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A N N U A L R E P O R T 2 0 1 6
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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
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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.
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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