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2023 ReportAvingtrans-Report-cover2016_2007 Report cover Art 19/09/2016 16:44 Page 1 A N N U A L R E P O R T 2 0 1 6 Avingtrans-Report-cover2016_2007 Report cover Art 19/09/2016 16:44 Page 2 Avingtrans plc is engaged in the provision of highly engineered components, systems and services to the energy, medical and traffic management industries worldwide. C O N T E NT S tnemetats s’namriahC Chairman’s statement troper cigetartS Strategic Report srotcerid eht fo tropeR Report of the directors ecnanrevog etaroproC Corporate governance Report of the directors on remuneration Report of the directors on remuneration troper s’rotidua tnednepednI Independent auditor’s report seicilop gnitnuocca lapicnirP Principal accounting policies tnemetats emocni detadilosnoC Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of comprehensive income teehs ecnalab detadilosnoC Consolidated balance sheet teehs ecnalab ynapmoC Company balance sheet Consolidated statement of changes in equity Consolidated statement of changes in equity Company statement of changes in equity Company statement of changes in equity Consolidated statement of cash flow Consolidated statement of cash flow Company statement of cash flow Company statement of cash flow troper launna eht ot setoN Notes to the annual report Notice of Annual General Meeting Notice of Annual General Meeting 3 3 4 4 8 8 11 11 13 13 51 15 61 16 62 26 26 26 72 27 82 28 29 29 30 30 31 31 32 32 33 33 58 58 Metalcraft UK and China A leader in safety-critical equipment for the energy, medical, science and research communities, worldwide, specialising in precision pressure and vacuum vessels and associated fabrications and systems. Also designs, manufactures and services oil and gas extraction and processing equipment, including process plant for dehydration, sweetening, drying and compression. Crown International – UK Design, manufacture, repair and service of the ‘CrownPole™’, used in conjunction with roadside safety cameras, advanced railway signal systems and road signage poles for motorways and major trunk roads. Composite Products – UK Design and manufacture of high strength to weight ratio critical components combining metallic and non-metallic precision structures in the most demanding of applications in defence, industrial, medical, and automotive sectors. A licensed provider of unique and patented braided thermoplastic tubular components. Avingtrans-Report-cover2016_2007 Report cover Art 19/09/2016 16:44 Page 2 Avintrans-Report-pages1-2_2007 Report cover Art 19/09/2016 16:41 Page 1 Avingtrans plc is engaged in the provision of highly engineered components, systems and services to the energy, medical and traffic management industries worldwide. C O N T E NT S tnemetats s’namriahC troper cigetartS srotcerid eht fo tropeR ecnanrevog etaroproC Report of the directors on remuneration troper s’rotidua tnednepednI seicilop gnitnuocca lapicnirP tnemetats emocni detadilosnoC Consolidated statement of comprehensive income teehs ecnalab detadilosnoC teehs ecnalab ynapmoC Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flow Company statement of cash flow troper launna eht ot setoN Notice of Annual General Meeting 3 4 8 11 13 51 61 62 26 72 82 29 30 31 32 33 58 Metalcraft UK and China A leader in safety-critical equipment for the energy, medical, science and research communities, worldwide, specialising in precision pressure and vacuum vessels and associated fabrications and systems. Also designs, manufactures and services oil and gas extraction and processing equipment, including process plant for dehydration, sweetening, drying and compression. Crown International – UK Design, manufacture, repair and service of the ‘CrownPole™’, used in conjunction with roadside safety cameras, advanced railway signal systems and road signage poles for motorways and major trunk roads. Composite Products – UK Design and manufacture of high strength to weight ratio critical components combining metallic and non-metallic precision structures in the most demanding of applications in defence, industrial, medical, and automotive sectors. A licensed provider of unique and patented braided thermoplastic tubular components. ANNUAL REPORT YEAR ENDED 31 MAY 2016 I N T R O D U C T I O N Commenting on the results, Roger McDowell, Chairman said: “ This was an exceptional year for Avingtrans. The group sold its Aerospace division for an enterprise value of £65m with the intention to return £28m of the disposal proceeds to shareholders through a tender offer, which we will announce shortly. Plans are advancing positively on the expected utilisation of the remaining funds, both organically and via acquisition. The Energy and Medical division performed in line with management expectations in the period and we look forward to the year, ahead as we prepare to capitalise on the major contract wins with Sellafield, Rapiscan, Bruker and EDF. The Board of Directors, left to right, Graham Thornton, Jeremy Hamer, Les Thomas, Stephen King, Roger McDowell, Steve McQuillan. With attractive structural growth markets and durable customer relationships, we remain cautiously confident about the future of Avingtrans.” F I N A N C I A L H I G H L I G H T S • Aerospace division sold for an enterprise value of £65.0m, just prior to year end • Revenue from continuing operations decreased by 6% to £21.2m (2015: £22.6m) • Adjusted1 EBITDA from continuing operations increased by 18%, to £0.4m (2015: £0.3m) • Adjusted1 Profit Before Tax improved to £0.1m (loss 2015: £0.7m) • Adjusted1 Diluted earnings per share from continuing operations 1.0p (loss 2015: (0.4p)) • Net Cash increased to £51.0m (31 May 2015: Net debt £5.9m) • Increased final dividend of 2.1p per share, Full year total 3.2p (2015: Final 2.0p per share, Total 3.0p) • Tender offer of £28 million to be announced shortly, expected to be completed during November 2016 1 –adjusted to add back amortisation of intangibles from business combinations, acquisition costs and exceptional items. O P E R A T I O N A L H I G H L I G H T S • Aldridge building sold for £1.1m net proceeds • Significant pre-production progress achieved for Sellafield 3M3 box contract • New contract wins with Rapiscan and Bruker, each worth £3m over 3 years • Post year end, Maloney won a contract with EDF, worth £3.5m over 3 years • Crown’s markets were stable and the business remains profitable 1 1 Avintrans-Report-pages1-2_2007 Report cover Art 19/09/2016 16:41 Page 2 Company information Directors R S McDowell (Non-executive Chairman) S McQuillan (Chief Executive Officer) S M King (Chief Financial Officer) J J Hamer (Non-executive) G K Thornton (Non-executive) L J Thomas (Non-executive) Secretary S M King Registered Office Chatteris Business Park Chatteris Cambridgeshire PE16 6SA Website www.avingtrans.plc.uk Registered Number 1968354 Auditors Grant Thornton UK LLP Statutory Auditor Chartered Accountants Colmore Plaza Colmore Circus Birmingham B4 6AT Bankers HSBC Bank plc 130 New Street Birmingham B2 4JU Solicitors Shakespeare Martineau LLP No1 Colmore Square Birmingham B4 6AA 2 2 Registrars Capita Asset Services Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Nominated Advisor Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Nominated Broker Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Avintrans-Report-pages1-2_2007 Report cover Art 19/09/2016 16:41 Page 2 Company information Directors R S McDowell (Non-executive Chairman) S McQuillan (Chief Executive Officer) S M King (Chief Financial Officer) J J Hamer (Non-executive) G K Thornton (Non-executive) L J Thomas (Non-executive) Secretary S M King Registered Office Chatteris Business Park Chatteris Cambridgeshire PE16 6SA Website www.avingtrans.plc.uk Registered Number 1968354 Auditors Grant Thornton UK LLP Statutory Auditor Chartered Accountants Colmore Plaza Colmore Circus Birmingham B4 6AT Bankers HSBC Bank plc 130 New Street Birmingham B2 4JU Solicitors Shakespeare Martineau LLP No1 Colmore Square Birmingham B4 6AA Registrars Capita Asset Services Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Nominated Advisor Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Nominated Broker Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Chairman’s Statement The last twelve months have been a year of momentous change for the group. Results for the year are dominated by the sale of our Aerospace division, close to our financial year end for an enterprise value of £65 million which, after adjustment for debt and working capital and associated transaction costs, resulted in the Company receiving proceeds of approximately £52 million (before escrow arrangements). This transaction was a consequence of a strategic review of the Avingtrans group and its prospects during 2015. This review involved the Board and the Divisional Managing Directors, as well as external advisors. It resulted in four key concepts and outcomes: 1. Avingtrans has a successful track record of growing businesses from start-up, developing them internationally, and crystallising value through their sale at an appropriate stage in their development, as demonstrated by the successful sale of JenaTec in 2012. 2. Following the successful conclusion of the acquisition of the Rolls-Royce pipe business (completed in March 2016, but already under discussion in 2015), the Board felt that it had achieved the majority of the targets which it had set for the Aerospace Division and it was the right stage in its development to consider a disposal of the business. 3. Subject to achieving an attractive valuation for the Aerospace Business, the Board believed that shareholder value would be maximised over the mid to long term by disposing of the Aerospace Division and returning part of the proceeds from the disposal to shareholders, with the Company also reinvesting part of the proceeds into strengthening the Group’s position in the Energy sector in particular and potentially other high value engineering sectors. 4. The Board believes that the successful contract win by the Energy and Medical business with Sellafield in May 2015 (of the initial tranche of 3M3 nuclear waste disposal containers) demonstrated the significant business opportunities available in this market, if the Group were able to put more resource into this sector. Over the last few years, the group grew the Aerospace Division to become an international leader in its chosen niche markets. This development was underpinned by a number of synergistic acquisitions, which enabled the Aerospace Division to build a strong brand and market position and to produce improved performance. Thus, the group has realised significant value for shareholders through the disposal, at a considerable premium to the cost of the original component parts. The transaction followed a concentrated sale process, which produced a number of bids, from a select group of relevant industry and financial suitors from the UK, Europe, the USA and Asia. Meanwhile, the Energy and Medical division has made steady progress in its recovery from the oil and gas sector downturn. During the year, we sold the freehold of the Maloney Metalcraft building at Aldridge for £1.1m, net of costs, limiting our exposure to a continuingly depressed oil and gas market. Pre-production activities commenced on the £47m, ten year contract with Sellafield, for the provision of 3M3 (three-metre-cubed) nuclear waste boxes, albeit that we have seen some changes to phasing of the production start-up. Metalcraft is well-placed to be a key partner for Sellafield in this programme over the next 30 years. We were also very pleased to win two £3m contracts with Bruker and Rapiscan, both of which marked important developments in the diversification of the Energy and Medical division and improved the prospects for the Chengdu and Buckingham units. During the year, we continued to invest in skills and completed our investments in new IT systems, as part of an on-going journey towards world-class manufacturing capability. We are now in a period of transition for the group, where we will return £28 million to shareholders and use the remaining c£20 million of cash to bolster our Energy and Medical division’s organic growth prospects and to pro-actively seek new opportunities to build shareholder value through acquisitions. Despite the economic uncertainty following the Brexit vote, we’re not under any pressure to buy and it is a good time to have cash. In addition to the cash to be returned to shareholders, the Board has declared an increased final dividend, of 2.1 pence per share, rendering a full year total of 3.2 pence, once again underlining our commitment to consistently improve returns to our shareholders. Finally, I would like to take this opportunity to thank all of our employees, past and present, for their hard work and dedication to deliver excellent quality engineering products and services to our customers. Roger McDowell Chairman 26 September 2016 2 3 Strategic Report Group Performance Strategy Summary We are a precision engineering group, operating in differentiated, specialist niches in the supply chains of many of the world’s best known engineering original equipment manufacturers. Our core strategy is to build market-leading niche positions in our chosen market sectors – currently Energy and Medical. Over the longer term, our acquisition strategy has enabled our businesses to develop the critical mass necessary to achieve market leadership. Our core businesses have the capability to engineer products in Europe and produce those products partly, or wholly in Asia, allowing us and our customers to access low cost sourcing at minimum risk, as well as positioning us neatly in the development of the Chinese and Asian markets for our products. Metalcraft is well established in China, providing integrated supply chain options for our customers. The strategy of the group, is to “buy and build” in regulated engineering niche markets, where we can see potential consolidation opportunities, which can lead to significantly increased shareholder returns over the medium to long term. We will then crystallise the gains with periodic sales of businesses at advantageous times, enabling us to return the proceeds to shareholders. The Sigma deal and its precursor acquisitions clearly showed we can build strong brands and value from smaller constituent parts – we have also demonstrated we have well-developed deal-making skills and shown that we do not overpay for assets. Niche Market Positioning Aerospace: Sigma achieved leadership in civil aerospace pipes and ducts and in the domain of aerospace component polishing and finishing. This allowed us to sell Sigma for well over 2x the original shareholder equity invested in its development. With the disposal of Sigma, Avingtrans has exited the Aerospace market. Energy and medical: We are developing our position as a leading European supplier of energy industry process modules, vertically integrating this capability with the vessel manufacturing capability at Metalcraft. This same vertical integration capability lends itself to the nuclear decommissioning, life extension and “new nuclear” markets, as well as a variety of other niches in the renewable energy sector. Metalcraft’s cryogenic vessel manufacturing pedigree, spanning over 40 years, makes us a supplier of choice to OEMs in markets where this capability is critical; notably in magnetic resonance imaging, nuclear magnetic resonance and related sectors. We enjoy a global market leading position in this particular supply niche. We have strengthened our capability to manage sophisticated outsourced manufacturing programmes for our customers, thus accessing business of enduring value, with the prospect of further sales growth. We remain focused on markets where we can sustain a significant competitive, long term advantage and where the regulatory and technical requirements provide competitive barriers to entry. Thus, a “buy and build” around smaller deals, to consolidate a niche is again possible, as we demonstrated with Sigma. Having built successful Avingtrans businesses in Germany, the USA and China, as well as the UK, our M&A prospects are not confined to the domestic market. Operations Energy and Medical Division (Metalcraft, Maloney Metalcraft, Composite Products and Crown) Operational Key Performance Indicators (KPIs) • Customer Quality – detect free deliveries (%) • Customer on time in-full deliveries (%) • Annualised staff turnover (%) • Health, Safety and Environment incidents per head per annum 2016 99.3 97.0 8.9 0.05 2015 99.3 97.0 5.7 0.1 The excellent divisional quality and delivery performance were sustained in the year. For some key customers, we were pleased to be able to record near perfect quality and delivery records across the full 12 months. Staff turnover – allowing for oil and gas market turmoil – is at an acceptable level for this type of business. Health and safety incidents continued their welcome significant improvement of recent years. 4 Strategic Report (Continued) Operations (continued) Energy and Medical Division (Metalcraft, Maloney Metalcraft, Composite Products and Crown) (continued) The low oil price continued throughout the year, sapping any momentum in potential prospects for this sector. As previously noted, our response was swift and we took action to downsize the Maloney business and exit the Aldridge manufacturing site. The sale of the building was completed in our first half and we achieved a sale price for the freehold of £1.1m, net of costs. The subsequent sector woes fully justified our decisions. We have also countered the negative effects of the oil price, by focusing on the growth areas in the energy market, for example: energy storage; carbon capture; and nuclear power life extension and decommissioning. The remaining effects of the oil price reduction mostly worked through Maloney in the period. Whilst this suppressed the revenue (-6%), we were satisfied that our early, decisive actions prevented further damage. Indeed, including the sale of the Maloney building, the division did make a healthy profit, but this one-off effect has been stripped out, such that the underlying performance was a very modest profit for the year. Despite the current oil price issues, global power consumption is expected to grow at a Compound Annual Growth Rate of over 4% to 2025. This is positive for Metalcraft and Maloney, since we have interests in various parts of the energy cycle, from primary extraction, to generation, to alternative energy storage, to decommissioning. The demographics of a growing and ageing world population are encouraging for the medical imaging and diagnostics markets, so the division is well placed to benefit from external market drivers. Summarising developments over the year at the Energy and Medical sites: • Metalcraft, Chatteris: business with Siemens and Cummins in the UK was again steady. Site delivery and quality consistency were further improved. The £47m /10 year contract with Sellafield Ltd, to produce 3M3 (three-metre-cubed) boxes, for the storage of intermediate level nuclear waste, is now underway. Whilst progress has been somewhat slower than anticipated, the delays are not material for the project overall and we have made good progress with site preparations and pre-production tests. The production set-up and prototype testing will continue in the current financial year, with series production expected to commence in our next financial year. Metalcraft is well-placed to be a key partner for Sellafield in this programme, over the next 30 years, during which time the total number of 3M3 boxes required is expected to be up to 70,000 units, according to Sellafield’s own estimates. • Metalcraft, Chengdu: results for the unit improved year on year and we made good progress with the existing customers. The exciting news was the Bruker contract win for Nuclear Magnetic Resonance (NMR) vessels. We have now begun preparations to start production of the Bruker systems in China later in the current financial year. • Maloney Metalcraft, Aldridge: as noted elsewhere, the oil price effects continued to wash through the business in the period, leading to a loss for this site, excluding the one-off sale of the building. There were some successes – notably the $2 million contract with JGC Gulf International Co. Ltd, to supply gas treatment packages. The sector remains in hibernation and we continue to review remaining costs prudently. Meanwhile, some of the team are being deployed on other contracts – e.g. nuclear. The recent EDF contract win, worth £3.5m, shows that the business has value beyond oil and gas. • Crown, Portishead: Crown had a steady year in its core business. The Future Environmental Technologies (FET) partnership made pleasing progress in the period, with the first carbon abatement project now running smoothly in Wales. This technology promises to make small to medium diesel generators “clean”, which is very important in a future where the energy grid is more fragmented and localised. Other projects with FET are now underway. • Composites, Buckingham: the retained part of the composites business in Buckingham (now called Composite Products Ltd) also made a loss for the year – as we extracted the aerospace related content to go with Sigma – and due to start-up costs for Rapiscan. By year end, this business was running close to break-even, with improving prospects. Aerospace Division (Sigma) The timing was perfect for us to sell Sigma in the last year and crystallise the optimum shareholder value, having achieved the majority of our deliverable goals with this business, rather than to keep growing for the sake of it. The £65m enterprise value achieved was clearly a good outcome for shareholders, as verified by the comprehensive sale process, resulting in multiple credible bids for Sigma. 5 Strategic Report (Continued) Financial Performance Key Performance Indicators The Group uses a number of financial key performance indicators to monitor the business, as set out below. Revenue: continuing operations saw modest sales decline – oil and gas effects now washed through Full year Group revenue of continuing operations was down by 6%, to £21.2m (2015: £22.6m). Energy and Medical again saw year-on-year effects of the oil price holding back revenues, though the base position now seems stable. Profit: improved margins on lower volumes Adjusted EBITDA increased by 18% (note 3), to £0.4m (2015: £0.3m). Prompt action to re-size the cost base at Maloney, on- going improvements at Metalcraft and further progress in China improved the overall EBITDA. Gross margins were 14.9% (2015: 10.7%), improving despite adverse conditions. Tax: The effective rate of taxation was 71.4%, whereas 2015 was 40.8% both a tax credit. The non-taxable sale of the property and ongoing release of deferred tax liabilities distorted the overall tax charge (2015 release of deferred tax at the Maloney site). We have continued to benefit from Research and Development tax credits in the UK. The tax position will “normalise” in the coming years, though we anticipate some on-going benefits – e.g. R&D tax credits and utilisation of China losses. Earnings per Share (EPS): Improved for continuing operations. Substantial benefit from Aerospace disposal Adjusted diluted earnings per share for continuing operations improved to 1.0p from a loss in 2015 of 0.4p. Diluted earnings per share, attributable to shareholders was 111.4p (2015:6.3p) reflecting the substantial shareholder benefit from the disposal of Aerospace. Funding and Liquidity: Balance sheet strong with Net Cash The net cash inflow from operating activities was £7.8m (2015: £1.6m). Net Cash (note 24) at year end stood at £51.0m (2015: Net indebtedness: £5.9m gearing: 17%) following the disposal of Aerospace just prior to the year end and prior to payment of costs. Dividend: steady progress The Board again voted to underline our progressive dividend policy, despite the disposal and we are pleased to be able to recommend an improved final dividend of 2.1 pence per share (2015: 2.0 pence per share). We intend to continue on this progressive path, subject to the outcome of acquisition activities in the coming years. The dividend will be paid on 9 December 2016, to shareholders on the register at 28 October 2016. Full details of the tender offer will be announced shortly. However, it is expected that shareholders who participate in the tender offer will still receive the final dividend. Principal risks and uncertainties facing the Group The principal risks and uncertainties facing the Group include: • • • the acceptance by end customers of its products – the Group mitigates this risk by developing a number of diverse products across its industry sectors. In addition, the business continues to build strong relationships with longstanding customers and open lines of communication to ensure that any challenges are identified early and are resolved with the customer prior to delivery; changes in customer requirements and in levels of demand in the market – the Group is reliant on the relative strength of the global economy as a whole, but the risk is somewhat mitigated via the diversity of the markets the Group operates in. The Group is always conscious of the need to react to demand changes, due to this risk. In addition, the business continues to work with key customers to develop longer term plans concerning delivery and timing of production, to build efficiency into the process; competitive pressure on pricing – this risk is mitigated by the high level of technological quality offered by the Group’s products, its strong relationships with its key customers, as well as lower operating costs through its fully owned Chinese facilities; • delays in product design and launch programmes – as the Group’s products are technically advanced the timescale of developing new products is uncertain. However, this is mitigated by strong long term relationships with customers and ensuring sufficient working capital to support this investment; technological changes – mitigated by continued investment in research and development; • 6 Strategic Report (Continued) Principal risks and uncertainties facing the Group (continued) • operational risks associated with operating in overseas markets – the Group mitigates this risk by using a senior management team based both in the UK and China. Senior Management from the UK regularly visit and monitor the financial and operational performance of overseas sites. People With the sale of Sigma, Mark Johnson, MD of Sigma and his senior team departed from Avingtrans, as part of the disposal. We wish them well with their plans to develop Sigma under new ownership. Good governance dictates that the non-executive directors should be replaced periodically. Jeremy Hamer has decided that the time is now right for him to retire from the Avingtrans Board. Therefore, Jeremy will stand down from the Board at the AGM in November. He will be replaced as Audit Committee Chair by Les Thomas. Jeremy has been a stalwart supporter of the business whose wise counsel has been invaluable in the development of the Group through both good and difficult times. The Board would like to thank Jeremy for his insightful contribution over many years and wish him the very best for the future. There were no other Board or top team management changes in the period, but we continued to reinforce our management team in Energy and Medical. Skills availability remains challenging, but we do not expect to be unduly constrained by any shortages and we continue to invest in skills – e.g. through apprenticeships, notably at our training centre at Chatteris. Indeed, a recent event at Chatteris celebrated the 100th year of apprentice intake for that business – a proud record. Outlook The group is a niche engineering market leader in the Energy, Medical and Industrial sectors. The oil price shock showed that we can cope well with downturns and the successful sale of Sigma shows investors that we can be trusted to produce excellent returns and to deliver the proceeds back to shareholders. We will continue to be hard-nosed about delivering value and we are not afraid to sell and return capital, if the timing is right. Our strategy continues to produce significant new business wins that support our results and provide good visibility of longer term earnings – e.g. the contract with EDF, won recently. We have an excellent customer base which we can build upon and differentiated product niches to exploit. We are now very well placed to benefit from further market consolidation. The Sigma sale underlined our intention to build shareholder value through targeted merger and acquisition activity. Although we cannot state that this will result in any further transactions during the current financial period, we will vigorously pursue further opportunities to enhance long-term value. Metalcraft is a clear leader in its chosen niche markets, providing customers with consistent quality as part of a world class supplier journey. Our remaining Chinese presence is providing a crucial competitive advantage. Investors are asked to endorse our strategy and join us in the next phase of our development. With attractive structural growth markets and durable customer relationships, we remain cautiously confident about the future of Avingtrans. Future acquisition efforts will be conducted rigorously, with an underpinning ethos that any deal should be for the benefit of all stakeholders and should build sustainable long-term value. The Strategic Report was approved by the Board on 26 September 2016 and signed on its behalf by: Roger McDowell Chairman 26 September 2016 Steve McQuillan Chief Executive Officer 26 September 2016 Stephen King Chief Financial Officer 26 September 2016 7 Report of the Directors The Directors present their report and the audited financial statements for the year ended 31 May 2016. Going concern During the year the Group has managed its working capital and cash flows resulting in an operating cash inflow of £7.8m for the year. At 31 May 2016 the Group has net cash of £51.0m as detailed in note 24 (2015: Net debt £5.9m) and net assets of £64.8m (2015: £34.2m). As discussed in more detail in the Chairman’s statement and Strategic report, looking into 2016/16 and beyond, the Group has a number of exciting opportunities across all of its operations that should deliver growth and shareholder value. The Directors have prepared detailed cash flow forecasts for the Group for the period extending to 31 December 2017, alongside three year budgets which indicate that the Group expects to have adequate financial resources to continue in business and work within its current banking arrangements to deliver on its short term strategic objectives. Coupled with an ongoing supportive relationship with the Group’s principal bankers, HSBC, the Directors continue to adopt the going concern basis in preparing the Annual Report and accounts. Results and dividends The Group’s profit for the year before tax from continuing operations amounted to £245,000 (loss 2015: £1,323,000) for continuing operations. This excludes profit after tax from discontinued operations of £30,716,000 (2015: £2,554,000) (note 33). A final dividend of 2.1p is proposed for the year ended 31 May 2016 (2015: 2.0 pence), taking the total dividend for the year to 3.2 pence (2015: total 3.0 pence). Substantial shareholdings As at 26 September 2015, the following had notified the Company that they held or were beneficially interested in 3% or more of the Company’s issued ordinary share capital: Nigel Wray P McDowell’s Pension Fund R S McDowell’s Pension Fund Funds managed by Unicorn Asset Management Limited Funds managed by LGT Bank Funds managed Close Brothers Asset Management Directors and their interests Number of shares ‘000 Percentage of issued share capital owned 5,353 2,426 2,406 1,661 1,293 924 19.1% 8.7% 8.6% 5.9% 4.6% 3.3% The present Directors of the Company and those that served during the year are set out on page 1. Their interests in the share capital of the Company are set out below. R S McDowell S McQuillan S M King J J Hamer G K Thornton L J Thomas Share options Ordinary shares of 5p each 31 May 31 May 2015 2016 2,406,409 330,566 286,071 114,500 40,000 - 2,406,409 330,566 286,071 114,500 40,000 - The Directors’ interests with respect to options to acquire ordinary shares are detailed in the Report of the Directors on Remuneration. Interests in contracts No Director was materially interested in any contract during the year. 8 Report of the Directors (Continued) Financial instruments The Group’s operations expose it to a variety of financial risks including the effects of changes in interest rates on debt, foreign currency exchange rates, credit risk and liquidity risk. The Group’s principal financial instruments comprise cash and bank deposits, bank loans and overdrafts and obligations under finance leases together with trade receivables and trade payables that arise directly from its operations. The Group has not entered into derivative transactions. Information about the use of financial instruments by the Group is given in note 24 to the financial statements. Customer credit exposure The group may offer credit terms to its customers which allow payment of the debt after delivery of the goods or services. The group is at risk to the extent that a customer may be unable to pay the debt on the specified due date. This risk is mitigated by the strong on-going customer relationships. Environment The Group’s policy with regard to the environment is to ensure that we understand and effectively manage the actual and potential environmental impact of our activities. Our operations are conducted such that we comply with all legal requirements relating to the environment in all areas where we carry out our business. During the period covered by this report the Group has not incurred any significant fines or penalties or been investigated for any significant breach of environmental regulations. Research and development During the year £713,000 (2015: £1,403,000) of development costs (per note 12) were capitalised as intangible assets. This was predominately at Metalcraft in relation to new customer’s MRI designs and waste storage equipment and in Sigma relating to the development of new designs for rigid pipes, light weight fittings and aerospace fabrications. Disabled persons The Group gives full and fair consideration to applications for employment from disabled persons, where they have the necessary abilities and skills for that position, and wherever possible will retrain employees who become disabled, so that they can continue their employment in another position. The Group engages, promotes, and trains staff on the basis of their capabilities, qualifications and experience, without discrimination, giving all employees an equal opportunity to progress. Directors’ indemnities The Company has taken out directors’ and officers’ liability insurance for the benefit of its Directors during the year which remains in force at the date of this report. Employee involvement It is the policy of the Group to communicate with employees by employee representation on works and staff committees and by briefing meetings conducted by senior management. Career development is encouraged through suitable training. Statement of Directors’ responsibilities for the financial statements The Directors are responsible for preparing the Strategic Report and the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the Parent and Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 and the profit or loss of the Group and Parent company for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; • • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business. 9 Report of the Directors (Continued) Statement of Directors’ responsibilities for the financial statements (continued) The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: • • so far as each of the Directors is aware there is no relevant audit information of which the Company’s and Group’s auditor is unaware; and the Directors have taken all steps that they ought to have taken as directors to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Auditor Grant Thornton UK LLP (“Grant Thornton”) are willing to continue in office in accordance with section 489 of the Companies Act 2006, and a resolution to reappoint them will be proposed at the Annual General Meeting. The report of the Directors was approved by the Board on 26 September 2016 and signed on its behalf by: S M King Director 10 Corporate Governance The Group is committed to high standards of corporate governance and the Board is accountable to the Company’s shareholders for good corporate governance. Although the Group is not required to comply with the UK Corporate Governance Code and does not voluntarily apply the Corporate Governance Code, this statement describes how the principles of corporate governance are applied to the Group. Directors The Board of Avingtrans plc comprised two Executive Directors and four Non-Executive Directors. During the year the Board was chaired by R S McDowell and assisted by the Senior Independent Non-executive Director J J Hamer, who together have primary responsibility for running the Board. The Chief Executive, S McQuillan, had executive responsibilities for the operations, results and strategic development of the Group during the year. S M King is Chief Financial Officer and Company Secretary. The Board structure ensures that no individual or group dominates the decision making process. The Non-executive Directors are considered to be independent of management and from any business relationship which could materially interfere with their independent judgement. The Senior Independent Non-executive Director is J J Hamer and is available to shareholders if they have concerns. The Board meets regularly with no less than ten such meetings held in each calendar year. There is a formal schedule of matters specifically reserved to the Board for its decision to enable it to take overall control of the Group’s affairs. All Directors have access to the services of the Company Secretary and may take independent professional advice at the Group’s expense in the furtherance of their duties. Management has an obligation to provide the Board with appropriate and timely information to enable it to discharge its duties. The Chairman ensures that all Directors are properly briefed on issues arising at Board meetings. The Nominations Committee is responsible for monitoring and reviewing the membership and composition of the Board, including the decision to recommend the appointment or re-appointment of a Director. The Board and Committee regularly review the composition of the Board to identify areas where additional experience is required to balance the Board. The Company’s Articles of Association ensure Directors retire at the third Annual General Meeting after the Annual General Meeting at which they were elected and may, if eligible, offer themselves for re-election. R S McDowell chairs the Nominations Committee, with J J Hamer chairing the Audit Committee and G K Thornton chairing the Remuneration Committee. The Non-executive Directors and the Chairman are members of all the above committees. Directors’ remuneration The responsibilities of the Remuneration Committee, are set out in the Report of the Directors on Remuneration on pages 13 to 14. Relations with shareholders The Board attaches a high level of importance to maintaining good relationships with shareholders, whether they are institutions or private investors. The Board encourages all Directors to attend shareholder meetings and institutional presentations, where they are available for questions from shareholders. This enables the Board to develop an understanding of the views of shareholders. The Board regards the Annual General Meeting as an opportunity to communicate directly with private investors and actively encourages participative dialogue. The Company counts all proxy votes and except where a poll is called, it indicates the level of proxies lodged on each resolution and the balance for and against the resolution, after it has been dealt with on a show of hands. A separate resolution on each substantially separate issue is proposed at the Annual General Meeting. The Chairman of the Board and each of the Chairmen of the Audit, Remuneration and Nomination Committees are available to answer questions at the Annual General Meeting. All Directors are expected to attend the Annual General Meeting. In 2009 the Company amended its Articles to include electronic communication with its members. The Annual Report and Financial Statements and Interim Report are automatically uploaded to www.avingtrans.plc.uk. All members are given the option to receive a paper copy or an email copy of the Annual Report. Notice of the Annual General Meeting is sent to shareholders at least 20 days before the meeting. 11 Corporate Governance (Continued) Accountability and Audit The respective responsibilities of Directors and the Auditor are set out on pages 9, 10 and 15. The Board has established an Audit Committee. The Audit Committee’s primary responsibilities include the monitoring of internal control, approving accounting policies, agreeing the treatment of major accounting issues, appointment and remuneration of the external auditor and reviewing the interim and annual financial statements before submission to the Board. It meets twice a year with the external auditor to review their findings. At these meetings the Non-executive Directors have the opportunity to discuss findings with the auditor in the absence of the Executive Directors. To follow best practice and in accordance with Ethical Standard 1 issued by the Auditing Practices Board, the external auditor has held discussions with the audit committee on the subject of auditor independence and has confirmed their independence in writing. Internal control The Directors acknowledge that they are responsible for ensuring that the Group has in place a system of internal control which is both effective and appropriate to the nature and size of the business. The Board, through the Audit Committee, has reviewed the operation and effectiveness of the system of internal control throughout the accounting year and the period to the date of approval of the financial statements, although it should be understood that such systems are designed to provide reasonable but not absolute assurance against material misstatement or loss. The Group’s system of control includes: a comprehensive budgeting system with annual budgets approved by the Directors • • monthly monitoring of actual results against budget and regular review of variances close involvement of Directors who approve all significant transactions • • financial and operating control procedures for all management of the Group • • bank facilities and other treasury functions are monitored and policy changes approved by the Board. identification and appraisal by the Board of the major risks affecting the business and the financial controls The Board has considered the need for an internal audit function and concluded that this would not be appropriate at present due to the size of the Group. S M King Company Secretary 26 September 2016 12 Report of the Directors on Remuneration Composition The Remuneration Committee during the period comprised G K Thornton (Chairman), R S McDowell, J J Hamer and L J Thomas. Principal function The remuneration packages, including contract periods of Executive Directors and senior management, are determined by the Remuneration Committee. It ensures that the remuneration packages are appropriate for their responsibilities, taking into consideration the overall financial and business position of the Group. The remuneration of R S McDowell is determined by the three Non-executive Directors. Base salary and benefits The Committee sets the salary of each Executive Director by reference to the responsibility of the position held, performance of the individual and external market data. Salaries are reviewed annually. Annual performance related bonus The Company operates a bonus scheme for its Directors which enables it to attract and retain high calibre senior management personnel who make a major contribution to the financial performance of the Group. Bonuses paid under the scheme are accrued under the annual bonus plan approved by the Remuneration Committee. The plan is based on various financial metrics around cash and financial performance. Share options The Committee is responsible for approving grants of share options to the Executive Directors. Options may be exercised between three and ten years from the date the option is granted but only if certain performance criteria are satisfied, as set out on page 14. Pensions The Company is responsible for the contributions to the defined contribution schemes selected by the Executive Directors. Details of contributions provided in the year are set out in note 5 to the financial statements. Service agreements R S McDowell, S McQuillan and S M King have service contracts which are terminable on 12 months’ notice by either party. The Committee consider that these contracts are in line with the market. Non-executive Directors Non-executive Directors’ remuneration is reviewed by all members of the Board other than the Non-executive Director under review and takes the form solely of fees. J J Hamer, G Thornton and L Thomas have a letter of appointment terminable on three months’ notice by either party. Compensation for loss of office There are no predetermined special provisions for Executive or Non-executive Directors with regard to compensation in the event of loss of office. The Remuneration Committee considers the circumstances of individual cases of early termination and determines compensation payments accordingly with the aim not to reward poor performance. Directors’ emoluments Details of the remuneration of all Directors are set out in note 6 to the financial statements. 13 Report of the Directors on Remuneration (Continued) Share options Details of the share options of all Directors are as follows: Executive: S McQuillan S M King Date of At 31 May 2015 grant Granted 18/12/2012 22/11/2013 10/12/2014 25/9/2010 18/12/2012 22/11/2013 10/12/2014 175,000 95,000 100,000 370,000 40,000 125,000 84,000 75,000 324,000 - - - - - - - - - Weighted average exercise price £ Exercised At 31 May 2016 - - - - - - - - - 175,000 95,000 100,000 370,000 40,000 125,000 84,000 75,000 324,000 0.960 1.760 1.110 1.206 0.395 0.960 1.760 1.110 1.132 The share options are exercisable between three and ten years from the date of grant if the growth in adjusted basic earnings per share of Avingtrans plc during the three years between grant date and vesting date is at least equal to the increase in the Retail Price Index during the same period. G K Thornton Chairman of the Remuneration Committee 26 September 2016 14 Independent Auditor’s Report to the Members of Avingtrans plc We have audited the financial statements of Avingtrans plc for the year ended 31 May 2016 which comprise the principal accounting policies, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the company statement of changes in equity, the consolidated and company balance sheets, the consolidated statement of cash flows, the company statement of cash flows, and related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors’ responsibilities set out on pages 9 and 10, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 May 2016 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 IFRSs as adopted by the European Union and as applied in accordance with the provision of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements are not in agreement with the accounting records and returns; or • • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. David White Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Birmingham 26 September 2016 15 Principal Accounting Policies Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and those parts of the Companies Act 2006 that are relevant to companies which apply IFRS. The Company has elected to prepare its Parent Company financial statements in accordance with IFRS also, these are presented alongside the Group Disclosures throughout the accounts. These are the first IFRS financial statements prepared in respect of the parent company. The effects of the transition from the previous financial statements prepared under UK Generally Accepted Accounting Practice is detailed in note 34. The following Standards and Interpretations, which are relevant to the Group but have not been applied during the year, were in issue but not yet effective: Framework Pronouncement IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS 9 IFRS 14 IFRS 15 IFRS 16 Amendments to IFRS 11 Amendments to IAS 16 and IAS 38 Amendments to IAS 16 and IAS 41 Amendments to IAS 27 Effective date EU Financial Instruments Not yet EU-adopted Regulatory Deferral Accounts Not yet EU-adopted Revenue from Contracts with Customers Not yet EU-adopted Leases Not yet EU-adopted Accounting for Acquisitions of Interests in Joint Operations EU mandatory effective date periods starting on or after 1 January 2016 Clarification of Acceptable Methods of Depreciation and Amortisation EU mandatory effective date periods starting on or after 1 January 2016 Bearer Plants EU mandatory effective date periods starting on or after 1 January 2016 Equity Method in Separate Financial Statements EU mandatory effective date periods starting on or after 1 January 2016 Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception EU mandatory effective date periods starting on or after 1 January 2016 IFRS IAS 1 Presentation of Financial Statements EU mandatory effective date periods starting on or after 1 January 2016 IFRS Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Not yet EU-adopted IFRS IFRIC 21 Levies IFRS Amendments IAS 19 Defined Benefit Plans: Employee contributions IFRS Annual Improvements 2010-2012 IFRS Annual Improvements 2011-2013 IFRS Annual Improvements 2012-2014 EU mandatory effective date periods start- ing on or after 17 June 2014 EU mandatory effective date financial periods commencing on or after 1 February 2015 EU mandatory effective date financial periods commencing on or after 1 February 2015 EU mandatory effective date financial periods commencing on or after 1 January 2015 Not yet EU-adopted The directors to not consider that the implementation of the above standards will have a material impact on the Group financial statements. 16 Principal Accounting Policies (Continued) Basis of consolidation The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 31 May 2016. Subsidiaries are entities over which the Group has the rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group obtains and exercises control of its subsidiaries through voting rights. Employee Benefit Trusts (“EBT”) are consolidated on the basis that the parent has control as it bears the risks and rewards of having established the trust, thus the assets and liabilities of the EBT are included on the Group balance sheet and shares held by the EBT in the Company are presented as a deduction from equity. All intra-group transactions have been eliminated on consolidation. Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The parent company has taken the exemption conferred by S.408 Companies Act 2006 not to publish the profit and loss account of the parent company with these consolidated accounts. The profit/loss dealt with in the parent company’s financial statements was £32,077k (2015: loss of £206k). Profit or loss from discontinued operations A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, and: • • • represents a separate major line of business or geographical area of operations is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale. Profit or loss from discontinued operations, including prior year components of profit or loss, is presented in a single amount in the income statement. This amount, which comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss resulting from the measurement and disposal of assets classified as held for sale, is further analysed in note 33. The disclosures for discontinued operations in the prior year relate to all operations that have been discontinued by the reporting date of the latest period presented. Business combinations Business combinations are accounted for by using the acquisition method. The acquisition method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the acquired business, at the acquisition date, regardless of whether or not they were recorded in the financial statements prior to acquisition. On initial recognition, the assets and liabilities are included in the consolidated balance sheet at their fair values, which are also used as the basis for subsequent measurement in accordance with the Group accounting policies. Goodwill recognised on business combinations is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (ie gain on a bargain purchase) is recognised in profit or loss immediately. Acquisition costs are expensed through the income statement as incurred. An intangible asset acquired in a business combination is deemed to have a cost to the Group equal to its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the group are not reliably measurable. Where the individual fair value of the complementary assets are reliably measurable, the Group recognises them as single assets provided the individual assets have similar useful lives. Goodwill Goodwill represents the future economic benefits arising from business combinations that are not individually identified and separately recognised. Goodwill is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. There is no re instatement of goodwill that was amortised prior to transition to IFRS. Goodwill previously written off to reserves is not written back to the income statement on subsequent disposal. 17 Principal Accounting Policies (Continued) Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, excluding VAT and trade discounts. Revenue is recognised upon the performance of services or transfer of risk to the customer. Sale of goods Each of the Group’s trading subsidiaries is involved in the supply of goods and follows a consistent accounting policy. This policy is reviewed regularly by the directors to accommodate changes in circumstances. Revenue from the sale of goods is recognised when all the following conditions have been satisfied: • • • • • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when goods are despatched, or the product is complete and is ready for delivery, based on specific contract terms the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is generally when goods are despatched, or the product is complete and is ready for delivery, based on specific contract terms the amount of revenue can be measured reliably it is probable that the economic benefits associated with the transaction will flow to the Group, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Long term contracts Long-term contracts are accounted for in accordance with IAS 11. Contract revenue reflects the contract activity during the year and is measured at the fair value of consideration received or receivable. When the outcome can be assessed reliably, contract revenue and associated costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheet date. The stage of completion of the contract at the balance sheet date is assessed by reference to the value of work done to the balance sheet date as a proportion of the total value of the contract. Where the outcome of a long-term contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred where it is probable that they will be recoverable. Contract costs are recognised as an expense in the period in which they are incurred. In the case of a fixed price contract, the outcome of a construction contract is deemed to be estimated reliably when all the following conditions are satisfied: total contract revenue can be measured reliably it is probable that economic benefits associated with the contract will flow to the Group • • • both the contract costs to complete the contract and the stage of completion at the balance sheet date can be measured • reliably, and the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. The gross amount due from customers for contract work is presented as an asset for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings. The gross amount due to customers for contract work is presented as a payments on account for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less losses). Recognition of losses on all contracts as a result of delays and liquidated damages is made in the year in which the loss is first foreseen and is recognised as a deduction from amounts recoverable from the customer or added to payments on account. This includes recognition of liquidated damages to the extent they expect to be paid in respect of any anticipated delays to the delivery of projects. Dilapidations When there is reasonable certainty of the cash outflow in respect of dilapidations this is provided for within accruals in the financial statements. Where there is significant uncertainty in respect of the amount or timing of the payment of dilapidations, this is included within provisions. Dividends Dividends are recognised when the shareholders right to receive payment is established. Dividend distributions payable to equity shareholders are included in “other short term financial liabilities” when the dividends are approved in general meeting prior to the balance sheet date. Interim dividends are recognised when paid. 18 Principal Accounting Policies (Continued) Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. The gain or loss arising from the sale is included in administrative expenses in the income statement. Depreciation Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment other than freehold land by equal annual instalments over their estimated useful economic lives. The rates/periods generally applicable are: Freehold buildings Leasehold improvements Plant and machinery Equipment and motor vehicles 2% Period of lease 6.7 - 20% 12.5% - 33% Material residual value estimates are updated as required, but at least annually. Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Discount factors are determined individually for each cash generating unit and reflect current market assessments at the time value of money and asset-specific risk factors. If the impairment is subsequently reversed, the carrying amount, except for goodwill, is increased to the revised estimate of its recoverable amount, but limited to the carrying amount that would have been determined had no impairment been recognised. Impairment losses in respect of goodwill are not reversed. Leased assets The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement as a finance cost over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease. Investments Investments in subsidiary undertakings and participating interests are stated at cost less provision for impairment where necessary to reduce book value to recoverable amount. Publicly traded investments are stated at cost less any provision to arrive at market value. Cost is purchase price including acquisition expenses, but excluding any payment for accrued interest or fixed dividend entitlement. Investment income is recognised on a received basis. 19 Principal Accounting Policies (Continued) Inventories Inventories are stated at the lower of cost and net realisable value. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Cost includes materials, direct labour and an attributable proportion of manufacturing overheads based on normal levels of activity. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Interest income Interest is recognised using the effective interest method, which calculates the amortised cost of a financial asset and allocates the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Taxation Current tax is the tax currently payable based on taxable profit for the year. Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Calculation of current tax is based on tax rates and laws that have been enacted or substantially enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if the reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates and laws that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the consolidated income statement, except where they relate to items that are charged or credited to other comprehensive income or directly to equity in which case the related deferred tax is also charged or credited directly to other comprehensive income or equity. The group has accounted for research and development expenditure tax credit above operating profit. Intangible assets i) Order Book and Customer Relationships Customer lists acquired in a business combination that qualify for separate recognition are recognised as intangible assets at their fair values. The useful lives for these intangible assets are finite. These intangible assets are amortised on a straight-line basis over the following periods: • Order book • Customer relationships Period of order cover - - Up to 10 years The amortisation charge is shown within amortisation of intangibles in the income statement. ii) Software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and install the specific software. The useful lives for these intangible assets are finite. 20 Principal Accounting Policies (Continued) Intangible assets (continued) Software is amortised over three years and the amortisation charge is shown within administrative expenses in the income statement. iii) Intellectual property Intellectual property is amortised over a period of 20 years and the amortisation charge is shown within administrative expenses in the income statement. The useful lives for these intangible assets are finite. iv) Internally generated development costs Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. Development costs incurred on specific projects are capitalised when all the following conditions are satisfied: • • • • • • completion of the intangible asset is technically feasible so that it will be available for use or sale the Group intends to complete the intangible asset and use or sell it the Group has the ability to use or sell the intangible asset the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and the expenditure attributable to the intangible asset during its development can be measured reliably. For a project meeting these criteria, subsequent costs incurred will be capitalised until the product or process is available for use, at which point amortisation commences on a straight line basis over the product’s estimated useful life, generally 3 – 8 years. The useful lives for these intangible assets are finite. Where businesses are in start up or have a specific contract covering the amortisation then a period longer than 8 years could be used. Amortisation costs are shown within administrative expenses. Development costs not meeting the criteria for capitalisation are expensed as incurred. The cost of an internally generated development costs comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on project development along with an appropriate portion of relevant overheads. Equity Share capital represents the nominal value of shares that have been issued. When the Company purchases its own shares, the consideration is deducted from equity (attributable to the Company’s equity holders until the shares are either cancelled or issued) as an investment in own shares reserve. Such shares are held at cost. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Capital redemption reserve represents the nominal value of shares cancelled. Merger reserve was created on the acquisition of Sigma UK Limited. Other reserves were created on redemption of preference shares. Foreign currency translation differences arising on the translation of the Group’s foreign entities are included in the translation reserve. Retained earnings include all current and prior period retained profits. It also includes charges related to share-based employee remuneration. All transactions with owners of the parent are recorded separately within equity. 21 Principal Accounting Policies (Continued) Financial assets The Group’s financial assets include: i) trade and other receivables that are classified as loans and receivables ii) cash and cash equivalents that are classified as loans and receivables iii) unlisted investments classified as available for sale. All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are initially recognised at fair value. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for any impairment. Any change to their value through impairment or reversal of impairment is recognised in profit or loss. Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset’s carrying amount and the present value of estimated discounted future cash flows. Available for sale financial assets include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are measured at fair value (with movements in fair value recognised through income statement or other comprehensive income as required), unless the fair value cannot be measured reliably and in this case these assets are valued at cost. Gains and losses arising from investments classified as available for sale are recognised in the income statement when they are sold or when the investment is impaired. In the case of impairment of available for sale assets, any loss previously recognised in other comprehensive income is reclassified from equity to profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through profit or loss. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. Financial liabilities The Group’s financial liabilities include: trade and other payables that are classified as other financial liabilities i) ii) borrowings that are classified as other financial liabilities iii) deferred consideration that is classified as other financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. All other financial liabilities are recorded initially at fair value, net of direct issue costs. Financial liabilities are measured subsequently at amortised cost using the effective interest method. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Cash and cash equivalents Cash and cash equivalents comprise cash in hand, deposits held on call with banks and bank overdrafts, and ring fenced cash obtained from EU grants. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Non-current assets and liabilities classified as held for sale Non-current assets classified as held for sale are presented separately and measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. Once classified as held for sale, the assets are not subject to depreciation or amortisation. 22 Principal Accounting Policies (Continued) Defined contribution pension scheme The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period. Equity settled share-based payments Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). All equity-settled share-based payments are ultimately recognised as an expense in the profit or loss with a corresponding credit to “retained earnings”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. Foreign currencies The individual Financial Statements of each Group entity are presented in the currency in the primary economic environment of which the entity operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position are presented in sterling (£) Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Foreign exchange gains and losses resulting from the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in profit or loss in the period in which they arise. Exchange differences on non-monetary items are recognised in other comprehensive income to the extent that they relate to a gain or loss on that non-monetary item recognised in other comprehensive income, otherwise such gains and losses are recognised in profit or loss. The assets and liabilities in the financial statements of foreign subsidiaries and related goodwill are translated at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at a rate which is considered to be approximate to the rate prevailing at the date of the transaction. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are recognised in other comprehensive income and accumulated in the “translation reserve” in equity. On disposal of a foreign operation the cumulative translation differences are reclassified from equity to profit or loss when the gain or loss is recognised. Segmental reporting A segment is a distinguishable component of the Group that is engaged in business activities from which it may earn revenues and incur expenses whose operating results are regularly reviewed by the Chief Executive, who is considered to be the chief operating decision maker. The Chief Executive focuses on information by operating division and the Group has therefore identified that following the Aerospace disposal on 27 May 2016 the only reportable operating segment currently is Energy and Medical. The Chief Executive also reviews information by geographical area and whilst this is considered supplementary to the operating information, it is disclosed in the financial statements to provide additional information. Those areas are: a) United Kingdom b) Europe c) North America d) Rest of World 23 Principal Accounting Policies (Continued) Government grants Government grants in respect of capital expenditure are credited to a deferred income account and are released to the income statement by equal annual instalments over the expected useful lives of the relevant assets. Government grants in respect of assistance of a revenue nature are credited to the income statement in the same period as the related expenditure. Provisions and contingent liabilities Provisions are recognised when present obligations as a result of a past event will probably lead to an outflow of economic resources from the Group and amounts can be estimated reliably. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, or management has announced the plan’s main features to those affected by it. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognised, unless it was assumed in the course of a business combination. Critical accounting judgements and key sources of estimation uncertainty Certain estimates and judgements need to be made by the directors of the Group which affect the results and position of the Group as reported in the financial statements. Estimates and judgements are required, for example, as at the reporting date not all assets/liabilities have been settled. There are inherent areas of judgement and estimation due to the high-technology development work carried out by the Group in all of its operational sectors. There are also areas of judgement within the longer term Energy and Medical contracts that the Group enters into which require a view regarding their ultimate outcome and the recoverability of assets. The major areas of estimation within the financial statements are as follows: Revenue and margin recognition on construction and long-term service contracts and related provisions The Group recognises revenue and gross margin on construction and long-term service contracts using the percentage of completion method based on milestones; in addition, when a project review indicates a negative gross margin, the estimated loss at completion is immediately recognised. Recognised revenue and margin are based on estimates of total expected contract revenue and cost, which are subject to revisions as the contract progresses. Total expected revenue and cost on a contract reflect management’s current best estimate of the probable future benefits and obligations associated with the contract. Assumptions to calculate present and future obligations take into account current technology as well as the commercial and contractual positions, assessed on a contract-by-contract basis. The introduction of technologically-advanced products exposes the Group to risks of product failure significantly beyond the terms of standard contractual warranties applicable to suppliers of equipment only. Obligations on contracts may result in penalties due to late completion of contractual milestones, or unanticipated costs due to project modifications or delays caused by unexpected conditions or events. Loss making contracts From time to time the group enters into contracts which ultimately do not generate the anticipated profits at the time of execution. Where contracts are expected to make losses management prepare their best estimate of the total losses expected on that contract and make a full provision in the period which the loss is first foreseen. When considering the profitability of contracts where management anticipate delays in the delivery of projects, they take into consideration any expected payments in respect of contractual liquidated damages on late delivery. Estimates have been used in assessing the total value of losses expected on contracts at Maloney Metalcraft and amounts released thereafter as obligations passed. In respect of liquidated damages, where the conditions are met for payment management provide for these in full. 24 Principal Accounting Policies (Continued) Critical accounting judgements and key sources of estimation uncertainty (continued) Exceptional items Exceptional items are identified as such by virtue of their size, and nature of incidence. These items are disclosed on the face of the Income Statement to aid the understanding of the group’s performance. Transaction which may give rise to exceptional items are principally acquisition, start up and restructuring costs. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which the goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and to apply a suitable discount rate in order to calculate present value. The assumptions and sensitivities applied by management in determining whether there is any impairment of goodwill are set out in note 11. Recoverability of internally-generated intangible assets During the year, management reconsidered the recoverability of its internally-generated intangible assets ensuring that the projects continue to progress in a satisfactory manner, and that customer reaction has reconfirmed management’s previous estimates of anticipated revenue streams from the projects. Whether capitalised development costs are subsequently impaired requires an estimation of the future discounted cashflows of the associated product. Management have based their estimate of the future cashflows on current year orders extended over the life of the product. Further details are included in note 12. Recoverability of WIP, trade receivables and accrued income Management estimate the recoverable amount of balances relating to ongoing contracts that are incomplete at the date of approval of the financial statements. In particular in relation to claims the Directors prepare a best estimate of the amount expected to be recovered at the balance sheet date by reference to ongoing negotiations with the customer. Management do not accrue for the full amount of the claim and periodically revisit the claim and their assessment of the amount expected to be recovered. WIP, trade receivables and accrued income are detailed in note 17. Warranties Warranty accruals are made for specific product issues based on an estimate on the likely cost arising. It has been deemed prudent to provide for an amount based on historical information. As at the year end, there are no significant warranties and the Directors’ are not aware of any significant exposure. The major areas for judgements within the financial statements are as follows: Recognition of intangible assets During the year management have capitalised £713k of development costs associated with ongoing projects. As defined in the accounting policy, management carefully consider the conditions set out in assessing whether to capitalise certain costs. Assessing the future revenues and the availability of resources to complete the project involves significant judgement by the management team who are experienced in delivering these types of projects. Deferred tax asset Judgement is applied in assessing whether a deferred tax asset is recognised on carried forward losses based on anticipated profit streams, as set out in note 25. 25 Consolidated Income Statement For the year ended 31 May 2016 Revenue Cost of sales Gross profit Distribution costs Share based payment expense Net proceeds from property disposal Restructuring costs Start up costs - China Other administrative expenses Total administrative expenses Operating loss Finance income Finance costs Profit/(loss) before taxation Taxation Profit/(loss) after taxation from continuing operations Note 2016 £’000 2015 £’000 1 21,177 22,557 (18,028) (20,134) 3,149 2,423 (699) (21) 446 - (272) - (2,830) (792) (26) (195) (450) (2,192) (2,677) (2,863) (227) (1,232) 1 4 5 8 554 (82) 245 175 420 31,136 1.5p 1.5p 112.3p 111.4p 2016 £’000 31,136 1 (92) (1,323) 540 (783) 2,554 1,771 (2.8)p (2.8)p 6.4p 6.3p 2015 £’000 1,771 395 Profit after taxation from discontinued operations 33 30,716 Profit for the financial year attributable to equity shareholders Earnings per share: From continuing operations - Basic - Diluted From continuing and discontinued operations - Basic - Diluted 10 10 10 10 Consolidated Statement of Comprehensive Income Profit for the year Other comprehensive income for the year, net of tax: Items that may/will subsequently be reclassified to profit or loss Exchange differences on translation of foreign operations Exchange differences recycled on disposal of subsidiary undertakings 33 (283) 477 - Total comprehensive income for the year attributable to equity shareholders 31,330 2,166 The principal accounting policies and notes on pages 16 to 57 form part of these financial statements. 26 Consolidated Balance Sheet For the year ended 31 May 2016 Note Non current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax Available for sale financial assets Current assets Inventories Trade and other receivables: amounts falling due within one year Trade and other receivables: amounts falling due after one year Current tax asset Cash and cash equivalents Assets held for sale Total assets Current liabilities Trade and other payables Obligations under finance leases Borrowings Current tax liabilities Provisions Total current liabilities Non current liabilities Borrowings Obligations under finance leases Deferred tax Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium account Capital redemption reserve Merger reserve Translation reserve Other reserves Investment in own shares Retained earnings Total equity attributable to equity holders of the parent 11 12 13 25 15 16 17 17 8 19 21 23 22 8 20 22 23 25 26 32 2016 £’000 4,550 930 4,668 6 - 10,154 3,046 6,141 1,450 85 56,503 67,225 - 77,379 (6,908) (295) (3,911) (129) - 2015 £’000 9,557 3,442 11,861 64 - 24,924 10,733 19,030 - 277 6,337 36,377 631 61,932 (14,338) (695) (8,357) (334) - (11,243) (23,724) (1,075) (176) (132) (1,383) (2,434) (765) (824) (4,023) (12,626) (27,747) 64,753 34,185 1,387 10,903 814 - (8) 180 (1,000) 52,477 64,753 1,385 10,873 814 402 (202) 180 (1,000) 21,733 34,185 The principal accounting policies and notes on pages 16 to 57 form part of these financial statements. The financial statements were approved by the Board of Directors and authorised for issue on 26 September 2016 and signed on its behalf by: S M King Director Company number: 1968354 27 Company Balance Sheet For the year ended 31 May 2016 Non current assets Investments Current assets Trade and other receivables: amounts falling due within one year Trade and other receivables: amounts falling due after one year Cash at bank and in hand Total assets Current liabilities Trade and other payables Borrowings Total current liabilities Non-current liabilities Borrowings Total non-current liabilities Total liabilities Net assets Capital and reserves Called up share capital Share premium account Capital redemption reserve Merger reserve Other reserves Profit and loss account Equity shareholders’ funds Note 14 17 17 21 22 22 26 2016 £’000 5,816 5,816 3,598 1,450 55,498 60,546 66,362 (3,856) (178) (4,034) (1,075) (1,075) 2015 £’000 16,738 16,738 13,732 400 4,116 18,248 34,986 (2,604) (264) (2,868) (2,180) (2,180) 2014 £’000 16,713 16,713 14,337 400 3,689 18,426 35,139 (1,793) (299) (2,092) (2,267) (2,267) (5,109) (5,048) (4,359) 61,253 29,938 30,780 1,387 10,903 814 - 180 47,969 61,253 1,385 10,873 814 402 180 16,284 29,938 1,379 10,818 814 402 180 17,187 30,780 The financial statements were approved by the Board of Directors on and authorised for issue 26 September 2016 and signed on its behalf by: S M King Director The principal accounting policies and notes on pages 16 to 57 form part of these financial statements 28 Consolidated Statement of Changes in Equity For the year ended 31 May 2016 Capital Share redemp Share premium capital account £’000 £’000 -tion Merger reserve £’000 reserve £’000 At 1 June 2014 Ordinary shares issued Dividends paid Share-based payments 1,379 6 - - 10,818 55 - - 814 - - - 402 - - - Investment Trans -lation Other reserve reserves £’000 £’000 in own Retained shares earnings £’000 £’000 180 - - - (1,000) - - - 20,659 - (740) 43 Total £’000 32,655 61 (740) 43 (597) - - - - - 395 395 - - - - - - - - (697) (636) 1,771 1,771 - 395 1,771 2,166 Transactions with owners Profit for the year Other comprehensive income Exchange gain Total comprehensive income for the year Balance at 31 May 2015 6 - - - 55 - - - - - - - - - - - 1,385 1,385 2 - - - 2 - - - - 10,873 814 402 (202) 180 (1,000) 21,733 34,185 10,873 30 - - - 30 - - - - 814 - - - - - - - - - 10,903 814 402 - - (402) - (402) - - - - - (202) - - - - - - (283) 477 194 180 - - - - (1,000) - - - - 21,733 - (830) 402 36 34,185 32 (830) - 36 - - - - - - - - - - (392) (762) 31,136 31,136 - - (283) 477 31,136 31,330 (8) 180 (1,000) 52,477 64,753 At 1 June 2015 Ordinary shares issued Dividends paid Transfer on disposal Share-based payments Transactions with owners Profit for the year Other comprehensive income Exchange gain Recycled on disposal of subsidiary undertakings Total comprehensive income for the year Balance at 31 May 2016 1,387 The principal accounting policies and notes on pages 16 to 57 form part of these financial statements. 29 Company Statement of Changes in Equity For the year ended 31 May 2016 Share capital £’000 1,379 6 - - 6 - - At 1 June 2014 Ordinary shares issued Dividends paid Share-based payments Transactions with owners Profit for the year Total comprehensive income for the year Share premium account £’000 Capital redemp -tion reserve £’000 Merger reserve £’000 Other reserves £’000 Retained earnings £’000 10,818 55 - - 55 - - 814 - - - - - - 402 - - - - - - 180 - - - - - - Total £’000 30,780 61 (740) 43 (636) 17,187 - (740) 43 (697) (206) (206) (206) (206) Balance at 31 May 2015 1,385 10,873 814 402 180 16,284 29,938 At 1 June 2015 Ordinary shares issued Dividends paid Transfer on disposal Share-based payments Transactions with owners Profit for the year Total comprehensive income for the year 1,385 2 - - - 2 - - 10,873 30 - - - 30 - - 814 - - - - - - - Balance at 31 May 2016 1,387 10,903 814 402 - - (402) - (402) - - - 180 - - - - - - - 180 16,284 - (830) 402 36 (392) 29,938 32 (830) - 36 (762) 32,077 32,077 32,077 47,969 32,077 61,253 The principal accounting policies and notes on pages 16 to 57 form part of these financial statements. 30 Note 28 33 Consolidated Statement of Cash Flow For the year ended 31 May 2016 Operating activities Cash flows from operating activities Finance costs paid Income tax repaid Net cash inflow from operating activities Investing activities Acquisition of subsidiary undertakings, net of cash acquired Disposal of subsidiary undertakings, net of cash Finance income Purchase of intangible assets Purchase of property, plant and equipment Proceeds from sale of intangible assets Proceeds from sale of property, plant and equipment Net cash generated/(used) by in investing activities Financing activities Equity dividends paid Repayments of bank loans Repayments of obligations under finance leases Proceeds from issue of ordinary shares Borrowings raised Net cash outflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes on cash Cash and cash equivalents at end of year 28 The principal accounting policies and notes on pages 16 to 57 form part of these financial statements. Group 2016 £’000 2015 £’000 7,885 (146) 52 7,791 (3,500) 53,677 - 554 (766) (1,062) 9 - 1,319 50,231 (830) (4,156) (1,176) 32 1,651 (4,479) 53,543 (361) (259) 52,923 1,832 (213) 27 1,646 (1,137) 1 (1,582) (832) 103 (3,447) (740) (440) (901) 61 1,875 (145) (1,946) 1,428 157 (361) 31 Company Statement of Cash Flow For the year ended 31 May 2016 Operating activities Cash flows from operating activities Finance costs paid Income tax repaid Net cash inflow from operating activities Investing activities Disposal of subsidiary undertakings, net of cash Finance income Dividends received Net cash generated/(used) by in investing activities Financing activities Equity dividends paid Repayments of bank loans Proceeds from issue of ordinary shares Borrowings raised Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note Company 29 2016 £’000 (1,415) (55) 4 (1,466) 54,260 - 581 - 54,841 (830) (2,659) 32 1,464 - (1,993) 51,382 4,116 55,498 2015 £’000 (519) (55) 79 (495) 228 1,500 1,728 (740) (127) 61 (806) 427 3,689 4,116 The principal accounting policies and notes on pages 16 to 57 form part of these financial statements. 32 Notes to the Annual Report For the year ended 31 May 2016 1 Segmental analysis For management purposes, the Group is currently organised into one (2015: two) main segment Energy and Medical following the disposal of Aerospace. The basis on which the Group reports to the Chief Executive. Principal activities are as follows: • Energy and Medical – in the design and manufacture of machined and fabricated pressure and vacuum vessels and process plant and equipment for the power, oil & gas and medical markets. Plus, design and manufacture of fabricated poles and cabinets for roadside safety cameras and rail track signalling. Information about these businesses is presented below: Year ended 31 May 2016 Revenue Operating profit/(loss) Net finance costs Taxation Profit after tax from continuing operations Segment non-current assets Segment assets Segment liabilities Net assets Non-current asset additions Intangible assets Tangible assets Energy and Unallocated Medical Central items £’000 £’000 Total £’000 21,177 - 21,177 59 (286) (227) 472 175 420 10,154 20,427 - 56,952 10,154 77,379 (7,952) (4,674) (12,626) 12,475 52,278 64,753 330 430 760 - - - 330 430 760 Unallocated assets/(liabilities) consist primarily of interest bearing assets and liabilities and income tax assets and liabilities. 33 Notes to the Annual Report (Continued) For the year ended 31 May 2016 1 Segmental analysis (continued) Year ended 31 May 2015 Revenue Operating loss Net finance costs Taxation Loss after tax from continuing operations Segment non-current assets Segment assets Segment liabilities Net assets Non-current asset additions Intangible assets Tangible assets Discontinued Energy and Unallocated Medical Central items £’000 Operations £’000 £’000 Total £’000 22,557 - 22,557 (743) (489) 14,619 35,680 10,304 22,113 - 4,139 (1,232) (91) 540 (783) 24,924 61,932 (13,064) (11,871) (2,812) (27,747) 22,616 10,242 1,327 34,185 1,232 764 1,996 350 422 772 - - - 1,582 1,186 2,768 Unallocated assets/(liabilities) consist primarily of interest bearing assets and liabilities and income tax assets and liabilities. Geographical The following tables provides an analysis of the Group’s revenue by destination and the location of non-current assets by geographical market: United Kingdom Europe North America Rest of World Eliminations 2016 Revenue £’000 16,027 511 1 5,387 (749) 21,177 2015 Revenue £’000 2016 2015 Non-current Non-current Assets £’000 Assets £’000 19,375 545 37 3,150 (550) 22,557 8,626 - - - - 1,528 - - 21,388 3,536 10,154 24,924 The Group had Energy & Medical revenue of £6,977,000 and £2,284,000 (2015: £7,228,000) with single external customers under common control, which each represent more than 10% of the Group’s revenue. 34 Notes to the Annual Report (Continued) For the year ended 31 May 2016 2 Profit before taxation - continuing Profit before taxation is stated after charging/(crediting): Depreciation of property, plant and equipment Profit on disposal of property, plant and equipment Amortisation of internally generated intangible assets Cost of inventories recognised as an expense (Gain)/loss on foreign exchange transactions Staff costs (note 7) Operating lease rentals: - Land and buildings - Machinery Auditor’s remuneration Fees payable to the Company’s auditor for the audit of the financial statements Fees payable to the Company’s auditor and its associates for other services: - Audit of the financial statements of the Company’s subsidiaries and associates pursuant to legislation - Tax compliance services - All other services 2016 £’000 505 548 229 17,101 (11) 8,295 260 24 2016 £’000 13 68 20 23 2015 £’000 573 17 288 18,249 13 9,373 283 29 2015 £’000 12 111 27 12 Fees payable to the Company’s auditor Grant Thornton UK LLP and its associates for non-audit services to the Company itself are not disclosed in the individual financial statements of the Company because the Group financial statements are required by the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 to disclose such fees on a consolidated basis. 3 Adjusted Earnings before interest, tax, depreciation and amortisation Profit/(loss) before tax from continuing operations Share based payment expense Restructuring costs Profit on disposal of property Start up costs - China Adjusted profit/(loss) before tax Finance income Finance cost Adjusted loss before interest, tax and amortisation from business combinations (‘EBITA’) Depreciation Amortisation of other intangible assets Adjusted Earnings before interest, tax, depreciation and amortisation (‘EBITDA’) 2016 £’000 245 21 272 (446) - - 92 (554) 82 (380) 505 229 354 The Directors believe that the above adjusted earnings are a more appropriate reflection of the Group performance. 2015 £’000 (1,323) 26 195 450 (652) (1) 92 (561) 573 288 300 35 Notes to the Annual Report (Continued) For the year ended 31 May 2016 4 Finance income Interest from other Interest on finance lease agreements 5 Finance costs Interest on bank loans and overdrafts wholly repayable within five years Interest on bank loans and overdrafts wholly repayable after five years Interest on finance lease agreements Group 2016 £’000 552 2 554 2015 £’000 - 1 1 Group 2016 £’000 2015 £’000 7 54 21 82 10 55 27 92 6 Directors’ emoluments Particulars of directors’ emoluments are as follows: Salary and Fees £’000 Benefits £’000 Long Term Incentive £’000 Non-executive: R S McDowell J J Hamer LJ Thomas GK Thornton Executive: S McQuillan S M King Total emoluments 63 30 25 35 266 221 640 - - - - 2 1 3 - - - - - - - Total 2016 £’000 63 30 25 35 268 222 643 Total 2015 £’000 63 30 21 31 229 175 549 Pension Total 2016 £’000 Pension Total 2015 £’000 - - - - 22 26 48 - - - - 27 33 60 During June 2016 S McQuillan and S King were each paid £600,000 respectively in connection with the successful completion of the disposal of the Aerospace division, which was accrued in the financial statements for the year ended 31 May 2016. Thus total remuneration and remuneration for the highest paid director would be £1,843,000 and £868,000 respectively. The fees of JJ Hamer, LJ Thomas and GK Thornton were paid to Fin Dec Limited, Heriot Resources Ltd and RG Associates respectively. The non-cash benefits comprise the provision of private health insurance for S McQuillan and S M King. The number of Directors who are accruing benefits under money purchase schemes is two (2015: two). The long term incentive represents the initial interest in the Joint Ownership Scheme (see note 30). Employers National Insurance Contributions made relating to directors’ emoluments were £70,000 (2015: £65,000). During 2016 S McQuillan and S M King exercised Nil share options respectively as set out on page 14. (2015: S McQuillan and S M King exercised 195,000, 130,000 share options resulting in gains of £100,000, and £67,000). 36 Notes to the Annual Report (Continued) For the year ended 31 May 2016 7 Employees Particulars of employees, including Executive Directors: Wages and salaries Social security costs Other pension costs Share-based payment expense The average monthly number of employees (including Executive Directors) during the year was: Production Selling and distribution Administration 2016 £’000 7,163 725 386 21 8,295 2015 £’000 7,963 875 508 26 9,372 2016 Number 2015 Number 190 13 35 238 233 14 40 287 The remuneration of the Directors and Senior Management, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’. Short term employee benefits (including NIC) Post-employment benefits Share-based payments 8 Taxation Current tax Deferred tax (note 25) 2016 £’000 2015 £’000 720 69 15 804 2016 £’000 (63) (112) (175) 620 80 19 719 2015 £’000 (360) (180) (540) UK corporation tax is calculated at 20.0% (2015: 20.83%) of the estimated assessable profit/loss for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. 37 37 Notes to the Annual Report (Continued) For the year ended 31 May 2016 8 Taxation (continued) The charge for the year can be reconciled to the profit per the income statement as follows: Profit/(loss) before taxation Theoretical tax at UK corporation tax rate of 20.0% (2015: 20.83%) Effects of: Other expenditure that is/ is not tax deductible Un-provided deferred tax differences Adjustments in respect of prior years Change in deferred tax rate Total tax charge 2016 £’000 245 49 (104) (61) (43) (16) - (175) 2015 £’000 (1,323) (276) 66 (331) 1 (540) The Group has tax losses carried forward of approximately £4.7million at 31 May 2016 (2015: £5.2million) that may be relievable against future profits. The Group’s corporation tax assets and liabilities can be summarised as follows: Current tax assets UK Corporation tax Current tax liabilities UK Corporation tax 2016 £’000 2015 £’000 85 85 129 129 277 277 334 334 Factors that may affect future tax charges A reduction in the UK corporation tax rate from 21% to 20% (effective 1 April 2015) was enacted on 2 July 2013. Changes to the UK corporation tax rates were announced in the Chancellor’s Budget on 8 July 2015 and were substantively enacted on 26 October 2015. These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April 2020. The closing deferred tax liability at 31 May 2016 has therefore been calculated using these rates. An additional reduction to 17% (effective from 1 April 2020) was announced in the budget on 16 March 2016. This will reduce the company’s future current tax charge and deferred tax liability accordingly. 9 Dividends Interim dividend paid of 1.0p per ordinary share (2015: 0.9p) Final dividend paid of 2.0p per ordinary share (2015: 1.8p) 2016 £’000 277 553 830 2015 £’000 248 492 740 The interim dividend declared in the half year statement of 1.1p per ordinary share was paid on 15 June 2016. 38 Notes to the Annual Report (Continued) For the year ended 31 May 2016 10 Earnings per ordinary share Basic and diluted earnings per share have been calculated in accordance with IAS 33 which requires that earnings should be based on the net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the year. For diluted earnings per share the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares, being the EMI, CSOP and ExSOP share options. Weighted average number of shares – basic Share option adjustment Weighted average number of shares – diluted Earnings/(loss) from continuing operations Share-based payments Restructuring costs Start up costs - China Profit on disposal of property Adjusted earnings/(loss) from continuing operations From continuing operations: Basic earnings per share Adjusted basic earnings per share Diluted earnings per share Adjusted diluted earnings per share Earnings from discontinued operations From discontinued operations: Basic earnings per share Diluted earnings per share Earnings attributable to shareholders Basic earnings per share Diluted earnings per share 2016 Number 2015 Number 27,725,452 230,934 27,643,480 343,457 27,956,386 27,986,937 2016 £’000 2015 £’000 420 21 272 - (446) - 267 1.5p 1.0p 1.5p 1.0p 30,716 110.8p 109.9p (783) 26 195 450 (112) (2.8)p (0.4)p (2.8)p (0.4)p 2,554 9.2p 9.2p 31,136 1,771 112.3p 111.4p 6.4p 6.3p The Directors believe that the above adjusted earnings per share calculation for continuing operations is a more appropriate reflection of the Group’s underlying performance. There are 321,502 share options at 31 May 2016 (2015: 802,500) that are not included within diluted earnings per share because they are anti-dilutive. 39 Notes to the Annual Report (Continued) For the year ended 31 May 2016 11 Goodwill Cost At 1 June 2014 and 1 June 2015 Disposal of subsidiary undertakings (note 33) At 31 May 2016 Accumulated impairment losses At 1 June 2014 and 1 June 2015 At 31 May 2016 Net book value At 31 May 2016 At 31 May 2015 Total £’000 10,407 (5,007) 5,400 850 850 4,550 9,557 Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. The carrying amount of goodwill has been allocated as follows: Aerospace Energy and Medical 2016 £’000 - 4,550 4,550 2015 £’000 5,007 4,550 9,557 The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the revenue growth rates, expected changes to selling prices and direct costs during the period and discount rates. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next three years and derives cash flows for the following two years based on estimated growth rates for the specific markets in which each CGU operates. The Group uses its past experience in compiling the cashflow forecasts. The estimated growth rate does not exceed the average long-term growth rate for the relevant markets. A rate of 4% has been used for Energy and Medical. Recent changes to management and improvements to the contract negotiation and costing processes are expected to increase margins in the Energy and Medical division. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The rate used to discount the forecast cash flows is 10% which is considered appropriate based on the Group’s borrowings adjusted for the aggregate risk in the respective markets. Management have sensitised these key assumptions for each CGU within what is considered a reasonably possible range for the market in which the Group operates and have concluded that a 2% growth in revenue and discount rate of 12% would not result in the carrying amount of goodwill exceeding the recoverable amount. Whilst a five year horizon is shorter than the expected remaining life of the relevant CGUs, the directors consider this a suitable period to apply in performing impairment reviews due to the inherent uncertainty in further extrapolating three year forecasts. 40 Notes to the Annual Report (Continued) For the year ended 31 May 2016 12 Other intangible assets – group Customer relationships £’000 Order Development costs £’000 book £’000 Software £’000 Cost At 1 June 2014 Additions At 1 June 2015 Additions Disposals Disposal of subsidiary undertakings (note 33) 4,026 - 4,026 - - (4,026) 364 - 364 - - (364) 4,073 1,403 5,476 713 - (3,865) At 31 May 2016 - - 2,324 Accumulated amortisation At 1 June 2014 Charge for the year At 1 June 2015 Charge for the year Disposals Disposal of subsidiary undertakings (note 33) At 31 May 2015 Net book value at 31 May 2016 Net book value at 31 May 2015 3,717 137 3,854 137 - (3,991) - - 172 364 - 364 - - (364) - - - 2,235 509 2,744 623 - (1,904) 1,463 861 2,732 790 179 969 53 (13) (715) 294 246 185 431 223 (4) (425) 225 69 538 Total £’000 9,253 1,582 10,835 766 (13) (8,970) 2,618 6,562 831 7,393 983 (4) (6,684) 1,688 930 3,442 41 Notes to the Annual Report (Continued) For the year ended 31 May 2016 13 Property, plant and equipment– group Freehold Leasehold improve- land and buildings £’000 Plant and ments Machinery £’000 £’000 Equipment and motor vehicles £’000 Cost At 1 June 2014 Additions Acquisition of subsidiary undertakings Disposals Transfer to Assets held for sale Exchange adjustments At 1 June 2015 Additions Acquisition of subsidiary undertakings Disposals Disposal of subsidiary undertakings (note 33) Exchange adjustments At 31 May 2016 Depreciation At 1 June 2014 Charge in the year Disposals Transfer to Assets held for sale Exchange adjustments At 1 June 2015 Charge in the year Disposals Disposal of subsidiary undertakings (note 33) Exchange adjustments At 31 May 2016 Net book value at 31 May 2016 Net book value at 31 May 2015 5,946 10 - - (664) - 5,292 28 - - (3,194) - 2,126 522 84 - (33) 573 66 (1) (373) - 265 1,861 4,719 384 1 - (8) - - 377 65 - (3) (336) - 103 142 26 (8) - 160 22 (2) (148) - 32 71 217 10,893 521 354 (785) (15) 125 11,093 786 1,060 (267) (6,936) (13) 5,723 5,117 970 (784) (15) 9 5,297 1,109 (87) (2,839) (2) 3,478 2,245 5,796 Leased assets The net book value of assets held under finance leases are as follows: Total £’000 19,221 832 354 (962) (679) 148 18,914 1,062 1,181 (289) (11,896) (15) 8,957 6,614 1,438 (961) (48) 10 7,053 1,520 (90) (4,192) (2) 4,289 4,668 1,998 300 - (169) - 23 2,152 183 121 (19) (1,430) (2) 1,005 833 358 (169) - 1 1,023 323 - (832) - 514 491 1,129 11,861 Freehold Plant and land and buildings machinery £’000 £’000 Equipment and motor vehicles £’000 Net book value At 31 May 2016 At 31 May 2015 - 2 674 1,352 6 400 Depreciation charged on assets held under finance leases was £202,000 (2015: £585,000). 42 Total £’000 682 1,754 Notes to the Annual Report (Continued) For the year ended 31 May 2016 14 Investments Unlisted Capital investments Undertakings Contributions £’000 Group £’000 £’000 Cost At 1 June 2014 Additions At 1 June 2015 Additions Disposal of subsidiary undertakings (note 33) At 31 May 2016 Provision At 1 June 2014 Charge for the year At 1 June 2015 Charge for the year Disposal of subsidiary undertakings (note 33) At 31 May 2015 Net book value at 31 May 2016 Net book value at 31 May 2015 219 - 219 - - 219 219 - 219 - - 219 - - 21,031 - 21,031 - (10,861) 10,170 4,424 - 4,424 - - 4,424 5,746 16,607 106 25 131 24 (85) 70 - - - - - - 70 131 Total £’000 21,356 25 21,381 24 (10,946) 10,459 4,643 - 4,643 - - 4,643 5,816 16,738 The Company has the following investments in subsidiaries: Name Crown UK Limited Stainless Metalcraft (Chatteris) Limited Metalcraft (Chengdu) Limited Metalcraft (Sichuan) Limited Maloney Metalcraft Limited Composite Products Limited (formerly Sigma Composites Limited) Country of incorporation England and Wales England and Wales China China England and Wales Principal activity Precision engineering Precision engineering Precision engineering Precision engineering Precision engineering England and Wales Precision engineering Metalcraft (Chengdu) Limited and Metalcraft (Sichuan) Limited are 100% subsidiaries of Stainless Metalcraft (Chatteris) Limited. The Company disposed of the Aerospace division in the year. See note 33 for further information. Available for sale financial assets 15 Cost At 1 June 2014, 2015 and 31 May 2016 Provision At 1 June 2014, 2015 and 31 May 2016 Net book value at 31 May 2016 and 31 May 2015 Unlisted investments £’000 219 219 - 43 Notes to the Annual Report (Continued) For the year ended 31 May 2016 15 Available for sale financial assets (continued) The unlisted investment relates to a 7% holding in Vehicle Occupancy Limited (‘VOL’). Per IAS 39 this investment should be re-valued to fair value at each reporting date. However, VOL has a call option over the Group’s shareholding to acquire those shares at cost and the fair value cannot be measured reliably as this is an unlisted start-up company, so is valued at cost less impairment. 16 Inventories Raw materials and consumables Work in progress Finished goods Group 2016 £’000 750 1,926 370 3,046 2015 £’000 6,228 4,053 452 10,733 The replacement cost of the above stocks would not be significantly different from the values stated. 17 Trade and other receivables Amounts falling due within one year Trade receivables Allowance for doubtful debts Other receivables Amounts owed by group undertakings Prepayments and accrued income Amounts receivable under long term contracts Amounts falling after one year Other receivables Amounts owed by group undertakings Group 2016 £’000 3,498 (52) 3,446 40 - 1,276 1,379 6,141 1,450 - 1,450 2015 £’000 15,566 (128) 15,438 589 - 1,919 1,084 19,030 - - - 2016 £’000 Company 2015 £’000 2014 £’000 - - - - - - 1,066 2,529 3 - - 3,598 1,450 - - 1,450 - - - 1,000 12,709 23 - 13,732 - 400 400 1,000 13,316 21 14,337 400 400 The average credit period taken on sales of goods is 46 days (2015: 76 days) in respect of the Group. No interest is generally charged on the receivables until legal action is taken. Thereafter, interest is charged at 8% above bank base rate on the outstanding balance. The Group has impaired all trade receivables to the present value of estimated future cash receipts where it considers the collection of the receivable is doubtful. The Group’s maximum exposure to credit risk is limited to trade receivables net of allowance for doubtful debts. 44 Notes to the Annual Report (Continued) For the year ended 31 May 2016 17 Trade and other receivables (continued) Ageing of past due but not impaired trade receivables. 60 - 90 days 90 - 120 days 120+ days Total Movement in the allowance for doubtful debts Balance brought forward Impairment losses recognised Amounts written off as uncollectible Amounts recovered On disposal of subsidiaries Balance carried forward Group 2016 £’000 373 284 188 845 2015 £’000 464 2,217 1,134 3,815 2016 £’000 Company 2015 £’000 - - - - - - - - Group 2016 £’000 2015 £’000 2016 £’000 Company 2015 £’000 128 42 (36) - (82) 52 184 36 (55) (37) - 128 - - - - - - - - - - - - Included in the allowance for doubtful debts are individually impaired receivables. Ageing of impaired receivables: 60 - 90 days 90 - 120 days 120+ days Total Group 2016 £’000 2015 £’000 2016 £’000 Company 2015 £’000 - - 55 55 3 3 121 127 - - - - - - - - The Directors consider that the carrying amount of trade and other receivables approximates to fair value. 18 Long term contracts Gross amounts due from customers for contract work (included in current assets) Gross amounts due to customers for contract work (included in current liabilities) Contract costs incurred plus recognised profits less recognised losses to date Less: progress billings Revenue arising from long term contracts was £4,697,000 (2015: £7,312,000). 2016 £’000 1,379 (89) 1,290 6,022 (4,732) 1,290 2014 £’000 - - - - 2014 £’000 - - - - - - 2014 £’000 - - - - 2015 £’000 1,018 (647) 371 5,566 (5,195) 371 45 Notes to the Annual Report (Continued) For the year ended 31 May 2016 19 Assets held for sale At the end of 2015 management decided to relocate the direct production work undertaken at the Aldridge site within the Energy and Medical division to the Chatteris site, making the site superfluous to requirements. The freehold site at Aldridge was classified as held for sale. On 1 July 2015 the freehold site was sold for £1.1m net of costs resulting in a profit of £0.4m. 20 Provisions All provisions are considered current. The carrying amounts and the movements in the provision account are as follows: Carrying amount 1 June 2014 Amounts utilised Reversals At 1 June 2015 Acquisition of subsidiary undertakings (note 33) Amounts utilised Disposal of subsidiary undertakings (note 33) Reversals At 31 May 2016 Dilapidations £’000 289 (103) (186) - 265 - (265) - - Group Other £’000 400 (400) - - - - - - - Total £’000 689 (503) (186) - - - - - - The sites where provision had been made for dilapidation were exited at 31 May 2015. Other provisions related to various legal and other claims by customers which were settled during the year. 21 Trade and other payables Group 2016 £’000 3,499 - 564 205 527 2,113 6,908 Group 2016 £’000 3,580 1,406 4,986 3,911 1,075 2015 £’000 7,118 - 2,008 235 527 4,450 14,338 2015 £’000 6,698 4,093 10,791 8,357 2,434 2016 £’000 56 465 113 - - 3,222 3,856 2016 £’000 - 1,253 1,253 178 1,075 Company 2015 £’000 28 945 134 23 - 1,474 2,604 Company 2015 £’000 - 2,444 2,444 264 2,180 2014 £’000 39 1,568 143 23 - 20 1,793 2014 £’000 - 2,566 2,566 299 2,267 Trade payables Amounts owed to group undertakings Other tax and social security Other payables Payments on account Accruals and deferred income 22 Borrowings Secured borrowings Bank overdrafts Bank loans Total borrowings Amount due for settlement within 12 months Amount due for settlement after 12 months 46 Notes to the Annual Report (Continued) For the year ended 31 May 2016 22 Borrowings (continued) Bank loans due within one to two years Bank loans due within two to five years Bank loans due after five years Group 2016 £’000 179 541 355 1,075 2015 £’000 524 850 1,060 2,434 2016 £’000 179 541 355 1,075 Company 2015 £’000 271 849 1,060 2,180 2014 £’000 307 974 986 2,267 Bank loans of £1,253,000 (2015: £2,492,000, 2014: £2,927,000) are secured on certain assets of the Group. £Nil (2015: £1,298,000, 2014: £659,000) of bank overdrafts are secured on certain trade receivables of UK group companies. At 31 May 2015 the Group had £2,519,000 (2015: £7,712,000, 2014: £6,025,000) of undrawn committed borrowing facilities expiring within one year which the Directors expect to be renewed. All borrowings were at variable rates relative to local base rates. 23 Obligations under finance leases Amounts due within one year Amounts due in two to five years Total obligations under finance leases Less future finance charges Present value of lease obligations Finance lease liabilities are secured on the related assets. Minimum lease payments 2016 £’000 303 195 498 (27) 471 2015 £’000 722 830 1,522 (92) 1,460 Present value of minimum lease payments 2016 £’000 2015 £’000 295 176 471 - - 471 695 765 1,460 1,460 At 31 May 2016 the Group had £Nil fixed hire purchase and finance lease liabilities (2015: £439,000), the weighted average interest rate is Nil% (2015: 5.0%) and the weighted average period until maturity is Nil months (2015: 22 months). All finance lease liabilities were at variable rates relative to local base rates. 24 Financial instruments Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in notes 22 and 23 cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the statement of changes in equity. The Board closely monitor current and forecast cash balances at monthly Board meetings to allow the Group to maximise return to shareholders by way of dividends, whilst maintaining suitable amounts of liquid funds and facilities to allow acquisitions to be funded as opportunities arise and continued investment in property, plant and equipment and research and development. The level of dividends are set by the Board to meet the expectations of the shareholders based on cash generated by the Group. 47 Notes to the Annual Report (Continued) For the year ended 31 May 2016 24 Financial instruments (continued) The gearing ratio at the year-end is as follows: Debt Cash and cash equivalents Net cash/(debt) Equity Net cash/(debt) to equity ratio 2016 £’000 (5,457) 56,503 51,046 64,753 78.8% 2015 £’000 (12,251) 6,337 (5,914) 34,185 (17.3)% Debt is defined as long and short-term borrowings, as detailed in note 22. Equity includes all capital and reserves of the Group attributable to equity holders of the parent. The Group is not subject to externally imposed capital requirements. Analysis of financial instruments by IAS 39 category Financial assets Loans and receivables comprising: Trade receivables Amounts receivable under long term contracts Cash and cash equivalents Financial liabilities Other financial liabilities at amortised cost Trade payables Payments on account Accruals Borrowings Lease obligations Financial liabilities at amortised cost Undiscounted contractual maturity of financial liabilities: Amounts due within one year Amounts due in two to five years Amounts due after five years Less future finance charges Financial liabilities at carrying value Carrying value 2016 £’000 2015 £’000 3,446 1,379 56,503 61,328 3,499 527 2,113 6,139 4,986 472 5,458 11,597 10,377 973 362 11,712 (115) 11,597 15,290 816 6,337 22,443 7,118 527 4,450 12,095 10,791 1,460 12,251 24,346 21,224 2,335 1,097 24,656 (310) 24,346 The fair value of the financial instruments set out above is not materially different to the book value. Financial risk management objectives Management monitor and manage the financial risks relating to the operations of the Group. These risks include currency risk, interest rate risk, credit risk, liquidity risk and cash flow interest rate risk. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Market risk The Group’s activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates particularly in US dollars and the Euro. Foreign currency risk management The Group enters into forward foreign currency contracts to eliminate exposures on certain material sales or purchases denominated in foreign currency once a significant commitment has been made. 48 Notes to the Annual Report (Continued) For the year ended 31 May 2016 24 Financial instruments (continued) The Group presently has no forward sale contracts (2015: none) to manage the transactional currency exposure on certain contracts outstanding as at 31 May 2016. The following table details the Group’s sensitivity to a 10% increase and decrease in Sterling against the relevant foreign currencies on overseas assets. These changes are considered to be reasonably possible based on observation of current market conditions. Euro currency impact 2015 £’000 2016 £’000 US $ currency impact 2015 £’000 2016 £’000 RmB currency impact 2015 £’000 2016 £’000 1 2 3 (123) - - Impact (+/-) on Profit for the financial year/equity Interest rate risk management The Group finances its operations where necessary through bank loans, overdrafts and finance lease facilities. The bank loans and overdrafts are at floating rates principally at negotiated margins using pooling of the Group’s requirements to achieve this. The finance lease facilities are held at both fixed and floating rates. If interest rates on floating rate borrowings (i.e. cash and cash equivalents and bank overdrafts attracting interest at floating rates) were to change by + or – 0.5% the impact on the results in the income statement and equity would be an increase/decrease of £118,000. These charges are considered to be reasonably possible based on observation of current market conditions. Price risk management Where possible the Group enters into long term contracts with suppliers to mitigate any significant exposure to materials and utilities price risk. Credit risk management The Group’s principal financial assets are bank balances, cash, and trade receivables. The Group’s principal credit risk is attributable to its trade receivables. Credit risk is managed by monitoring the aggregate amount and duration of exposure to any one customer depending upon their credit rating. The amounts presented in the balance sheet are net of allowances for doubtful debts, estimated by the Group’s management based on prior experience and their assessment of the current economic environment. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit- rating agencies. The Group has two major customer’s which represent 32.9% and 10.8% respectively (2015: two major customer’s which represent 22.8% and 17.1% respectively) of trade receivables, the Group has no other significant concentration of receivables. The bad debt provision and ageing has reduced during the year predominately due to the impact of disposal of subsidiary undertaking’s improvements in credit control of the subsidiaries and building their relationships with key customers. Liquidity risk management The Group funds acquisitions through a mixture of cash, equity and long term debt. Short term financing needs are met by working capital facilities. The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long term financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week- to-week basis, as well as on the basis of a monthly 13 week projection. Long-term liquidity needs for up to a two year period are projected monthly and reviewed quarterly. The Group maintains cash and working capital facilities to meet its liquidity requirements for up to 30-day periods. Funding in regards to long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities. All facilities are secured on the assets of the Group. 49 Notes to the Annual Report (Continued) For the year ended 31 May 2016 25 Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period. At 1 June 2014 Credit to income At 1 June 2015 Credit to income – continuing operations Credit to income – discontinued operations Disposal of subsidiary undertakings (note 33) At 31 May 2016 Accelerated tax depreciation £’000 Other temporary differences £’000 Tax losses £’000 Total £’000 921 (132) 789 (106) (115) (436) 132 20 (49) (29) (6) (81) 110 (6) (41) 41 - - - - - 900 (140) 760 (112) (196) (326) 126 Certain deferred tax assets and liabilities have been offset where the relevant criteria are met. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: Deferred tax liabilities Deferred tax assets 2016 £’000 132 (6) 126 2015 £’000 824 (64) 760 At the balance sheet date the Group has unused tax losses of £4.7million (2015: £5.2 million) available for offset against future profits. A deferred tax asset has been recognised in respect of £nil (2015: £nil) of such losses. No deferred tax asset has been recognised due to the unpredictability of future profit streams. All losses may be carried forward indefinitely. In addition the Group has an unrecognised deferred tax asset of £24k (2015: £30k) in respect of share based payments. At the balance sheet date the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was £nil (2015: £nil). No liability has been recognised in respect of these differences because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. 50 Notes to the Annual Report (Continued) For the year ended 31 May 2016 26 Called up share capital 2016 No. £’000 2015 No. £’000 2014 No. £’000 Allotted, issued and fully paid Ordinary shares of 5p each 27,754,564 1,387 27,711,564 1,385 27,587,564 1,379 Reconciliation of movement in allotted, issued and fully paid share capital At 1 June 2015 and 31 May 15 Shares issued in period At 31 May 2016 No. 27,711,564 43,000 27,754,564 £’000 1,385 2 1,387 The Company has a share option scheme under which options to subscribe for the Company’s shares have been awarded to certain directors and employees. During the year 43,000 options were exercised, 19,000 and 24,000 at 49.5p and 96.0p respectively. The market price on the day of exercise was 116.0p, 122.5p, 155.5p and 179.5p. Further details of the scheme are given in note 27. The market price of the Company’s shares at the end of the year was 179.0p (2015: 111p). The highest and lowest market prices during the year were 185.5p and 100.5p (2015: 163p and 99.5p respectively). 27 Share-based payments The Group has recognised a portion of the fair value of these options in calculating the profit for the current and prior year. Outstanding at the start of the year Lapsed during the year Issued during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year 2016 2015 Weighted Average Exercise price p 47.57 124.87 - 59.91 Options (No. ‘000) 1,466.7 (20.0) 459.5 (480.7) Options (No. ‘000) 1425.5 (94.2) - (118.0) 1,213.3 119.33 1,425.5 685.3 110.11 149.0 Weighted Average Exercise price p 94.25 49.50 110.24 50.51 114.78 47.57 The options outstanding at 31 May 2016 had exercise prices in the range 39.5p to 176p and a weighted average remaining contractual life of 7.3 years (2015: 8.3 years). The average market share price of options at date of exercise was 1.44p (2015: 127.0p). 51 Notes to the Annual Report (Continued) For the year ended 31 May 2016 27 Share-based payments (continued) The terms of these options are as follows: Date of grant Options outstanding at 31 May 2016 24/9/2010 40,000 Vesting period 3 years 3/10/2011 15,000 3 years 18/12/2012 305,000 3 years 19/12/2012 145,000 3 years Market value at date of grant (p) 39.50 49.50 96.00 96.00 Exercise price (p) 39.50 49.50 96.00 96.00 22/11/2013 321,502 3 years* 176.00 176.00 9/12/2014 129,250 3 years* 109.00 109.00 10/12/2014 257,500 3 years* 111.00 111.00 Exercise period 25/9/2013 to 24/9/2020 4/10/2014 to 3/10/2021 19/12/2015 to 18/12/2022 20/12/2015 to 19/12/2022 23/12/2016 to 22/12/2023 10/12/2017 to 9/12/2024 11/12/2017 to 10/12/2024 * Following the disposal of the aerospace division on 27 May 2016 options held by aerospace employees became exercisable on a prorated basis within 6 months. The performance condition for each of these options is that the increase in adjusted EPS must be at least equal to the increase in RPI over the vesting period. All share options are equity settled. The adjusted EPS is the basic earnings per share published in the Preliminary Announcement of Results with adjustments made for amortisation of acquisition related intangibles costs of share based payments, and exceptional items agreed by the Remuneration Committee. Further adjustments to the above performance conditions may be approved by the Remuneration Committee to reflect future changes in accounting standards. The fair value of the options was calculated by external consultants, Pegg, Franklin & Co and Pinsent Masons. Options granted with performance conditions are valued using the Black-Scholes model. For all awards, recipients are required to remain in employment with the Group over the vesting period. Future volatility at the date of grant has been estimated by reference to the historical volatility at that time. The expected life used in the models has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Total charge to the income statement in respect of share-based payments In respect of: Equity settled share options 2016 £’000 36 2015 £’000 43 There are no share based payment transactions that were expensed immediately. A deferred tax credit of £nil (2015: £nil) was recognised during the year in respect of share based payments. 52 Notes to the Annual Report (Continued) For the year ended 31 May 2016 28 Notes to the consolidated cash flow statement Cash flows from operating activities: Continuing operations Profit/(loss) before income tax from continuing operations Profit before income tax from discontinued operations Adjustments for: Depreciation Amortisation of intangible assets Profit on disposal of property, plant and equipment Finance income Finance expenses Research and Development Expenditure Credit Share based payment charge Bargain purchase on acquisition (note 33) Changes in working capital (Increase)/decrease in inventories Increase in trade and other receivables Increase/(decrease) in trade and other payables Decrease in provisions Other non cash changes Cashflows from operating activities Cash and cash equivalents Cash Overdrafts 29 Notes to the company cash flow statement Continuing operations Loss before income tax from continuing operations Adjustments for: Finance income Finance expenses Share based payment charge Changes in working capital (Increase)/decrease in trade and other receivables Increase in trade and other payables Other non cash changes Cashflows from operating activities Group 2016 £’000 245 3,878 1,520 983 (489) (554) 146 (168) 36 (172) - (2,327) (556) 5,339 - 4 7,885 2016 £’000 56,503 (3,580) 52,923 2015 £’000 (1,323) 3,194 1,438 831 (102) (1) 212 (235) 43 1,128 (1,192) (1,477) (689) 5 1,832 2015 £’000 6,337 (6,698) (361) Company 2016 £’000 2015 £’000 (161) (1,785) (581) 55 12 (1,705) 961 4 (1,415) (228) 55 18 605 811 5 (519) 53 Notes to the Annual Report (Continued) For the year ended 31 May 2016 30 Related party transactions Group Remuneration of key management personnel The remuneration of the Directors and senior management is set out in note 6 in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual directors is provided in the Director’s Remuneration Report on pages 13 to 14. The Directors benefited from dividends paid in the year (note 9) on their shareholdings as set out in the Directors report page 8. Company The Directors benefited from dividends paid in the year (note 9) on their shareholdings as set out in the Directors report page 8. 31 Financial commitments a) Capital commitments Commitments for capital expenditure were as follows: Contracted for, but not provided in the accounts 2016 £’000 - 2015 £’000 40 b) Operating lease commitments At the balance sheet date the Group had outstanding commitments for minimum lease payments under non-cancellable operating leases which fall due as follows: Land and buildings lease obligations falling due: Within one year In the second to fifth years inclusive Other asset lease obligations falling due: Within one year In the second to fifth years inclusive 2016 £’000 274 168 442 12 4 16 2015 £’000 603 651 1,254 52 60 112 Operating lease payments represent rentals payable by the Group for certain of its office properties, motor vehicles and items of plant and equipment. Property leases are negotiated for an average term of 10 years and rentals are fixed for an average of five years with an option to extend for a further five years at the then prevailing market rate. 32 Investment in own shares On 22 June 2011 the Company approved, adopted and established the Avingtrans Employees’ Share Trust (‘the ExSOP Trust). A summary of the Trust Deed is as follows: • It has been established that the original trustee is RBC CEES Trustee Limited • The primary objective of the ExSOP Trust is to hold the capital and income of the Trust for the beneficiaries • The beneficiaries and the Trustee jointly subscribe for an initial interest in the shares purchased by the Trust • If the performance condition as set out in note 27 is achieved the option can be exercised by the beneficiaries During the year nil (2015: nil) shares were purchased at a cost of £nil (2015: £nil) by the Trust and beneficiaries, an interest in which was allocated to the Executive Directors as beneficiaries (as shown in note 27). All shares held by the trust are under option to Directors. Costs are charged to profit and loss as incurred. The above holdings are held at a cost of £1,000,000 (2015: £1,000,000, 2014: £1,000,000) and shown as a deduction from equity in the statement of changes in shareholders’ equity. 54 Notes to the Annual Report (Continued) For the year ended 31 May 2016 33 Acquisitions and disposals Business combination – Rolls-Royce Pipe Manufacturing On 4 March 2016 the group acquired the trade and certain business assets and liabilities relating to the manufacture of aerospace components of Rolls Royce Nuneaton and 100 percent of the issued share capital of Hartshill Ventures Limited. The acquisition was made to enhance the Group’s position in the aerospace market. The provisional net assets at the date of acquisition were as follows: Fair value of assets and liabilities acquired Property, plant and equipment Inventories Trade and other receivables Cash and cash equivalents Trade and other payables Provisions Net assets Intangibles assets identified Goodwill Fair value of consideration transferred: Cash Consideration Cash acquired Acquisition costs charged to expenses Net cash paid relating to the acquisition £’000 1,181 2,625 596 634 (465) (265) 4,306 - - 4,306 4,134 4,134 (634) 12 3,512 Management did not identify any intangible assets on acquisition of this business. Acquisition costs arising from this transaction of £12,000 have been included in administration expenses included in discontinued operations. The gain arising on the bargain purchase is £172,000 which had been credited within the result for discontinued operations within the consolidated income statement. The Directors do not have access to the information to disclose the revenue and profit/ loss since acquisition. The trade and assets from this acquisition were subsequently part of the Aerospace disposal on 27 May 2016. Business combination – Sigma Swadlincotee On 11 August 2014 the group acquired the trade and certain business assets and liabilities relating to the manufacture of aerospace components of RMDG Aerospace Ltd for £1,137,000. 55 Notes to the Annual Report (Continued) For the year ended 31 May 2016 33 Acquisitions and disposals Disposals – Aerospace Division On 27 May 2016 the Group disposed of its Aerospace division (comprising Sigma Precision Components UK Limited, Sigma Precision Components Limited, C & H Precision Finishers Limited, Sigma Components (Derby) Limited, Sigma Components (Farnborough) Limited and Hartshill Ventures Limited, the net assets and liabilities at the date of disposal were as follows: Goodwill Other intangible assets Property, plant and equipment Inventories Trade and other receivables Cash and cash equivalents Trade and other payables Obligations under finance lease Borrowings Current tax liabilities Provisions Deferred tax Net assets disposed Consideration Working capital adjustment Debt adjustment Cash disposed of Disposals costs Net cash received relating to acquisition Cash proceeds Adjust for cash disposed Net assets disposed Recycling of foreign exchange translation reserves and other non-cash adjustment Profit on disposal £’000 5,007 2,286 7,704 12,636 13,115 583 (13,764) - - (739) (265) (326) 26,237 65,000 (1,400) (4,944) (583) 58,073 (4,396) 53,677 53,677 583 (26,237) (477) 27,546 Included in the above profit on disposal is £477,000 of foreign exchange translation reserves recycled on disposal of the Aerospace division. Included in Consideration is a retention of £1,450,000 held in escrow until 30 September 2017. Discontinued Operations The results prior to the disposal on 27 May 2016 for the discontinued operations included in the consolidated income statement were: Revenue Operating profit Interest Profit before taxation Taxation Profit on disposal of discontinued operations Profit after tax from discontinued operations 56 2016 £’000 38,401 3,942 (64) 3,878 (708) 27,546 30,716 2015 £’000 35,262 3,314 (120) 3,194 (640) - 2,554 Notes to the Annual Report (Continued) For the year ended 31 May 2016 33 Acquisitions and disposals (continued) Discontinued Operations (continued) The Aerospace division contributed the following to the Group’s cashflows: Operating cashflows Investing activities Financing activities 34 Transition 2016 £’000 9,141 (4,503) (1,474) 2015 £’000 2,019 (2,694) (1,666) Avingtrans PLC reported under UK GAAP in its previously published financial statements for the year ended 31 May 2015. The Company has restated its Balance sheet at 1 June 2014 the transition date for the Company and 31 May 2015 from UK GAAP to IFRS. There has been no impact on the Income Statement for the 12 months ending 31 May 15. The parent company has adopted IFRS as endorsed for use in the EU for the first time, having previously applied UK GAAP. The effect on transition was as follows: Shareholder’s equity under UK GAAP Investments ESOP Shareholder’s equity under IFRS Loss for year under UK GAAP Investments ESOP Loss for year under IFRS 31 May 2015 £’000 1 June 2014 £’000 30,003 (223) 1,000 30,780 29,161 (223) 1,000 29,938 (206) - - (206) The adjustment to investments was to reflect £223,000 of previously capitalised professional costs on acquisition and the cost written off to retained earnings at 1 June 2014 (as capitalised prior to this date). The adjustment to ESOP was to reflect the assets and liabilities of ESOP have not been included in the company balance sheet under IFRS and instead another debtor balance represents the amount due from the ESOP to the parent company. There was no impact on cash flows for the company. 57 Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Avingtrans Plc will be held at Shakespeare Martineau LLP, No1 Colmore Square, Birmingham, B4 6AA on 8 November 2016 at 11:00am for the following purposes: To consider, and if thought fit, to pass the following resolutions numbered 1 to 5 as ordinary resolutions 1. To receive and adopt the reports of the Directors and the auditor and the financial statements for the year ended 31 May 2016. 2. To declare a final dividend of 2.1p per ordinary share payable on 9 December 2016 payable to shareholders on the register of members on 28 October 2016. 3. To re-elect Roger McDowell as a Director. 4. To re-elect Stephen King as a Director. 5. To reappoint Grant Thornton UK LLP as auditor of the Company to hold office until the conclusion of the next general meeting at which accounts are laid before the Company and that their remuneration to be fixed by the Directors. To transact any other ordinary business of an Annual General Meeting and as special business to consider the following Resolutions, Resolutions 6 and 7 being proposed as Ordinary Resolutions and Resolution 8 as a Special Resolution. 6. That the Directors be generally and unconditionally authorised to exercise all the powers of the Company to allot relevant securities as defined in Section 551 of the Companies Act 2006 (the “Act”) up to an aggregate nominal value of £231,075 provided that this authority shall expire in whichever is the earlier of the conclusion of the next Annual General Meeting of the Company or the date falling 15 months from the date of the passing of this Resolution, except that the Company may before such expiry make an offer or agreement which would or might require relevant securities in pursuance of any such offer or agreement as if the authority conferred by this Resolution had not expired, and that this authority shall be in substitution for all previous authorities conferred upon the Directors pursuant to section 551 of the Act. 7. That the Company be generally and unconditionally authorised, in accordance with Article 9 of its Articles of Association and Section 701 of the Act to make market purchases (within the meaning of Section 693 of the Act) of ordinary shares of 5p each of the Company on such terms and in such manner as the Directors may from time to time determine provided that: a. the maximum number of ordinary shares authorised to be purchased is 1,400,453; b. the minimum price which may be paid for an ordinary share is 5p (exclusive of expenses and advance corporation tax, if any, payable by the Company); c. the maximum price which may be paid for an ordinary share is an amount equal to 105% of the average of the middle market quotations for an ordinary share of the Company derived from the London Stock Exchange for the five business days immediately preceding the day on which the ordinary share is purchased (exclusive of expenses and advance corporation tax, if any, payable by the Company); and d. the authority conferred shall expire at the conclusion of the next Annual General Meeting of the Company except that the Company may, prior to such expiry, make a contract to purchase its own shares which will or may be completed or executed wholly or partly after such expiry. 8. That the Directors be empowered pursuant to Section 571 of the Act to allot equity securities (as defined in Section 560(1) of the Act) for cash pursuant to the authority conferred upon them by Resolution 6 as if Section 561 of the Act did not apply to any such allotment provided that such power shall be limited: a. to the allotment of equity securities in connection with a rights issue or other offer in favour of holders of ordinary shares where the equity securities respectively attributable to the interests of all the ordinary shareholders are proportionate (as nearly as may be) to the respective number of ordinary shares held by them subject to such exclusions or other arrangements as the Directors may consider appropriate to deal with fractional entitlements or legal or practical difficulties under the laws of any territory or the requirements of a regulatory body; and 58 Notice of Annual General Meeting b. to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount of £70,023 and shall expire on whichever is the earlier of the conclusion of the next Annual General Meeting of the Company or the date falling 15 months from the date of the passing of this Resolution, except that the Company may, before such expiry, make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such offer or agreement as if the power conferred by this Resolution had not expired. By order of the Board S M King Registered office Chatteris Business Park Chatteris Cambridgeshire PE16 6SA Dated 26 September 2016 59 Notice of Annual General Meeting Notes: Entitlement to attend and vote 1. Only those members registered on the Company’s register of members at close of business on 6 November 2016; or if this Meeting is adjourned, at close of business on the day two days prior to the adjourned meeting shall be entitled to attend and vote at the Meeting. Attending in person 2. If you wish to attend the Meeting in person, please bring photographic identification with you to the meeting. Appointment of proxies 3. If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the Meeting and you should have received a proxy form with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. 4. If you are not a member of the Company but you have been nominated by a member of the Company to enjoy information rights, you do not have a right to appoint any proxies under the procedures set out in this “Appointment of proxies” section. 5. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Details of how to appoint the Chairman of the Meeting or another person as your proxy using the proxy form are set out in the notes to the proxy form. 6. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. 7. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting. Appointment of proxy using hard copy proxy form 8. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. To appoint a proxy using the proxy form, the form must be completed and signed and sent or delivered to Capita Asset Services of PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU; and received by Capita Asset Services of PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU no later than 11:00am on 6 November 2016. In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. Appointment of proxy by joint members 9. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). 60 Notice of Annual General Meeting Changing proxy instructions 10. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, please contact Capita Asset Services of PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. Termination of proxy appointments 11. In order to revoke a proxy instruction you will need to inform the Company using one of the following methods: • By sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to Capita Asset Services of PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. • In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. In either case, the revocation notice must be received by the Capita Asset Services of PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU no later than 6 November 2016 at 11.00am. Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated. Issued shares and total voting rights 12. As at 11:00 am on 26 September 2016, the Company’s issued share capital comprised 28,009,069 ordinary shares of 5p each. Each ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 11.00am on 26 September 2016 is 28,009,069. Documents on display 13. The following documents will be available for inspection at Chatteris Business Park, Chatteris, Cambridgeshire PE16 6SA from 19 October 2016 until the time of the Meeting and for at least 15 minutes prior to the Meeting and during the Meeting: • Copies of the letters of appointment of the directors of the Company. 61 62 63 Avingtrans-Report-cover2016_2007 Report cover Art 19/09/2016 16:44 Page 3 5 y e a r p e r f o r m a n c e R E V E N U E 15.7 17.4 23.7 22.6 21.2 Year 2012 2013 2014 2015 2016 N E T A S S E T S Net Assets 64.8 23.7 30.5 32.7 34.2 Year 2012 2013 2014 2015 2016 E B I T D A (adjusted) EBITDA (adjusted) 0.3 0.4 E P S - Diluted (adjusted) - 0.6 Year 2012 - 0.5 2013 -0.6 2014 2015 2016 1.0 -1.0 -0.4 -2.4 Year 2012 -2.8 2013 2014 2015 2016 2012 - 2015 adjusted to exclude results for Aerospace division sold May 16. The results above are under IAS (International Accounting Standards). Adjusted for share based payments, impairment of goodwill, amortisation/impairment of intangibles and exceptionals n o i l l i M £ n o i l l i M £ 40 30 20 10 0 70 60 50 40 30 20 10 0 0.6 0.4 0.2 0 - 0.2 - 0.4 - 0.6 n o i l l i M £ e c n e P 2 1 0 - 1 - 2 - 3 64 Avingtrans-Report-cover2016_2007 Report cover Art 19/09/2016 16:44 Page 3 5 y e a r p e r f o r m a n c e R E V E N U E N E T A S S E T S E B I T D A (adjusted) E P S - Diluted (adjusted) n o i l l i M £ n o i l l i M £ 40 30 20 10 0 70 60 50 40 30 20 10 0 0.6 0.4 0.2 0 - 0.2 - 0.4 - 0.6 n o i l l i M £ e c n e P 2 1 0 - 1 - 2 - 3 15.7 17.4 23.7 22.6 21.2 Year 2012 2013 2014 2015 2016 Net Assets 64.8 23.7 30.5 32.7 34.2 Year 2012 2013 2014 2015 2016 EBITDA (adjusted) 0.3 0.4 - 0.6 Year 2012 - 0.5 2013 -0.6 2014 2015 2016 1.0 -1.0 -0.4 -2.4 Year 2012 -2.8 2013 2014 2015 2016 2012 - 2015 adjusted to exclude results for Aerospace division sold May 16. The results above are under IAS (International Accounting Standards). Adjusted for share based payments, impairment of goodwill, amortisation/impairment of intangibles and exceptionals Avingtrans-Report-cover2016_2007 Report cover Art 19/09/2016 16:44 Page 4 Energy & Medical INTERNATIONAL Avingtrans plc Chatteris Business Park Chatteris Cambridgeshire PE16 6SA Tel: 01354 692 391 Fax: 01354 695 281 Email: info@avingtrans.plc.uk www.avingtrans.plc.uk
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