Andrews Sykes Group plc Annual Report 2017

Plain-text annual report

7 7 25372.04 – 21 May 2018 9:15 AM – PROOF 7 Andrew Sykes AR2017.indd 3 25372.04 – 21 May 2018 9:15 AM – PROOF 7 21/05/2018 09:15:57 Contents 1 2 5 5 5 5 8 17 20 21 22 28 29 Summary of Results Chairman’s Statement Strategic Report Principal Objectives and Strategy Future Development of the Business 2017 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 30 31 32 33 40 Notes to the Consolidated Financial Statements 68 69 70 76 77 79 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 Andrew Sykes AR2017.indd 4 25958.04 – 21 May 2018 9:15 AM – PROOF7 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:57 Summary of Results 12 months ended 31 December 2017 £’000 71,300 12 months ended 31 December 2016 £’000 65,389 Revenue from continuing operations EBITDA* from continuing operations 22,851 20,664 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 17,589 14,101 33.37p 23.80p 11.90p 17,862 10,058 20,293 15,816 14,473 34.25p 23.80p 11.90p 15,133 10,058 17,673 * Earnings Before Interest, Taxation, Depreciation, profit on sale of property, plant and equipment, Amortisation and non-recurring items as reconciled on the consolidated income statement. Andrew Sykes AR2017.indd 1 25958.04 – 21 May 2018 9:15 AM – PROOF7 1 21/05/2018 09:15:57 Chairman’s Statement Overview and financial highlights Summary The group’s revenue for the year ended 31 December 2017 was £71.3 million, an increase of £5.9 million, or 9.0%, compared with the same period last year. This increase had a more than proportionate impact on operating proﬁt which increased by 11.2%, or £1.8 million, from £15.8 million last year to £17.6 million in the year under review. This increase, which follows a 19.7% increase last year, reﬂects strong and improved performances from both our hire and sales businesses in the UK and Europe and a strong and stable performance from our business in the Middle East. Net ﬁnance costs were £0.3 million this year compared with an income of £1.7 million in 2016. This is largely attributable to a foreign exchange loss arising on the retranslation of inter-company balances of £0.3 million this year compared with a gain of £1.6 million in 2016. Last year’s gain was mainly due to the relative weakening of Sterling compared with overseas currencies, notably the Euro and the UAE Dirham. This year, movements in foreign exchange rates have been much smaller and mixed, Sterling weakening slightly against the Euro but strengthening against the UAE Dirham and the US Dollar, the combined effect of which has resulted in an exchange loss of £0.3 million in the current year. Despite the increase in operating proﬁt, our basic earnings per share decreased by 2.6% from 34.25p in 2016 to 33.37p in 2017. However, last year’s result was signiﬁcantly impacted by the one-off foreign exchange gain on inter-company loans discussed above. The most important factor is that the group’s operating proﬁt improved again this year which has enhanced the quality of earnings. The basic EPS remains strong and is indicative of the underlying business performance and strength of the group. The group continues to generate strong cash ﬂows. Net cash inﬂow from operating activities was £17.9 million compared with £15.1 million last year. Despite shareholder related cash outﬂows of £10.1 million on ordinary dividends, net funds increased by £2.6 million from £17.7 million at 31 December 2016 to £20.3 million at 31 December 2017. Our policy of returning affordable dividends to shareholders continues and, over the last ﬁve ﬁnancial years, the group has paid £47.8 million in cash to shareholders. This has not been at the expense of our other obligations; the group pays its external creditors in accordance with their agreed credit terms, it operates well within its banking covenants and has paid nearly £1 million into the deﬁned beneﬁt pension scheme during 2017 to eliminate the funding deﬁcit of £0.7 million as at 31 December 2016. Therefore, in the light of the improved operating proﬁt and substantial net funds that are available, the Board is once again proposing a further ﬁnal dividend payment amounting to £5.0 million which, if approved at the forthcoming AGM, will be paid in June 2018. 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 £6.9 million was invested in the hire ﬂeet this year, £0.7 million more than last year and signiﬁcantly more than the wasting depreciation charge of £5.1 million. In addition, the group invested a further £1.0 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. 2 Andrew Sykes AR2017.indd 2 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:57 Operating performance The following table splits the results between the ﬁrst and second half years: 1st half 2017 1st half 2016 2nd half 2017 2nd half 2016 Total 2017 Total 2016 Turnover £’000 Operating profit £’000 35,334 30,287 35,966 35,102 71,300 65,389 8,171 6,395 9,418 9,421 17,589 15,816 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 16.7% improvement over the same period in 2016 and operating proﬁt was 27.8% higher than the equivalent period last year. Such signiﬁcant improvements cannot be maintained indeﬁnitely, especially when compared to a strong second half result in the previous year. Consequently, turnover in the second half improved by a more modest 2.5% compared with 2016 and operating proﬁt was virtually unchanged from the same period in last year. 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 £13.8 million last year to £15.2 million in the year under review. The warmer than expected start to the summer in June 2017 was short-lived and in general the 2017 summer was cool and wet which didn’t stimulate demand for our air conditioning products. The pumping business again performed well following a successful year in 2016. 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 strong trading year. The operating proﬁt for this business segment was maintained at £2.9 million, the same result as that achieved in 2016. Trading was strong throughout the UAE and our climate rental division returned a positive contribution to the business results. Our ﬁxed installation business sector in the UK returned a slightly improved operating proﬁt of £0.4 million this year compared with £0.3 million in 2016. The market continues to be fragmented with high levels of price competition. Central overheads decreased from £1.2 million in 2016 to £0.9 million in the current year. Profit for the financial year Proﬁt before tax was £17.3 million this year compared with £17.5 million last year. This is attributable to the above £1.8 million increase in operating proﬁt which was offset by a £2.0 million adverse swing in ﬁnance expenses from a credit of £1.7 million last year to a charge of £0.3 million this year. This was primarily due to foreign exchange rate movements as discussed above. Andrew Sykes AR2017.indd 3 25958.04 – 21 May 2018 9:15 AM – PROOF7 3 21/05/2018 09:15:57 Chairman’s Statement Overview and financial highlights (continued) Tax charges increased slightly from £3.1 million in 2016 to £3.2 million this year. The overall effective tax rate increased from 17.5% in 2016 to 18.4%, primarily due to a change in mix of proﬁts with a greater percentage of the group’s proﬁts being earned in Europe this year compared with the Middle East where corporation tax rates are very low. A detailed reconciliation of the theoretical corporation tax charge based on the accounts proﬁt multiplied by 19.25% and the actual tax charge is given in note 11 to the consolidated ﬁnancial statements. Proﬁt for the ﬁnancial year was £14.1 million compared with £14.4 million last year. Equity dividends The company paid two dividends during the year. On 26 June 2017, a ﬁnal dividend for the year ended 31 December 2016 of 11.9 pence per ordinary share was paid and this was followed on 3 November 2017 by the payment of an interim dividend for 2017, also of 11.9 pence per share. Therefore, during 2017, 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 2017, 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 25 June 2018 to shareholders on the register as at 1 June 2018. Net funds At 31 December 2017, the group had net funds of £20.3 million compared with £17.7 million last year, an increase of £2.6 million despite the payment of the above equity dividends totalling £10.1 million during the year. Bank loan facilities On 30 April 2017, and in accordance with the agreed repayment proﬁle, the group repaid the ﬁnal instalment of £5 million that was due for repayment on that date. Subsequently, the group took out a new loan of £5 million which is repayable by four equal annual instalments of £0.5 million per annum followed by a ﬁnal balloon repayment of £3 million due in April 2022. The ﬁrst annual loan repayment of £0.5 million was made on 30 April 2018. 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 interests 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 2018. 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 2018, always being mindful of the favourable or adverse impact that the weather can have on our business. JG Murray Chairman 17 May 2018 4 Andrew Sykes AR2017.indd 4 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:57 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 550 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. In addition to renting our products, we provide our equipment for sale along with a full service and repair back up. In the UK we 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 2017 we continued to develop new products and have a number of signiﬁcant new developments ready for launching in 2018 which will extend our product offering to both new and existing customers. 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. 2017 Operational Performance The group reported an increase in operating proﬁts from last year of £1.8 million; this increase was driven by improved trading levels throughout the UK, Europe and the Middle East. The UK produced an increase in revenue from the previous year, without beneﬁtting from any favourable weather conditions. Both hire revenue and sales revenue performed ahead of last year. The summer started well with some very high temperatures early in the season, however this was short-lived and in general the summer weather conditions were cool and wet, which did little to stimulate business for our air conditioning and chiller products. Despite this, the cooling products performed well. Pump hire performed well, following an excellent result in 2016, whilst our heating and ventilation products provided further growth. Boiler hire continued to perform well whilst beneﬁtting from the investment made in this product range during the year. Andrew Sykes AR2017.indd 5 25958.04 – 21 May 2018 9:15 AM – PROOF7 5 21/05/2018 09:15:57 Strategic Report Operational performance (continued) In mainland Europe, both our total turnover and operating proﬁt increased compared with the previous year. Following the success of recent years our Dutch business continued to grow and provide further improvements, which was once again enhanced by a strong performance in Belgium. In Luxembourg, our relatively new business produced a strong result with signiﬁcant proﬁt growth on previous years. Our Italian subsidiary, Nolo Climat, continued to grow in 2017; a new depot in Bologna was established and assisted this subsidiary to produce additional revenue and proﬁt in the year. In France, our operations provided revenue growth in the year and ensured a proﬁt that was ahead of the previous year. Our Swiss subsidiary made a modest improvement and returned a reduced loss for the year. Khansaheb Sykes produced a very similar revenue achievement to the previous year, which enabled a proﬁt result that was in line with the previous year. Trading in the Middle East was stable; the UAE performance remains strong although we did experience a slight drop off in other GCC territories. The overall group operating proﬁt of £17.6 million is an increase of £1.8 million when compared to the 2016 results. Net funds increased by £2.6 million from £17.7 million last year to £20.3 million at 31 December 2017 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 £49.8 million last year to £55.0 million in the current year, an increase of £5.2 million or 10.5% compared with last year. Operating proﬁt increased by £1.4 million, or 10.6%, from £13.8 million in 2016 to £15.2 million in 2017. 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 320 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 2017 was ahead of the 2016 performance, with most products performing in line with or ahead of the previous year. Although the weather did little to provide any great opportunities for our products, revenue was ahead of the previous year. Andrews Sykes BV Andrews Sykes BV is our long established Hire business based in the Netherlands. With over 40 years of experience in the Dutch market, we 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 back-up support to our newer operations in Belgium and Luxembourg. This subsidiary performed well and produced further growth in 2017, following the signiﬁcant increase in proﬁts achieved in the previous two years. Andrews Sykes BVBA Our Belgian subsidiary is based in Brussels and provides the full range of Andrews Sykes climate rental products throughout Belgium. Trading in both French and Flemish languages, the business has dual language branding, literature and website for the Belgian market. Similar to the Dutch business, our Belgian subsidiary also produced a strong performance in the year. Andrews Sykes Sarl Our operation in Luxembourg was opened in 2014 and is located within easy reach of the capital; this enables us to provide the full range of our climate rental products throughout the country. During the initial two years, this newly established operation produced small losses, however in 2016 we managed to move the business into a proﬁtable performance. This growth in proﬁts was continued throughout 2017. Our Luxembourg subsidiary works in conjunction with our Brussels operation, with administration and technical support provided from Belgium. 6 Andrew Sykes AR2017.indd 6 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:57 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 is well placed to cover the Lombardy region and the north of Italy. Following the progress made in recent years this business provided another record result in 2017 with signiﬁcant growth when compared to the previous year. During the year we extended our coverage by opening a new depot in Bologna. The new depot is based close to the international airport and strengthens our coverage throughout the Emilia- Romagna region. 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 this was continued in 2017. The operating proﬁt also grew in the year and this success provides a ﬁrm foundation for future growth supported by further investment and additional depots. 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 the loss has reduced when compared to the previous year due to improvements in hire revenue. UK Installation Business Andrews Air Conditioning and Refrigeration Limited Andrews Air Conditioning and 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 increased by 8.7% in 2017 when compared to the previous year, this enabled a signiﬁcant improvement in operating proﬁt. 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 very successful year in 2016, this subsidiary produced a very similar result in 2017. Group Summary The overall group result for 2017 shows an increase in operating proﬁt of £1.8 million, or 11.2%, 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, provide optimism for further progress in 2018. The group continues to develop new sales channels and propositions which will enable the business to take advantage of favourable market conditions and opportunities as they arise. At the same time, the company continues to carefully control its cost base and ensure that satisfactory levels of proﬁt can be achieved, even during difﬁcult market conditions. Andrew Sykes AR2017.indd 7 25958.04 – 21 May 2018 9:15 AM – PROOF7 7 21/05/2018 09:15:58 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 2017 31 December 2016 £131,100 69.7% 38.0% 33.37p £124,600 60.4% 36.7% 34.25p (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 another improvement this year and indicates a strong underlying operating performance and high staff utilisation levels. Operating cash ﬂow as a percentage of operating assets also improved and continues to be strong, demonstrating both strong working capital management and high levels of asset utilisation. 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 62. 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. Whilst the EPS decreased by 2.6% from 34.25p in 2016 to 33.37p in 2017, last year’s result was signiﬁcantly impacted by the one-off foreign exchange gain on inter-company loans of £1,567,000. As discussed elsewhere in this report, the group’s operating proﬁt improved again this year which has enhanced the quality of earnings. The basic EPS is still strong which is indicative of the underlying business performance as the average number of shares in issue remained unchanged from the previous year. Operating profit The consolidated operating proﬁt was £17.6 million for the year under review, an increase of £1.8 million, or 11.2%, compared with last year’s operating proﬁt of £15.8 million which was itself 19.7% higher than the 2016 result. 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 2017 31 December 2016 £’000 15,237 2,899 387 18,523 (934) 17,589 £’000 13,779 2,871 319 16,969 (1,153) 15,816 A review of the performance of each business sector is given in the operational performance section of this strategic report. 8 Andrew Sykes AR2017.indd 8 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:58 Trade investments For many years the group has held a trade investment in Oasis Sykes, a company based and operating in Saudi Arabia. No dividend income has been received since 2014 and accordingly, the directors performed a review of the operation in the current year. The directors now consider that the carrying value of the investment is not supported by underlying assets and there is no realistic prospect of a recovery in trading in the foreseeable future. Accordingly, the investment has been written off in the current year as its fair value is considered to be negligible. Net interest charge The net interest charge, including inter-company foreign exchange differences, for the current year is £304,000 compared with a credit of £1,725,000 in 2016. This can be analysed as follows: Interest charge on bank loans and overdrafts Finance lease interest charge Interest receivable Foreign exchange loss/(gain) on inter-company loans Net IAS 19 pension interest credit Total net interest charge/(credit) 12 months ended 12 months ended 31 December 2017 31 December 2016 £’000 89 4 (40) 293 (42) 304 £’000 122 28 (203) (1,567) (105) (1,725) The interest charge on bank loans and overdrafts and interest receivable both decreased compared with last year’s amounts. The weighted average interest rate charged on the bank loans decreased from 1.88% last year to 1.53% in 2017 and the weighted average capital amount of the gross outstanding loans also reduced from £5.3 million last year to £5.0 million in 2017, these two factors being the major reasons for the reduction in the interest charge this year. Conversely, the average rate of interest receivable on short-term bank deposits decreased from last year’s level of 1.1% to 0.29%, this being the major reason for the decrease in interest receivable in the current year. There was a substantial foreign exchange gain on inter-company loans last year of £1,567,000 which was primarily due to the signiﬁcant weakening of Sterling compared with the Euro, the UAE Dirham and the US Dollar, being shortly after the result of the “Brexit” referendum. Since then, movements in foreign exchange rates have been much smaller and mixed, Sterling weakening slightly against the Euro but strengthening against the UAE Dirham and the US Dollar, the combined effect of which has resulted in an exchange loss of £293,000 in the current year. The group’s policy continues to be to not hedge its international assets with respect to foreign currency balance sheet translation exposure. The net IAS 19 pension interest credit has been calculated by the group’s actuary based on the assumptions as set out in note 18 to the ﬁnancial statements. 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. The amount has decreased in the current year, reﬂecting a fall in the expected return on the pension scheme’s assets given the current market conditions. . Andrew Sykes AR2017.indd 9 25958.04 – 21 May 2018 9:15 AM – PROOF7 9 21/05/2018 09:15:58 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 £3,184,000 (2016: £3,068,000) resulting in an overall effective tax rate of 18.4% (2016: 17.5%) which is below the standard effective tax rate in the UK for the current year of 19.25% (2016: 20.0%). 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 19.25% Effects of different tax rates of subsidiaries operating abroad Movement in overseas trading losses not recognised in deferred tax Non-tax deductible expenses Effect of change of rate of tax in the UK and adjustments to prior periods Total tax charge for the financial year £’000 17,285 3,327 (225) (9) 144 (53) 3,184 A detailed reconciliation of the theoretical corporation tax charge based on the accounts proﬁt multiplied by 19.25% and the actual tax charge is given in note 11 to the consolidated ﬁnancial statements. A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016 and received Royal Assent on 15 September 2016. This reduction should further reduce the group’s current tax charge. The deferred tax balances at both 31 December 2017 and 31 December 2016 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 2017 and 31 December 2016. Profit for the financial year Proﬁt after tax for the ﬁnancial year was £14,101,000 compared with £14,473,000 last year. Basic earnings per share (EPS) The basic earnings per share decreased by 0.88p, or 2.6%, from 34.25p last year to 33.37p in 2017. There were no dilutive instruments outstanding in either 2017 or 2016 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 555p, the basic EPS gives a price to earnings ratio of 16.63. 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* Write off of trade investment 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 2017 31 December 2016 £m 17.6 5.3 22.9 0.2 (0.8) (0.1) (3.1) (1.2) 17.9 £m 15.8 4.9 20.7 — (0.8) (0.2) (2.4) (2.2) 15.1 * 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. As demonstrated by the table above, the group continues to generate strong operating cash ﬂows. 10 Andrew Sykes AR2017.indd 10 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:58 As well as cost control, management of working capital continues to be a priority. The net working capital increase of £1.2 million reﬂects an increase in stocks (£1.0 million) and a decrease in debtors (£0.5 million) and creditors (£0.7 million) compared with last year. Total outstanding debtor days at the year end remained unchanged from the previous year at 72 days. Although still high in UK terms, the debtor day statistic in both years includes our subsidiary in the Middle East whose debtor days were 155 days (2016: 130 days) and this is typical for the region. The debtor days for our main hire and sales business in the UK fell from 62 days last year to 54 days in 2017. Average debtor days for current unimpaired debts were a more respectable 37 days compared with 36 days last year. Adequate provisions continue to be made for bad and doubtful debtors. In 2017, debts written off against the bad debt provision were £312,000 compared with £799,000 last year when the majority of which were in the Middle East, and there was a net charge of £451,000 (2016: £568,000) to the income statement from the bad debt provision, which is calculated on a consistent basis each year. Employer pension contributions of £920,000 (2016: £936,000) have been made by the group to the pension scheme in 2017. Pension scheme administration costs charged to the income statement in accordance with IAS 19 (2011) amounted to £150,000 (2016: £122,000). 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 £2.6 million from £17.7 million at 31 December 2016 to £20.3 million at 31 December 2017. The movement can be reconciled as follows: Opening net funds Significant inflows: Cash inflow from operating activities Sale of plant and equipment Significant outflows: Capital expenditure Equity dividends paid Significant non-cash movements: Effect of foreign exchange rate changes Closing net funds Comprises: Bank loans net of loan finance costs and finance lease obligations Cash at bank Total net funds £m 17.7 17.9 0.9 (5.8) (10.1) (0.3) 20.3 (5.0) 25.3 20.3 The effect of the foreign exchange rate changes includes the loss on the conversion of the inter-company balances included in the proﬁt and loss account of £0.3 million and a virtual breakeven result on the reconversion of the group’s net external foreign currency denominated assets that arises on consolidation which has been taken to the translation reserve. The bank loan repayment proﬁle is set out in note 24 to the ﬁnancial statements. Interest is charged based on the three-month LIBOR rate plus a margin of 1.1%. The weighted average interest rate charged in the year was 1.53% (2016: 1.88%). Costs of raising loan ﬁnance are being amortised to the income statement over the period of the loan. Andrew Sykes AR2017.indd 11 25958.04 – 21 May 2018 9:15 AM – PROOF7 11 21/05/2018 09:15:58 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 £5.8 million (2016: £5.4 million). In addition, £2.1 million of items held in stock at 31 December 2016 have also been capitalised in the hire ﬂeet this year (2016: £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 its bank covenants. In April 2013, a bank loan of £8 million was taken out with the group’s bankers, Royal Bank of Scotland and 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 is being 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 2017 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 agreements. As noted above, a new loan was negotiated with the bank to ﬁnance the ﬁnal balloon repayment of £5 million due under the previous loan on 30 April 2017. The ﬁrst annual payment under the new loan agreement of £0.5 million was made in accordance with the agreement on 30 April 2018. 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 2017 amounted to £25.3 million, compared with £22.8 million as at 31 December 2016. Proﬁt and cash ﬂow projections for 2018 and 2019, 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 Andrew Sykes AR2017.indd 12 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:58 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. The directors do not consider that the group has signiﬁcant cross border trading that may potentially be adversely affected by “Brexit”. In addition, the directors do not expect that the group’s performance will be impacted by changes to the mobility in the labour market as a consequence of this process. The group does have an investing relationship in its EU based subsidiaries but it is not envisaged that there will be any signiﬁcant barriers to investing imposed by any authority as a consequence of the UK leaving the EU. Consequently, the directors consider that there are minimal speciﬁc risks to the group as a direct consequence of “Brexit”. There is a general risk that the UK and/or the EU economies may slow down thereby affecting the group’s future trading performance but at this stage any potential impact cannot be quantiﬁed with any degree of accuracy. 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 group has recently appointed a new head of Group IT to ensure that the appropriate developments and improvements continue to be made in this area. 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 2017 the pension scheme assets were £45.7 million which, after deducting the present value of the pension scheme liabilities of £42.3 million, calculated in accordance with IAS 19, results in a pre-tax surplus of £3.4 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. Andrew Sykes AR2017.indd 13 25958.04 – 21 May 2018 9:15 AM – PROOF7 13 21/05/2018 09:15:58 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 2016 and have been rolled forward by an independent qualiﬁed actuary to 31 December 2017. The net surplus, before deferred tax, at the year end amounted to £3.4 million (2016: £1.2 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 £1.2 million to the surplus as at 31 December 2017 of £3.4 million is as follows: Opening IAS 19 surplus recognised in the financial statements Contributions paid by the group into the scheme Actual return less interest income on scheme assets Actuarial loss on scheme liabilities Administration expenses Net finance income Closing IAS 19 surplus recognised in the financial statements £m 1.2 0.9 2.1 (0.7) (0.2) 0.1 3.4 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 Andrew Sykes AR2017.indd 14 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:58 Defined benefit scheme funding valuation Following the triennial recalculation of the funding deﬁcit as at 31 December 2016, a revised schedule of contributions and recovery plan was agreed with the pension scheme trustees in October 2017. In accordance with this schedule of contributions, the group made additional contributions in 2017 to remove the funding deﬁcit calculated as at 31 December 2016 of £710,000 and this has now been eliminated. Throughout 2016 and 2017, the group has continued to make a contribution towards expenses of £10,000 per month. In addition, the group made additional voluntary pension contributions of £30,000 per month for the three months ended March 2017 and these have now ceased. Accordingly, total employer pension contributions of £920,000 were made during 2017. The next formal triennial funding valuation is due as at 31 December 2019. The group has agreed to continue to make the current level of monthly contributions towards expenses until such time as the next formal schedule of contributions is agreed with the trustees. Defined contribution pension scheme and auto enrolment The group operates 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. The group has adopted the requirements of auto enrolment for all eligible UK employees. Until 1 October 2017, employee and employer contributions were made at the rate of 1% each of pensionable salary. These contributions increased on 1 October 2017 to 3% for employees and 2% for the employer and they will further increase 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. The employers’ contribution rates vary from 1% to 15%, the current average being 2.2% (2016: 2.2%). The current period charge in the income statement amounted to £262,000 (2016: £307,000). 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. Andrew Sykes AR2017.indd 15 25958.04 – 21 May 2018 9:15 AM – PROOF7 15 21/05/2018 09:15:58 Strategic Report Review of risks, uncertainties and financial performance (continued) Reconciliation of movement in group shareholders’ funds Group shareholders’ funds have increased from £48.2 million at the beginning of the year to £53.4 million at 31 December 2017. The movement can be reconciled as follows: Opening shareholders’ funds Profit for the financial period IAS 19 actuarial gain net of deferred tax Dividends declared and paid during the year Currency translation differences on foreign currency net investments Closing shareholders’ funds £m 48.2 14.1 1.1 (10.0) — 53.4 Details of dividends paid and proposed during the year are given in the directors’ report on page 17. An analysis of the net IAS 19 actuarial gain of £1.4 million, before an attributable deferred tax charge of £0.3 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 movements in Sterling compared with the Euro and the UAE Dirham. During the current year, Sterling weakened against the Euro but strengthened against the UAE Dirham and the combined impact on the group’s foreign currency net investments was broadly neutral. 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 2018. 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 17 May 2018 St David’s Court Union Street Wolverhampton WV1 3JE 16 Andrew Sykes AR2017.indd 16 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:58 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 8 to 16. Results and equity dividends The results for the ﬁnancial year are set out in the consolidated income statement on page 28. The company paid two dividends during the year. On 26 June 2017 a ﬁnal dividend for the year ended 31 December 2016 of 11.9 pence per share was paid to shareholders on the register on 26 May 2017. This was followed by an interim dividend for 2017, also of 11.9 pence per share, which was paid on 3 November 2017 to shareholders on the register on 6 October 2017. Total dividend payments made during the year amounted to £10,058,376 (2016: £10,058,376). The directors propose a ﬁnal dividend of 11.9 pence (2016: 1l.9 pence) per ordinary share. If approved at the forthcoming Annual General Meeting, this dividend, which in total amounts to £5,029,188 (2016: £5,029,188), will be paid on 25 June 2018 to shareholders on the register as at 1 June 2018. Directors The directors in ofﬁce at 17 May 2018 are shown on page 20. On 5 March 2018 Michael Gailer passed away after a short illness. Michael had been a non-executive director of the company since June 1994 and his contribution and counsel will be sorely missed by the Board. Michael had been the senior independent non-executive director and Chairman of the Audit Committee for a number of years. These posts are currently vacant and the Board is actively looking for a suitable person to ﬁll these roles. An announcement will be made once a suitable individual has been appointed. In accordance with the Articles of Association, Messrs JG Murray and JP Murray 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 2017 had any disclosable interests in share capital of the company or any subsidiary undertaking. JG Murray JJ Murray JP Murray PT Wood Ordinary one pence shares At 31 December 2017 At 31 December 2016 298,749 231,800 1,198,736 7,945 298,749 410,845 1,251,786 7,945 There were no changes to the above shareholdings between 31 December 2017 and 17 May 2018. Andrew Sykes AR2017.indd 17 25958.04 – 21 May 2018 9:15 AM – PROOF7 17 21/05/2018 09:15:58 Directors’ Report Substantial shareholdings At 17 May 2018, 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 2017 held any options to subscribe for ordinary shares at either 31 December 2017 or 31 December 2016. There have been no changes in the directors’ share options during the period from 31 December 2017 to 17 May 2018. The mid-market price of the company’s ordinary shares on 31 December 2017 was £5.55. The highest and lowest mid-market prices during the year ended 31 December 2017 were £6.15 and £4.27 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 9001:2015, ISO 14001:2015, OHSAS 18001:2007 and CEMARS (in accordance with ISO 14064-1:2006) standards. In the UAE, the group has certiﬁcation to ISO 9001:2015 and ISO 14001:2015. Employment of disabled persons The group makes every reasonable effort to give disabled applicants and existing employees who become 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. Corporate governance On 30 March 2018 revised “AIM Rules For Companies” were issued by the London Stock Exchange that require companies with shares admitted to trading on AIM to adopt a recognised formal corporate governance code by no later than 28 September 2018. Companies must also disclose how they comply and, if applicable, where they depart from, that code. The Board is currently updating its corporate governance procedures and currently intends to adopt the Quoted Companies Alliance (QCA) Corporate Governance Code 2018 prior to 28 September 2018. 18 Andrew Sykes AR2017.indd 18 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:58 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 (representing 15% of the company’s existing issued share capital) 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 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 2017 to 17 May 2018. Accordingly, as at 17 May 2018, there remained an outstanding general authority for the directors to purchase 5,282,760 ordinary one pence shares that was granted at the Annual General Meeting held on 21 June 2017. 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 2018. Auditor 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: JJ Murray Vice Chairman 17 May 2018 St David’s Court Union Street Wolverhampton WV1 3JE Andrew Sykes AR2017.indd 19 25958.04 – 21 May 2018 9:15 AM – PROOF7 19 21/05/2018 09:15:58 Directors and Advisors Chairman JG Murray Company Secretary MJ Calderbank ACA Age 98. 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 55. 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 52. 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. MC Leon BS Age 55. Non-executive director of London Security plc. X Mignolet (HEC-Economics) Age 53. Director of London Security plc, Ansul S.A. and Importe S.A. JP Murray West Sussex BN99 6DA Nominated Advisor GCA Altium Limited Mansfield House 1 Southampton Street London WC2R OLR Age 50. Non-executive director of London Security plc. Stockbroker EDOA Sebag MBA Age 50. Director of London Security plc and Nu Swift Limited. Arden Partners plc 125 Old Broad Street London EC2N 1AR Auditor Grant Thornton UK LLP The Colmore Building 20 Colmore Circus Birmingham B4 6AT Bankers Royal Bank of Scotland plc National Westminster Bank plc 20 Andrew Sykes AR2017.indd 20 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:58 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 For Companies’ 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 applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements; ● for the parent company ﬁnancial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements; and ● prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping adequate accounting records that are sufﬁcient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the ﬁnancial position of the parent company and enable them to ensure that its ﬁnancial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and ﬁnancial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions. Andrew Sykes AR2017.indd 21 25958.04 – 21 May 2018 9:15 AM – PROOF7 21 21/05/2018 09:15:58 Independent Auditor’s Report to the Members of Andrews Sykes Group plc Opinion Our opinion on the financial statements is unmodified We have audited the ﬁnancial statements of Andrews Sykes Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2017 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Total Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Statement of Changes in Equity, the Consolidated Cash Flow Statement and notes to the ﬁnancial statements, including a summary of signiﬁcant accounting policies. The ﬁnancial reporting framework that has been applied in the preparation of the group ﬁnancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The ﬁnancial reporting framework that has been applied in the preparation of the parent company ﬁnancial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (United Kingdom Generally Accepted Accounting Practice). In our opinion: ● the ﬁnancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2017 and of the group’s proﬁt for the year then ended; ● the group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; ● the parent company ﬁnancial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and ● the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the ﬁnancial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the ﬁnancial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulﬁlled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion. Who we are reporting to This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: ● the directors’ use of the going concern basis of accounting in the preparation of the ﬁnancial statements is not appropriate; or ● the directors have not disclosed in the ﬁnancial statements any identiﬁed material uncertainties that may cast signiﬁcant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the ﬁnancial statements are authorised for issue. 22 Andrew Sykes AR2017.indd 22 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:58 Overview of our audit approach ● Overall materiality: £864,000, which represents 5% of the group’s proﬁt before taxation; ● Key audit matters were identiﬁed as revenue recognition and valuation of deﬁned beneﬁt pension scheme for the group; and ● We performed full-scope procedures on all group entities in the United Kingdom and certain group entities in the Netherlands, Belgium and the United Arab Emirates (UAE). We performed analytical procedures over component locations in Italy, France, Luxembourg and Switzerland. Key audit matters The graph below depicts the audit risks identiﬁed and their relative signiﬁcance based on the extent of the ﬁnancial statement impact and the extent of management judgement. High Potential ﬁnancial statement impact Low Trade receivables existence Management override of controls Hire ﬂeet valuation Existence of hire ﬂeet assets Revenue recognition Valuation of deﬁned beneﬁt pension scheme Completeness of liabilities Existence and valuation of stocks Impairment of hire ﬂeet assets Trade receivables recoverability Low Extent of management judgement High Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the ﬁnancial statements of the current period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to fraud) that we identiﬁed. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Andrew Sykes AR2017.indd 23 25958.04 – 21 May 2018 9:15 AM – PROOF7 23 21/05/2018 09:15:59 Independent Auditor’s Report to the Members of Andrews Sykes Group plc Key Audit Matter – Group Risk 1 – Revenue recognition Under International Standard on Auditing (UK) 240 ‘The auditor’s responsibilities relating to fraud in an audit of ﬁnancial statements’, there is a presumed risk of fraud in revenue recognition. How the matter was addressed in the audit – Group Our audit work included, but was not restricted to: ● walkthroughs of each material source of revenue and assessing the design effectiveness of key controls; ● testing certain key controls over order authorisation, invoicing and Further, revenue is a key driver of the business and it customer collections; represents the fair value of the consideration received ● testing a sample of revenue items for hire, sales and installation and receivable for the hire, sale and installation of revenue, conﬁrming that the sale was made to a bona ﬁde customer environmental control products. Revenue recognised and agreeing the occurrence of the sale to supporting documentation; from these sources are net of trade discounts and volume rebates, which increase the risk of error in ● conﬁrming that the group’s revenue recognition policy has been correctly applied and that it is in accordance with IAS 18: ‘Revenue’. revenue recognition. The group’s accounting policy on revenue recognition is shown in note 2 Incomplete or inaccurate revenue recognition could and related disclosures are included in note 4. have an adverse impact on the group’s net asset value, earnings per share, and its level of dividend cover. We therefore identiﬁed the recognition of revenue as a signiﬁcant risk, which was one of the most signiﬁcant assessed risks of material misstatement. Risk 2 – Valuation of defined benefit pension scheme The group operates a deﬁned beneﬁt pension scheme that provides beneﬁts to a number of current and former employees. At 31 December 2017 the deﬁned beneﬁt pension schemes’ net surplus was £3.4 million. The gross value of pension scheme assets and liabilities which form the net liability amount to £45.7 million and £42.3 million respectively. Key observations Based on our audit work, we did not identify evidence of material misstatement in the revenue recognised in the year to 31 December 2017. Our audit work included, but was not restricted to: ● walkthrough of management’s process for valuing the deﬁned beneﬁt pension scheme and assessing the design effectiveness of key controls; ● using an actuarial specialist to challenge the assumptions used, including discount rates, growth rates, mortality rates and the calculation methods employed in the calculation of the pension liability; The valuation of the pension liabilities and assets in ● testing the accuracy of underlying membership data used by the accordance with IAS 19 Employee beneﬁts involves group’s actuaries for the purpose of calculating the scheme liabilities signiﬁcant judgement and is subject to complex by selecting a sample of employees and agreeing date of birth, gender actuarial assumptions. Small variations in those and date of membership to underlying records and by testing a actuarial assumptions can lead to a materially different sample of net movements in that data; deﬁned beneﬁt pension scheme asset or liability being ● directly conﬁrming the existence of pension scheme assets with recognised within the group ﬁnancial statements. external asset managers; We therefore identiﬁed valuation of deﬁned beneﬁt scheme as a signiﬁcant risk, which was one of the most ● conﬁrming management’s conclusion that it is appropriate to recognise a pension surplus within the provisions of IFRIC 14. signiﬁcant assessed risks of material misstatement. The group’s accounting policy on the deﬁned beneﬁt pension scheme is shown in note 2 and related disclosures are included in note 18. Key observations Based on our audit work, we found the valuation methodologies including the inherent actuarial assumptions to be balanced and consistent with the expectation of our actuarial specialists. We consider that the group’s disclosures in note 18 appropriately describe the signiﬁcant degree of inherent imprecision in the assumptions and estimates and the potential impact on future periods of revisions to these estimates. We found no errors in calculations. 24 Andrew Sykes AR2017.indd 24 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:59 We did not identify any Key Audit Matters relating to the audit of the ﬁnancial statements of the parent company. Our application of materiality We deﬁne materiality as the magnitude of misstatement in the ﬁnancial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or inﬂuenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work. Materiality was determined as follows: Materiality measure Group Parent Financial statements £864,000 which is 5% of the group’s proﬁt The benchmark considered most appropriate as a whole before taxation. This benchmark is considered is 2% of total assets as it most appropriately the most appropriate because this is a key reﬂects the company’s status as a non- performance measure used by the directors trading holding company. This benchmark has to report to investors on the ﬁnancial subsequently been capped at £648,000, being performance of the group. 75% of group materiality. Materiality for the current year is lower Materiality for the current year is higher than than the level that we determined for the the level that we determined for the year year ended 31 December 2016 to reﬂect the ended 31 December 2016 to reﬂect the group’s group’s decreased proﬁt before tax in the increased asset base in the current year. current year. Performance materiality Based on our risk assessment, including Based on our risk assessment, including the used to drive the extent the group’s overall control environment, we company’s overall control environment, we of our testing determined a performance materiality of 75% determined a performance materiality of 75% of the ﬁnancial statement materiality. of the ﬁnancial statement materiality. Speciﬁc materiality We determined a lower level of materiality We determined a lower level of materiality for directors’ remuneration and related party for directors’ remuneration and related party transactions. transactions. Communication of £43,200 and misstatements below that £32,400 and misstatements below that misstatements to the threshold that, in our view, warrant reporting threshold that, in our view, warrant reporting audit committee on qualitative grounds. on qualitative grounds. Andrew Sykes AR2017.indd 25 25958.04 – 21 May 2018 9:15 AM – PROOF7 25 21/05/2018 09:15:59 Independent Auditor’s Report to the Members of Andrews Sykes Group plc An overview of the scope of our audit Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment and risk proﬁle. The components of the group were evaluated by the group audit team based on a measure of materiality, considering each as a percentage of the group’s total assets, revenues and proﬁt before taxation, to assess the signiﬁcance of the component to determine the planned audit response. A full-scope audit approach for all components evaluated as signiﬁcant was determined based on their relative materiality to the group and our assessment of the audit risk. For signiﬁcant components requiring a full-scope approach we evaluated the controls over the ﬁnancial reporting system identiﬁed as part of our risk assessment, reviewed the ﬁnancial statement production process and addressed critical accounting matters. We sought, wherever possible, to rely on the effectiveness of the group’s internal controls in order to reduce substantive testing. We then undertook substantive testing on signiﬁcant transactions and material account balances. In order to address the described audit risks identiﬁed during our planning procedures, we performed a full-scope audit of the ﬁnancial statements of the parent company, Andrews Sykes Group plc, and of the group’s operations through the United Kingdom and certain group entities in the Netherlands, Belgium and the UAE. The operations that were subject to full-scope audit procedures totalled 93.4 percent of consolidated revenues and 96.9 percent of consolidated proﬁt before taxation. Statutory audits of subsidiaries, where required by local laws, were performed at a lower materiality where applicable. The remaining operations of the group were subjected to analytical procedures with a focus on applicable risks identiﬁed above and the signiﬁcance to the group’s balances. Detailed audit instructions were issued to the auditors of the reporting components where a full-scope approach had been identiﬁed. The instructions highlighted the signiﬁcant risks to be addressed through the audit procedures and detailed the information that we required to be reported to the group audit team. The group audit team conducted a remote review of the work performed by the component auditors, and communicated with all component auditors throughout the planning, ﬁeldwork and concluding stages of the local audits. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report set out on pages 1 to 21, other than the ﬁnancial statements and our auditor’s report thereon. Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the ﬁnancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the ﬁnancial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion, based on the work undertaken in the course of the audit: ● the information given in the strategic report and the directors’ report for the ﬁnancial year for which the ﬁnancial statements are prepared is consistent with the ﬁnancial statements; and ● the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. 26 Andrew Sykes AR2017.indd 26 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:59 Matters on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identiﬁed material misstatements in the strategic report or the directors’ report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: ● adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or ● the parent company ﬁnancial statements are not in agreement with the accounting records and returns; or ● certain disclosures of directors’ remuneration speciﬁed by law are not made; or ● we have not received all the information and explanations we require for our audit Responsibilities of directors for the financial statements As explained more fully in the directors’ responsibilities statement set out on page 21, the directors are responsible for the preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error. In preparing the ﬁnancial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the ﬁnancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements. A further description of our responsibilities for the audit of the ﬁnancial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Rebecca Eagle Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountant Birmingham 17 May 2018 Andrew Sykes AR2017.indd 27 25958.04 – 21 May 2018 9:15 AM – PROOF7 27 21/05/2018 09:15:59 Consolidated Income Statement For the 12 months ended 31 December 2017 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 2017 £’000 71,300 (30,086) 41,214 (11,571) (12,054) 17,589 22,851 (5,917) 655 17,589 82 (386) 17,285 (3,184) 14,101 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 33.37p 33.37p 23.80p 11.90p 34.25p 34.25p 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. 28 Andrew Sykes AR2017.indd 28 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:59 Consolidated Statement of Comprehensive Total Income For the 12 months ended 31 December 2017 Profit for the financial period Other comprehensive income/(charges) Items that may be reclassified to profit and loss: 12 months ended 12 months ended 31 December 31 December 2017 £’000 14,101 2016 £’000 14,473 Note Currency translation differences on foreign currency net investments (2) 1,924 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 18 11 1,391 (264) 1,125 15,226 (2,201) 418 141 14,614 Andrew Sykes AR2017.indd 29 25958.04 – 21 May 2018 9:15 AM – PROOF7 29 21/05/2018 09:15:59 Consolidated Balance Sheet As at 31 December 2017 31 December 2017 31 December 2016 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 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 Non-controlling interests Total equity 3,860 17,852 25,311 47,023 (12,358) (1,696) (493) (43) (14,590) (4,475) (7) 21,911 47 — 102 3,364 25,424 32,433 57,857 (4,482) 53,375 423 13 48,789 3,895 245 53,365 10 53,375 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 These consolidated financial statements of Andrews Sykes Group plc, company number 00175912, were approved and authorised for issue by the Board of directors on 17 May 2018 and were signed on its behalf by: JJ Murray Vice-Chairman 30 Andrew Sykes AR2017.indd 30 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:59 Consolidated Cash Flow Statement For the 12 months ended 31 December 2017 Note 28 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 New loans raised Finance lease capital repayments Equity dividends paid Net cash flow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at the end of the period 21 Reconciliation of net cash flow to movement in net funds in the period Net increase/(decrease) in cash and cash equivalents Cash outflow from the repayment of loans and finance leases Cash inflow from the drawdown of new loans net of charges Non-cash movements in respect of costs of raising loan finance Non-cash movements re new finance lease and hire purchase agreements Increase 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 29 12 months ended 12 months ended 31 December 31 December 2017 £’000 21,090 (84) (2,142) (1,002) 17,862 861 (5,790) 51 (4,878) (5,000) 4,963 (101) (10,058) (10,196) 2,788 22,819 (296) 25,311 2,788 5,101 (4,963) (10) — 2,916 17,673 (296) 20,293 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 Andrew Sykes AR2017.indd 31 25958.04 – 21 May 2018 9:15 AM – PROOF7 31 21/05/2018 09:15:59 Consolidated Statement of Changes in Equity For the 12 months ended 31 December 2017 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 Non- controlling interests £’000 Total equity £’000 Total £’000 At 31 December 2015 423 13 40,987 1,973 157 Profit for the financial period — — 14,473 — — 79 — 9 43,641 — 14,473 10 — 43,651 14,473 — — — 1,924 — — — 1,924 — 1,924 — — — — — — — — — — 13 (2,201) 418 — — (1,783) 1,924 (10,058) (10,058) — — — — — — — 43,619 3,897 157 — — — — — 79 — — — — (2,201) 418 141 — (10,058) — (10,058) 9 48,197 — 14,101 — (2,201) 418 141 (10,058) (10,058) 48,207 14,101 — — — — 10 — At 31 December 2016 423 Profit for the financial period — — 14,101 — — 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 33 Total transactions with owners 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 33 Total transactions with owners — — — (2) — — — (2) — (2) — — — — — — — — 1,391 (264) — — 1,127 (2) — (10,058) — (10,058) — — — — — — — — — — — — 79 — — 1,391 (264) — — 1,391 (264) — 1,125 — 1,125 — (10,058) — (10,058) 9 53,365 — (10,058) — (10,058) 10 53,375 At 31 December 2017 423 13 48,789 3,895 157 32 Andrew Sykes AR2017.indd 32 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:15:59 Group Accounting Policies For the 12 months ended 31 December 2017 1. General information Legal status and country of incorporation Andrews Sykes Group plc, company number 00175912, was incorporated in England and Wales under the Companies Act 1908-1917. 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 directors’ report on page 17. 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 For Companies’. 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 2017 and the comparative period is for the 12 months ended 31 December 2016. 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. Adoption of International Financial Reporting Standards On 1 January 2006 the group adopted IFRS for the first time when advantage was taken of the following exemptions as permitted by IFRS 1: ● The requirements of IFRS 3 - Business Combinations were not 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 68 to 75, have been prepared in accordance with FRS 102 and the Companies Act 2006. The UK subsidiaries company financial statements will be prepared in accordance with FRS 101 or FRS 102 depending upon the individual circumstances applicable to each subsidiary. Advantage will continue to be taken, where applicable, of the reduced disclosure framework, as set out in paragraph 1.12 of FRS 102, as no objections have been received from shareholders to this request. International Financial Reporting Standards (IFRS) adopted for the first time in 2017 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. Andrew Sykes AR2017.indd 33 25958.04 – 21 May 2018 9:15 AM – PROOF7 33 21/05/2018 09:16:00 Group Accounting Policies For the 12 months ended 31 December 2017 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 (IASB effective 1 January 2018, EU endorsed) ● IFRS 14 Regulatory Deferral Accounts (IASB effective 1 January 2016, EU endorsement deferred until final standard released) ● IFRS 15 Revenue from Contracts with Customers (IASB effective 1 January 2018, EU endorsed) ● IFRS 16 Leases (IASB effective 1 January 2019, EU endorsed) ● Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28 (deferred indefinitely) ● Clarifications to IFRS 15 Revenue from Contracts with Customers (IASB effective 1 January 2018, EU endorsed) ● Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (IASB effective 1 January 2018, EU endorsed) ● Amendments to IFRS 4: Applying IFRS 9 to IFRS 4 Insurance Contracts (IASB effective 1 January 2018, EU endorsed) ● Annual Improvements to IFRS 2014-2016 Cycle - Relating to IFRS 1 First time adoption of IFRS and IAS 28 Investment in Associates and Joint Ventures (IASB effective 1 January 2017, EU endorsed) ● Annual Improvements to IFRS 2014-2016 Cycle - Relating to IFRS 12 Disclosure of interest in other entities (IASB effective 1 January 2018, not yet EU endorsed) ● IFRIC Interpretation on foreign currency transactions and advance considerations (IASB effective 1 January 2018, not yet EU endorsed) ● Amendments to IAS 40: Transfers of investment property (IASB effective date 1 January 2018, not yet EU endorsed) Other than in respect of 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 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. The directors have assessed the potential impact of IFRS 15 on the group’s results when it is adopted for the first time on 1 January 2018. The conclusion reached is that there will not be a material impact on the group’s results as a consequence of the transition to IFRS 15 and any restatement of the prior year comparatives, if the option to apply the standard retrospectively is taken, would also not be significant. In 2017, 83.2% of the group’s revenue was derived from the hire of assets, primarily on short-term leases, which is out of the scope of IFRS 15. A further 10.5% of the group’s 2017 revenue was derived from the sale of goods which is treated in a consistent manner under IFRS 15 with revenue continuing to be recognised at a point in time when the transfer of risks and rewards occurs. The remaining revenue in 2017 of £4,501,000 was derived from the installation and maintenance of fixed air conditioning systems. Of this amount, £1,823,000 relates to maintenance and the balance relates to installations. The installation revenue derives from relatively short-term contracts and both the number of contracts and value of work in progress as at 31 December 2017, the revenue from which would potentially be recognised differently in accordance with IFRS 15, was not significant. Revenue from maintenance contracts is currently recognised over time as the work is performed, which is also in accordance with IFRS 15. 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 2017. 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. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the group’s equity therein. Non- controlling 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. 34 Andrew Sykes AR2017.indd 34 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:00 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 non-controlling shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Investments in associates and trade investments An associate is an entity over which the group is in a position to exercise significant influence, but not control, over its financial and operating policy decisions. Significant influence is defined as the power, whether or not it is exercised, to be able to participate in the financial and operating decisions of the investee. The results and assets and liabilities of associates are incorporated into these financial statements using the equity method of accounting except when they are classified as held for sale (see below). The results of entities over which the group is not in a position to be able to exercise significant influence despite holding a significant shareholding are not accounted for as associates and therefore are not equity accounted. These companies are classified as trade investments and are carried as available for sale financial assets which are measured at fair value at the end of the reporting period. 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. Andrew Sykes AR2017.indd 35 25958.04 – 21 May 2018 9:15 AM – PROOF7 2% Period of the lease 20% 10% to 33% 33% 20% to 25% 7.5% to 33% 20% 35 21/05/2018 09:16:00 Group Accounting Policies For the 12 months ended 31 December 2017 2. Significant accounting policies (continued) Leased assets Lessor accounting The group does not hold any assets for hire under finance leases. Assets held for use under operating leases are recorded as hire fleet assets within property, plant and equipment and are depreciated over their useful lives to their estimated residual value. The group does not have any material non-cancellable operating leases. Lessee accounting Initial rental payments in respect of operating leases are included in current and non-current assets as appropriate and amortised to the income statement over the period of the lease. Ongoing rental payments are charged as an expense in the income statement on a straight-line basis over the lease term. 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 are 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 fiscal periods to which they relate based on the taxable profit for the year. Deferred tax is calculated using the liability method of temporary differences. This involves the comparison of the carrying amount of assets and liabilities in the consolidated financial statements with their respective tax bases. 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. 36 Andrew Sykes AR2017.indd 36 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:00 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. Andrew Sykes AR2017.indd 37 25958.04 – 21 May 2018 9:15 AM – PROOF7 37 21/05/2018 09:16:00 Group Accounting Policies For the 12 months ended 31 December 2017 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 29 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. Defined contribution schemes Employer’s contributions are charged to the income statement on an accruals basis. 38 Andrew Sykes AR2017.indd 38 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:00 Net funds Net funds are 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. Inter-company foreign exchange gains and losses arising 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 trade investments, finance income, finance costs, other gains and losses and taxation. Operating profit is disclosed as a separate line on the face of the income statement. Normalised operating profit is the same as the above but excludes non-recurring items, for example profit on the sale of property. When applicable, normalised operating profit is reconciled to operating profit on the face of the income statement. Other gains and losses Other gains and losses are material items that arise from unusual non-recurring events. They are disclosed separately, in aggregate, on the face of the income statement after operating profit where, in the opinion of the directors, such disclosure is necessary in order to fairly present the results for the financial period. Finance costs Finance costs are recognised in the income statement on an accruals basis in the period in which they are incurred. Andrew Sykes AR2017.indd 39 25958.04 – 21 May 2018 9:15 AM – PROOF7 39 21/05/2018 09:16:00 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 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 55. 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 2017 £’000 59,314 7,485 4,501 71,300 2016 £’000 54,852 6,386 4,151 65,389 40 Andrew Sykes AR2017.indd 40 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:00 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 is 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 Installation Andrews Air Conditioning and Refrigeration Limited Andrews Sykes Luxembourg SARL Location United Kingdom The Netherlands Belgium Italy France Switzerland United Arab Emirates Luxembourg 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 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 Hire and sales Middle East Khansaheb Sykes LLC Installation Andrews Air Conditioning and Refrigeration Limited Andrews Sykes Luxembourg SARL Location United Kingdom United Kingdom The Netherlands Belgium Italy France Switzerland Luxembourg United Arab Emirates United Kingdom Andrew Sykes AR2017.indd 41 25958.04 – 21 May 2018 9:15 AM – PROOF7 41 21/05/2018 09:16:00 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 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 2017 Revenue External sales Inter-segment sales Total revenue Segment result Unallocated overheads and expenses Operating profit Finance income Finance costs Profit before taxation Taxation Profit for the period from continuing and total operations Income statement analysis 12 months ended 31 December 2016 Hire & sales Hire & sales Consolidated Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 54,918 71 54,989 15,237 11,881 — 11,881 2,899 4,501 20 4,521 387 71,300 91 71,391 18,523 — (91) (91) (14) results £’000 71,300 — 71,300 18,509 (920) 17,589 82 (386) 17,285 (3,184) 14,101 Hire & sales Hire & sales Consolidated Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 49,708 51 49,759 13,779 11,530 — 11,530 2,871 4,151 7 4,158 319 65,389 58 65,447 16,969 — (58) (58) (9) Revenue External sales Inter-segment sales Total revenue Segment result Unallocated overheads and expenses Operating profit Finance income Finance costs Profit before taxation Taxation Profit for the period from continuing and total operations 42 results £’000 65,389 — 65,389 16,960 (1,144) 15,816 1,875 (150) 17,541 (3,068) 14,473 Andrew Sykes AR2017.indd 42 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:00 Balance sheet information As at 31 December 2017 Segment assets 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 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 Other information 12 months ended 31 December 2017 Hire & sales Hire & sales Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 Consolidated results £’000 57,899 10,015 3,697 71,611 (2,836) 68,775 (12,425) (2,041) (469) (14,935) 2,836 102 3,364 206 72,447 (12,099) (1,696) (4,968) (50) (259) (19,072) 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) 3,175 164 559 1,161 167 68,233 (12,889) (1,825) (4,995) (151) (166) (20,026) Consolidated results £’000 7,946 5,917 Hire & sales Hire & sales Europe Middle East Installation Subtotal Eliminations £’000 £’000 £’000 £’000 £’000 Capital additions Depreciation 6,361 4,839 1,524 1,076 61 2 7,946 5,917 — — Andrew Sykes AR2017.indd 43 25958.04 – 21 May 2018 9:15 AM – PROOF7 43 21/05/2018 09:16:00 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 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 5,863 4,275 1,068 1,034 2 1 6,933 5,310 — — Consolidated results £’000 6,933 5,310 Capital additions Depreciation Geographical segments The geographical analysis of the group’s revenue is as follows: United Kingdom Rest of Europe Middle East and Africa Rest of the World By origin By destination 12 months 12 months 12 months ended ended ended 12 months ended 31 December 31 December 31 December 31 December 2017 £’000 44,704 14,715 11,881 — 71,300 2016 £’000 41,754 12,105 11,530 — 65,389 2017 £’000 44,307 14,959 11,982 52 71,300 2016 £’000 41,451 12,401 11,534 3 65,389 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 2017 £’000 42,768 16,327 9,680 68,775 2016 £’000 43,053 13,500 9,629 66,182 2017 £’000 13,896 5,441 2,621 21,958 2016 £’000 12,624 5,154 2,333 20,111 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 44 12 months ended 12 months ended 31 December 31 December 2017 £’000 42 40 — 82 2016 £’000 105 203 1,567 1,875 Andrew Sykes AR2017.indd 44 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:01 7 Finance costs Interest charge on bank loans and overdrafts Finance lease interest charge Inter-company foreign exchange losses 8 Profit before taxation The following have been charged/(credited) in arriving at the profit before taxation: Net foreign exchange trading losses and (gains) Bank charges Depreciation of property, plant and equipment Write-off of trade investment Net foreign exchange losses and (gains) on inter-company financing (notes 6 and 7) Profit on the sale of plant and equipment Compensation receipts from third parties for lost or damaged plant and equipment Operating lease rental payments: Property Plant, machinery and motor vehicles Auditor's remuneration (see note 9) Staff costs (see note 10) 12 months ended 12 months ended 31 December 31 December 2017 £’000 89 4 293 386 2016 £’000 122 28 — 150 12 months ended 12 months ended 31 December 31 December 2017 £’000 37 48 5,917 164 293 (655) (2,336) 1,667 1,791 171 19,004 2016 £’000 (10) 47 5,310 — (1,567) (462) (1,856) 1,595 1,841 162 18,463 Andrew Sykes AR2017.indd 45 25958.04 – 21 May 2018 9:15 AM – PROOF7 45 21/05/2018 09:16:01 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 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: Tax compliance and advisory services Total non-audit fees 12 months ended 12 months ended 31 December 31 December 2017 £’000 2016 £’000 19 119 138 33 33 171 19 114 133 29 29 162 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: 12 months ended 12 months ended 31 December 31 December 2017 Number 2016 Number 180 235 129 544 176 222 127 525 12 months ended 12 months ended 31 December 31 December 2017 £’000 16,554 82 1,891 477 19,004 2016 £’000 16,055 103 1,820 485 18,463 Sales and distribution Engineers Managers and administration Staff costs, including directors’ remuneration, amounted to: Wages and salaries Redundancy Social security costs Other pension costs 46 Andrew Sykes AR2017.indd 46 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:01 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 Other long-term benefits 12 months ended 12 months ended 31 December 31 December 2017 £’000 2,069 135 284 2,488 2016 £’000 1,930 166 255 2,351 Directors’ emoluments Directors’ emoluments for the current and prior financial periods were as follows: 12 months ended 31 December 2017 12 months ended 31 December 2016 Pension scheme Pension scheme Emoluments contributions £’000 £’000 Total £’000 Emoluments contributions £’000 £’000 Total £’000 31 20 34 20 508 613 — — — — 38 38 31 20 34 20 546 651 30 20 32 20 374 476 — — — — 37 37 30 20 32 20 411 513 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 2017 Number 2016 Number 1 1 1 1 The highest paid director had an accrued annual pension under the defined benefit pension scheme of £21,035 (2016: £20,768); the transfer value of the accumulated fund as at 31 December 2017 was £505,386 (2016: £478,606). No contributions were paid during the current or preceding financial period. Andrew Sykes AR2017.indd 47 25958.04 – 21 May 2018 9:15 AM – PROOF7 47 21/05/2018 09:16:01 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 11 Taxation Current tax UK corporation tax at 19.25% (2016: 20.00%) 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 2017 £’000 1,947 (62) 1,885 1,125 (19) 2,991 163 30 193 3,184 2016 £’000 2,253 (138) 2,115 838 (26) 2,927 38 103 141 3,068 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 19.25% (2016: 20.00%) as follows: Profit before taxation from continuing and total operations Tax at the UK effective corporation tax rate of 19.25% (2016: 20.00%) Effects of: Expenses not deductible for tax purposes Effects of different tax rates of subsidiaries operating abroad Utilisation of overseas tax losses Overseas tax losses not recognised 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 2017 £’000 17,285 3,327 144 (225) (30) 21 (2) (51) 3,184 2016 £’000 17,541 3,508 48 (337) (87) — (3) (61) 3,068 48 Andrew Sykes AR2017.indd 48 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:01 Deferred tax recognised in other comprehensive income 12 months ended 12 months ended 31 December 31 December 2017 £’000 2016 £’000 Deferred tax charge /(credit) on remeasurement of defined benefit liabilities and assets 264 (418) Matters affecting future tax charges A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016 and received Royal Assent on 15 September 2016. This reduction should 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 2017 Total earnings £’000 14,101 33.37p Number of shares 42,262,082 12 months ended 31 December 2016 Total earnings £’000 14,473 34.25p 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. Andrew Sykes AR2017.indd 49 25958.04 – 21 May 2018 9:15 AM – PROOF7 49 21/05/2018 09:16:01 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 13 Property, plant and equipment Property £’000 Equipment for hire £’000 Motor vehicles £’000 Plant and machinery £’000 Cost At 31 December 2015 Exchange differences Additions Disposals At 31 December 2016 Exchange differences Additions Disposals At 31 December 2017 Accumulated depreciation At 31 December 2015 Exchange differences Charge for the period Disposals At 31 December 2016 Exchange differences Charge for the period Disposals At 31 December 2017 Carrying value At 31 December 2017 At 31 December 2016 6,547 29 — (14) 6,562 9 44 (1,190) 5,425 2,328 30 132 (14) 2,476 9 118 (1,162) 1,441 3,984 4,086 47,057 2,548 6,233 (3,057) 52,781 (41) 6,946 (3,663) 56,023 35,167 1,707 4,544 (2,878) 38,540 (77) 5,115 (3,513) 40,065 15,958 14,241 1,410 129 281 (179) 1,641 (17) 296 (320) 1,600 845 88 220 (146) 1,007 (3) 238 (300) 942 658 634 5,383 146 419 (948) 5,000 (8) 660 (162) 5,490 4,307 126 414 (948) 3,899 (12) 446 (154) 4,179 1,311 1,101 Total £’000 60,397 2,852 6,933 (4,198) 65,984 (57) 7,946 (5,335) 68,538 42,647 1,951 5,310 (3,986) 45,922 (83) 5,917 (5,129) 46,627 21,911 20,062 The carrying value of plant and machinery includes £35,000 (2016: £63,000) of assets subject to finance lease and hire purchase agreements. Depreciation amounting to £28,000 was charged on these assets during the year (2016: £21,000). The group did not have any non-cancellable contractual commitments for the acquisition of property, plant and equipment at either 31 December 2017 or 31 December 2016. 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 2017 £’000 3,779 49 156 3,984 2016 £’000 3,878 50 158 4,086 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. 50 Andrew Sykes AR2017.indd 50 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:01 14 Lease prepayments Long leasehold land prepayments: Total Split: Non-current assets Current assets 31 December 31 December 2017 £’000 2016 £’000 49 47 2 49 51 49 2 51 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 At 31 December 2015 and 2016 Write off As at 31 December 2017 Carrying amount (fair value) At 31 December 2017 At 31 December 2016 £’000 164 (164) — — 164 The above investment represented 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 was 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. Dividends were accounted for on a receipts basis, no amounts were received in the current or preceding period. During the current year, the directors performed a review of the operation and have formed the opinion that the carrying value in the books is not supported by underlying assets and there are no realistic prospects of a recovery in the future. Accordingly, the investment has been written off as its fair value is considered to be negligible. Andrew Sykes AR2017.indd 51 25958.04 – 21 May 2018 9:15 AM – PROOF7 51 21/05/2018 09:16:01 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 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 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% 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 2017 at 19% Capital allowances in excess of depreciation £’000 Provisions and other short term timing differences £’000 Pension surplus £’000 269 (8) — — 261 (193) — — 68 (464) — 418 (175) (221) — (264) (154) (639) 477 (133) — 175 519 — — 154 673 Total £’000 282 (141) 418 — 559 (193) (264) — 102 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% (2016: 19%) has been used. The group does not have any unused capital losses or any unrecognised UK 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 2017, excluding the liability on the pension surplus, is £741,000 (2016: £780,000). Of this amount, approximately £360,000 (2016: £480,000) is expected to be recovered after more than 12 months. 18 Retirement benefit pension schemes Defined benefit pension scheme The group operates two pension arrangements in the UK: the Andrews Sykes Group Pension Scheme (“the DB Scheme”) and the Andrews Sykes Stakeholder Pension Plan (“the DC Plan”). The group’s UK pension arrangements include defined benefit and defined contribution schemes. The DB Scheme is established under trust law and complies with the Pension Scheme Act 1993, Pensions Act 1995, Pensions Act 2004, Pensions Act 2014 and all other relevant UK legislation. Pension assets are held in separate trustee administered funds which have equal pension rights with respect to members of either sex in so far as this is required by current legislation. The DB Scheme was closed to new members on 29 December 2002 and over recent years the group has taken steps to manage the ongoing risks associated with its defined benefit liabilities. As at 31 December 2017, the group had a net defined benefit pension scheme surplus, calculated in accordance with IAS 19 using the assumptions as set out below, of £3,364,000 (2016: £1,161,000). 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 2016, a revised schedule of contributions and recovery plan was agreed with the pension scheme trustees in October 2017. In accordance with this schedule of contributions, which was backdated to be effective from 1 January 2017, the group made additional contributions during 2017 to remove the funding deficit in the group scheme calculated as at 31 December 2016 of £710,000 and this was eliminated by the year end. 52 Andrew Sykes AR2017.indd 52 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:01 Throughout 2017, the group continued to make a contribution towards expenses of £10,000 per month and this will continue until the next formal schedule of contributions is agreed with the pension scheme trustees. The group made total pension contributions of £920,000 during 2017 which comprised: (i) contributions of £710,000 to eliminate the funding deficit as at 31 December 2016; (ii) contributions of £120,000 towards expenses; and (iii) additional voluntary pension contributions of £30,000 per month for the three months from January to March 2017. These additional voluntary pension contributions have now ceased. The next formal triennial funding valuation is due as at 31 December 2019. The group currently expects to make pension contributions of £120,000 during 2018 in accordance with the current schedule of contributions. Principal risks The following table summarises the principal risks associated with the group’s DB Scheme: Investment The present value of defined benefit liabilities is calculated using a discount rate set by reference to high-quality risk corporate bond yields. If scheme assets underperform corporate bonds, this will create a deficit. Interest rate risk A fall in bond yields would increase the value of the liabilities. This would be only partially offset by an increase in the value of bond investments held. Inflation An increase in inflation would increase the value of pension liabilities. The assets would be expected to also increase, risk to the extent that they are linked to inflation, but this would not be expected to fully match the increase in liabilities. Longevity The present value of the defined benefit liabilities is calculated having regards to a best estimate of the mortality of risk scheme members. If members live longer than this mortality assumption, this will increase the liabilities. Assumptions The last full actuarial valuation was carried out as at 31 December 2016. A qualified independent actuary has updated the results of this valuation to calculate the surplus as disclosed below (2016 comparatives based on the 2013 funding valuation): 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 2017 2016 N/A 3.10% 2.50% 3.10% 2.10% 2.10% 75% N/A 3.30% 2.70% 3.30% 2.30% 2.30% 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_2016 (2016: 110% S2NA CMI_2015) with a 1.25% per annum long-term improvement rate for both males and females (2016: 1% for both males and females). Andrew Sykes AR2017.indd 53 25958.04 – 21 May 2018 9:15 AM – PROOF7 53 21/05/2018 09:16:02 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 18 Retirement benefit pension schemes (continued) The assumed average life expectancy in years of a pensioner retiring at the age of 65 given by the above tables is as follows: Male, current age 45 Female, current age 45 31 December 31 December 2017 2016 22.9 years 25.0 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. 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 2017 £’000 17,126 18,840 9,492 199 45,657 (42,293) 3,364 2016 £’000 15,012 18,825 9,267 264 43,368 (42,207) 1,161 31 December 31 December 2017 £’000 43,368 1,159 2,047 (150) 920 (1,687) 45,657 2016 £’000 37,734 1,383 4,927 (122) 936 (1,490) 43,368 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. 54 Andrew Sykes AR2017.indd 54 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:02 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 2017 £’000 (42,207) (1,117) (501) (315) 160 1,687 2016 £’000 (35,291) (1,278) — (7,128) — 1,490 Present value of defined benefit funded obligation at the end of the period (42,293) (42,207) * Consolidated Statement of Comprehensive Total Income. The present value of the defined benefit closing obligation of £42,293,000 was comprised of approximately 47% relating to deferred participants and 53% relating to pensioners. The expected average duration of the DB Scheme’s liabilities is around 15 years. 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 £1.9 million (2016: £1.8 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 (2016: £0.6 million) and £0.5 million (2016: £0.5 million) respectively. A 0.1% decrease in these assumptions would increase/reduce the present value of the defined benefit obligation by a similar amount. The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. No allowance has been made for any change in assets that might arise under any of the scenarios set out above. When calculating the sensitivity of the deﬁned beneﬁt obligation to signiﬁcant assumptions, the same method has been applied as when calculating the pension liability recognised within the consolidated balance sheet. The sensitivities shown are just one possible outcome and should not be taken as an indication of the likelihood of a change occurring in the future. Economic markets are volatile and market metrics used to derive the discount rate and price inﬂation assumptions could increase or decrease in the future, by more or less than the change set out. This methodology is unchanged from last year’s disclosures. Andrew Sykes AR2017.indd 55 25958.04 – 21 May 2018 9:15 AM – PROOF7 55 21/05/2018 09:16:02 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 18 Retirement benefit pension schemes (continued) 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 2017 £’000 2016 £’000 1,159 (1,117) 42 (150) (108) 1,383 (1,278) 105 (122) (17) 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 gain/(loss) recognised in the CSOCTI* Cumulative actuarial loss recognised in the CSOCTI* * Consolidated Statement of Comprehensive Total Income. 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 expected and actual return on assets Actual return on plan assets * Consolidated Statement of Comprehensive Total Income. 31 December 31 December 2017 £’000 2016 £’000 2,047 160 (816) 1,391 (5,691) 4,927 — (7,128) (2,201) (7,082) 31 December 31 December 2017 £’000 2016 £’000 1,159 1,383 2,047 3,206 4,927 6,310 56 Andrew Sykes AR2017.indd 56 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:02 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 The group operates the Andrews Sykes Stakeholder Pension Plan, to which the majority of UK employees are eligible. Both the employer and employee contributions vary, generally based upon the individual’s length of service with the company. The group has adopted the requirements of auto enrolment for all eligible UK employees. Until 1 October 2017, employee and employer contributions were made at the rate of 1% each of pensionable salary. These contributions increased on 1 October 2017 to 3% for employees and 2% for the employer and they will further increase 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. The employer’s contribution rates vary from 1% to 15%, the current average being 2.2% (2016: 2.2%). The current period charge in the income statement amounted to £262,000 (2016: £307,000). Overseas defined contribution pension scheme arrangements Overseas companies make their own pension arrangements, the charge for the period being £215,000 (2016: £178,000). 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 2017 £’000 185 57 3,618 3,860 2016 £’000 77 80 4,837 4,994 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 £15,286,000 (2016: £13,478,000) and the net charge in the income statement for net realisable value provisions was £39,000 (2016: £130,000). Andrew Sykes AR2017.indd 57 25958.04 – 21 May 2018 9:15 AM – PROOF7 57 21/05/2018 09:16:02 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 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 2017 £’000 7,987 9,671 (2,327) 7,344 15,331 27 2 1,770 722 17,852 2016 £’000 8,204 10,676 (2,316) 8,360 16,564 27 2 1,543 289 18,425 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 2017 is 37 days (2016: 36 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 2017 £’000 5,240 1,059 704 341 7,344 2016 £’000 6,499 1,019 692 150 8,360 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 2017 £’000 2,315 (127) (312) 451 2,327 2016 £’000 2,230 316 (799) 568 2,315 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. 58 Andrew Sykes AR2017.indd 58 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:02 21 Cash and cash equivalents Cash at bank Deposit accounts 31 December 31 December 2017 £’000 6,140 19,171 25,311 2016 £’000 5,170 17,649 22,819 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 0.2% (2016: 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 2017 £’000 4,549 49 1,597 5,713 450 12,358 2016 £’000 4,675 48 1,599 6,328 405 13,055 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 47 days (2016: 45 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 2017 £’000 1,318 378 1,696 2016 £’000 1,575 250 1,825 Andrew Sykes AR2017.indd 59 25958.04 – 21 May 2018 9:15 AM – PROOF7 59 21/05/2018 09:16:02 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 24 Bank loans The borrowings are repayable as follows: On demand or within one year In the second year In the third to fifth years inclusive Total Disclosed: Within current liabilities (on demand or within one year) Within non-current liabilities Total Total bank loans may be further analysed as follows: Gross bank loans Unamortised costs of raising loan finance Net carrying value of bank loans 31 December 31 December 2017 £’000 493 493 3,982 4,968 493 4,475 4,968 5,000 (32) 4,968 2016 £’000 4,995 — — 4,995 4,995 — 4,995 5,000 (5) 4,995 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 2017, the group repaid the final instalment of £5 million due on the previous bank loan and subsequently took out a new five-year bank loan of the same amount. The new loan is repayable in four annual instalments of £0.5 million commencing 30 April 2018 followed by a balloon payment of £3 million on 30 April 2022. Costs incurred raising the loan are being amortised over the period of the loan. Interest is charged on the group’s borrowings based on the three-month LIBOR rate plus a margin of 1.1%. The weighted average interest rate charged during the year was 1.53% (2016: 1.88%). 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 Present value of Minimum lease payments minimum lease payments 31 December 31 December 31 December 31 December 2017 £’000 2016 £’000 2017 £’000 2016 £’000 44 7 51 (1) 50 107 51 158 (7) 151 43 7 50 43 7 50 102 49 151 102 49 151 It is the group’s policy to lease certain properties and the present value of the minimum lease payments includes £15,000 (2016: £88,000) in respect of properties. The weighted average lease term of these properties is less than one year (2016: one year). 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. 60 Andrew Sykes AR2017.indd 60 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:02 The remaining present value of minimum lease payments of £35,000 (2016: £63,000) 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 (2016: 42,262,082 ordinary shares of one pence each) 31 December 31 December 2017 £’000 2016 £’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 2015 Total comprehensive income for the period Dividends paid At 31 December 2016 Total comprehensive income for the period Dividends paid At 31 December 2017 423 — — 423 — — 423 13 — — 13 — — 13 40,987 12,690 (10,058) 43,619 15,228 (10,058) 48,789 1,973 1,924 — 3,897 (2) — 3,895 245 — — 245 — — 245 Total £’000 43,641 14,614 (10,058) 48,197 15,226 (10,058) 53,365 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 2017 £’000 157 79 9 245 2016 £’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. Andrew Sykes AR2017.indd 61 25958.04 – 21 May 2018 9:15 AM – PROOF7 61 21/05/2018 09:16:03 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 28 Cash generated from operations Profit for the period attributable to equity shareholders Adjustments for: Taxation charge Finance costs Finance income Profit on the sale of property, plant and equipment Depreciation Write-off of trade investment 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 Cash generated from operations 12 months ended 12 months ended 31 December 31 December 2017 £’000 14,101 3,184 386 (82) (655) 5,917 164 (770) 22,245 (1,022) 563 (696) 21,090 2016 £’000 14,473 3,068 150 (1,875) (462) 5,310 — (814) 19,850 (2,251) (1,876) 1,970 17,693 29 Analysis of net funds and movement in financing liabilities 31 December 31 December Cash and cash equivalents per consolidated cash flow statement and note 21 Gross funds Bank loans: At the beginning of the period Loans repaid Loans drawn down Other non-cash changes At the end of the period Finance lease liabilities: At the beginning of the period Leases repaid Leases drawn down At the end of the period Gross debt Net funds 2017 £’000 25,311 25,311 (4,995) 5,000 (4,963) (10) (4,968) (151) 101 — (50) (5,018) 20,293 2016 £’000 22,819 22,819 (5,975) 1,000 — (20) (4,995) (182) 116 (85) (151) (5,146) 17,673 62 Andrew Sykes AR2017.indd 62 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:03 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 2017 £’000 20,293 53,365 38.0% 2016 £’000 17,673 48,197 36.7% 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 2017 £’000 — 15,358 722 25,311 41,391 41,391 4,598 6,163 4,968 50 15,779 15,779 2016 £’000 164 16,591 289 22,819 39,699 39,863 4,723 6,733 4,995 151 16,602 16,602 Financial risk management The key risks that potentially impact on the group’s results are market risk, credit risk and liquidity and interest rate risks. The group’s exposure to each of these risks and the management of that exposure is discussed below. There has been no change in the period, or since the period end, to the type of financial risks faced by the group or to the management of those risks. Andrew Sykes AR2017.indd 63 25958.04 – 21 May 2018 9:15 AM – PROOF7 63 21/05/2018 09:16:03 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 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 2017 (2016: £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 £50,000 (2016: £53,000); 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 2017 £’000 3,162 5,368 6,125 1,082 2,620 2,041 2016 £’000 3,394 4,786 2,605 1,437 2,783 2,210 A 10% increase in the Euro:Sterling exchange rate would reduce the consolidated operating profit by £325,000 (2016: £350,000). 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 £300,000 (2016: £260,000). 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. 64 Andrew Sykes AR2017.indd 64 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:03 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 2017 amounted to £25,311,000 (2016: £22,819,000), 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 £20,293,000 (2016: £17,673,000), 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 2017 Weighted average Due Due 1 year and Future Due over within 3 months less than Non-interest bearing Gross variable interest bank loans Fixed interest finance leases Total 31 December 2016 interest 3 months to 1 year rate £’000 £’000 5 years £’000 N/A 1.53% 8.00% 9,669 4,385 — 12 503 32 9,681 4,920 — 4,747 7 4,754 Weighted average Due Due Due over 1 year and within 3 months less than interest 3 months to 1 year rate £’000 £’000 5 years £’000 Non-interest bearing Gross variable interest bank loans Fixed interest finance leases Total N/A 1.88% 8.00% 10,091 — 34 10,125 4,789 5,033 73 9,895 — — 51 51 finance charges £’000 — (250) (1) (251) Future finance charges £’000 — (33) (7) (40) Total £’000 14,054 5,000 50 19,104 Total £’000 14,880 5,000 151 20,031 Andrew Sykes AR2017.indd 65 25958.04 – 21 May 2018 9:15 AM – PROOF7 65 21/05/2018 09:16:03 Notes to the Consolidated Financial Statements For the 12 months ended 31 December 2017 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 2017 £’000 1,053 3,089 2,869 7,011 2016 £’000 1,140 2,810 2,872 6,822 2017 £’000 1,632 2,371 5 4,008 2016 £’000 1,494 2,486 7 3,987 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 associates within the London Security plc group 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 2017 £’000 2016 £’000 2 29 113 — 27 47 — — 223 1 27 48 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. 50% 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 Details of remuneration paid to directors and key management personnel are disclosed in note 10 above. . 66 Andrew Sykes AR2017.indd 66 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:03 33 Dividend payments The directors declared and paid the following dividends during the 12 month periods ended 31 December 2017 and 31 December 2016: 12 months ended 31 December 2017 12 months ended 31 December 2016 Total dividend Pence paid Pence per share £’000 per share Total dividend paid £’000 Final dividend for the 12 months ended 31 December 2016 paid to members on the register at 26 May 2017 on 26 June 2017 11.90p 5,029 Interim dividend declared on 28 September 2017 and paid to shareholders on the register at 6 October 2017 on 3 November 2017 11.90p 5,029 — — — — Final dividend for the 12 months ended 31 December 2015 paid to members on the register at 27 May 2016 on 24 June 2016 Interim dividend declared on 28 September 2016 and paid to shareholders on the register at 7 October 2016 on 2 November 2016 — — — — 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 (2016: 11.90 pence) per ordinary share. If approved at the forthcoming Annual General Meeting, this dividend, which in total amounts to £5,029,000 (2016: £5,029,000), will be paid on 25 June 2018 to shareholders on the register at 1 June 2018. 34 Ultimate parent company As at 17 May 2018, 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 controlled by the trustees of these trusts through a Trustees’ Committee. The directors therefore consider that the trustees of the Ariane and Eden Trusts are the ultimate controlling parties of Andrews Sykes Group plc. Andrew Sykes AR2017.indd 67 25958.04 – 21 May 2018 9:15 AM – PROOF7 67 21/05/2018 09:16:03 Company Balance Sheet As at 31 December 2017 31 December 2017 31 December 2016 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 32,101 32,089 24,451 59 24,510 (7,932) 22,797 15 22,812 (13,202) 16,578 48,679 (4,475) 44,204 423 13 41,400 2,368 44,204 9,610 41,699 — 41,699 423 13 38,895 2,368 41,699 The profit for the financial period dealt with in the profit and loss account of the company was £12,563,000 (2016: £9,559,000). These financial statements of Andrews Sykes Group plc, company number 00175912, were approved and authorised for issue by the Board of directors on 17 May 2018 and were signed on its behalf by: JJ Murray Vice-Chairman 68 Andrew Sykes AR2017.indd 68 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:03 Company Statement of Changes in Equity For the 12 months ended 31 December 2017 Share capital £’000 Share Profit and premium loss account £’000 £’000 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 Profit for the financial period Transactions with owners recorded directly in equity: Dividends paid Total transactions with owners At 31 December 2017 423 — — — 423 — — — 423 13 — — — 13 — — — 13 39,394 9,559 (10,058) (10,058) 38,895 12,563 (10,058) (10,058) 41,400 Other reserves £’000 2,368 — — — 2,368 — — — 2,368 Total £’000 42,198 9,559 (10,058) (10,058) 41,699 12,563 (10,058) (10,058) 44,204 Andrew Sykes AR2017.indd 69 25958.04 – 21 May 2018 9:15 AM – PROOF7 69 21/05/2018 09:16:03 Notes to the Company Financial Statements For the 12 months ended 31 December 2017 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 have been 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 The effective date of transition to FRS 102 was 1 January 2014. In accordance with paragraph 35.10 of FRS 102, in 2015 the company elected to take advantage of the following exemptions that were available on transition: ● 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. 70 Andrew Sykes AR2017.indd 70 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:03 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 2016 or 2017 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 2017 At 31 December 2016 Subsidiary undertakings shares £’000 40,748 8,659 (12) 8,647 32,101 32,089 Andrew Sykes AR2017.indd 71 25958.04 – 21 May 2018 9:15 AM – PROOF7 71 21/05/2018 09:16:04 Notes to the Company Financial Statements For the 12 months ended 31 December 2017 3 Fixed asset investments (continued) The company’s subsidiary undertakings (* denotes directly owned by Andrews Sykes Group plc) as at 31 December 2017 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. 100% 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 72 31 December 31 December 2017 £’000 23,129 1,150 125 43 4 2016 £’000 21,518 1,113 144 16 6 24,451 22,797 Andrew Sykes AR2017.indd 72 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:04 The movements on 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 Bank loans repayable between two and five years Total bank loans may be further analysed as follows: Gross bank loans Unamortised costs of raising loan finance Net carrying value of bank loans Short-term timing differences £’000 16 27 43 31 December 31 December 2017 £’000 59 2016 £’000 15 31 December 31 December 2017 £’000 493 7,195 244 7,932 2016 £’000 4,995 7,923 284 13,202 31 December 31 December 2017 £’000 493 3,982 4,475 2016 £’000 — — — 31 December 31 December 2017 £’000 5,000 (32) 4,968 2016 £’000 5,000 (5) 4,995 Total company bank loans and overdrafts of £5,000,000 (2016: £5,000,000) 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. Andrew Sykes AR2017.indd 73 25958.04 – 21 May 2018 9:15 AM – PROOF7 73 21/05/2018 09:16:04 Notes to the Company Financial Statements For the 12 months ended 31 December 2017 6 Creditors (continued) Details of the bank loan facilities are given 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 2017 or 31 December 2016. 8 Called-up share capital Issued and fully paid: 42,262,082 ordinary shares of one pence each (2016: 42,262,082 ordinary shares of one pence each) 31 December 31 December 2017 £’000 2016 £’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 previously 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, all of which expired during 2017. There are no commitments or guarantees at 31 December 2017. 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 38,895 12,563 (10,058) 41,400 Other reserves £’000 2,368 — — 2,368 Total £’000 41,276 12,563 (10,058) 43,781 74 Andrew Sykes AR2017.indd 74 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:04 Other reserves comprise: Capital redemption reserve Non-distributable dividends received from subsidiaries 31 December 2017 £’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 increase/(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 2017 £’000 12,563 (10,058) 2,505 41,699 44,204 2016 £’000 9,559 (10,058) (499) 42,198 41,699 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 group to Sweepax Pumps Limited 31 December 31 December 2017 £’000 88 47 2016 £’000 210 48 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. 50% of the share capital of Sweepax Pumps Limited is owned by Andrews Sykes Group plc. 13 Ultimate parent company As at 17 May 2018, 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 controlled by the trustees of these trusts through a Trustees’ Committee. The directors therefore consider that the trustees of the Ariane and Eden Trusts are the ultimate controlling parties of Andrews Sykes Group plc. Andrew Sykes AR2017.indd 75 25958.04 – 21 May 2018 9:15 AM – PROOF7 75 21/05/2018 09:16:04 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 2017 £’000 2016 £’000 2015 £’000 2014 £’000 2013 £’000 Revenue 71,300 65,389 60,058 56,400 61,072 Operating profit from continuing activities* Trading profit before exceptional items 17,589 15,816 13,208 Profit on the disposal of property — — — 17,589 15,816 13,208 Income from trade investments — — Inter-company foreign exchange (losses)/gains (293) 1,567 Net interest (charge)/credit excluding inter-company 11,311 — 11,311 517 (222) 150 11,756 14,683 — 14,683 194 (93) 180 14,964 — 43 116 13,367 forex Profit before taxation Taxation (11) 17,285 158 17,541 (3,184) (3,068) (2,567) (2,445) (3,446) Profit for the financial period 14,101 14,473 10,800 9,311 Dividends per share paid in the year 23.80p 23.80p 23.80p 23.80p Dividends paid during the year 10,058 10,058 10,058 10,058 Basic earnings per share from continuing operations 33.37p 34.25p 25.55p 22.03p Proposed ordinary final dividend per share 11.90p 11.90p 11.90p 11.90p 11,518 17.80p 7,523 27.25p 11.90p * Defined at the end of each reporting period. 76 Andrew Sykes AR2017.indd 76 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:04 Notice of Annual General Meeting Notice is hereby given that the ninety-fifth Annual General Meeting of Andrews Sykes Group plc will be held at 2 Eaton Gate, London, SW1W 9BJ on 20 June 2018 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 2017, together with the strategic report, directors’ report and auditor’s report, be and they are hereby received and adopted. 2. That Mr JG Murray, who retires by rotation and offers himself for re-election, be and is hereby re-elected. 3. That Mr JP Murray, 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 for the 12 months ended 31 December 2017 be paid to shareholders on the register as at 1 June 2018 on 25 June 2018. 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 Annual General Meeting of the company to be held in 2019 save where the directors exercise such authority pursuant to an offer or agreement made prior to the date of such meeting. 7. That the company be given the general authority to make market purchases (as deﬁned by Section 693(4) of the Companies Act 2006) of ordinary shares of one pence each in its capital, subject as follows: 7.1 the maximum number of shares which may be so purchased 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 2019 or the date of the Annual General Meeting of the company to be held in 2019, 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 (as deﬁned in Section 560(1) of the Companies Act 2006) pursuant to the authority conferred by the resolution numbered 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, 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 resolution) 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 to be held in 2019 save to the extent that the directors exercise such authority pursuant to an offer or agreement made prior to the date of such meeting. Andrew Sykes AR2017.indd 77 25958.04 – 21 May 2018 9:15 AM – PROOF7 77 21/05/2018 09:16:04 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 1,737,230 ordinary shares, representing approximately 4.11% of the current issued 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 17 May 2018 Notes: St David’s Court Union Street Wolverhampton WV1 3JE 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. b. the register of directors’ share interests. 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 18 June 2018. Changes to entries on the register of members after 6.30 p.m. on 18 June 2018 shall be disregarded in determining the rights of any person to attend or vote at the meeting. e. For security reasons, the company will refuse admission to any individual who is not an invited guest and is unable to prove that they are a registered shareholder in the company by reference to either the current register of members or a letter of authority from their nominee account holder. ✄ ✄ ✄ 78 Andrew Sykes AR2017.indd 78 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:04 ✄ Andrews Sykes Group plc Form of Proxy For use at the 2018 Annual General Meeting 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 20 June 2018 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 2017 To re-elect Mr JG Murray as a director To re-elect Mr JP Murray 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 Resolution Subject to the passing of Ordinary Resolution 6 above, to authorise the directors to allot equity securities for cash disapplying pre-emption rights (in limited circumstances) Dated ........................................................................................................................................................................................2018 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 18 June 2018. 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. The company will refuse admission to any individual who is not an invited guest and is unable to prove that they are a registered shareholder in the company by reference to either the correct register of members or a letter of authority from their nominee account holder. • Cameras, recording equipment and other items which might interfere with the good order of the Annual General Meeting will not be permitted. 79 21/05/2018 09:16:04 ✄ Andrew Sykes AR2017.indd 79 25958.04 – 21 May 2018 9:15 AM – PROOF7 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 80 Andrew Sykes AR2017.indd 80 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:05 25958.04 – 21 May 2018 9:15 AM – PROOF7 Andrew Sykes AR2017.indd 6 25958.04 – 21 May 2018 9:15 AM – PROOF7 21/05/2018 09:16:05 7 7 Andrew Sykes AR2017.indd 1 25372.04 – 21 May 2018 9:15 AM – PROOF 7 25372.04 – 21 May 2018 9:15 AM – PROOF 7 21/05/2018 09:16:06

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