44,674 (173) 5,599 (3,043) 47,057 2,548 6,233 (3,057) 52,781 33,890 (78) 4,213 (2,858) 35,167 1,707 4,544 (2,878) 2,476 38,540 4,086 4,219 14,241 11,890 1,515 (21) 311 (395) 1,410 129 281 (179) 1,641 1,039 (9) 181 (366) 845 88 220 (146) 1,007 634 565 5,035 (3) 760 (409) 5,383 146 419 (948) 5,000 4,261 (1) 425 (378) 4,307 126 414 (948) 3,899 1,101 1,076 Total £’000 57,859 (208) 6,676 (3,930) 60,397 2,852 6,933 (4,198) 65,984 41,471 (98) 4,959 (3,685) 42,647 1,951 5,310 (3,986) 45,922 20,062 17,750 The carrying value of plant and machinery includes £63,000 (2015: £Nil) of assets subject to finance lease and hire purchase agreements. Depreciation amounting to £21,000 was charged on these assets during the year (2015: £Nil). The group did not have any non-cancellable contractual commitments for the acquisition of property, plant and equipment at either 31 December 2016 or 31 December 2015. 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 2016 £’000 3,878 50 158 4,086 2015 £’000 3,908 52 259 4,219 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 45 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 14 Lease prepayments Long leasehold land prepayments: Total Split: Non-current assets Current assets 31 December 31 December 2016 £’000 2015 £’000 51 49 2 51 52 50 2 52 The current element of long leasehold land premiums is included within trade and other receivables in note 20. 15 Subsidiaries A complete list of the 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. 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 period 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 result for the period. 16 Trade investments Cost and carrying amount 31 December 31 December 2016 £’000 2015 £’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 12 months 12 months ended ended 31 December 31 December 2016 £’000 2015 £’000 — — 46 25372.04 – 12 May 2017 2:20 PM – PROOF 5 17 Deferred tax asset The deferred tax assets and liabilities recognised by the group and the movements thereon during the current and prior periods are as follows: Asset/(liability) at 31 December 2014 at 20% Charged to income statement (note 11) Charged to equity (note 11) Effect of pension payments in excess of service and administration expenses Asset/(liability) at 31 December 2015 at 19% Charged to income statement (note 11) Credited to equity (note 11) Effect of pension payments in excess of service and administration expenses Asset/(liability) at 31 December 2016 at 19% Capital allowances in excess of depreciation £’000 Provisions and other short term timing differences £’000 Pension surplus £’000 386 (117) — — 269 (8) — — 261 (251) — (207) (6) (464) — 418 (175) (221) 491 (20) — 6 477 (133) — 175 519 Total £’000 626 (137) (207) — 282 (141) 418 — 559 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 19% (2015: 19%) 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 preceding period end. Deferred tax assets have not been recognised in respect of overseas tax losses because it is uncertain that future tax profits will be available, against which the group can utilise them. The deferred tax asset as at 31 December 2016, excluding the liability on the pension surplus, is £780,000 (2015: £746,000). Of this amount, approximately £480,000 (2015: £430,000) is expected to be recovered after more than 12 months. 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. As at 31 December 2016 the group had a net defined benefit pension scheme surplus, calculated in accordance with IAS 19 using the assumptions as set out below, of £1,161,000 (2015: £2,443,000). 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 2013 a revised schedule of contributions and recovery plan was agreed with the pension scheme trustees in June 2014. In accordance with this schedule of contributions, which was effective from 1 January 2014, the group made additional contributions during 2014 to remove the funding deficit in the group scheme calculated as at 31 December 2013 and this was eliminated as at 31 December 2014. Thoughout 2015 and 2016 the group has continued to made a contribution towards expenses of £10,000 per month. In addition, with effect from January 2016, the group has made an additional voluntary contribution of £32,000 per month and this was increased to £80,000 per month with effect from April 2016. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 47 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 18 Retirement benefit pension schemes (continued) The next formal triennial funding valuation is due as at 31 December 2016. Current indications are that this will show a deficit of £0.7 million although this has not yet been formally agreed with the pension scheme trustees. The group has agreed to continue to make the current level of monthly contributions until either the formal schedule of contributions is approved or the estimated deficit is eliminated, whichever is the earlier. Assumptions The last full actuarial valuation was carried out as at 31 December 2013. 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: 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 Percentage of deferred members taking maximum tax-free lump sum on retirement 31 December 31 December 2016 2015 N/A 3.30% 2.70% 3.30% 2.30% 2.30% 90% N/A 3.00% 3.70% 3.00% 2.00% 2.00% 90% 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 was adopted as at 31 December 2010 and subsequently. Assumptions regarding future mortality experience are set based on advice in accordance with published statistics. The current mortality table used is 110% S2NA CMI_2015 (2015: 110% S2NA CMI_2015) with a 1% per annum long term improvement rate for both males and females (2015: 1% for both males and females). The assumed average life expectancy in years of a pensioner retiring at the age of 65 given by the above tables is as follows: Male, current age 45 Female, current age 45 31 December 31 December 2016 2015 22.6 years 24.9 years 22.6 years 24.9 years 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. 48 25372.04 – 12 May 2017 2:20 PM – PROOF 5 18 Retirement benefit pension schemes (continued) 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 Pension scheme surplus recognised on the balance sheet The movement in the fair value of the scheme’s assets during the period is as follows: Fair value of plan assets at the start of the period Interest income on pension scheme assets Actual return less interest income on pension scheme assets Administration expenses charged in the income statement Employer contributions Benefits paid Fair value of plan assets at the end of the period 31 December 31 December 2016 £’000 15,012 18,825 9,267 264 43,368 (42,207) 1,161 2015 £’000 12,609 17,509 7,310 306 37,734 (35,291) 2,443 31 December 31 December 2016 £’000 37,734 1,383 4,927 (122) 936 (1,490) 43,368 2015 £’000 38,864 1,298 (895) (132) 120 (1,521) 37,734 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 either period end. The movement in the present value of the defined benefit obligation during the period was as follows: Present value of defined benefit funded obligation at the beginning of the period Interest on defined benefit obligation Actuarial gain/(loss) recognised in the CSOCTI* arising from: Demographic assumptions Financial assumptions Experience adjustments Benefits paid 31 December 31 December 2016 £’000 (35,291) (1,278) — (7,128) — 1,490 2015 £’000 (37,611) (1,253) 334 1,347 371 1,521 Present value of defined benefit funded obligation at the end of the period (42,207) (35,291) * Consolidated Statement of Comprehensive Total Income. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 49 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 18 Retirement benefit pension schemes (continued) Key assumptions — sensitivity analysis The key assumptions used to calculate the scheme’s liabilities 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 £1.8 million (2015: £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 approximately £0.6 million (2015: £0.5 million) and £0.5 million (2015: £0.4 million) respectively. A 0.1% decrease in these assumptions would increase/reduce the present value of the defined benefit obligation by a similar amount. Amounts recognised in the income statement The amounts credited/(charged) in the income statement were: Interest income on pension scheme assets Interest expense on pension scheme liabilities Net pension scheme interest income on pension scheme surplus (note 6) Administration expenses Net pension charge 31 December 31 December 2016 £’000 2015 £’000 1,383 (1,278) 105 (122) (17) 1,298 (1,253) 45 (132) (87) Actuarial gains and losses recognised in the consolidated statement of comprehensive total income (CSOCTI*) The amounts credited/(charged) in the CSOCTI* were: Actual return less interest income on pension scheme assets Experience gains and losses arising on plan obligation Changes in demographic and financial assumptions underlying the present value of plan obligations Net actuarial (loss)/gain recognised in the CSOCTI* Cumulative actuarial loss recognised in the CSOCTI* * Consolidated Statement of Comprehensive Total Income. 31 December 31 December 2016 £’000 2015 £’000 4,927 — (7,128) (2,201) (7,082) (895) 371 1,681 1,157 (4,881) 50 25372.04 – 12 May 2017 2:20 PM – PROOF 5 18 Retirement benefit pension schemes (continued) The actual return on plan assets can therefore be summarised as follows: Interest income on pension scheme assets Actuarial gain recognised in the CSOCTI* representing the difference between interest income and actual return on assets Actual return on plan assets * Consolidated Statement of Comprehensive Total Income. 31 December 31 December 2016 £’000 2015 £’000 1,383 1,298 4,927 6,310 (895) 403 The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current investment policy as restricted 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 experienced in the respective markets. Defined contribution pension scheme and auto enrolment 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 with the company. During 2014 the group adopted the requirements of auto enrolment for all eligible UK employees who were not members of the above pension plan. The staging date was 1 February 2014 and, as permitted by the legislation, commencement was postponed until 1 May 2014 when employee and employer contributions, at the rate of 1% of pensionable salary each, commenced. Contributions for both existing members and members that have been auto enrolled are made to the same scheme managed on behalf of the group by Legal & General. The employer’s contribution rates vary from 1% to 15%, the current average being 2.2% (2015: 3.0%). The current period charge in the income statement amounted to £307,000 (2015: £310,000). Overseas defined contribution pension scheme arrangements Overseas companies make their own pension arrangements, the charge for the period being £178,000 (2015: £163,000). No additional disclosure is given on the basis of materiality. 19 Stocks Raw material and consumables Work in progress Finished goods 31 December 31 December 2016 £’000 77 80 4,837 4,994 2015 £’000 94 50 4,055 4,199 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 period was £13,478,000 (2015: £13,465,000) and the net charge in the income statement for net realisable value provisions was £130,000 (2015: £10,000). 25372.04 – 12 May 2017 2:20 PM – PROOF 5 51 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 20 Trade and other receivables Trade debtors: 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 2016 £’000 2015 £’000 8,204 7,728 10,676 (2,316) 8,360 16,564 27 2 1,543 289 18,425 9,265 (2,230) 7,035 14,763 27 2 1,631 161 16,584 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 2016 is 36 days (2015: 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 31 December 31 December 2016 £’000 6,499 1,019 692 150 8,360 2015 £’000 5,211 712 528 584 7,035 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 Balance at the end of the period 31 December 31 December 2016 £’000 2,230 316 (799) 568 2,315 2015 £’000 2,285 74 (496) 367 2,230 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 30. 52 25372.04 – 12 May 2017 2:20 PM – PROOF 5 21 Cash and cash equivalents Cash at bank Deposit accounts 31 December 31 December 2016 £’000 5,170 17,649 22,819 2015 £’000 4,106 16,609 20,715 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 1.1% (2015: 1.1%). 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 30. 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 2016 £’000 4,675 48 1,599 6,328 405 13,055 2015 £’000 3,437 47 1,406 5,675 525 11,090 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 45 days (2015: 40 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 30. The carrying value of trade and other payables approximates to their fair value. 23 Current tax liabilities UK corporation tax Overseas tax (denominated in Euros) 31 December 31 December 2016 £’000 1,575 250 1,825 2015 £’000 1,306 — 1,306 25372.04 – 12 May 2017 2:20 PM – PROOF 5 53 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 24 Bank loans The borrowings are repayable as follows: On demand or within one year In the second year 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 2016 £’000 4,995 — 4,995 4,995 — 4,995 5,000 (5) 4,995 2015 £’000 980 4,995 5,975 980 4,995 5,975 6,000 (25) 5,975 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 the group took out a bank loan of £8,000,000. Costs of raising loan finance amounting to £80,000 were incurred and these are being amortised over the period of the loan. The loan is for a fixed four year term with three annual repayments of £1 million, all of which have now been paid, followed by a final balloon payment of £5 million on 30 April 2017. Interest is charged on the group’s borrowings based on LIBOR plus a margin of 1.20% plus mandatory costs. The weighted average interest rate paid during the period was 1.88% (2015: 1.91%). 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 period end. 25 Obligations under finance leases Amounts payable under finance leases: Within one year In the second to fifth years inclusive Less future finance charges Present value of lease obligations Disclosed: Within current liabilities (payable within one year) Within non-current liabilities Total Minimum lease payments minimum lease payments 31 December 31 December 31 December 31 December Present value of 2016 £’000 107 51 158 (7) 151 2015 £’000 109 95 204 (22) 182 2016 £’000 2015 £’000 102 49 151 102 49 151 101 81 182 101 81 182 It is the group’s policy to lease certain properties and the present value of the minimum lease payments includes £88,000 (2015: £182,000) in respect of properties. The weighted average lease term of these properties is one year (2015: two years). The present value of the minimum leased payments has been calculated based on the group’s historic weighted average cost of capital at the date of initial capitalisation as the interest rates implicit in the lease are not known. The group’s obligations under these leases are secured over the short leasehold assets being leased, the carrying values of which are disclosed in note 13. 54 25372.04 – 12 May 2017 2:20 PM – PROOF 5 25 Obligations under finance leases (continued) The remaining present value of minimum lease payments of £63,000 (2015: £Nil) relates to plant and machinery and the group’s obligations under these leases are secured on the equipment being leased, the carrying values of which are disclosed in note 13. All lease obligations are denominated in Sterling and the fair value of the group’s lease obligations is approximately equal to their carrying value. 26 Called-up share capital Issued and fully paid: 42,262,082 ordinary shares of one pence each (2015: 42,262,082 ordinary shares of one pence each) 31 December 31 December 2016 £’000 2015 £’000 423 423 The company did not purchase any one pence ordinary shares for cancellation in either the current or preceding financial period. The company has one class of ordinary shares which carries no right to fixed income. No share options were exercised, granted, forfeited or expired during either the current or preceding financial period. There were no outstanding share options at the end of either the current or preceding financial period. 27 Share capital and reserves Share capital £’000 Share Retained Translation premium earnings £’000 £’000 reserve £’000 Other reserves £’000 At 31 December 2014 Total comprehensive income for the period Dividends paid At 31 December 2015 Total comprehensive income for the period Dividends paid At 31 December 2016 423 — — 423 — — 423 13 — — 13 — — 13 39,295 11,750 (10,058) 40,987 12,690 (10,058) 43,619 2,148 (175) — 1,973 1,924 — 3,897 245 — — 245 — — 245 Total £’000 42,124 11,575 (10,058) 43,641 14,614 (10,058) 48,197 The translation reserve represents the cumulative translation differences on the foreign currency net investments held at the period end since the date of transition to IFRS. Other reserves comprise: Capital redemption reserve UAE legal reserve Netherlands capital reserve 31 December 31 December 2016 £’000 157 79 9 245 2015 £’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. There were no movements on any of the other reserves during either the current or preceding financial period. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 55 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 28 Cash generated from operations Profit for the period attributable to equity shareholders 14,473 10,800 12 months ended 12 months ended 31 December 31 December 2016 £’000 2015 £’000 Adjustments for: Taxation charge Finance costs Finance income 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 29 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 Gross debt Net funds 3,068 150 (1,875) (462) 5,310 (814) 19,850 (2,251) (1,876) 1,970 — 17,693 2,567 164 (323) (466) 4,959 12 17,713 (1,024) (2,196) 139 (9) 14,623 12 months ended 12 months ended 31 December 31 December 2016 £’000 22,819 22,819 (4,995) (151) (5,146) 17,673 2015 £’000 20,715 20,715 (5,975) (182) (6,157) 14,558 56 25372.04 – 12 May 2017 2:20 PM – PROOF 5 30 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 29, and equity comprising issued share capital, reserves and retained earnings as disclosed in note 27. The net funds to equity percentage is: Net funds per note 29 Equity attributable to equity holders of the parent company as per note 27 Net funds to equity percentage Significant accounting policies 31 December 31 December 2016 £’000 17,673 48,197 36.7% 2015 £’000 14,558 43,641 33.4% 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 Amortised cost: Trade creditors and amounts due to related parties Accruals and other creditors Loans Finance lease obligations 31 December 31 December 2016 £’000 2015 £’000 164 164 16,591 289 22,819 39,699 39,863 4,723 10,157 4,995 151 20,026 20,026 14,790 161 20,715 35,666 35,830 3,484 8,912 5,975 182 18,553 18,553 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 57 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 30 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. However, 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 or any other derivative financial instrument as at 31 December 2016 (2015: £Nil) although this position is constantly under review. A 1% increase in the average bank loan agreement rate for the period would increase the net bank loan interest charge by £53,000 (2015: £63,000); 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 2016 £’000 3,394 4,786 2,605 1,437 2,783 2,210 2015 £’000 2,434 4,477 6,680 2,616 1,751 2,165 A 10% increase in the Euro:Sterling exchange rate would reduce the consolidated operating profit by £350,000 (2015: £210,000). 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 £260,000 (2015: £230,000). 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. 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. 58 25372.04 – 12 May 2017 2:20 PM – PROOF 5 30 Financial instruments (continued) 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 2016 amounted to £22,819,000 (2015: £20,715,000), 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 net funds available to the group of £17,673,000 (2015: £14,558,000), the directors believe that additional unutilised borrowing facilities are not required. 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 represent 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 2016 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 1.88% 8.00% Total 31 December 2015 10,091 — 34 10,125 4,789 5,033 73 9,895 — — 51 51 — — — — 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 1.91% 8.00% Total 8,422 — 27 8,449 3,974 1,060 82 5,116 — 5,083 95 5,178 — — — — Future finance charges £’000 — (33) (7) (40) Future finance charges £’000 — (143) (22) (165) Total £’000 14,880 5,000 151 20,031 Total £’000 12,396 6,000 182 18,578 25372.04 – 12 May 2017 2:20 PM – PROOF 5 59 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2016 31 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 2016 £’000 1,140 2,810 2,872 6,822 2015 £’000 1,010 2,143 1,701 4,854 2016 £’000 1,494 2,486 7 3,987 2015 £’000 1,543 2,675 105 4,323 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. 32 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 period, the group entered into the following transactions in the normal course of business with associated companies on an arm’s length basis: Sale of goods and services to Oasis Sykes Purchase of goods and services from associates within the London Security plc group Purchase of goods and services from Sweepax Pumps Limited Amounts owed to the group by Sweepax Pumps Limited Amount owed by the group to Sweepax Pumps Limited 31 December 31 December 2016 £’000 — 223 1 27 48 2015 £’000 37 240 1 27 47 The group did not hold any security and there were no impairment charges in respect of any of the above transactions. London Security plc is associated through common control. Fifty percent of the share capital of Sweepax Pumps Limited is owned by Andrews Sykes Group plc; Sweepax Pumps Limited is not consolidated on the grounds of materiality. Transactions with key management personnel During the year the group sold a motor vehicle to a member of the key management team at market value. The sale proceeds were £17,250 which resulted in a profit on disposal of £14,350. Details of remuneration paid to directors and key management personnel are disclosed in note 10 above. 60 25372.04 – 12 May 2017 2:20 PM – PROOF 5 33 Dividend payments The directors declared and paid the following dividends during the period ended 31 December 2016: 12 months ended 31 December 2016 12 months ended 31 December 2015 Total dividend Pence paid Pence per share £’000 per share Total dividend paid £’000 Final dividend for the 12 months ended 31 December 2015 paid to members on the register at 27 May 2016 on 24 June 2016 11.90p 5,029 Interim dividend declared on 28 September 2016 and paid to shareholders on the register as at 7 October 2016 on 2 November 2016 11.90p 5,029 — — — — Final dividend for the 12 months ended 31 December 2014 paid to members on the register at 29 May 2015 on 19 June 2015 Interim dividend declared on 29 September 2015 and paid to shareholders on the register as at 9 October 2015 on 4 November 2015 — — — — 23.80p 10,058 11.90p 5,029 11.90p 23.80p 5,029 10,058 The above dividends were charged against reserves as shown in the consolidated statement of changes in equity and in note 27 to these financial statements. The directors recommend the payment of a final dividend of 11.90 pence (2015: 11.90 pence) per ordinary share. If approved at the forthcoming Annual General Meeting this dividend, which in total amounts to £5,029,000 (2015: £5,029,000), will be paid on 26 June 2017 to shareholders on the register at 26 May 2017. 34 Post Balance Sheet Event The final loan repayment due under the existing loans as at 31 December 2016 was made on 30 April 2017 in accordance with the bank agreement. This was financed by a new five year loan of £5 million with the Royal Bank of Scotland. This will be repaid by four equal annual instalments of £0.5 million per annum commencing on 30 April 2018 followed by a final balloon repayment of £3 million due on 30 April 2022. Interest will be charged at the three month LIBOR rate plus a margin of 1.1%. 35 Ultimate parent company As at 10 May 2017 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 61 Company Balance Sheet As at 31 December 2016 31 December 2016 31 December 2015 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 Net assets Capital and reserves Called-up share capital Share premium Profit and loss account Other reserves Shareholders’ funds 3 4 5 6 6 8 10 10 10 11 32,089 32,076 22,797 15 22,812 (13,202) 23,300 8 23,308 (8,191) 9,610 41,699 — 41,699 423 13 38,895 2,368 41,699 15,117 47,193 (4,995) 42,198 423 13 39,394 2,368 42,198 The profit for the financial period dealt with in the profit and loss account of the company was £9,559,000 (2015: £9,540,000). These financial statements of Andrews Sykes Group plc, company number 00175912, were approved and authorised for issue by the Board of directors on 10 May 2017 and were signed on its behalf by: JJ Murray Vice-Chairman 62 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Company Statement of Changes in Equity For the 12 months ended 31 December 2016 Share capital £’000 Share Profit and premium loss account £’000 £’000 At 31 December 2014 Profit for the financial period Transactions with owners recorded directly in equity: Dividends paid Total transactions with owners At 31 December 2015 Profit for the financial period Transactions with owners recorded directly in equity: Dividends paid Total transactions with owners At 31 December 2016 423 — — — 423 — — — 423 13 — — — 13 — — — 13 39,912 9,540 (10,058) (10,058) 39,394 9,559 (10,058) (10,058) 38,895 Other reserves £’000 2,368 — — — 2,368 — — — 2,368 Total £’000 42,716 9,540 (10,058) (10,058) 42,198 9,559 (10,058) (10,058) 41,699 25372.04 – 12 May 2017 2:20 PM – PROOF 5 63 Notes to the Company Financial Statements For the 12 months ended 31 December 2016 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 Financial Reporting Standard 102 (FRS 102) and the Companies Act 2006. Reduced disclosure framework Advantage has been taken of paragraph 1.12 of FRS 102 and the company has applied the reduced disclosure framework as permitted by that paragraph. In accordance with paragraph 1.11 shareholders were notified and did not object to the adoption of the reduced disclosure framework. Accordingly, these individual company financial statements: ●● do not contain a cash flow statement as otherwise required by section 7 of FRS 102; ●● do not contain accounting policies for financial instruments, as otherwise required by sections 11 and 12 of FRS 102, as these have been disclosed in the consolidated accounts; ●● do not disclose key management remuneration as otherwise required by section 33 of FRS 102; ●● do not disclose a reconciliation of the number of shares outstanding from the beginning to the end of the period; and ●● do not include the disclosures otherwise required by FRS 102.11 for basic and FRS 102.12 for other financial instruments. The company proposes to continue to adopt the reduced disclosure framework of FRS 102 in its next financial statements. Exemptions taken in the preparation of these financial statements on transition to FRS 102 In accordance with paragraph 35.10 of FRS 102, last year the company elected to take advantage of the following exemptions that were available on the date of transition to FRS 102: ●● Section 19 of FRS 102 was not applied retrospectively to business combinations that occurred before the date of transition to FRS 102; and ●● Investments in subsidiaries are stated at cost less impairment provisions and not at fair value. Company profit and loss account 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. Principal accounting policies 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. 64 25372.04 – 12 May 2017 2:20 PM – PROOF 5 1 Significant accounting policies (continued) 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. Related party transactions Under the provisions of FRS 102 paragraph 33.1A, the company has not disclosed details of intra-group transactions with wholly owned subsidiary companies. 2 Employee information The company has no employees other than the directors. The directors received no remuneration in 2015 or 2016 paid directly by Andrews Sykes Group plc. 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 2016 At 31 December 2015 Subsidiary undertakings shares £’000 40,748 8,672 (13) 8,659 32,089 32,076 25372.04 – 12 May 2017 2:20 PM – PROOF 5 65 Notes to the Company Financial Statements For the 12 months ended 31 December 2016 3 Fixed asset investments (continued) The company’s subsidiary undertakings ( * denotes directly owned by Andrews Sykes Group plc) as at 31 December 2016 were as follows: Andrews Sykes Hire Limited * Andrews Air Conditioning and Refrigeration Limited * Sykes Pumps International Limited (Overseas sales of specialist environmental control products) Climate Contingency Services Limited * 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) Company 3533273 Limited * (non-trading) Sykes Ground Water Control Limited * (non-trading) Refrigeration Compressor Remanufacturers Limited * (non-trading) Sykes Pumps Limited * (dormant) Expert Hire Plant Limited * (dormant) Plant Mart Limited * (dormant) Andrews Accommodation Limited (dormant) AAC&R Limited (dormant) Andrews Industrial Equipment (Scotland) Limited * (Scotland, dormant) Heat for Hire (Scotland) Limited * (Scotland, dormant) 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) Andrews Sykes Luxembourg SARL (Luxembourg) 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. One hundred percent of the profits of Khansaheb Sykes LLC accrue to the group. The movement in provisions relates to adjustments to the net carrying value of investments in non-trading subsidiaries to underlying net asset value. 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 31 December 31 December 2016 £’000 21,518 1,113 144 16 6 2015 £’000 21,956 1,194 144 — 6 22,797 23,300 66 25372.04 – 12 May 2017 2:20 PM – PROOF 5 4 Debtors (continued) The movement of the deferred tax asset during the year were as follows: Asset at the beginning of the year at 19% Credit to profit and loss account Asset at the end of the period at 19% There were no provided or 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 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 Total bank loans may be further analysed as follows: Gross bank loans Unamortised costs of raising loan finance Net carrying value of bank loans Short term timing differences £’000 — 16 16 31 December 31 December 2016 £’000 15 2015 £’000 8 31 December 31 December 2016 £’000 4,995 7,923 284 13,202 2015 £’000 980 7,181 30 8,191 31 December 31 December 2016 £’000 — — 2015 £’000 4,995 4,995 31 December 31 December 2016 £’000 5,000 (5) 4,995 2015 £’000 6,000 (25) 5,975 Total company bank loans and overdrafts of £5,000,000 (2015: £6,000,000) 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 period end. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 67 Notes to the Company Financial Statements For the 12 months ended 31 December 2016 6 Creditors (continued) Details of the bank loan facilities 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. Interest is charged on all inter company loans at commercial rates of interest. The company did not have any undrawn committed borrowing facilities at either period end. 7 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 30 to the consolidated financial statements and these are also applicable to the company. The company did not hold any derivative financial instruments at either 31 December 2016 or 31 December 2015. 8 Called-up share capital Issued and fully paid: 42,262,082 ordinary shares of one pence each (2015: 42,262,082 ordinary shares of one pence each) 31 December 31 December 2016 £’000 2015 £’000 423 423 The company did not purchase any one pence ordinary shares for cancellation in either the current or preceding financial period. The company has one class of ordinary shares which carries no right to fixed income. No share options were exercised, granted, forfeited or expired during either the current or preceding financial period. There were no outstanding share options at the end of either the current or preceding financial period. 9 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 2016 the annual commitment under such leases totalled £62,138 (2015: £82,350), all of which expires within one year (2015: between one and five years) from the balance sheet date. 10 Reserves At the beginning of the period Profit for the period Dividends declared and paid At the end of the period Share Profit and premium loss account £’000 £’000 13 — — 13 39,394 9,559 (10,058) 38,895 Other reserves £’000 2,368 — — 2,368 Total £’000 41,775 9,559 (10,058) 41,276 68 25372.04 – 12 May 2017 2:20 PM – PROOF 5 10 Reserves (continued) Other reserves comprise: Capital redemption reserve Non-distributable dividends received from subsidiaries 31 December 2016 £’000 157 2,211 2,368 There were no movements on any of the other reserves during either the current or preceding financial period. The non-distributable dividends were paid out of internally generated profits within the group and are therefore not payable outside the group to its shareholders. Details of dividends declared and paid are given in note 33 to the consolidated financial statements. 11 Reconciliation of movements in shareholders’ funds Profit for the financial period Dividends declared and paid Net decrease 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 2016 £’000 9,559 (10,058) (499) 42,198 41,699 2015 £’000 9,540 (10,058) (518) 42,716 42,198 12 Related party transactions Transactions between the company and its wholly owned subsidiaries, which are related parties, are not disclosed in this note in accordance with paragraph 33.1A of FRS 102. During the period, the company entered into the following transactions in the normal course of business with associated companies on an arm’s length basis: Purchase of goods and services from associates within the London Security plc group Amount owed by the company to Sweepax Pumps Limited 31 December 31 December 2016 £’000 210 48 2015 £’000 211 47 The company did not hold any security and there were no impairment charges in respect of any of the above transactions. London Security plc is associated through common control. Fifty percent of the share capital of Sweepax Pumps Limited is owned by Andrews Sykes Group plc. 13 Ultimate parent company As at 10 May 2017 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 69 Five Year History 12 months 12 months 12 months 12 months 12 months ended ended ended ended ended 31 December 31 December 31 December 31 December 31 December 2016 £’000 2015 £’000 2014 £’000 2013 £’000 2012 £’000 Revenue 65,389 60,058 56,400 61,072 58,380 Operating profit from continuing activities* Trading profit before exceptional items 15,816 13,208 Profit on the disposal of property Income from trade investments Inter-company foreign exchange gains/(losses) Net interest credit excluding inter-company forex — — 15,816 13,208 — 1,567 158 — 43 116 11,311 — 11,311 517 (222) 150 14,683 14,221 — 14,683 194 (93) 180 — 14,221 592 (81) 22 Profit before taxation 17,541 13,367 11,756 14,964 14,754 Taxation (3,068) (2,567) (2,445) (3,446) (3,685) Profit for the financial period 14,473 10,800 9,311 11,518 11,069 Dividends per share paid in the year 23.80p 23.80p 23.80p Dividends paid during the year 10,058 10,058 10,058 Basic earnings per share from continuing operations 34.25p 25.55p 22.03p Proposed ordinary final dividend per share 11.90p 11.90p 11.90p 17.80p 7,523 27.25p 11.90p 7.10p 3,001 26.18p — * Defined at the end of each reporting period. 70 25372.04 – 12 May 2017 2:20 PM – PROOF 5 Notice of Annual General Meeting Notice is hereby given that the ninety-fourth Annual General Meeting of Andrews Sykes Group plc will be held at 2 Eaton Gate, London, SW1W 9BJ on 21 June 2017 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 2016, together with the strategic report, directors’ report and auditor’s report, be and they are hereby received and adopted. 2. That Ms MC Leon, who retires by rotation and offers herself 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 as at 26 May 2017 on 26 June 2017. 5. That Grant Thornton UK LLP be and is 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 21 June 2016, 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 2018 or the date of the Annual General Meeting for the period ending 31 December 2017, 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. 25372.04 – 12 May 2017 2:20 PM – PROOF 5 71 Notice of Annual General Meeting 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 page 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 10 May 2017 St David’s Court Union Street Wolverhampton WV1 3JE Notes: 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 6.30 p.m. on 19 June 2017. Changes to entries on the register of members after 6.30 p.m. on 19 June 2017 shall be disregarded in determining the rights of any person to attend or vote at the meeting. 72 25372.04 – 12 May 2017 2:20 PM – PROOF 5 $ Andrews Sykes Group plc Form of Proxy For use at the Annual General Meeting 2017 I/We the undersigned, being member(s) of the company, hereby appoint the Chairman of the Meeting or (see note 2) .................................................................................................................................................................. (Please use block letters) Tick box (if one of multiple proxy appointments) Number of shares (if not full voting entitlement) (See note 2) as my/our proxy to vote on my/our behalf as indicated below (or at his/her discretion in respect of any other matters arising) at the Annual General Meeting of the company to be held at 2 Eaton Gate, London, SW1W 9BJ on 21 June 2017 at 10.30 a.m. Ordinary Resolutions For Against Withheld 1 2 3 4 5 6 7 8 To receive and adopt the financial statements for the 12 months ended 31 December 2016 To re-elect Ms MC Leon as a director To re-elect Mr X Mignolet as a director To declare a final ordinary dividend of 11.9 pence per share To appoint Grant Thornton UK LLP as auditor and authorise the directors to fix their remuneration To authorise the directors to allot or grant options over relevant securities up to a maximum nominal value of £63,393 as set out in the Annual Report and Financial Statements To authorise the directors to make market purchases of up to a maximum of 5,282,760 of the company’s ordinary shares of one pence each as set out in the Annual Report and Financial Statements Special Resolutions Subject to the passing of Ordinary Resolution 6 above, to authorise the directors to allot equity securities as set out in the Annual Report Dated ........................................................................................................................................................................................2017 Signatures(s) or common seal .......................................................................................................................................................... Full name(s) .............................................................................................................................................(Please use block letters) Address ............................................................................................................................................................................................ .......................................................................................................................................................................................................... $ $ Notes 1 Only holders of ordinary shares, or their duly appointed representatives, are entitled to attend and vote at the meeting. A member so entitled may appoint (a) proxy(ies), who need not be (a) member(s), to exercise all or any of his/her rights to attend, speak and vote on his/her behalf. 2 You can appoint the Chairman of the meeting or anyone else to be your proxy at the Annual General Meeting. You can also, if you wish, appoint more than one proxy provided that each proxy is appointed to exercise the rights attached to a different share or shares held by you. • To appoint more than one proxy, you should photocopy the Form of Proxy. Please indicate, in the box next to the proxy holder’s name, the number of shares in relation to which you authorise them to act as your proxy. If left blank your proxy will be deemed to be authorised in respect of your full voting entitlement (or if this Form of Proxy has been issued in respect of a designated account for a shareholder, the full voting entitlement for that designated account). Please also indicate, by marking the box on the Form of Proxy, if the proxy instruction is one of multiple instructions being given. All Forms of Proxy must be signed and should be returned together to the Company’s Registrar, Equiniti, in the envelope provided. • To appoint the Chairman as your sole proxy in respect of all your shares, fill in any voting instructions and sign and date the Form of Proxy, but leave all other proxy appointment details blank. • To appoint a single proxy in respect of all your shares other than the Chairman, cross out only the words ‘the Chairman of the Meeting or’ and insert the name of your proxy (who need not be a member of the company). Then complete the rest of the Form of Proxy. 3 Please indicate with an ‘X’ in the boxes provided how you wish your vote to be cast. Unless otherwise instructed, the person appointed as proxy will exercise his/her discretion as to how he/she votes or whether he/she abstains from voting on any particular resolution and on any other business (including amendments to resolutions and any procedural business) which may come before the meeting. 4 The ‘Withheld’ option on the Form of Proxy is provided to enable you to abstain on any particular resolution. However, a vote withheld is not a vote in law and will not be counted in the calculation of the proportion of votes ‘For’ and ‘Against’ a resolution. 5 If you complete and return the Form of Proxy this will not prevent you from attending in person and voting at the Annual General Meeting should you subsequently decide to do so. 6 If the Form of Proxy is signed by someone else on your behalf, their authority to sign must be returned with the Form of Proxy. In the case of a joint holding, any holder may sign. If the shareholder is a corporation, the Form of Proxy may be executed under its common seal or by the signature of a duly authorised officer or attorney. 7 In the case of joint holders, only one need sign this Form of Proxy, but the vote of the senior holder who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding. 8 To be valid the Form of Proxy must reach the Company’s Registrar, Equiniti, by no later than 10.30 a.m. on 19 June 2017. Notes: attendance at the Annual General Meeting • If you are attending the Annual General Meeting please sign this card, bring it with you and hand it in on arrival. This will speed up your admission to the Annual General Meeting. • For your safety and security, there may be checks and bag searches of those attending the Annual General Meeting. We recommend you arrive a little early to allow time for these procedures. • Cameras, recording equipment and other items which might interfere with the good order of the Annual General Meeting will not be permitted. $ 73 25372.04 – 12 May 2017 2:20 PM – PROOF 5 2 Eaton Gate, London SW1W 9BJ B e l g r a C h e s h a m S t A 3 2 1 6 P a v i l i o n R d C a d o g a n S q u a r e Cadogan Hall S y m o n s S t Sloane Square A 3217 B o u r n e S t The Duke of York Square Drayc ott Pl v e P l Eaton Pl Eaton S quare A 3 2 1 3 L y all S t E liz a b e t h S t 2 Eaton Gate Chester Ro w S E a t o n P l Ebury St Graha m Terrace A 3 2 1 4 74 25372.04 – 12 May 2017 2:20 PM – PROOF 5 25372.04 – 12 May 2017 2:20 PM – PROOF 5 25372.04 – 12 May 2017 2:20 PM – PROOF 5