ANNUAL REPORT 2017
CONTENTS
Chairman’s statement
Strategic report
Report of the directors
Corporate governance
Report of the directors on remuneration
Independent auditor’s report
Principal accounting policies
Consolidated income statement
Consolidated balance sheet
Company balance sheet
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated statement of cash flows
Company statement of cash flows
Notes to the annual report
Notice of annual general meeting
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57
Metalcraft and Maloney Metalcraft (UK and China)
Design and manufacture of safety-critical equipment for the energy,
medical, science and research communities worldwide, specialising
in oil and gas extraction and processing equipment, nuclear process
plant, nuclear decommissioning containers, precision pressure and
vacuum vessels and associated sub-assemblies and systems.
Crown International (UK)
Design and manufacture of pole and enclosure systems, known as
the ‘Crown Pole’ for roadside safety cameras and Smart Motorways,
as well as rail track signalling gantries and roadside signage poles for
motorways and major trunk roads. The business holds an exclusive
licence for the supply of patented technologies in the emerging field
of Carbon Sequestration and Reuse.
Composites 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.
Scientific Magnetics (UK)
Designs, manufactures, tests and installs bespoke superconducting
magnet systems for academic and commercial research. Scientific
Magnetics operates at the cutting edge of superconducting technology
and is the go-to specialist for blue-chip companies such as Siemens
and Rolls-Royce. Scientific Magnetics has developed standardised
helium-free magnet systems for pre-clinical and UHV applications and
has devleoped many world-firsts including the low helium, whole body
MRI magnet and superconducting magnets for space.
Hayward Tyler (UK, US, China and India)
A specialist engineering group who design, manufacture and
service performance-critical electric motors and pumps for
high pressure, high temperature applications in the harshest
environments across the global energy industry. A trusted
supplier for the markets served with bases in the UK, the
USA, China and India and a preferred supplier for solving
complex engineering problems for high-pressure, high-
temperature fluid handling across the global energy sector.
Peter Brotherhood (UK)
Designs, manufactures, installs and services specialist
turbines and compressors and CHP solutions used in the
power generation, marine, sugar, petrochemical and
processing, Waste to Energy power plants, Combined Heat
and Power (CHP) and oil and gas markets globally. A world
leader in turbo generators for FPSO vessels, including the
worlds largest of 27 MW and have supplied steam turbines
to many of the world’s leading FPSO operators including
Woodside, Single Buoy Mooring (SBM), BW Gas ASA,
Bluewater, Saipem, Aker Floating Production, Fred Olsen
Production, and Maersk. Peter Brotherhood is the UK’s only
producer of steam turbines with an output up to 40 MW,
which has applications in waste heat recovery, the FPSO
and FLNG markets and the Royal Navy Astute class
submarine new build programme. Peter Brotherhood steam
turbines provide over 1000 MW of installed power in Waste
to Energy Power Plants and have in excess of 500 machines
installed in the cane sugar industry.
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ANNUAL REPORT
YEAR ENDED 31 MAY 2017
I N T R O D U C T I O N
Commenting on the results, Roger McDowell, Chairman said:
“ Avingtrans continues to demonstrate its capacity for reinvention. After the successful sale of the Aerospace division,
we returned £19.4m of cash to shareholders via a tender offer. In the second half of the period, we cemented the
cornerstone of our Medical strategy through the enabling acquisition of Scientific Magnetics Ltd.
Post year end, this was followed by the substantial acquisition of Hayward Tyler Group (HTG) for £29.4m, excluding
debt and costs. This deal will accelerate our plans to split the Energy and Medical divisions, to fully capitalise on the
HTG potential. Operationally, we have made pleasing progress with key accounts – especially at Sellafield, where we
secured a 3-year, £11m extension to our existing multi-year contract.
to restore momentum at HTG. However, we are excited by the potential to develop our offerings in both the Energy
“ We are under no illusion that the next phase of our development will be easy. Some heavy lifting will be necessary
and Medical sectors, with blue chip customers and prospects underpinning our sensibly optimistic outlook.”
F I N A N C I A L H I G H L I G H T S
• Revenue from continuing operations increased by 7% to £22.7m (2016: £21.2m)
• Adjusted1 EBITDA from continuing operations increased by 104%, to £0.7m (2016: £0.4m)
• Adjusted1 Profit Before Tax improved to £0.3m (2016: £0.1m)
• Adjusted1 Diluted earnings per share from continuing operations 1.1p (2016: 1.0p)
• Cash outflow from operating activities £3.3m (2016: generated £7.8m)
• Net Cash £26.4m (31 May 2016: Net cash £51.0m)
• Increased final dividend of 2.2p per share, Full year total 3.4p (2016: Final 2.1p, Total 3.2p)
• Tender offer returned £19.4m to Shareholders
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
Energy
• Energy revenues increased by 15%, with a modest improvement in profitability
• Post period end, acquisition of Hayward Tyler Group plc for £29.4m, excl. debt & costs
• First Sellafield 3M3 (three-metre-cubed) prototype box delivered and fully approved
• £11m Sellafield 3-year contract extension; facilities redevelopment on time and on budget
• Post year end, Metalcraft gained contract extension with Cummins, worth £3.6m over 3 years
Medical
• Medical revenues were marginally lower, but with a welcome return to modest levels of profit
• Technology enabling acquisition of Scientific Magnetics Ltd for £0.33m
• China facility gearing-up for new contracts with Wuhan (£9m gained in year) and Bruker
1
1
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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 Director - resigned 8 November 2016)
G K Thornton (Non-executive Director)
L J Thomas (Non-executive Director)
E. Lloyd-Baker (Non-executive Director appointed September 2017)
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
Nplus1 Singer Advisory LLP
1 Bartholomew Lane,
London
EC2N 2AX
Nominated Broker
Nplus1 Singer Advisory LLP
1 Bartholomew Lane,
London
EC2N 2AX
Chairman’s Statement
In the last year, Avingtrans has been busy reinventing itself once more, as we have striven for early exploitation of the fruitful sale
of our Aerospace division in 2016. A successful tender offer in the first half was followed by the modest acquisitions of Scientific
Magnetics and the assets of Whiteley Read Engineering during the financial year.
In a major step forward, the Group, post year end, has completed the acquisition of Hayward Tyler Group plc (“HTG”). HTG’s
subsidiaries, Hayward Tyler and Peter Brotherhood, are venerable brand names in the UK engineering world, between them
having a pedigree of over 350 years in the sector. This bold step required a reverse takeover – a rare event on AIM. In itself, that
is of little merit, merely serving to underpin the extent of our diligent ambitions for the Group.
An unfortunate combination of ambitious investment programmes, acquisition and market down-cycle led HTG to an
overstretched balance sheet position, wherefrom it was finding difficulty in restoring equilibrium and achieving the growth
which the Directors believe it is capable of.
Thus, Avingtrans, with its clear objective to continue the now proven strategy of “buy and build” in regulated engineering niche
markets, together with its strong balance sheet, was the ideal solution to the problem.
As investors will recall, we have named this strategy PIE – “Pinpoint-Invest-Exit”. Previous deals - notably the disposal of Sigma
- have clearly demonstrated the success of this approach, producing substantial increases in shareholder value. We have built
strong brands and value from smaller constituent parts, we have demonstrated well-developed deal-making skills and we have
shown that we do not overpay for assets. The strategy to “buy and build” around smaller deals and consolidate relevant niches
has significant potential to generate growth and shareholder value, as demonstrated with Sigma and JenaTec. At the appropriate
time in the future, we will again seek to crystallise gains with periodic sales of businesses at advantageous valuations and return
the proceeds to shareholders.
Meanwhile, our existing Energy and Medical divisions have made steady progress. The on-going pre-production phase of
Sellafield 3M3 Box operations at Metalcraft continues to proceed positively, with Sellafield approving the first 3M3 prototype
unit and opening the 3M3 box production facility at Chatteris. This progress was underpinned by the award of a significant
contract extension by Sellafield. The Sellafield project is the precursor to a significant expansion of long term business in the
nuclear decommissioning sector. We believe that Metalcraft is well-placed to be a key partner for Sellafield in this programme
over the next 30 years and to participate in further contracts in the sector, as and when these are tendered.
The Medical division was awarded a £9m, 10-year contract for NMR (Nuclear Magnetic Resonance) - cryostats during the year.
The customer, based in Wuhan, China, is now known as CAS Oxford, an intriguing new entrant to the NMR market. We are
excited also by the acquisition of Scientific Magnetics Ltd, a manufacturer of superconducting magnet systems and cryogenics
for MRI NMR and other markets, for initial consideration of £0.33m. We believe that this small, but strategic acquisition could
become the cornerstone of our vertical integration strategy in the medical market.
In addition to the £19.4m of cash returned to shareholders, via the tender offer, the Board has declared an increased final
dividend, of 2.2 pence per share, rendering a full year total of 3.4 pence, once again underlining our commitment to consistently
improve returns to our shareholders.
Finally, I would like to take this opportunity to thank all our employees, including those newly arrived with recent acquisitions,
for all their hard work and dedication to deliver excellent quality engineering products and services to our customers.UK
engineering is the richer for their valuable contributions.
Roger McDowell
Chairman
26 September 2017
3
Strategic Report
Group Performance
Strategy and business 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 the UK and produce those products partly, or wholly in Asia
and now, with the addition of HTG, in the USA. This allows 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. Hayward Tyler and
Metalcraft, for example, are well established in China, providing integrated supply chain options for our customers.
The Group’s clear objective is to continue the proven strategy of “buy and build” in regulated engineering niche markets, where
we see consolidation opportunities, which can lead to significantly increased shareholder returns over the medium to long term.
At the appropriate time we will seek to crystallise these gains with periodic sales of businesses at advantageous valuations and
return the proceeds to shareholders. We call this strategy PIE – “Pinpoint-Invest-Exit”. Previous deals – eg the disposal of Sigma
– have clearly demonstrated the success of this approach, producing substantial increases in shareholder value. We have built
strong brands and value from smaller constituent parts; we have demonstrated well-developed deal-making skills and prudence
in the acquisition of new assets. The strategy to “buy and build” around smaller deals and consolidate relevant niches has
significant potential to generate growth and shareholder value, as demonstrated with Sigma and JenaTec.
Following the acquisition, the Board’s focus in the short term will be the full integration of HTG’s operations, a process which
has already started and is expected to continue throughout our first half. The objective for the Enlarged Group is to become a
leading supplier in the energy and medical markets of low volume, operation critical products, with a reputation for high quality
and delivery on-time and on-budget. The Enlarged Group has production facilities in its three key geographical markets (the
Americas, Asia and Europe) with high volume/lower cost facilities in Asia, and product development and realisation in the UK
and the USA. The Enlarged Group intends to invest in breakthrough and disruptive technologies in the energy and medical
markets.
Avingtrans’ primary focus for its Energy division is the nuclear market; decommissioning, life extension and “new nuclear”
markets – in particular, nuclear waste storage containers – as well as a variety of other niches in the renewable energy sector.
In addition, the Directors will continue to build on HTG’s footprint in the wider power and energy sectors; in particular, the
provision of traditional power generation, motor solutions, steam turbines, combined heat and power units and gas to power
units, in various sectors, with a principal focus on the power, oil and gas, marine, water and industrial sectors.
The key focus of the Enlarged Group’s Medical division is to become a market leader in the production of high integrity
components and systems for medical and scientific equipment manufacturers in specific niche markets, including for MRI
(Magnetic Resonance Imaging) derivatives, proton therapy and NMR (Nuclear Magnetic Resonance).
Operations
Existing Group
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
2017
99.2
99.7
10.2
0.13
2016
99.3
97.0
8.9
0.05
Our excellent divisional quality performance was sustained in the year and our delivery performance improved slightly. For
certain customers, we were again very pleased to be able to record near perfect quality and delivery records across the full
year. Staff turnover was up marginally year on year, reflecting ongoing oil and gas market turmoil. Therefore, we believe
that this remains at an acceptable level for this type of business. Whilst Health and safety incidents appear to have increased
significantly in the year, this simply reflects a change in reporting policy, which now includes even minor incidents and near
misses in the statistics, as we seek to build on our positive improvement record of the last few years.
4
Strategic Report (Continued)
Operations (continued)
Energy Division (Hayward Tyler, Peter Brotherhood, Metalcraft (part), Maloney Metalcraft and Crown)
Following the acquisition of HTG, the Energy division now forms the bulk of group operations.
The ongoing low oil price continued throughout the year, meaning that this sector was a lower priority for the existing businesses.
The residual phase of restructuring at Maloney is now complete. We continued to mitigate 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. HTG had already been following a risk mitigation path for oil and gas in its business plans and we will
continue to follow through with the restructuring of the business which had already begun. In addition, at Peter Brotherhood, we
will seek to expand the range of products being manufactured by this business, to further de-risk this operation.
The existing businesses produced healthy revenue growth of almost 16% in the period, with pre-exceptional EBITDA increasing
by 113%, as the positive effects of restructuring at Maloney and the improving margin mix of new contracts began to be felt at
Metalcraft and Crown.
Despite the recent oil price issues, the US Energy Information Administration forecasts a 48% increase in global energy
consumption (between 2012 and 2040) mainly driven by population growth. This is positive for the Energy Division, since
we have interests in various parts of the energy cycle, from primary extraction, to generation, alternative energy storage and
decommissioning. Decommissioning activities are steadily gathering pace, as this very long term legacy clean-up project is
grasped by the UK government and others around the world.
Summarising developments over the year at the Energy sites:
• Metalcraft, (Energy) Chatteris: business with existing key accounts – eg Cummins - was steady. The £47m, 10-year contract
with Sellafield Ltd, to produce 3M3 boxes, for the storage of intermediate level nuclear waste, is progressing to plan. We
also were favoured with an £11m, 3-year contract extension by Sellafield, extending the scope of the 3M3 box programme.
We made excellent progress with facilities refurbishment and pre-production tests. The production set-up and prototyping
phase will continue in the current financial year, with series production expected to commence in calendar 2018. Metalcraft
is well-placed to be a key partner for Sellafield in this programme. The total number of 3M3 boxes required is now expected
to be in excess of 70,000 over the entire programme life, worth an estimated £3bn, according to Sellafield’s own estimates.
• Whiteley Read Engineering Ltd, Rotherham: This small acquisition of assets (now a branch of Metalcraft) has already
proven its worth, by successfully completing overspill activities from Maloney and Metalcraft, as well as providing an
opportunity to widen our customer base in the Energy sector.
• Maloney Metalcraft, Aldridge: as noted elsewhere, the oil price effects continued to affect the business in the period. We
completed a limited restructuring process, to stabilise our position in the new $50 a barrel oil reality. The gas project contract
with Samsung was successfully completed in the period and the JGC Gulf International Co. Ltd project is nearing completion,
following a number of customer induced design changes. Work also commenced on the EDF life extension contract and is
proceeding to plan.
• Crown, Portishead: Crown had a stronger second half, driven by the win of an important new £1.7m contract for flame
detection masts, whose end customer is Fluor Corporation. Work on this contract continues into the current financial year.
The “FET” carbon abatement trial in Wales concluded successfully and we are working to turn this application into a product
of the future with FET. This technology promises to make small to medium fossil fuel generators “clean”, which is important
in a future where the energy grid is more fragmented and localised.
The addition of the HTG Group brings with it several additional sites to the Energy division: the Centre of Excellence at HTG’s
headquarters in Luton, the associated HTI business in Vermont and Peter Brotherhood’s production facility in Peterborough,
as well as sales, support and repair facilities in India and China. The multi-million pound investment in the Luton Centre of
Excellence has resulted in the world’s most advanced facility for specialist motor manufacture and also provides significant
additional support for R&D and the training and development of the Group’s workforce.
Medical Division (Scientific Magnetics Metalcraft (part) and Composite Products)
During the year, we made the small, but important technology-enabling acquisition of Space Cryomagnetics Limited; trading as
Scientific Magnetics. This acquisition enables us to vertically build our capability into superconducting magnets and cryogenics,
including “cryogen free” technology – ie avoiding using helium. This is crucial for the future of sectors like MRI and NMR, due
to the unstable nature of helium supplies. For example, the recent trade sanctions against Qatar by the gulf states has a significant
destabilising impact on helium supply, since helium is a by-product captured from only a few oil and gas fields around the world
and Qatar is a significant producer.
5
Strategic Report (Continued)
Medical Division (Scientific Magnetics Metalcraft (part) and Composite Products) (Continued)
Scientific Magnetics only added a small amount to Q4 revenue and made an initial loss of £0.1m, as anticipated. Overall, the
Medical division saw modest revenue decline of 2% in the period, mainly driven by ramp up delays at Composite Products.
Nevertheless, the division did see a welcome return to modest pre-exceptional profit in the year, following losses last year. We
anticipate growth coming through in the current financial year from recently won contracts – eg Rapiscan and Wuhan (now CAS
Oxford), as well as a full year of revenue from Scientific Magnetics.
The demographics of a growing and ageing world population are encouraging for the medical imaging and diagnostics markets,
so the business is well placed to benefit from external market drivers. There have been notable changes of ownership in some of
the key players in the MRI sector recently – eg with Canon acquiring Toshiba’s Medical business unit for $6bn. We continue to
see new entrants penetrating the Chinese medical imaging market, which, in general, we view positively, in terms of business
opportunity. These developments indicate that the sector will continue to spend money on developing new products and imaging
techniques.
Summarising developments over the year at the Medical sites:
• Scientific Magnetics Ltd, Abingdon: acquired in February 2017, this niche supplier of high power superconducting magnets
and cryogenics brings considerable engineering capability, at a time when we expect to see new breakthrough technologies
impacting the magnet designs of the future and when the need for helium free technology is increasingly important. The
business strategy is being realigned around a number of new potential products and customers.
• Metalcraft (Medical) Chatteris and Chengdu: Business with Siemens was steady in the UK in the period and we continued to
develop our relationships with other customers – eg for Proton Therapy. In China, results for the unit continued to improve
year on year and we made good progress with the existing customers (eg Siemens and Alltech), as well as preparing for the
new contracts with Bruker and Wuhan (CAS Oxford) for NMR vessels.
• Composite Products, Buckingham: performance in the second half suffered from ramp-up delays with key customer,
Rapiscan. We believe that the issues causing the delays are now resolved and expect to continue the ramp-up in the current
financial year.
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 improvement
Full year Group revenue of continuing operations increased by 7%, to £22.7m (2016: £21.2m). Energy again saw year-on-year
effects of the oil price holding back revenues, though the base position now seems stable.
Profit: margin improvement continues as new contracts build
Adjusted EBITDA increased by 104% (note 4), to £0.7m (2016: £0.4m). Action to optimise the cost base at Maloney, on-going
improvements at Metalcraft and further progress in China improved the overall EBITDA.
Gross margins were 17.9% (2016: 14.9%), improving as the margin mix of new contracts rises.
Tax:
The effective rate of taxation was a 3.9% tax charge, whereas 2016 was a 71.4% tax credit. We have continued to benefit from
Research and Development tax credits in the UK. In 2016 the non-taxable sale of the property and ongoing release of deferred
tax liabilities distorted the overall tax charge. 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.
Adjusted diluted earnings per share for continuing operations increased to 1.1p from 1.0p in 2016. Diluted loss per share,
attributable to shareholders was 1.3p (adjusted diluted earnings per share 2016: 111.4p reflecting the substantial shareholder
benefit from the disposal of Aerospace).
Funding and Liquidity: Balance sheet strong with Net Cash
The net cash outflow from operating activities was £3.3m (2016: £7.8m inflow), following payment of costs from the Sigma
disposal.
Net Cash (note 23) at year end stood at £26.4m (2016: Net cash: £51.0m) following the tender buyback £19.4m (before costs)
and payment of the costs associated with the Sigma disposal.
6
Strategic Report (Continued)
Financial Performance (Continued)
Dividend: steady progress
The Board once more proposes to underpin our progressive dividend policy. We are pleased to be able to recommend an improved
final dividend of 2.2 pence per share (2016: 2.1 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 8 December 2017, to shareholders on the
register at 27 October 2017.
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;
•
• 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.
• FET – Future Environmental Technologies – this is an early stage technology development relationship with a third party
company. There can be no guarantee at this stage that their technology will result in system sales, whether in the domain of
carbon abatement or elsewhere.
People
The post year end acquisition of HTG brings a capability treasure chest to Avingtrans and we look forward to working with their
talented people over the coming years, to develop a great business together.
We are delighted to retain the services of the HTG CEO, Ewan Lloyd Baker and we expect to formally confirm his appointment
to the Board at the AGM. No other Board changes are proposed at this time.
There were no other Board or top team management changes in the period, but the management team in the Energy and Medical
divisions continues to strengthen. Skills availability remains challenging, but we do not expect to be unduly constrained by any
shortages. Like Avingtrans, HTG has invested significant effort in developing skills, both through structured apprenticeship
programmes and also graduate development plans, notably at the HTL site in Luton.
The group undertakes to ensure social, community and human rights issues are considered in its employment of people.
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.
7
Strategic Report (Continued)
Outlook
The group is a niche engineering market leader in the Energy and Medical sectors. The past year has demonstrated our skill for
invention and reinvention, both technologically and corporately. We expect that the recent acquisitions (particularly that of HTG)
will afford investors another opportunity to build enduring value with us in a new set of engineering market niches. We will
continue to be frugal and seek to crystallise value 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, such as the contract extension with Sellafield. We have an excellent customer base which we can leverage
and differentiated product niches where the group can be world-leading. We are well placed to benefit from further market
consolidation, particularly in the Energy sector. Clearly, the short-term focus for Avingtrans will be the successful integration
of HTG, where we see a significant body of work being necessary, to steady the ship and re-establish a profitable growth path.
Metalcraft, Hayward Tyler and Peter Brotherhood are clear leaders in their chosen niche markets, providing customers with
consistent quality as part of a world class journey. We believe that Scientific Magnetics can be the key to growing a Medical
division which develops tangible value for shareholders in the longer term.
Our attractive structural growth markets and durable customer relationships mean that we remain cautiously confident about the
future of Avingtrans. As ever in our acquisition activities, we will seek to conduct our efforts rigorously and efficiently, with an
underpinning ethos that recent deals 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 2017 and signed on its behalf by:
Roger McDowell
Chairman
26 September 2017
Steve McQuillan
Chief Executive Officer
26 September 2017
Stephen King
Chief Financial Officer
26 September 2017
8
Report of the Directors
The Directors present their report and the audited financial statements for the year ended 31 May 2017.
Matters included in the strategic report
The Directors’ consideration of likely future developments in the business has been included in the Strategic Report.
Going concern
During the year the Group has managed its working capital and cash flows resulting in an operating cash outflow of £3.3m for the
year. At 31 May 2017 the Group has net cash of £26.4m as detailed in note 23 (2016: Net cash £51.0m) and net assets of £45.1m
(2016: £64.8m). The completion of the acquisition of the Hayward Tyler Group plc on 31 August 2017 resulted in £11.5m of its
facilities being repaid, the assumption of a further £10.0m of debt and £5m of associated transaction costs being incurred. As
discussed in more detail in the Chairman’s statement and Strategic report, looking into 2017/18 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 2018, 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 loss for the year before tax from continuing operations amounted to £285,000 (profit 2016: £245,000) for continuing
operations. In 2016 there was profit after tax from discontinued operations of £30,716,000. A final dividend of 2.2 pence is
proposed for the year ended 31 May 2017 (2016: 2.1 pence), taking the total dividend for the year to 3.4 pence (2016: total 3.2
pence).
Tender buyback of shares
On 18 November the Group completed the tender buyback of 9,691,361 shares for consideration of £19,383,000 before associated
expenses. The nominal value of the share repurchased in the tender buyback £485,000 was transferred to the Capital Redemption
Reserve.
Post Balance Sheet Event
On 31 August 2017 the Group completed the acquisition of 100 percent of the issued share capital of the Hayward Tyler Group
plc for £29.4m before debt repayment/assumption as above and associated transaction costs.
Substantial shareholdings
As at 26 September 2017, 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
Funds managed by Unicorn Asset Management Limited
Harwood Capital
R S McDowell’s Pension Fund
Funds managed by RBC Trustees Limited
P McDowell’s Pension Fund
Funds managed by LGT Bank
Funds managed Close Brothers Asset Management
Number of
shares
‘000
Percentage
of issued
share capital
owned
3,020
1,946
1,893
1,406
1,393
1,213
1,017
909
9.8%
6.3%
6.2%
4.6%
4.5%
4.0%
3.3%
3.0%
9
Report of the Directors (Continued)
Directors and their interests
The present Directors of the Company and those that served during the year are set out on page 2. Their interests in the share
capital of the Company are set out below.
R S McDowell
S McQuillan
S M King
G K Thornton
L J Thomas
Share options
Ordinary shares of 5p each
31 May
31 May
2016
2017
1,406,409
225,000
180,248
20,000
- -
2,406,409
330,566
286,071
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.
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 and the Group’s financial risk
management objectives and policy disclosures is given in note 23 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.
Research and development
During the year £625,000 (2016: £713,000) of development costs (per note 13) were capitalised as intangible assets. This was
predominately at Metalcraft in relation to new customer’s MRI designs and waste storage equipment and Maloney relating to the
nuclear life extension development.
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.
10
Report of the Directors (Continued)
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.
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 2017 and signed on its behalf by:
S M King
Director
11
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 for the majority of the period comprised two Executive Directors and three Non-Executive Directors,
after J J Hamer left the Board 8 November 2016. During the year the Board was chaired by R S McDowell and assisted by the
Senior Independent Non-executive Director G K Thornton (J J Hamer until 8 November 2016), who together have primary
responsibility for running the Board. On 30 August 2017 E Lloyd-Baker joined the Board as a Non-Executive Director, he will
serve on the Audit, Remuneration and Nomination Committees.
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 G K Thornton (J J
Hamer until 8 November 2016) 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 L J Thomas 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 14 to 15.
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.
12
Corporate Governance (Continued)
Accountability and Audit
The respective responsibilities of Directors and the Auditor are set out on pages 11 and 16. 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 2017
13
Report of the Directors on Remuneration
Composition
The Remuneration Committee during the period comprised G K Thornton (Chairman), R S McDowell, and L J Thomas.
J J Hamer served on the Committee until he retired from the Board (8 November 2016).
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
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 15.
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 7 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. 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 7 to the financial statements.
14
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
2016
grant
18/12/2012
22/11/2013
10/12/2014
21/12/2016
175,000
95,000
100,000
-
Granted
-
-
-
450,000
Weighted
average
exercise
price
£
Exercised
At 31 May
2017
175,000
-
-
-
-
95,000
100,000
450,000
370,000
450,000
175,000
645,000
25/9/2010
18/12/2012
22/11/2013
10/12/2014
21/12/2016
40,000
125,000
84,000
75,000
-
-
-
-
-
330,000
267
125,000
-
-
-
39,733
-
84,000
75,000
330,000
324,000
330,000
125,267
528,733
0.960
1.760
1.110
1.930
1.778
0.395
0.960
1.760
1.110
1.930
1.671
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 2017
15
Independent Auditor’s Report to the Members of Avingtrans plc
We have audited the group financial statements of Avingtrans plc for the year ended 31 May 2017 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 sheet,
the consolidated statement of cash flows, the company statement of cash flows and the 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 page 11, 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:
• give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 May 2017 and of the Group’s
•
•
profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly planned in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provision of the Companies Act 2006; and
• 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 group financial statements:
•
•
the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
the Strategic Report and Directors’ Report has been prepared in accordance with applicable legal requirements.
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 2017
16
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.
The consolidated financial statements are presented in sterling and all values are rounded the nearest thousand (£’000) except
where otherwise indicated.
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 9
IFRS 14
IFRS 15
IFRS 16
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
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
Amendments to IAS 12
Recognition of deferred tax assets for
unrealised losses
Amendments to IAS 7
Disclosure initiative
Annual Improvements
2014-2016
Re IFRS 12 disclosure of interest in
other entities
Not yet EU-adopted
Not yet EU-adopted
Not yet EU-adopted
Not yet EU-adopted
IFRS
Amendments to IFRS 11
Accounting for Acquisitions of
Interests in Joint Operations
Financial periods commencing
on/after 1 January 2016
IFRS
IFRS
Annual Improvements
2012-2014
Amendments to IAS 16
and IAS 41
IFRS
Amendments to IAS 27
Bearer Plants
Financial periods commencing
on/after 1 January 2016
Financial periods commencing
on/after 1 January 2016
Equity method in Separate Financial
Statements
Financial periods commencing
on/after 1 January 2016
IFRS
IFRS
Amendments to IFRS 10,
IFRS 12, and IAS 28
Investment Entities: Applying the
Consolidation Exception
Financial periods commencing
on/after 1 January 2016
Disclosure Initiative:
Amendments to IAS 1
Presentation of Financial Statements
Financial periods commencing
on/after 1 January 2016
Impact of IFRS15/16
There are other standards in issue which are not considered applicable and are not expected to have an impact on the Company
and have therefore not been included in the list above. Both IFRS 15 and IFRS 16 are expected to require amendments for
operating revenue and operating leases however management are undertaking an exercise to determine the impact on results and
have not yet quantified this.
The directors have not yet calculated the impact that the adoption of the other Standards and Interpretations noted in future
periods will have.
17
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
2017. 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.
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 32. 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.
18
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.
19
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.
20
Principal Accounting Policies (Continued)
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.
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.
21
Principal Accounting Policies (Continued)
Intangible assets (continued)
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.
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.
22
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.
23
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 reportable operating segments currently are 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
24
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 long-term contracts and related provisions
The Group recognises revenue and gross margin on long-term 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 are used in assessing the total value of losses expected on contracts
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.
25
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 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 12.
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 13.
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 the customers. Management 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 £625,000k 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 24.
26
Consolidated Income Statement
For the year ended 31 May 2017
Revenue
Cost of sales
Gross profit
Distribution costs
Share based payment expense
Acquisition costs
Restructuring costs
Tender share buyback costs
Net proceeds from property disposal
Other administrative expenses
Total administrative expenses
Operating loss
Finance income
Finance costs
(Loss)/profit before taxation
Taxation
(Loss)/profit after taxation from continuing operations
Note
2017
£’000
2016
£’000
2
22,714
21,177
(18,659)
(18,028)
4,055
3,149
(713)
(34)
(101) –
(182)
(226) –
–
(3,265)
(699)
(21)
(272)
446
(2,830)
(3,808)
(2,677)
(466)
219
(38)
(285)
(11)
(296)
(227)
554
(82)
245
175
420
2
5
6
9
Profit after taxation from discontinued operations
32
–
30,716
(Loss)/profit for the financial year attributable to equity shareholders
(296)
31,136
(Loss)/earnings per share:
From continuing operations
- Basic
- Diluted
From continuing and discontinued operations
- Basic
- Diluted
11
11
10
10
(1.3)p
(1.3)p
(1.3)p
(1.3)p
1.5p
1.5p
112.3p
111.4p
Consolidated Statement of Comprehensive Income
(Loss)/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
Merger reserve recycled on disposal of subsidiary undertakings
Exchange differences recycled on disposal of subsidiary undertakings
2017
£’000
2016
£’000
(296)
31,136
10
–
–
(283)
402
477
32
Total comprehensive income for the year attributable to equity shareholders
(286)
31,732
The principal accounting policies and notes on pages 17 to 56 form part of these financial statements.
27
Consolidated Balance Sheet
For the year ended 31 May 2017
Note
Non current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax
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
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
Contingent consideration
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Translation reserve
Other reserves
Investment in own shares
Retained earnings
Total equity attributable to equity holders of the parent
12
13
14
24
16
17
17
9
20
22
21
9
19
21
22
24
32
25
32
2017
£’000
5,198
1,442
4,850
–
2016
£’000
4,550
930
4,668
6
11,490
10,154
5,618
9,038
580
52
27,703
42,991
54,481
(7,870)
(142)
(179)
–
– –
3,046
6,141
1,450
85
56,503
67,225
77,379
(6,908)
(295)
(3,911)
(129)
(8,191)
(11,243)
(896)
(37)
(195)
(256) –
(1,075)
(176)
(132)
(1,384)
(9,575)
(1,383)
(12,626)
44,906
64,753
958
12,771
1,299
2
180
(2,250)
31,946
44,906
1,387
10,903
814
(8)
180
(1,000)
52,477
64,753
The principal accounting policies and notes on pages 17 to 56 form part of these financial statements.
The financial statements were approved by the Board of Directors and authorised for issue on 26 September 2017 and signed on
its behalf by:
S M King
Director
Company number: 1968354
28
Company Balance Sheet
For the year ended 31 May 2017
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
Current tax asset
Cash at bank and in hand
Total assets
Current liabilities
Trade and other payables
Borrowings
Total current liabilities
Non-current liabilities
Borrowings
Contingent consideration
Total non-current liabilities
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Profit and loss account
Equity shareholders’ funds
Note
15
17
17
20
21
21
32
(
25
2017
£’000
6,419
6,419
11,833
–
123 –
25,124
37,080
43,499
(155)
(179)
(334)
(896)
(256) –
2016
£’000
5,816
5,816
3,598
1,450
55,498
60,546
66,362
(3,856)
(178)
(4,034)
(1,075)
1,152)
(1,075)
(1,486)
(5,109)
42,013
61,253
958
12,771
1,299
180
26,805
42,013
1,387
10,903
814
180
47,969
61,253
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 loss dealt with in the parent company’s financial statements was
£929k loss (2016: profit of £32,077k).
The financial statements were approved by the Board of Directors on and authorised for issue 26 September 2017 and signed on
its behalf by:
S M King
Director
The principal accounting policies and notes on pages 17 to 56 form part of these financial statements.
29
Consolidated Statement of Changes in Equity
For the year ended 31 May 2017
Capital
Share redemp
Share premium
capital account
£’000
£’000
-tion Merger
reserve
£’000
reserve
£’000
Investment
Trans
-lation Other
reserve reserves
£’000
£’000
in own Retained
shares earnings
£’000
£’000
At 1 June 2015
Ordinary shares issued
Dividends paid
Transfer on disposal
Share-based payments
1,385
2
–
–
–
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
2
–
–
–
–
10,873
30
–
–
–
30
–
–
–
–
814
–
–
–
–
–
–
–
–
–
10,903
814
At 1 June 2016
Ordinary shares issued
Dividends paid
Investment in own shares
Tender share buyback
Share-based payments
1,387
56
–
–
(485)
–
10,903
1,868
–
–
–
–
Transactions with owners
(429)
1,868
Loss for the year
Other comprehensive income
Exchange gain
Total comprehensive
income for the year
Balance at 31 May
2017
–
–
–
–
–
–
814
–
–
–
485
–
485
–
–
–
958
12,771
1,299
402
–
–
(402)
–
(402)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
34,185
32
(830)
–
36
180
–
–
–
–
(1,000)
–
–
–
–
21,733
–
(830)
402
36
–
–
–
–
–
–
–
–
–
–
(392)
(762)
31,136
31,136
–
–
(283)
477
31,136
31,330
(202)
–
–
–
–
–
–
(283)
477
194
(8)
180
(1,000)
52,477
64,753
(8)
–
–
–
–
–
–
–
10
10
2
180
–
–
–
–
–
–
–
–
–
(1,000)
–
–
(1,250)
–
–
52,477
–
(886)
–
(19,383)
34
64,753
1,924
(886)
(1,250)
(19,383)
34
(1,250)
(20,235)
(19,561)
–
–
–
(296)
(296)
–
10
(296)
(286)
180
(2,250)
31,946
44,906
The principal accounting policies and notes on pages 17 to 56 form part of these financial statements.
30
Company Statement of Changes in Equity
For the year ended 31 May 2017
Share
premium
account
£’000
Capital
redemp
-tion
reserve
£’000
Merger
reserve
£’000
Other
reserves
£’000
Retained
earnings
£’000
Share
capital
£’000
1,385
2
–
–
–
2
–
–
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
10,873
30
–
–
–
30
–
–
814
–
–
–
–
–
–
–
Balance at 31 May 2016
1,387
10,903
814
At 1 June 2016
Ordinary shares issued
Dividends paid
Tender share buyback
Share-based payments
Transactions with owners
Loss for the year
Total comprehensive
income for the year
1,387
56
–
(485)
–
(429)
–
–
10,903
1,868
–
–
–
1,868
–
–
814
–
–
485
–
485
–
–
Balance at 31 May 2017
958
12,771
1,299
Total
£’000
29,938
32
(830)
–
36
(762)
16,284
–
(830)
402
36
(392)
32,077
32,077
32,077
47,969
32,077
61,253
47,969
–
(886)
(19,383)
34
61,253
1,924
(886)
(19,383)
34
(20,235)
(18,311)
(929)
(929)
(929)
(929)
180
–
–
–
–
–
–
–
180
180
–
–
–
–
–
–
–
180
26,805
42,013
402
–
–
(402)
–
(402)
–
–
–
–
–
–
–
–
–
–
–
–
The principal accounting policies and notes on pages 17 to 56 form part of these financial statements.
31
Consolidated Statement of Cash Flow
For the year ended 31 May 2017
Operating activities
Cash flows from operating activities
Finance costs paid
Income tax (paid) repaid
Net cash (outflow)/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
Note
27
32
2017
£’000
(3,221)
(38)
(1)
(3,260)
(585)
–
219
(626)
(484)
– 9
13
2016
£’000
7,885
(146)
52
7,791
(3,500)
53,677
554
(766)
(1,062)
1,319
Net cash (used)/generated by in investing activities
(1,463)
50,231
Financing activities
Equity dividends paid
Repayments of bank loans
Repayments of obligations under finance leases
Proceeds from issue of ordinary shares
Purchase of shares - tender buyback
Proceeds from borrowings
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes on cash
(886)
(334)
(292)
612
(19,383) –
–
(20,283)
(25,006)
52,923
(214)
Cash and cash equivalents at end of year
27
27,703
The principal accounting policies and notes on pages 17 to 56 form part of these financial statements.
(830)
(4,156)
(1,176)
32
1,651
(145)
53,543
(361)
(259)
52,923
32
Company Statement of Cash Flow
For the year ended 31 May 2017
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
Acquisition of subsidiary undertakings
Finance income
Net cash (utilised)/generated by investing activities
Financing activities
Equity dividends paid
Repayments of bank loans
Proceeds from issue of ordinary shares
Purchase of shares - tender buyback
Proceeds from borrowings
Net cash outflow from financing activities
Net (decrease)/ increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
Company
28
2017
£’000
(11,300)
(21)
–
(11,321)
–
(738) –
274
(464)
(886)
(182)
1,862
(19,383) –
2016
£’000
(1,415)
(55)
4
(1,466)
54,260
581
54,841
(830)
(2,659)
32
–
1,464
(18,589)
(1,993)
(30,374)
55,498
25,124
51,382
4,116
55,498
The principal accounting policies and notes on pages 17 to 56 form part of these financial statements.
33
Notes to the Annual Report
For the year ended 31 May 2017
1
Corporate information
The consolidated financial statements of Avingtrans plc and its subsidiaries (collectively the Group) for the year ended 31 May
2017 were authorised for issue in accordance with a resolution of the directors on 26 September 2017. Avingtrans plc (the parent)
is a limited company incorporated in England & Wales, whose shares are publicly traded on AIM. The registered office is located
at Chatteris Business Park, Chatteris, Cambridgeshire PE16 6SA. The Group is principally engaged in the provision of highly
engineered components, systems and services to the energy, medical and traffic management industries worldwide.
2
Segmental analysis
For management purposes, the Group is currently organised into two (2016: two) main segments 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 – in the design and manufacture of machined and fabricated pressure and vacuum vessels and process plant and
equipment for the power, oil and gas. Plus, design and manufacture of fabricated poles and cabinets for roadside safety
cameras and rail track signalling.
• Medical – in the design and manufacture of machined and fabricated pressure and vacuum vessels for the medical markets.
Plus Design and manufacture of superconducting magnet systems and associated cryogenic systems for a variety of markets,
including magnetic resonance imaging (MRI), nuclear magnetic resonance (NMR).
Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated
financial statements as presented below:
Year ended 31 May 2017
Revenue
Operating profit/(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
Energy
£’000
Unallocated
Medical Central items
£’000
£’000
Total
£’000
12,610
10,104
–
22,714
456
428
(1,350)
(466)
181
(11)
(296)
7,482
17,796
4,008
10,110
–
26,575
11,490
54,481
(4,158)
(2,241)
(3,176)
(9,575)
13,638
7,869
23,399
44,906
587
316
903
39
168
207
–
–
–
626
484
1,110
Unallocated assets/(liabilities) consist primarily of interest bearing assets and liabilities and income tax assets and liabilities.
Medical results includes the acquisition of the Space Cryomagnetics Limited which contributed £227,000 and £115,000 to Group
revenue and loss after tax respectively (note 32).
34
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
2
Segmental analysis (continued)
Year ended 31 May 2016 (restated)
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
£’000
Unallocated
Medical Central items
£’000
£’000
Total
£’000
10,912
10,265
–
21,177
247
(188)
(286)
(227)
472
175
420
6,862
13,638
3,292
6,789
–
56,952
10,154
77,379
(4,151)
(3,801)
(4,674)
(12,626)
9,487
2,988
52,278
64,753
294
333
627
36
97
133
–
–
–
330
430
760
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
2017
Revenue
£’000
18,635
785
5
3,863
(574)
22,714
2016
Revenue
£’000
2017
2016
Non-current Non-current
Assets
£’000
Assets
£’000
16,027
511
1
5,387
(749)
21,177
10,111
– –
– –
1,379
– –
8,626
1,528
11,490
10,154
The Group had Medical revenue of £7,229,000 (2016: £6,997,000) and Energy £nil (2016: £2,284,000) with single external
customers under common control, which each represent more than 10% of the Group’s revenue.
35
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
3
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 on foreign exchange transactions
Staff costs (note 8)
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
4
Adjusted Earnings before interest, tax, depreciation and amortisation
(Loss)/profit before tax from continuing operations
Share based payment expense
Acquisition costs
Restructuring costs
Tender share buyback costs
Profit on disposal of property
Adjusted profit before tax
Finance income
Finance cost
Adjusted profit/(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’)
2017
£’000
525
(13)
120
18,719
(34)
7,885
354
10
2016
£’000
505
(548)
229
17,101
(11)
8,295
260
24
2017
£’000
2016
£’000
13
65
20
27
13
68
20
23
2017
£’000
2016
£’000
(285)
34
101 –
182
226 –
–
258
(219)
38
77
525
120
722
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.
36
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
5
Finance income
Interest from other
Interest on finance lease agreements
6
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
2017
£’000
219
–
219
2016
£’000
552
2
554
Group
2017
£’000
–
21
17
38
2016
£’000
7
54
21
82
7
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
69
25
33
39
279
226
671
–
–
–
–
–
–
–
–
–
–
–
57
41
98
Total
2017
£’000
69
25
33
39
336
267
769
Total
2016
£’000
63
30
25
35
268
222
643
Pension
Total
2017
£’000
Pension
Total
2016
£’000
–
–
–
–
–
–
–
–
–
–
–
22
26
48
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 in 2016 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 nil (2016: two).
The long term incentive represents the initial interest in the Joint Ownership Scheme (see note 31).
Employers National Insurance Contributions made relating to directors’ emoluments were £94,000 (2016: £70,000).
During 2017 S McQuillan and S M King exercised 175,000 and 125,267 share options respectively as set out on page 15
resulting in unrealised gains of £171,000 and £122,000 (2016: S McQuillan and S M King exercised nil options).
37
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
8
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
2017
£’000
6,815
778
257
35
7,885
2016
£’000
7,163
725
386
21
8,295
2017
Number
2016
Number
192
13
37
242
190
13
35
238
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
9
Taxation
Current tax
Deferred tax (note 24)
2017
£’000
2016
£’000
944
–
25
969
720
69
15
804
2017
£’000
(57)
69
11
2016
£’000
(63)
(112)
(175)
UK corporation tax is calculated at 19.83% (2016: 20.0%) of the estimated assessable profit/loss for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
38
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
9
Taxation (continued)
The charge for the year can be reconciled to the profit per the income statement as follows:
(Loss)/profit before taxation
Theoretical tax at UK corporation tax rate of 19.83% (2016: 20.0%)
Effects of:
Other expenditure that is/is not tax deductible
Un-provided deferred tax differences
Adjustments in respect of prior years
Rate differential on timing differences
Change in deferred tax rate
Total tax charge
2017
£’000
(285)
(56)
94
(4)
(8)
(4) -
(11)
11
2016
£’000
245
49
(104)
(61)
(43)
(16)
(175)
The Group has tax losses carried forward of approximately £6.7million at 31 May 2017 (2016: £4.7million) 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
2017
£’000
2016
£’000
52
52
–
–
85
85
129
129
Factors that may affect future tax charges
Reductions to the UK corporation tax rate 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. As additional reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September
2016 and will reduce the company’s future current tax charge accordingly. The closing deferred tax liability at 31 May 2017 has
therefore been calculated using these rates.
10
Dividends
IInterim dividend paid of 1.1p per ordinary share (2016: 1.0p)
Final dividend paid of 2.1p per ordinary share (2016: 2.0p)
2017
£’000
305
581
866
The interim dividend declared in the half year statement of 1.2p per ordinary share was paid on 16 June 2017.
39
2016
£’000
277
553
830
39
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
11
Earnings per ordinary share
Basic and diluted (loss)/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 (loss)/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
(Loss)/earnings from continuing operations
Share based payment expense
Acquisition costs
Restructuring costs
Tender share buyback costs
Profit on disposal of property
Adjusted earnings from continuing operations
From continuing operations:
Basic (loss)/earnings per share
Adjusted basic earnings per share
Diluted (loss)/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 (loss)/earnings per share
Diluted (loss)/earnings per share
2017
Number
2016
Number
22,295,083
288,451
27,725,452
230,934
22,583,534
27,956,386
2017
£’000
2016
£’000
(296)
34
101 –
182
226 –
–
247
(1.3)p
1.1p
(1.3)p
1.1p
–
–
–
420
21
272
(446)
267
1.5p
1.0p
1.5p
1.0p
30,716
110.8p
109.9p
247
31,136
(1.3)p
(1.3)p
112.3p
111.4p
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 nil share options at 31 May 2017 (2016: 321,502) that are not included within diluted earnings per share because they
are anti-dilutive.
40
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
12
Goodwill
Cost
At 1 June 2015
Disposal of subsidiary undertakings
1 June 2016
Acquisition of subsidiary undertaking (note 32)
At 31 May 2017
Accumulated impairment losses
At 1 June 2015 and 1 June 2016
At 31 May 2017
Net book value
At 31 May 2017
At 31 May 2016
Total
£’000
10,407
(5,007)
5,400
648
6,048
850
850
5,198
4,550
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:
Energy
Medical
2017
£’000
3,689
1,509
5,198
2016
£’000
3,689
861
4,550
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.
41
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
13
Other intangible assets – group
Customer
relationships
£’000
Order Development
costs
£’000
book
£’000
Software
£’000
Cost
At 1 June 2015
Additions
Disposals
Disposal of subsidiary undertakings
At 1 June 2016
Additions
Acquisition of subsidiary undertakings (note 32)
Exchange adjustments
At 31 May 2017
Accumulated amortisation
At 1 June 2015
Charge for the year
Disposals
Disposal of subsidiary undertakings
At 1 June 2016
Charge for the year
At 31 May 2017
Net book value at 31 May 2017
Net book value at 31 May 2016
4,026
–
–
(4,026)
–
–
–
–
–
3,854
137
–
(3,991)
–
–
–
–
–
364
–
–
(364)
–
–
–
–
–
364
–
–
(364)
–
–
–
–
–
5,476
713
-
(3,865)
2,324
625
4
–
2,953
2,744
623
–
(1,904)
1,463
76
1,539
1,414
861
969
53
(13)
(715)
294
1
–
2
297
431
223
(4)
(425)
225
44
269
28
69
Total
£’000
10,835
766
(13)
(8,970)
2,618
626
4
2
3,250
7,393
983
(4)
(6,684)
1,688
120
1,808
1,442
930
42
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
14
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 2015
Additions
Acquisition of subsidiary undertakings
Disposals
Disposal of subsidiary undertakings
Exchange adjustments
At 1 June 2016
Additions
Acquisition of subsidiary undertakings (note 32)
Assets written off
Exchange adjustments
At 31 May 2017
Depreciation
At 1 June 2015
Charge in the year
Disposals
Disposal of subsidiary undertakings
Exchange adjustments
At 1 June 2016
Charge in the year
Assets written off
Exchange adjustments
At 31 May 2017
Net book value at 31 May 2017
Net book value at 31 May 2016
5,292
28
–
–
(3,194)
–
2,126
41
–
–
–
2,167
573
66
(1)
(373)
–
265
30
–
–
295
1,872
1,861
Leased assets
The net book value of assets held under finance leases are as follows:
Net book value
At 31 May 2017
At 31 May 2016
377
65
–
(3)
(336)
-
103
12
–
–
–
115
160
22
(2)
(148)
–
32
19
–
–
51
64
71
11,093
786
1,060
(267)
(6,936)
(13)
5,723
311
99
(1,605)
117
4,645
5,297
1,109
(87)
(2,839)
(2)
3,478
362
(1,605)
18
2,253
2,392
2,245
2,152
183
121
(19)
(1,430)
(2)
1,005
120
5
(148)
24
1,006
1,023
323
–
(832)
–
514
114
(148)
4
484
522
491
Plant and
machinery
£’000
Equipment
and motor
vehicles
£’000
478
674
2
6
Depreciation charged on assets held under finance leases was £200,000 (2016: £202,000).
Total
£’000
18,914
1,062
1,181
(289)
(11,896)
(15)
8,957
484
104
(1,753)
141
7,933
7,053
1,520
(90)
(4,192)
(2)
4,289
525
(1,753)
22
3,083
4,850
4,668
Total
£’000
480
680
43
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
15
Investments
Unlisted
Capital
investments Undertakings Contributions
£’000
Group
£’000
£’000
Cost
At 1 June 2015
Additions
Disposal of subsidiary undertakings
At 1 June 2016
Acquisition of subsidiary undertakings (note 32)
Unlisted investment written off
At 31 May 2017
Provision
At 1 June 15 and 1 June 2016
Unlisted investment written off
At 31 May 2017
Net book value at 31 May 2017
Net book value at 31 May 2016
219
–
–
219
–
(219)
–
219
(219)
–
–
–
21,031
–
(10,861)
10,170
588
–
10,758
4,424
–
4,424
6,334
5,746
131
24
(85)
70
15
–
85
–
–
–
85
70
Total
£’000
21,381
24
(10,946)
10,459
603
(219)
10,843
4,643
(219)
4,424
6,419
5,816
The Company has the following investments in Ordinary shares in subsidiaries:
Name
Crown UK Limited
Stainless Metalcraft (Chatteris) Limited
Metalcraft (Chengdu) Limited
Metalcraft (Sichuan) Limited
Maloney Metalcraft Limited
Composite Products Limited
Space Cryomagnetics Limited
(trading as Scientific Magnetics Limited)
Country of incorporation
England and Wales
England and Wales
China
China
England and Wales
England and Wales
England and Wales
Principal activity
Precision engineering
Precision engineering
Precision engineering
Precision engineering
Precision engineering
Precision engineering
Precision engineering
All the above are 100% owned apart from Space Cryomagnetics Limited (note 32) which is 82% owned with are call and put options
enabling or requiring the Company to purchase the remaining 18%.
Metalcraft (Chengdu) Limited and Metalcraft (Sichuan) Limited are 100% subsidiaries of Stainless Metalcraft (Chatteris) Limited.
16
Inventories
Group
Raw materials and consumables
Work in progress
Finished goods
2017
£’000
951
4,083
584
5,618
2016
£’000
750
1,926
370
3,046
The replacement cost of the above stocks would not be significantly different from the values stated. During the period there
was an impairment charge of £158,000.
44
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
17
Trade and other receivables
Group Company
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
Prepayments and accrued income
2017
£’000
4,301
(181)
4,120
1,491
–
2,302
1,125
9,038
–
580
580
2016
£’000
3,498
(52)
3,446
40
–
1,276
1,379
6,141
1,450
–
1,450
2017
£’000
2016
£’000
– –
– –
– –
3,700
8,127
6
– –
1,066
2,529
3
11,833
3,598
–
– –
–
1,450
1,450
The average credit period taken on sales of goods is 44 days (2016: 46 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.
Ageing of past due but not impaired trade receivables
Group Company
60 - 90 days
90 - 120 days
120+ days
Total
2017
£’000
370
28
343
741
2016
£’000
373
284
188
845
2017
£’000
2016
£’000
– –
– –
– –
– –
Movement in the allowance for doubtful debts
Group Company
2017
£’000
2016
£’000
2017
£’000
2016
£’000
Balance brought forward
Impairment losses recognised
Amounts written off as uncollectible
On acquisition of subsidiaries
On disposal of subsidiaries
Balance carried forward
52
94
(58)
93
–
181
128
42
(36)
-
(82)
52
– –
– –
– –
– –
– –
– –
Included in the allowance for doubtful debts are individually impaired receivables.
45
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
17
Trade and other receivables (continued)
Ageing of impaired receivables:
Group Company
60 - 90 days
90 - 120 days
120+ days
Total
2017
£’000
–
–
181
181
2016
£’000
2017
£’000
2016
£’000
–
–
55
55
– –
– –
– –
– –
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 £2,719,000 (2016: £4,697,000).
2017
£’000
1,451
(39)
1,412
6,318
(4,906)
1,412
2016
£’000
1,379
(89)
1,290
6,022
(4,732)
1,290
19
Provisions
All provisions are considered current. The carrying amounts and the movements in the provision account are as follows:
Carrying amount
1 June 2015
Acquisition of subsidiary undertakings
Amounts utilised
Disposal of subsidiary undertakings
At 1 June 2016 and 31 May 2017
Dilapidations
£’000
Group
Other
£’000
Total
£’000
–
265
–
(265)
–
–
–
–
–
–
–
–
–
–
–
The sites where provision had been made for dilapidation were exited at 31 May 2015.
46
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
20
Trade and other payables
Trade payables
Amounts owed to group undertakings
Other tax and social security
Other payables
Payments on account
Accruals and deferred income
21
Borrowings
Secured borrowings
Bank overdrafts
Bank loans
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Bank loans due within one to two years
Bank loans due within two to five years
Bank loans due after five years
Group Company
2017
£’000
4,657
–
433
509
334
1,937
7,870
2016
£’000
3,499
–
564
205
527
2,113
6,908
2017
£’000
71
–
43
27 –
– –
14
155
2016
£’000
56
465
113
3,222
3,856
Group Company
2017
£’000
–
1,075
1,075
179
896
2016
£’000
3,580
1,406
4,986
3,911
1,075
2017
£’000
– –
1,075
1,075
179
896
2016
£’000
1,253
1,253
178
1,075
Group Company
2017
£’000
180
542
174
896
2016
£’000
179
541
355
1,075
2017
£’000
180
542
174
896
2016
£’000
179
541
355
1,075
Bank loans of £1,075,000 (2016: £1,253,000) are secured on certain assets of the Group.
At 31 May 2017 the Group had £2,950,000 (2016: £2,519,000) 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.
47
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
22
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
2017
£’000
2016
£’000
Present value of minimum
lease payments
2017
£’000
2016
£’000
146
41
187
(8)
179
303
195
498
(27)
471
142
37
179
–
179
295
176
471
–
471
At 31 May 2017 the Group had £nil fixed hire purchase and finance lease liabilities (2016: £nil), the weighted average interest rate
is 0% (2016: 0%) and the weighted average period until maturity is nil months (2016: nil months). All finance lease liabilities were
at variable rates relative to local base rates.
23
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 21 and 22 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.
The gearing ratio at the year-end is as follows
Debt
Cash and cash equivalents
Net cash
Equity
Net cash to equity ratio
Group Company
2017
£’000
(1,254)
27,703
26,449
44,906
58.9%
2016
£’000
(5,457)
56,503
51,046
64,753
78.8%
2017
£’000
(1,075)
25,123
24,048
42,013
57.2%
2016
£’000
(1,253)
55,498
54,245
61,253
88.6%
Debt is defined as long and short-term borrowings, as detailed in note 21. 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.
48
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
23
Financial instruments (continued)
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
Group Company
2017
£’000
4,120
1,125
27,703
32,948
4,657
334
1,937
6,928
1,075
179
1,254
8,182
7,274
806
175
8,255
(73)
8,182
2016
£’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
2017
£’000
2016
£’000
– –
– –
25,124
25,124
71
– –
14
85
1,075
– –
1,075
1,160
284
766
175
1,225
(65)
1,160
55,498
55,498
56
3,222
3,278
1,253
1,253
4,531
3,480
778
362
4,620
(89)
4,531
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.
The Group presently has no forward sale contracts (2016: none) to manage the transactional currency exposure on certain contracts
outstanding as at 31 May 2017.
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.
49
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
23
Financial instruments (continued)
Euro currency impact
2016
£’000
2017
£’000
US $ currency impact
2016
£’000
2017
£’000
RmB currency impact
2016
£’000
2017
£’000
13
1
13
3
– –
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
£194,000. 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 three major customer’s which represent 24.2%, 11.5% and 11.2% respectively (2016: two major customer’s which
represent 32.9% and 10.8% 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.
50
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
24
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 2015
Credit to income – continuing operations
Credit to income – discontinued operations
Disposal of subsidiary undertakings
At 1 June 2016
Credit to income – continuing operations
At 31 May 2017
Accelerated
tax
depreciation
£’000
Other
temporary
differences
£’000
Tax losses
£’000
Total
£’000
789
(106)
(115)
(436)
132
63
195
(29)
(6)
(81)
110
(6)
6
–
–
–
–
–
–
–
–
760
(112)
(196)
(326)
126
69
195
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
2017
£’000
195
–
195
2016
£’000
132
(6)
126
At the balance sheet date the Group has unused tax losses of £6.7million (2016: £4.7 million) available for offset against future
profits. A deferred tax asset has been recognised in respect of £nil (2016: £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 £29k (2016: £24k) 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 (2016: £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.
25
Called up share capital
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current
and prior reporting period.
2017 2016
Allotted, issued and fully paid
Ordinary shares of 5p each
No.
£’000
No.
19,171,123
959
27,754,564
£’000
1,387
Reconciliation of movement in allotted, issued and fully paid share capital
At 1 June 2016 and 31 May 16
Tender buyback
Shares issued in period
At 31 May 2017
No.
£’000
27,754,564
(9,691,361)
1,107,920
19,171,123
1,387
(485)
56
958
51
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
25
Called up share capital (continued)
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 659,900 options were exercised, 267, 15,000, 450,000, 107,835, 59,251 and 27,500 at
39.5, 49.5p, 96.0p, 176.0p, 109.0p and 111.0p respectively. The market price on the day of exercise was 186.0p, 193.0p, 190.5p, and
187.0p. Further details of the scheme are given in note 26.
The market price of the Company’s shares at the end of the year was 236.5p (2016: 179.0p). The highest and lowest market prices
during the year were 258.5p and 164.6 p (2016: 185.5p and 100.5p respectively).
26
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
2017
2016
Weighted
Average
Exercise
price p
110.11
149.70
193.00
109.79
173.61
152.60
Options
(No. ‘000)
1,425.5
(94.2)
–
(118.0)
1,213.3
685.3
Weighted
Average
Exercise
price p
47.57
124.87
–
59.91
119.33
110.11
Options
(No. ‘000)
1,213.3
(35.7)
1,180.0
(659.9)
1,697.7
231.7
The options outstanding at 31 May 2017 had exercise prices in the range 39.5p to 193p and a weighted average remaining contractual
life of 8.7 years (2016: 7.3 years). The average market share price of options at date of exercise was 1.90p (2016: 1.44p).
The terms of these options are as follows:
Date of grant
23/9/2010
22/11/2013
9/12/2014
10/12/2014
21/12/2016
Options
outstanding at
31 May 2017
39,733
192,000
56,000
230,000
1,180,000
Vesting
period
3 years
3 years
3 years
3 years
3 years
Market value at
date of grant
(p)
39.50
176.00
109.00
111.00
193.00
Exercise
price (p)
39.50
176.00
109.00
111.00
193.00
Exercise
period
24/9/2013 to 23/9/2020
23/12/2016 to 22/12/2023
10/12/2017 to 9/12/2024
11/12/2017 to 10/12/2024
22/12/2019 to 21/12/2026
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.
52
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
26
Share-based payments (continued)
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
2017
£’000
34
2016
£’000
36
There are no share based payment transactions that were expensed immediately. A deferred tax credit of £nil (2016: £nil) was
recognised during the year in respect of share based payments.
27
Notes to the consolidated cash flow statement
Cash flows from operating activities:
Continuing operations
(Loss)/profit before income tax from continuing operations
Profit before income tax from discontinued operations
Adjustments for:
Depreciation
Amortisation of intangible assets
Gain on disposal of property, plant and equipment
Finance income
Finance expenses
Research and Development Expenditure Credit
Share based payment charge
Bargain purchase on acquisition
Changes in working capital
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Other non cash changes
Cashflows from operating activities
Cash and cash equivalents
Cash
Overdrafts
2017
£’000
(285)
–
525
120
(13)
(219)
38
–
34
–
(2,482)
(1,654)
711
4 4
2016
£’000
245
3,878
1,520
983
(489)
(554)
146
(168)
36
(172)
(2,327)
(556)
5,339
(3,221)
7,885
2017
£’000
27,703
–
27,703
2016
£’000
56,503
(3,580)
52,923
53
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
28
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) in trade and other receivables
(Decrease)/increase in trade and other payables
Other non cash changes
Cashflows from operating activities
29
Related party transactions
Company
2017
£’000
(1,057)
(274)
21
19
(6,313)
(3,700)
4 4
2016
£’000
(161)
(581)
55
12
(1,705)
961
(11,300)
(1,415)
Company
The Directors benefited from dividends paid in the year (note 10) on their shareholdings as set out in the Directors report page 10.
30
Financial commitments
a) Capital commitments
Commitments for capital expenditure were as follows:
Contracted for, but not provided in the accounts
2016
£’000
2017
£’000
333 –
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
2017
£’000
345
339
684
4
– 4
4
2016
£’000
274
168
442
12
16
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.
54
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
31
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 26 is achieved the option can be exercised by the beneficiaries
During the year 795,001 (2016: nil) shares were purchased at a cost of £1,534,352 (2016: £nil) by the Trust and beneficiaries, an
interest in which was allocated to the Executive Directors as beneficiaries (as shown in note 26). 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 £2,250,000 (2016: £1,000,000) and shown as a deduction from equity in the statement of
changes in shareholders’ equity.
32
Acquisitions and disposals
Business combination – Space Cryomagnetics Limited (trading as Scientific Magnetics Limited)
On 27 February 2017 the Group acquired 82% of the issued share capital of Space Cryomagnetics Limited. The acquisition was
made to enhance the Group’s position in the energy and medical division. The provisional net assets at the date of acquisition were
as follows:
Fair value of assets and liabilities acquired
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan
Net liabilities
Intangibles assets identified
Goodwill
Fair value of consideration transferred:
Cash
Shares issued
Contingent consideration
Consideration
Cash acquired
Loan
Acquisition costs charged to expenses
Net cash paid relating to the acquisition
£’000
4
104
57
335
153
(245)
(468)
(60)
–
648
588
270
62
256
588
(153)
468
89
674
Management did not identify any intangible assets on acquisition of this business.
Acquisition costs arising from this transaction of £89,000 have been included in administration expenses included in overheads
before operating profit.
55
Notes to the Annual Report (Continued)
For the year ended 31 May 2017
32
Acquisitions and disposals (continued)
There are call and put options enabling or requiring the Company to purchase the remaining 18% of the issued share capital of Space
Cryomagnetics Limited (“Sci Mag”). The options have an exercise date of October 2019 and October 2022. The Company expects
to acquire the remaining 18% of Sci Mag through the future exercise of one of these options and consequently, for the purposes of
the Group’s consolidation, Sci Mag has been accounted for as if it were 100% owned. The exercise price of the option is contingent
upon the future trading performance of Sci Mag during the period to October 2019 and October 2022. At 31 May 2017, the Group
has recognised contingent consideration of £256,000, being the best estimate of the Directors at that point in time.
Since acquisition Sci Mag contributed the following to the Group’s cashflows:
Operating cashflows
Investing activities
Disposals – Aerospace Division
2017
£’000
(43)
(41)
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 for £65,000,000 (£53,677,000 net of cash).
The Consolidated Income Statement for the comparative period ended 31 May 2016 reports the results of the Aerospace Division,
together with the profit arising on disposal, as a single item “Profit after taxation from discontinued operations”. Earnings per share
disclosures and the Consolidated Statement of Cash Flows also present information in respect of the year ending 31 May 2016
relating to the Aerospace Division separately. Further details in respect of the disposal of Aerospace Division are available in the
Annual Report and Accounts of the year ending 31 May 2016.
33
Events after the balance sheet date
On 31 August 2017 the Group acquired 100 percent of the issued share capital of the Hayward Tyler Group plc for £29.4m through
a share placing. On the same date £11.5m of its facilities were repaid, a further £10.0m of debt assumed and £5m of associated
transaction costs incurred. In its previous financial year Hayward Tyler Group plc had turnover of £62,719,000 and a trading loss
before tax of £3,705,000 before an exceptional gain of £376,000.
Management are assessing assets and liabilities purchased and are unable to confirm the value, given that they are currently in the
process of reviewing the records of the business.
56
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 16 November 2017 at 11:00am for the following purposes:
To consider, and if thought fit, to pass the following resolutions numbered 1 to 6 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 2017.
2. To declare a final dividend of 2.2p per ordinary share payable on 8 December 2017 payable to shareholders on the register of
members on 27 October 2017.
3. To re-elect Steve McQuillan as a Director.
4. To re-elect Les Thomas as a Director.
5. To elect Ewan Lloyd-Baker as a Director
6. 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 7 and 8 being proposed as Ordinary Resolutions and Resolutions 9 and 10 as Special Resolutions.
7. 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 £506,626
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.
8. 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 3,070,464;
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.
9. 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 7 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
57
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 £153,523 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.
10. That the Articles of Association of the Company be amended by the substitution of “£225,000” for “£150,000” in Article 92
Directors Fees.
By order of the Board
S M King
Registered office
Chatteris Business Park
Chatteris
Cambridgeshire
PE16 6SA
Dated 26 September 2016
58
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 14 November 2017; 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 14 November 2017.
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).
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.
59
Notice of Annual General Meeting (Continued)
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 14 November 2017 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 2017, the Company’s issued share capital comprised 30,704,636 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 2017 is 30,704,636.
Documents on display
13 The following documents will be available for inspection at Chatteris Business Park, Chatteris, Cambridgeshire PE16 6SA
from 27 October 2017 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.
60
5 YEAR PERFORMANCE
Revenue
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
0.8
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
17.4
23.7
22.6
21.2
22.7
Year
2013
2014
2015
2016
2017
30.5
32.7
34.2
64.8
44.9
Year
2013
2014
2015
2016
2017
0.7
0.3
0.4
- 0.5
Year
2013
-0.6
2014
2015
2016
2017
1.0
1.1
-1.0
-0.4
-2.8
Year
2013
2014
2015
2016
2017
Net Assets
EBITDA
(adjusted)
EPS - Diluted
(adjusted)
2013 - 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 plc, Chatteris Business Park, Chatteris, Cambridgeshire PE16 6SA
Tel: 01354 692 391 Email: info@avingtrans.plc.uk www.avingtrans.plc.uk