PINPOINT-INVEST-EXIT
2018 Annual Report
About
Avingtrans plc has a proven strategy
of “buy and build” in highly regulated
engineering markets, a strategy it
has named “Pinpoint-Invest-Exit”.
Signifi cant shareholder value
is delivered through a clear strategy,
a strong balance sheet and an agile
and experienced management team.
www.avingtrans.plc.uk
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About us
Delivering shareholder value through a
proven strategy of Pinpoint-Invest-Exit in
highly regulated global engineering markets
Energy Division
Performance
critical solutions for
energy systems
The Group has a proven track record in
delivering shareholder value through PIE:
● Identifying and executing prudent deals with precision and speed
● Building strong brands and value from constituent parts
● Crystallising these gains with periodic sales of businesses at advantageous valuations
● Returning the proceeds to shareholders
Purchased Moes & Placing £3.5m
2009
Purchased Sigma1
2010
8
9
2011
2012
15
17
Sold JenaTec; Purchased Aerotech & PFW
2013
Oil price Shock
Purchased Maloney
2014
Purchased RMDG
2015
Purchased Rolls Royce pipes; Sold Sigma
2016
Returned £19.4m to shareholders;
Purchase SciMag and Whiteley Read
2017
Purchased Hayward Tyler Group
2018
10
32
31
45
50
43
19.4
67
0
20
30
40
50
60
70
80
1Remaining 25% of Sigma
Market Cap £m
Tender Offer £m
Engineered Pumps and Motors (EPM) Division
The EPM division is built on one brand, Hayward Tyler. Established in 1815, Hayward Tyler designs, manufactures
and services performance-critical electric motors and pumps to meet the most demanding of applications for the
global energy industry, as both an OEM supplier and a trusted through life support partner.
Process Solutions and Rotating Equipment (PSRE) Division
The PSRE division comprises a number of established brands with expertise across the global energy market.
The brands specialise in the design, manufacture, integration and servicing of an extensive product and service
offering including steam turbines, gas compressors, pressure vessels, containers and skidded systems.
Medical Division
Innovative solutions
for medical systems
and research
Timeline
2010 (38 GBp)
2012 (98 GBp)
2014 (148 GBp)
2016 (180 GBp)
2017 (235 GBp)
Medical
Development of the aerospace
Precision instruments
Mature growth of aerospace
The Aerospace Division, Sigma
Acquisition of the Hayward
and precision components
business, JenaTec, sold for
and the initial development of
Components, sold for £65m
Tyler Group for £29.4m and
businesses
£13.5m
energy and medical
creation of Energy and Medical
Divisions
The medical division has special expertise in the design and manufacture of innovative equipment for the
medical, science and research communities. Including cutting-edge products for medical diagnostic equipment;
high performance pressure, vacuum vessels and composite materials for research organisations;
superconducting magnets and helium-free cryogenic systems.
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About us
Delivering shareholder value through a
proven strategy of Pinpoint-Invest-Exit in
highly regulated global engineering markets
Energy Division
Performance
critical solutions for
energy systems
The Group has a proven track record in
delivering shareholder value through PIE:
● Identifying and executing prudent deals with precision and speed
● Building strong brands and value from constituent parts
● Crystallising these gains with periodic sales of businesses at advantageous valuations
● Returning the proceeds to shareholders
Purchased Moes & Placing £3.5m
2009
Purchased Sigma1
2010
8
9
2011
2012
15
17
Sold JenaTec; Purchased Aerotech & PFW
2013
Oil price Shock
Purchased Maloney
2014
Purchased RMDG
2015
Purchased Rolls Royce pipes; Sold Sigma
2016
Returned £19.4m to shareholders;
Purchase SciMag and Whiteley Read
2017
Purchased Hayward Tyler Group
2018
10
32
31
45
50
43
19.4
67
0
20
30
40
50
60
70
80
1Remaining 25% of Sigma
Market Cap £m
Tender Offer £m
Engineered Pumps and Motors (EPM) Division
The EPM division is built on one brand, Hayward Tyler. Established in 1815, Hayward Tyler designs, manufactures
and services performance-critical electric motors and pumps to meet the most demanding of applications for the
global energy industry, as both an OEM supplier and a trusted through life support partner.
Process Solutions and Rotating Equipment (PSRE) Division
The PSRE division comprises a number of established brands with expertise across the global energy market.
The brands specialise in the design, manufacture, integration and servicing of an extensive product and service
offering including steam turbines, gas compressors, pressure vessels, containers and skidded systems.
Medical Division
Innovative solutions
for medical systems
and research
Timeline
2010 (38 GBp)
2012 (98 GBp)
2014 (148 GBp)
2016 (180 GBp)
2017 (235 GBp)
Medical
Development of the aerospace
Precision instruments
Mature growth of aerospace
The Aerospace Division, Sigma
Acquisition of the Hayward
and precision components
business, JenaTec, sold for
and the initial development of
Components, sold for £65m
Tyler Group for £29.4m and
businesses
£13.5m
energy and medical
creation of Energy and Medical
Divisions
The medical division has special expertise in the design and manufacture of innovative equipment for the
medical, science and research communities. Including cutting-edge products for medical diagnostic equipment;
high performance pressure, vacuum vessels and composite materials for research organisations;
superconducting magnets and helium-free cryogenic systems.
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Financial highlights
● Revenue increased by 247% to £78.9m (2017: £22.7m), driven
by HTG acquisition
● Underlying revenue growth, excluding acquisitions was 10.9%.
● Improved Gross Margins 25.5% (2017: 17.9%)
● Adjusted EBITDA increased by 690%, to £5.7m (2017: £0.7m)
● Adjusted Profit before Tax increased by 820%, to £2.4m (2017: £0.3m)
● Adjusted Diluted earnings per share increased to 8.4p (2017: 1.1p)
● Cash outflow from operating activities £6.9m (2017: £3.3m)
● Net Debt was £7.1m (31 May 2017, net cash of £26.4m)
● Increased final dividend of 2.3p per share. Full year 3.6p
(2017: Final 2.2p, Total 3.4p)
Operational highlights – Energy
● Revenues up to £68.4m (2017: £12.6m) driven by the
HTG acquisition
● Restructuring and integration of HTG complete
● Ormandy acquisition completed for £0.1m. Integration
proceeding to plan
● Sellafield pre-production phase completed. Now moving into
ramp-up phase
● Prestigious award for SME skills investment at Metalcraft
Operational highlights – Medical
● Revenues broadly flat at £10.4m (2017: £10.1m), transitioning
to new markets
● Siemens shipments remained steady in the UK and China
● Scientific Magnetics secured first service contracts with partner
MR Resources Inc.
● Expansion of relationship with QOne NMR Instruments in
Wuhan, China
● Rapiscan relationship with Composite Products continues to
build positively
Post Period End Highlights
● £5m UK government contract won by Peter Brotherhood
● DOE Funding secured for innovative renewable solar
technologies
“
Commenting on the results,
Roger McDowell, Chairman, said:
“It has been an exciting year, during
which, the Group continued to execute
its Pinpoint-Invest-Exit strategy (PIE)
through the acquisitions of Hayward
Tyler Group (HTG) and also Ormandy
Group. With an eye on eventual exits,
we have restructured the Group into
two separate energy divisions and an
incubator medical division. A highlight
of FY2018 was the speedy and
successful integration of the substantial
Hayward Tyler Group acquisition. The
new Energy divisional structures and
management teams have become
effective quickly and their focus is
clearly on growth, to build two
formidable and valuable divisions. The
nascent medical division made slower
progress, though we have galvanised
our strategic path by partnering on
service with MR Resources Inc.
We are nurturing an unswerving focus
on aftermarket opportunities, as we
service end-user customers with fast,
local and flexible solutions, resulting
in strong growth prospects. Nuclear
life extension and decommissioning
markets also continue to provide fertile
ground for growth, underpinned by
contract wins in the UK, USA, South Korea
and mainland Europe. However, we are
mindful of avoiding over-dependence
on nuclear and thus, we are developing
into new markets, such as renewables
with (eg) funding from the DoE in the
USA for future generation solar plants.
Exciting times lie ahead.”
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Financial highlights
by HTG acquisition
● Revenue increased by 247% to £78.9m (2017: £22.7m), driven
Company Information
For the year ended 31 May 2018
● Underlying revenue growth, excluding acquisitions was 10.9%.
Company registration number:
01968354
successful integration of the substantial
● Ormandy acquisition completed for £0.1m. Integration
Hayward Tyler Group acquisition. The
proceeding to plan
● Adjusted EBITDA increased by 690%, to £5.7m (2017: £0.7m)
● Adjusted Profit before Tax increased by 820%, to £2.4m (2017: £0.3m)
● Adjusted Diluted earnings per share increased to 8.4p (2017: 1.1p)
● Cash outflow from operating activities £6.9m (2017: £3.3m)
● Net Debt was £7.1m (31 May 2017, net cash of £26.4m)
● Increased final dividend of 2.3p per share. Full year 3.6p
(2017: Final 2.2p, Total 3.4p)
Operational highlights – Energy
● Revenues up to £68.4m (2017: £12.6m) driven by the
HTG acquisition
● Restructuring and integration of HTG complete
● Sellafield pre-production phase completed. Now moving into
ramp-up phase
● Prestigious award for SME skills investment at Metalcraft
Operational highlights – Medical
● Revenues broadly flat at £10.4m (2017: £10.1m), transitioning
to new markets
● Siemens shipments remained steady in the UK and China
“
Commenting on the results,
Roger McDowell, Chairman, said:
“It has been an exciting year, during
which, the Group continued to execute
its Pinpoint-Invest-Exit strategy (PIE)
through the acquisitions of Hayward
Tyler Group (HTG) and also Ormandy
Group. With an eye on eventual exits,
we have restructured the Group into
two separate energy divisions and an
incubator medical division. A highlight
of FY2018 was the speedy and
new Energy divisional structures and
management teams have become
effective quickly and their focus is
clearly on growth, to build two
formidable and valuable divisions. The
nascent medical division made slower
progress, though we have galvanised
our strategic path by partnering on
service with MR Resources Inc.
service end-user customers with fast,
local and flexible solutions, resulting
in strong growth prospects. Nuclear
life extension and decommissioning
● Improved Gross Margins 25.5% (2017: 17.9%)
Registered office:
Directors:
Website:
Secretary:
Bankers:
Registrars:
Nominated advisor and broker:
We are nurturing an unswerving focus
● Scientific Magnetics secured first service contracts with partner
on aftermarket opportunities, as we
MR Resources Inc.
Solicitors:
● Expansion of relationship with QOne NMR Instruments in
Wuhan, China
● Rapiscan relationship with Composite Products continues to
Independent Auditor:
markets also continue to provide fertile
build positively
ground for growth, underpinned by
contract wins in the UK, USA, South Korea
Post Period End Highlights
and mainland Europe. However, we are
● £5m UK government contract won by Peter Brotherhood
● DOE Funding secured for innovative renewable solar
technologies
mindful of avoiding over-dependence
on nuclear and thus, we are developing
into new markets, such as renewables
with (eg) funding from the DoE in the
USA for future generation solar plants.
Exciting times lie ahead.”
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Chatteris Business Park
Chatteris
Cambridgeshire
PE16 6SA
R S McDowell (Non-executive Chairman)
S McQuillan (Chief Executive Officer)
S M King (Chief Financial Officer)
G K Thornton (Non-executive Director)
L J Thomas (Non-executive Director)
E Lloyd-Baker (Non-executive Director appointed 1 September 2017)
J Clarke (Non-executive Director appointed 22 February 2018)
Royal Bank of Scotland
2 St Philips Place
Birmingham
B3 2RB
www.avingtrans.plc.uk
S M King
HSBC Bank plc
PO Box 68
130 New Street
Birmingham
B2 4JU
Link Asset Services
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Nplus1 Singer Advisory LLP
1 Bartholomew Lane
London
EC2N 2AX
Shakespeare Martineau LLP
No1 Colmore Square
Birmingham
B4 6AA
Grant Thornton UK LLP
Statutory Auditor
Chartered Accountants
The Colmore Building
20 Colmore Circus
Birmingham
B4 6AT
1
Index
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
Page
3
4 – 15
16 – 18
19 – 20
21 – 22
23 – 30
31 – 42
43
44
45
46
47
48
49
50 – 81
82 – 84
2
Chairman’s Statement
In an exciting year of execution and delivery for Avingtrans, it is pleasing to report an improved overall performance for
FY2018, which saw significant acquisition activity and investment as the Group continued to execute its Pinpoint-Invest-Exit
strategy (PIE).
The main highlight of our financial year was the successful integration of the substantial Hayward Tyler Group (HTG) acquisition,
completed ahead of schedule. The Board are pleased to report that in integrating HTG, it has been able to achieve its targeted cost
savings and the combined businesses are demonstrating the anticipated synergies, with an invigorated combined sales force and
operational efficiencies. Avingtrans also completed the acquisition of the assets of Ormandy Group in the year; a leading provider
of offsite heat exchange solutions, which now forms part of the Maloney Metalcraft business.
With one eye on eventual exits, we have restructured the Group into two separate energy divisions and an incubator medical
division; Process Solutions and Rotating Equipment (PSRE), Engineered Pumps and Motors (EPM) and Medical and Industrial
Imaging (MII).
The new Energy divisional structures and management teams have become effective in short order and with two solid platforms
displaying good global reach, product and service diversity, their focus is now clearly on growing into formidable and valuable
businesses.
From Avingtrans’ existing assets and the Board’s ongoing strategy of shrewd acquisitions, the Group has laid the foundations to
create a new medical and industrial imaging division, which promises to produce a unique market offering.
Common across all three divisions is a strategic aim to develop robust value propositions, including aftermarket services to
support OEM and end-user customers, who are either operating Group products or systems, or who have operational problems
that the Group can solve with its combined capabilities. This improved end-user model not only drives profitability and gives
a more predictable and repeatable pipeline, but also boosts product and service development and innovation, given the deep
knowledge of customer risks and issues that is developed. We are particularly keen to maximise the revenue opportunities arising
from the aftermarket access afforded by recent acquisitions and partnerships.
The Process Solutions and Rotating Equipment (PSRE) division recently added the assets of Ormandy to its portfolio and in
parallel is continuing to refine its offering to the UK nuclear decommissioning market – especially to Sellafield – whilst also
using this capability to position for longer term new nuclear technologies. The Engineered Pumps and Motors (EPM) division
bolstered its capability in India with a new motor rewind centre and has now opened a new 4000 square metres facility in
Kunshan, China. Both of these enhanced capabilities will help secure the end-user business in the region, including the valuable
aftermarket. These facilities also act as operational hubs for sale of original equipment, cost effective sourcing, engineering
and tendering, as the shift for EPM to become a seamless global operation takes shape. We are also considering the options to
maximise the site utilisation at Luton, UK, given this evolving strategy.
The Medical and Industrial Imaging (MII) division continues to show modest revenue growth, with both the UK and Chinese
businesses establishing their positions in the supply chain. As the new equipment business develops into growing niche markets,
the addition of Scientific Magnetics Ltd and the MR Resources Inc. pan-European partnership – to bring Nuclear Magnetic
Resonance (NMR) system support, servicing and service contracts to European NMR users – will underpin the significant
investment in this division.
For the seventh successive year, the Board has declared an increased final dividend of 2.3 pence per share, producing a full year
total of 3.6 pence per share, underlining our commitment to long term shareholder returns and our positive view about the short
and longer-term prospects for the Group.
Finally, during the year, Ewan Lloyd-Baker (formerly CEO, HTG) and John Clarke (formerly CEO of the Nuclear
Decommissioning Authority) joined the Board as NEDs. I warmly welcome them and all of the HTG and Ormandy staff to
Avingtrans. Their passionate and energetic efforts to create world class engineering enterprises will enrich the Group. On behalf
of the shareholders, I thank them and all Avingtrans employees for their hard work and commitment to the Group during the past
12 months, as we look forward with relish to FY2019.
Roger McDowell
Chairman
2 October 2018
3
Strategic Report
Group Performance
Strategy and business summary
Group Strategy
Our core strategy is to buy and build engineering companies in niche markets where we see consolidation opportunities; a
strategy we call Pinpoint-Invest-Exit (“PIE”). We have had a strong track record in returning significant shareholder value over
the past decade and 2018 was another successful year; further demonstrable proof of execution and transition into the global
energy space through the successful acquisition and effective integration of the HTG business.
With an increased presence in the market place, strength in depth of the management team and a lean central structure with
a focus on its divisions, the Group is poised to continue this growth and the Board has renewed its focus on seeking valuable
additions to the Avingtrans proposition.
All of the Group’s key financial metrics showing positive growth in what continued to be challenging market conditions in some
areas (e.g. Oil and Gas) and despite a period of restructuring for the Group; the successful and swift integration of HTG was
executed efficiently and effectively.
The three new divisions are fully operational and the business is focused on the global Energy and Medical markets. Both of
these markets play into some of the world’s mega-trends, including continued urbanisation and general prosperity, an ageing
population and a transition towards a cleaner and healthier planet. For example, world GDP is expected to more than double
by 2040, driven by increasing prosperity in emerging economies, as more than 2.5 billion people are lifted from low incomes.
Divisional Strategies
Engineered Pumps and Motors (EPM, Energy): EPM continues to develop its nuclear installed base (civil and defence)
– notably for life extension applications – and its offering to the fossil fuels market sectors. In addition, the EPM business is
developing solutions for new nuclear technologies and other low carbon energy sources, concentrated solar for example, to
capitalise on the global energy supply transition.
Process Solutions and Rotating Equipment (PSRE, Energy): The primary strategy is developing a comprehensive offering
to the nuclear decommissioning and reprocessing markets, building on the long-term contracts to build nuclear waste storage
containers and the installed base of equipment across the vast Sellafield site. In parallel, continuing to support the nuclear
submarine fleet and facilities for the UK MOD and targeted opportunities in the equally highly regulated offshore Oil & Gas
markets.
Medical and Industrial Imaging (MII, Medical): The focus for the medical division is to become a niche market leader in the
production of high integrity components and systems for medical and scientific equipment manufacturers including MRI, proton
therapy and Nuclear Magnetic Resonance (NMR).
One common theme we are looking to exploit across energy and medical, is the continued pressure on aftermarket expenditure,
especially in OECD countries, where operational efficiency, reliability and safety are paramount and operators are looking to
their supply chain partners to provide long term support of aging infrastructure and legacy installations. Connecting with end-
users and understanding and solving operational problems for the present and the future has the added benefit of focusing the
front end development work on products and services that strengthen the Group’s position as a through-life / aftermarket partner
in its chosen end markets.
As energy capital goods markets continue to recover, M&A activity remains strong and businesses like ours are commanding
high valuations. Avingtrans remains confident about the current strategic direction and potential future opportunities across all
of its chosen markets.
Markets – Energy
The global demand for energy continues to rise steadily, driven primarily by population increase and continued urbanisation and
improved prosperity. In the longer term, the latest estimates show that overall demand may slow, due to increased efficiency and
decarbonisation, but for the time being the global energy compound annual growth rate (CAGR) can be assumed to be of the
order of 2%.
The energy market can be dissected by use, by region and by fuel with some general observations as follows:
• End Use – industry remains the prime user with over 50% demand, the other 50% is split mostly between transport and
buildings, with transport seeing a slight future reduction due mainly to efficiencies and vehicle electrification.
• End Region – almost all of the growth in energy demand comes from fast-growing developing economies. China, India and
other emerging Asian countries account for around two-thirds of the growth.
4
Strategic Report (Continued)
Markets – Energy (continued)
• Fuel Type – the energy mix by fuel continues to diversify, with the fastest growing being renewables, but also with gas
growing faster than coal and oil. The transition is still slow however and coal as a fuel for generating electricity will remain
the number one choice throughout the next decade, even though the introduction of new plants is in long term decline.
End User/Aftermarket
As the overall energy landscape continues to evolve, the demand for best in class through-life support to operators and end-users
continues to be paramount. Increasing mean time between failures, improving the predictability of equipment performance and
increasing efficiency and ultimately operator and public safety are consistent market drivers across all the energy markets.
Operators and end-users are demanding a blend of quick response through local support with an overarching requirement to drive
improvements through equipment upgrades and modernisation. In the West, where facilities are being operated for longer than
their intended design lives – and often a drive for increased capacity alongside tougher regulations – there is a strong demand for
true solution providers in the supply chain to partner with end-users for the longer term.
The Avingtrans energy divisions are well positioned to grow in this end-user market space. With increased relevance and global
reach, balanced alongside heritage and renowned expertise, they can find niche positions and value propositions alongside the
huge global players and the local independents.
Nuclear
Nuclear energy as a low carbon, baseload power source for the future remains an uncertain market place with respect to future
growth. Almost all the 1GW+ new build opportunities are currently in Asia, with the exception of the UK programme, and as
the market develops the Asian developers, alongside the Russians, with their ability to fund projects, are dominating this section
of the market.
However, we still foresee buoyant market segments supporting the operational fleet, continued safe operation and life extensions,
the back end of the fuel cycle, decommissioning and reprocessing, and the development of the next generation of technologies ie
Small Modular (SMR) or Advanced Generation IV Reactors. In addition they all have the backdrop of a dwindling supply chain
and expert knowledge which plays directly to the Avingtrans capability.
The USA still operates the biggest civil nuclear fleet in the world, 99 reactors generating more than 30% of the world’s nuclear
electricity. When coupled with the heritage Westinghouse technology operating in Europe and Asia, the EPM division’s long-
standing position in this market place is fertile ground for further growth. Obsolescence is a key issue globally for nuclear
operators and the Avingtrans Energy Divisions are well positioned to support operators with this key operational issue.
The UK remains dominant when it comes to decommissioning and reprocessing, both in terms of innovative technology and
overall spend. The Group is embedded in the future manufacture of waste containers for Sellafield and with an installed base and
experience across this market, will continue to expand its presence in the UK and globally in the longer term.
The development of new nuclear technologies is ongoing, with pockets of development in the USA, UK, China, Russia and
South Korea. The USA and China are dominating activity and the group views these new technologies as an attractive route
forwards for nuclear and, with its increased presence and product offering, is positioned well to develop as an industry partner.
Power Generation
The world continues to electrify, with an ever increasing amount of primary energy going to the power sector which remains
a key focus across the Group’s energy divisions. Aside nuclear, discussed in the previous section, the main sub-sectors are as
follows:
• Coal – The Group continues to see good aftermarket from coal fired power stations even though the demand for new power
stations is in decline. Opportunities still exist in India, China, South East Asia, Eastern Europe and the Middle East and EPM
is optimising its product line to take market share and to create tomorrow’s aftermarket.
• Gas – Natural gas, primarily in the form of combined cycle gas turbine power plants is a growing market space, primarily in
the West. Still not dominated by Asian EPCs and equipment suppliers, the Group is moving into this market space with both
existing and new product lines.
• Renewables – renewable technologies and their supporting infrastructure are a growing market globally. The Group has a
broad range of products that can be applied directly to this market and also expertise that can be used to develop new products
for niche parts of this market such as molten salt for concentrated solar applications. With biomass and waste to energy being
developed slowly in Europe and concentrated solar being driven by China and the USA, the Group is well positioned to
exploit this growing market from across its entire energy portfolio.
5
Strategic Report (Continued)
Markets – Energy (continued)
Oil & Gas
After several years of oversupply, the industry feels much healthier than it did 12 months ago and the price of oil has rebounded
with Brent crude now trading above $70 a barrel. The industry is recovering from the recent years of weak prices, low capital
expenditure, portfolio realignments, and productivity efficiencies and the effect is starting to be seen across the Oil & Gas sector.
• Upstream – Investment in exploration is now increasing 6% year on year, which although still only half what it was at the
beginning of the decade, marks a massive change over recent years. Operating expenditure is now being released to secure
current operations, resulting in capex beginning to be slowly released for major new projects. The Group is witnessing the
front end of this activity through increased bidding and is optimistic regarding future projects. The ongoing investments in
disruptive technologies such as the subsea boosting technology from F-Subsea that EPM is an exclusive partner to, are now
poised to move through the development phase to full deployment, as the market reopens.
• Midstream – The longer term midstream trend of interest to the Group, is the evolving liquefied natural gas (LNG) market,
for which there is a growing demand and a continual import export transition developing. However, although the market
predictions for FLNG and FRSU vessels remain bullish, in reality activity in the supply chain remains stagnant. The Group
maintains a close eye on developments and supports projects at the appropriate level from early engineering (“FEED”)
studies. Timing remains challenging, but the Group is confident of securing some projects.
• Downstream – Slower growth in liquids demand combined with continued growth of LNG and biofuels continues to put
pressure on global refining. New refinery projects which are already planned or under construction for the next five years
are judged to be sufficient to meet new capacity. However, the Group’s equipment is installed in critical systems on existing
plants where continued operation is key, so aftermarket opportunities are strong. In some cases, such as the UK, where the
supply chain companies are reducing in number, the Group is well positioned to adopt long term service partnerships across
a range of systems and rotating equipment.
Digitalisation
Companies across the energy market continue to invest in digital technologies to improve productivity, efficiency and predictability
in the field. At equipment level this translates to a series of devices, sensors and databases that can both predict breakdowns
before they occur and ensure equipment is running at its optimum performance. The Group has successfully launched its first
monitoring product, DataHawkTM, for Boiler Circulating Pumps and will build off this success to add this capability to both a
wider set of original equipment and its aftermarket service offering.
Markets – Medical
The Diagnostic (medical) and molecular imaging markets are large global sectors, dominated by a few large systems manufacturers.
The total Diagnostic Imaging Market is c$34bn (2016) and expected to grow at 5% per annum over the next 10 years.
The largest market is the USA (25%), followed by Europe (19%) and Japan (17%). China (12%) and India (3%) are the fastest
growing markets. Three companies (Siemens, GE and Philips) account for an estimated 78% of revenue in the market.
The Avingtrans medical division is primarily targeting the Magnetic Resonance Imaging (MRI) and Nuclear Magnetic Resonance
(NMR) segments of these markets, due to the common thread requirements for superconducting magnets and cryogenics. These
two segments account for approximately 85% of our business in the medical division. Market drivers for these segments include
ageing populations worldwide and the global pharmaceutical industry’s research needs. MRI is approximately 16% by value of
the total diagnostic Imaging market and projected to grow at 5% p.a. NMR is a smaller market, currently estimated at $650m p.a.
and growing also at 5% p.a, with Bruker enjoying a current market share of over 80%.
End User/Aftermarket
The MRI market segment is dominated by a handful of global manufacturers, including GE, Siemens and Philips. These players
also dominate the aftermarket, though there are a few independent MRI service businesses in existence. Avingtrans is not present
in the MRI aftermarket at this time.
The NMR market is similar, currently dominated by Bruker (CH/DE) and Jeol (JA). Avingtrans is now closely aligned MR
Resources Inc, a well-established US business, which services the NMR aftermarket. The Avingtrans medical division is well
positioned in this end-user market space and has now started to win service contracts with European NMR users, following our
recent partnership agreement with MR Resources.
6
Strategic Report (Continued)
Markets – Medical (continued)
MRI
As noted above, the MRI market segment is dominated by a handful of global manufacturers. For component and sub-system
supply, Avingtrans is most aligned to the market leader, Siemens and also to Canon, which acquired the Toshiba MRI business
in recent years. As far as full system supply is concerned, we are currently investigating a number of niche MRI applications
(eg veterinary imaging) and their associated routes to market, with the intention of pinpointing the most promising of these for
future investment.
NMR
The previous attempts by Avingtrans to align with the market leader Bruker were unfruitful, so we have pivoted to align with new
market entrant Q One Instruments of Wuhan, China and also with MR Resources of the USA, as noted above. Together, we form
an alliance to challenge the dominance of the existing players and to provide the customers with an additional source for NMR
products, service and support. Former NMR customers of Agilent (formerly Varian) are also being given much needed support.
Whilst early days for this initiative, we are already seeing success in winning support contracts for end users and the prospect
list for Q One Instruments is promising.
Operations
The two energy divisions are now fully restructured and the necessary right-sizing of both Hayward Tyler and Peter Brotherhood
was completed quickly and effectively, being assisted by a common IT platform.
Operational Key Performance Indicators (KPIs)
• Customer Quality – defect free deliveries (%)
• Customer on time in-full deliveries (%)
• Annualised staff turnover including restructuring (%)
• Health, Safety and Environment incidents per head per annum
2018
97.3
84.2
17.3
0.14
2017
99.2
99.7
10.2
0.13
Customer quality and on-time deliveries were adversely affected this year – mainly due to lower performance in HTG, which
was struggling with deliveries, as a result of cash flow issues and a resulting creditor overhang. These statistics have been
gradually improving since the acquisition. Staff turnover was also impacted by the substantial restructuring of HTG in the period.
Pleasingly, HSE statistics were similar between the businesses.
EPM Division – Energy
The EPM division, which represents the bulk of the legacy Hayward Tyler companies (excluding East Kilbride) has an enviable
installed base across the globe and strong brand recognition. Coupled with its strong domain knowledge across the energy market
and its core competencies in wet wound electrical motors, canned motor pumps and nuclear codes and standards, the division
continues to expand its end-user offering.
The division finds itself in a relatively strong position, since it is more agile than some of its bigger competitors, has a respected
OEM brand unlike the local independents and is able to offer a strong solution- based offering for its own installed base as well
as other Original Equipment Manufacturers.
With a fully developed presence in Europe and North America, the division has now completed the opening of its delayed new
China facility and the new motor rewind centre in India. The integration of these regional centres alongside other regional
partners in key territories will give the division expanded global reach, capability and the platform to expand its end-user
business.
In the UK, EPM has recently signed an Authorised Channel and Service Partner agreement with Baker Hughes, a GE company
(BHGE), which has significant installed base in the UK, but no effective local facility to service, overhaul and upgrade their
equipment. Customers are demanding a quicker, more local response and, between EPM and BHGE, both respected but non-
competing OEMs, this partnership will provide both incremental growth and also a template for other such opportunities around
the world.
In addition to the drive for improved end-user business, EPM is also addressing the shift towards a low carbon energy future.
Its experience and product knowledge have allowed it to gain its first order from a Gen IV nuclear developer in the USA for a
future molten salt technology and also funding from the US Department of Energy to develop molten salt pump technology for
advanced concentrated solar applications. With its new range of pumps and its optimised seal-less circulating pumps for natural
gas and a range of renewable technologies, EPM is slowly but surely reducing its reliance on coal fired power stations.
7
Strategic Report (Continued)
Operations (continued)
PSRE Division – Energy
Following the roll out of the new divisional structure, PSRE acquired the trade and assets of Ormandy Ltd for £0.1m. The
Ormandy Group manufactures off-site plant, heat exchangers and other HVAC (heating, ventilation and air conditioning)
products and the synergies that exist between the Ormandy Group and the PSRE businesses will allow Ormandy to re-establish
its presence in an improving market space.
The Hayward Tyler fluid handling business in East Kilbride, Scotland was moved into the PSRE division, to expand its capability
and capacity to support the nuclear decommissioning and reprocessing market in the UK. This further strengthened the division’s
strategic relationship with Sellafield Limited and the Nuclear Decommissioning Authority. Given the addition of John Clarke as
a NED, this active market place clearly remains a key focus for us.
In parallel to the end-of-fuel-cycle nuclear market above – and with the addition of the Peter Brotherhood capability – the Group
also has a keen interest in both the UK nuclear submarine fleet and associated facilities, as well as developing new nuclear
technologies like SMRs (Small Modular Reactors). The division has a good installed base on the UK submarine fleet, is the
chosen manufacturing partner for the Astute steam turbines and through this experience has the right capability, nuclear culture
and experience to support longer term nuclear technologies.
Away from nuclear, the divisional brands also have a strong presence in the Oil and Gas market place through the likes of Peter
Brotherhood and Maloney Metalcraft. This market remains challenging, but activity is increasing and with the global demand
for LNG still predicted to grow significantly, the Group is quietly confident about future opportunities that play to its strengths
in high quality, highly engineered, highly regulated engineering solutions.
Aligned with the overall Group strategy to focus on end-user business, the division has seen an increase in the ratio of end-user to
OEM sales. In particular Peter Brotherhood saw increased aftermarket sales across its installed base, including on one occasion
an entire replacement steam turbine. End user service arrangements have been signed to gain better access to the reciprocating
compressor installed base and a refresh of the channel partners and agents has been concluded, to allow complete focus on this
aspect of the business. The business has a well-developed end-user value proposition and with improved agility and customer
relevance, is confident of further growth.
Finally, the Crown business remains a small but solid performer in the division with new applications becoming apparent for its
“smart” pole solutions. The first of these was the previously won contract for Fluor, for flame-detector masts. These masts are
being deployed in a large-scale petrochemical plant, to improve overall site safety.
MII Division – Medical
Strategic progress at Scientific Magnetics is promising, but the expected resulting orders have been slower to materialise than
originally thought and this business made a loss for the year, as anticipated at the half year. However, we have continued to invest
in the business for the longer term and, early in 2018, we launched a Europe-wide Nuclear Magnetic Resonance (NMR) service
and support offering with our US partner, MR Resources Inc. This potentially exciting development will only start to bear fruit
in the current financial year, but this new service offering means that all three divisions now have access to a solid aftermarket
revenue stream.
Metalcraft UK’s business with Siemens for MRI components continues to be steady, but progress in China with other vacuum
vessel customers – e.g. Alltech – was somewhat slower in ramping up and was behind plan overall for the year. Composite
Products had a solid year, with deliveries to Rapiscan improving steadily and showing promise for next year. Other smaller
accounts also supported revenues at this unit and a return to profit.
Financial Performance
Key Performance Indicators
The Group uses a number of financial key performance indicators to monitor the business, as set out below.
Revenue: HTG acquisition drives growth
Overall Group revenue increased to £78.9m (2017: £22.7m), primarily driven by the effect of the HTG acquisition. Underlying
revenue growth, excluding acquisitions was 10.9%.
Profit margin: results skewed positively by acquisition effects
Adjusted EBITDA (note 4) increased by 690% to £5.7m (2017: £0.7m) with HTG contributing £5.1m in the 9 months following
acquisition. Operating loss increased to £3.8m (2017: £0.5m) mainly due to the significant HTG exceptional costs which were
incurred in the period, initially for the acquisitions (£1.6m), subsequently for right-sizing and restructuring £1.7m and the
8
Strategic Report (Continued)
Financial Performance (continued)
amortisation of intangibles from business combinations (£3.3m). Of this £1.9m EBIT related to HTG (note 36) and £2.6m
(note 2) from central costs including the direct costs of the HTG acquisition £1.5m (note 36).
Gross margin
Improved to 25.5% (2017: 17.9%) helped by higher HTG gross margin, whilst margins excluding HTG were slightly down
at 15.2%, due to completion of a few legacy loss-making contracts following the Ormandy acquisition and underutilisation at
Scientific Magnetics, as it undergoes a transition to new markets.
Tax: potential US upside to come next year
The effective rate of taxation at Group level was a 0.3% tax credit primarily due to a deferred tax credit arising from the
amortisation of business intangibles offsetting the US tax charge, whereas FY17 was a 3.9% tax charge. Following the acquisition
of HTG, we have a US business historically paying 39% tax which reduced to c.27% following the recent US announcements
from January 2018. The effective tax charge for the Group is also impacted by the non-allowable transaction costs in the current
year and not recognising all the trading tax losses in the UK. The tax position will be aided in the coming years, not only through
the reduced US rate, but also as we utilise elements of the UK and China tax losses.
Adjusted Earnings per Share (EPS):
Adjusted diluted earnings per share for continuing operations improved to 8.4p (2017: 1.1p).
Funding and Liquidity: Net Debt post acquisition remains low
Net Debt was £7.1m (31 May 2017: Net cash: £26.4m). HTG’s higher cost debt (£11.5m) elements were repaid at acquisition and
a further £10.7m absorbed, with HTG costs of £3.7m also being incurred and paid. During the period, £3m was removed from the
HTG creditor overhang at the time of acquisition, with further right-sizing restructuring costs of £1.7m and Avingtrans acquisition
costs of £1.6m also being paid alongside a further working capital investment of £4.4m, principally HTG post acquisition.
Following the acquisition of Ormandy, it has been trading out a few remaining loss-making contracts and rebuilding its business
to be in a profitable position. However, this has required a cash investment for working capital and initial underutilisation, which
has since improved. Notwithstanding this significant cash investment in the acquisitions during the year, the Directors consider
the Group to have sufficient financial resources (note 23) to deliver its short term strategic objectives and maintain a strong
relationship with its banking partners.
Dividend: steady progress continues
The Board again proposes to underpin our progressive dividend policy. We are pleased to be able to recommend an improved
final dividend of 2.3 pence per share (2017: 2.2 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 7 December 2018, to shareholders on the
register at 26 October 2018.
Acquisition: fair value review
The fair value of the assets and liabilities of the acquisitions (note 36) were reviewed including as assessment of the carrying
value in use of the properties which resulted in an impairment of the Luton facility of £4.5m.
Principal risks and uncertainties facing the Group
Managing Risk
The Group is exposed to risks and uncertainties that could have a material impact on its performance and financial position.
Identifying, assessing and managing risk is the responsibility of the Board. Our approach to risk is intended to protect the interests
of our shareholders and other stakeholders whilst allowing the business to develop. Our risk appetite depends on the nature of
an individual risk and it is considered in Board discussions and also as part of our risk review process in the Audit Committee.
From time to time, we obtain advice from third party experts in a cost-effective manner, to complement in-house knowledge.
The long-term success of the Group relies, in part, on managing the risks to our business. Whilst the Group has risk management
policies and practices in place, which address and monitor risk, we seek to improve those practices each year. The Chief Financial
Officer is responsible for risk management on behalf of the Board and the Audit Committee reviews the risk register on a regular
basis. Ultimately our aim is to ensure that risk management is embedded within the core processes of our business units.
9
Strategic Report (Continued)
Principal risks and uncertainties facing the Group (continued)
Risk Management Process
The Group uses a risk register to help coordinate its risk management process. The risk register identifies the key business risks
and documents the policies and practices in place to mitigate those risks.
Principal Risks
We classify the risks to the business into three groups, namely, strategic risk, operational risk and financial risk. The principal
risks identified by the Directors under these groups are set out in the table below. The risks considered during the Group-wide
risk management process cover a wider range of issues than the key risks that are listed in this table.
Risk
Potential Impact
Mitigation
Strategic Risk
A. Growth
Strategy
is growth
A fundamental part of the Group’s
strategy
from both
Original Equipment and Aftermarket
sales. The growth is reliant on our
markets. These markets demonstrate
long-term growth, but remain highly
competitive and can be cyclic.
Failure to generate sufficient order
intake and revenue to cover the
fixed cost base could give rise to
lower profit and cash generation that
constrains the Group.
to
keep-up
Failure
with
technological change could give rise
to the Group’s products, services
and
less
technologies becoming
competitive.
The Group providing niche engineering solutions for the
global energy and medical sectors. It has an excellent market
profile (quality, reliability and customer relationships), which
results in inclusion on sector bid/quote opportunities.
The Group has invested, and is investing, in key aspects to
maintain and improve the Group’s competitive position
including:
■ employees (see E below);
■ supply chain (see F below);
■ developing and maintaining strong relationships
with key customers;
■ capital expenditure on plant and equipment;
■ research and development of products and processes
and
■ aftermarket initiatives including supporting end-of-life
extension programmes.
B. PIE Strategy
mergers,
acquisitions
and disposals
The Group makes
regular
acquisitions and disposals under
its PIE strategy. On 1 September
2017, it acquired Hayward Tyler
Group and on 19 February 2018,
it acquired certain assets of The
Ormandy Group.
Failure to re-establish and rebuild
these businesses could (1) absorb a
disproportionate part of management
resource at the expense of other parts
of the Group (2) reduce the Group’s
profitability and (3) delay the cycle
of the planned positive outcome of
the PIE strategy.
The Group carefully plans acquisition actions to mitigate
this risk:
■ extensive pre-deal due diligence;
■ achieving a balance between attractive purchase prices
and business purchase agreement terms and conditions;
■ post-acquisition integration planning
■ rapid business restructuring as required
■ appropriate funding of the acquisitions and on-going
businesses followed by de-leveraging the business;
■ establishing senior management teams, complemented
by experienced executives from Avingtrans and
externally, if required;
■ development of incoming employees;
■ focusing on marketing and sales including growing
aftermarket businesses; and
■ investing in the businesses as necessary for a successful
outcome to the PIE strategy.
10
Strategic Report (Continued)
Principal risks and uncertainties facing the Group (continued)
Risk
Potential Impact
Mitigation
Strategic Risk
C. Execution
services highly
The Group designs, manufactures
and
technical
products that are mission critical to
the end user.
to
satisfy
contractual
Failure
to
rise
obligations could give
significant
losses (e.g. warranty
claims, liquidated damages, etc),
cash constraints, lost future orders
and adverse impact on the Group’s
reputation.
D. Global
Economic
Activity and
political
uncertainties
including
Brexit
E. Employees
in global
The Group operates
industrial, defence and
energy,
medical markets. A slowdown in
those markets including the possible
impact from on-going economic and
political uncertainty may adversely
impact order intake, liquidity needs,
and terms of trade and the financial
performance of the Group.
Political uncertainty such as the
impact of Brexit and other overseas
trade issues – eg US trade tariffs can
affect decisions by our customers to
invest and therefore impact on our
trading.
Attracting and retaining talented
people is a Group priority to ensure
our continued success. The Group
has numerous skilled and highly
trained and qualified employees
who demonstrate their commitment
to the Group through the continuous
improvement of our products,
processes and procedures which
impacts on the Group’s performance.
Failure to attract the right talent,
could inhibit the rate of product
and process development as well as
impact on the Group’s performance.
The Group continues to invest consistently in its people,
processes and products to maintain and improve lead times and
product innovation. These steps include: enhanced customer
relationship management, sales and operational planning,
process flow mapping, research and development, product
standardisation and enhancing process capability.
The Group also seeks to minimise the impact of execution risk
through its terms of trade such as (1) limiting the undertakings it
gives to pay liquidated damages and (2) avoiding consequential
damages altogether.
The Group has a diversified geographical and sector spread that
reduces the impact of localised economic trends and activities.
In addition, the Group is investing in research and development,
to develop new products or adapt existing products for use in
other applications in order to broaden its product offering, to
reduce the risk. Increasing aftermarket activities also provide
the Group with a partial cushion to defend against cyclical
downturns in original equipment purchasing.
We continue to review and assess the potential impacts of US
tariffs and Brexit as more information becomes available and
we are engaged with trade associations which are in contact
with government and can assist our decision making and
action plans.
The Group will be able to continue to trade with EU member
states and will take guidance on any new trading regulations
when the UK exits the EU. As the Group also operates in
countries which are outside of the EU this should help lessen
any impact of disruption caused by an exit.
Recruitment and retention of employees is a key focus for the
Group to ensure its continued success.
Group mitigating actions include:
■ continuing the significant investment in training and
development;
■ personal development reviews;
■ succession planning;
■ promotion from within where possible
■ outreach to Universities, Colleges and Local Schools;
■ monitoring pay and benchmarking;
■ maintaining the successful graduate and apprentice
programmes;
■ improving overall employee engagement;
■ utilisation of external and Group resource to offset any
temporary gaps in key personnel.
11
Strategic Report (Continued)
Principal risks and uncertainties facing the Group (continued)
Risk
Potential Impact
Mitigation
Operational Risk
F. Supply
Chain
The Group is reliant on its supply
chain as part of its aim to improve
throughout and optimise stock-
holding.
Failure of that supply chain can
result in operational disruption and
delays to shipments to customers,
leading to potential loss of profit and
damage to customer relationships.
Financial Risk
G. Funding
The Group is dependent on its ability
to service its debts and refinance
existing borrowings when
they
fall due as well as to fund working
capital, capital expenditure, and
research and development.
If the Group fails to generate profits
and cash it could face funding
constraints that impact the business
cycle.
H. Working
Capital
As a fundamental part of the Group’s
strategy is growth the Group is
exposed to a potential increase in
its working capital requirement
that absorbs cash. If the Group fails
to keep this increase under control
it could face cash constraints that
impact the business cycle.
Each division has its own sourcing policy. Where appropriate
and efficient, divisions cooperate on sourcing. Mitigating
actions include:
■ sourcing strategies to avoid single point dependence for
any key commodity and standardisation to support possible
stock holdings;
■ identifying in-house capability and focused investment in
related capital expenditure;
■ exception reporting, operational planning and review
processes support the early identification of risks;
■ monitoring of supplier performance;
■ an optimum number of suppliers with strategic, long-term
partnerships on key components;
■ strengthening of supply chain teams; and
■ supply chain benchmarking and development.
The Group manages its capital to continue as a going concern
and maintain its liquidity. The Group continually reforecasts
its borrowing requirements, which include:
■ a 13-week cash flow forecast produced each month;
■ a 12-month rolling profit and loss, balance sheet and cash
flow forecast each quarter
to ensure that funding is available to support its operations and
its compliance with borrowing covenants.
The Group maintains committed UK and US bank credit
facilities augmented by specific funding to support investment
globally and a bonding facility. In addition, the Group maintains
an active bank relationship programme and a relationship with
UK Export Finance to safeguard its funding ability.
New funding arrangements were established during FY18 to
support the Group’s working capital needs, including reshaped
facilities with RBS on the acquisition of HTG.
The Group is seeking to mitigate this risk through the following
means:
■ standard terms and conditions of manufacturing contracts
require customers to make stage payments to fund working
capital on the contract. Where stage payments cannot
be achieved by the Group, it may be possible to augment
borrowing and bonding lines through use of the short-term
funding schemes – eg via UK Export Finance;
■ an on-going initiative to optimise stock;
■ minimising lead times, to reduce working capital
requirements per unit of revenue;
■ active management of accounts receivable and accounts
payable; and
■ linking employee remuneration to cash.
12
Strategic Report (Continued)
Principal risks and uncertainties facing the Group (continued)
Risk
Potential Impact
Mitigation
Financial Risk
I. Currency
J. Pension
Scheme
The Group operates and sells in
overseas markets that may utilise
currencies other than those in which
its principal costs are denominated.
The exposure to foreign exchange
rate fluctuations may, as a result,
affect the Group’s cash flow. The
principal risk at present is US Dollar
income.
The Group maintains a defined
benefit pension scheme related to
the Hayward Tyler businesses.
The Group could be required to
increase its contributions to cover
funding shortfalls caused by poor
investment performance of scheme
assets, a deterioration in the discount
rate or inflation rate applied and
changes
life expectancy of
in
members of the scheme.
K. 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.
The Group’s policy is to hedge its transaction exposures (i.e.
cash flows) where a significant commitment has been made and
a level of cover for non-contracted flows in the 12 to 24-month
period. As at 31 May 2018, 66% of estimated USD net inflows
into the UK over the following 12 months were hedged.
Currency hedging lines are available from two providers.
The scheme is closed to new members and to future benefit
improvements. The performance of the investment advisers is
monitored closely by the Company and pension trustees and
action taken where that is not satisfactory. The assumptions
used to determine the pension deficit/surplus are based on
recommendations of the actuary to the scheme. The Directors
discuss the pension scheme regularly and there is frequent
contact with the pension fund trustees.
The aim is to strengthen the financial position of the
Group, through its underlying performance, which assures
stakeholders and helps to maintain or reduce contributions to
cover any eventual funding shortfall.
The plan trustees have selected a liability driven investment
strategy aimed at reducing interest and inflation rate risks
and providing a return that matches or exceeds the growth in
projected pension plan liabilities.
This risk is mitigated by the strong on-going customer
relationships.
13
Strategic Report (Continued)
People
At Board level, Ewan Lloyd-Baker was formally admitted to the Board upon completion of the acquisition of HTG. John Clarke,
formerly the CEO of the Nuclear Decommissioning Authority (NDA), also joined the Board as a non-executive director. Within
the Group structure, Colin Elcoate was confirmed as the Chief Commercial Officer for Avingtrans. The new divisional structure
has driven other top management changes, as follows:
• Mike Turmelle was promoted to Divisional Managing Director of the EPM division
• Austen Adams continued as Divisional Managing Director of the expanded PSRE division
• Austen Adams is also Acting Divisional Managing Director of the MII division and will continue in this role until the medical
businesses fully separate from our energy assets and a full senior team is in place.
The management teams in the three divisions continue to be strengthened, with a number key appointments being made in the
year and with emphasis on the importance of the aftermarket opportunities. Skills availability is always challenging, but we
do not expect to be unduly constrained by shortages. Avingtrans continues to invest significant effort in developing skills, both
through structured apprenticeship programmes and also graduate development plans. The Group continues to be recognised
nationally for the strength of its apprenticeship and graduate training schemes. Metalcraft recently won the top accolade for
‘SME Investment in Skills’ at the SEMTA (Scientific, Engineering, Manufacturing & Technology Alliance) 2018 Awards.
Our global workforce is now becoming more integrated and this provides additional capability, capacity and innovative thinking
around the clock, to support to our global blue-chip customer base.
Health, Safety and Environment (HSE)
The Group takes HSE matters and its related responsibilities very seriously.
As regular acquirers of businesses, we find different levels of capability and knowledge in different businesses. Often, a key
investment need in smaller acquisitions is to spread HSE best practice from other Group businesses and bring local processes
up to required standards. Larger acquisitions like HTG have well developed HSE practices and we seek to learn from these in
other business units.
Health and Safety incident reporting has improved across the Group and incident trends have generally been improving over
recent years. Near miss reporting and knowledge exchange is also positively encouraged, to facilitate learning and improvement.
At Board level, Les Thomas has HSE oversight and he conducts inspections with local management as appropriate.
The Group’s environmental policy 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 HSE regulations.
Social Responsibility
It is paramount that the Group maintains the highest ethical and professional standards across all of its activities and that social
responsibility should be embedded in operations and decision making. We understand the importance of managing the impact
that the business can have on employees, customers, suppliers and other stakeholders. The impact is regularly reviewed to sustain
improvements, which in turn support the long-term performance of the business.
Our focus is to embed the management of these areas into our business operations, both managing risk and delivering opportunities
that can have a positive influence on our business.
Employees
The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters
affecting them directly and on financial and broader economic factors affecting the Group. The Group regularly reviews its
employment policies. The Group is committed to a global policy of equality, providing a working environment that maintains
a culture of respect and reflects the diversity of our employees. We are committed to offering equal opportunities to all people
regardless of their sex, nationality, ethnicity, language, age, status, sexual orientation, religion or disability.
We believe that employees should be able to work safely in a healthy workplace, without fear of any form of discrimination,
bullying or harassment. We believe that the Group should demonstrate a fair gender mix across all levels of our business, whilst
recognising that the demographics of precision engineering and manufacturing remain predominantly male, which is largely
beyond our control.
14
Strategic Report (Continued)
Social Responsibility (continued)
Ethical policy
The Group complies with the Bribery Act 2010. We do not tolerate bribery, corruption or other unethical behaviour on the part
of any of our businesses or business partners in any part of the world. Employee training has been completed in all areas of the
business to ensure that the Act is complied with.
Outlook
Avingtrans is a niche engineering market leader in the Energy and Medical sectors. Recent acquisitions (particularly that of
HTG) will afford investors another opportunity to build enduring value with us in a rich seam of engineering market niches. We
will continue to be frugal and seek to crystallise value and return capital when the timing is right, as part of our successful PIE
strategy.
The Group is now focused on investing in its three new divisions in the global energy and medical markets, to position them
for maximum shareholder value via eventual exits in the years to come. To this end, it was essential that the integration and
restructuring following the acquisition of HTG was both quick and clinical, allowing the management team to concentrate on
profitable future growth.
The energy divisions have a strong emphasis on both the nuclear and off shore Oil & Gas markets, both of which are showing
signs of regeneration. The medical division continues to focus on high integrity components and systems for leading medical,
industrial and scientific equipment manufacturers.
To drive short term profitability and market engagement, all divisions have clear strategies to support end-user aftermarket
operations, whether by servicing their own equipment or that of third parties, to capitalise on the continued drive for efficient,
reliable and safe facilities.
We are not unduly concerned by Brexit, since our direct EU exposure is rather limited and we have taken some initial evasive
action in our supply chains, with likely further such actions to follow, depending on the exact nature of the Brexit deal. Similarly,
US government tariff change risks have been largely mitigated by an agile supply chain response and we will continue to monitor
this situation closely.
As markets continue to recover, M&A activity remains strong and businesses like ours can command high valuations at the point
of disposal, as was perfectly exemplified by the Sigma sale previously. At Avingtrans, we are confident about the current strategic
direction and potential future opportunities across our markets and sphere of influence. We will continue to hone our business
by pinpointing specific additional acquisitions as the opportunities arise, to invest and build businesses that we expect to attract
premium valuations.
The Strategic Report was approved by the Board on 2 October 2018 and signed on its behalf by:
Roger McDowell
Chairman
2 October 2018
Steve McQuillan
Chief Executive Officer
2 October 2018
Stephen King
Chief Financial Officer
October 2018
15
Report of the Directors
The Directors present their report and the audited financial statements for the year ended 31 May 2018.
Matters included in the strategic report
The Directors’ consideration of likely future developments in the business, risks and KPI’s have 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 £6.9m for the
year. At 31 May 2018 the Group has net debt of £7.1m as detailed in note 25 (2017: Net cash £26.4m) and net assets of £69.1m
(2017: £44.9m). The completion of the acquisition of the Hayward Tyler Group plc on 1 September 2017 resulted in £11.5m of
its facilities being repaid, the assumption of a further £10.9m 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 2018/19 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 2019, 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 £4,498,000 (2017: loss of £285,000) for
continuing operations. A final dividend of 2.3 pence is proposed for the year ended 31 May 2018 (2017: 2.2 pence), taking the
total dividend for the year to 3.6p pence (2017: total 3.4 pence).
Substantial shareholdings
As at 2 October 2018, 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
Funds managed by RBC Trustees Limited
Funds managed by BlackRock
R S McDowell’s Pension Fund
P McDowell’s Pension Fund
Funds managed by LGT Bank
Directors and their interests
Number of
shares
‘000
Percentage
of issued
share capital
owned
3,020
1,946
1,850
1,723
1,580
1,406
1,213
1,017
9.7%
6.3%
6.0%
5.5%
5.1%
4.5%
3.9%
3.3%
The present Directors of the Company and those that served during the year are set out on page 1. Their interests in the share
capital of the Company are set out below.
R S McDowell
S McQuillan
S M King
G K Thornton
L J Thomas
EW Lloyd-Baker
16
Ordinary shares of 5p each
31 May
31 May
2017
2018
1,406,409
243,500
180,248
–
16,000 –
475,993 –
1,406,409
225,000
180,248
20,000
Report of the Directors (Continued)
Share options
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, funding, working capital, pension scheme, 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 entered
into derivative transactions where it has certainty of the outcome. 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 25 to the financial statements.
Research and development
During the year £681,000 (2017: £625,000) 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 Statement of
Directors’ responsibilities for the financial statements.
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.
17
Report of the Directors (Continued)
Statement of Directors’ responsibilities for the financial statements (continued)
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group
and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities. The Directors confirm that:
•
•
so far as each of the Directors is aware there is no relevant audit information of which the Company’s and Group’s auditor is
unaware; and
the Directors have taken all steps that they ought to have taken as directors to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that information.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Auditor
Grant Thornton UK LLP (“Grant Thornton”) are willing to continue in office in accordance with section 489 of the Companies
Act 2006, and a resolution to reappoint them will be proposed at the Annual General Meeting.
The report of the Directors was approved by the Board on 2 October 2018 and signed on its behalf by:
S M King
Director
18
Corporate Governance
The Group is committed to high standards of corporate governance and the Board is accountable to the Company’s shareholders
and stakeholders for good corporate governance. The Group aims to move towards full compliance with the 2018 QCA code, this
statement describes how the high-level principles have been applied to the Group.
Directors
The Board of Avingtrans plc for the majority of the period comprised two Executive Directors and four Non-Executive Directors.
During the year the Board was chaired by R S McDowell and assisted by the Senior Independent Non-executive Director, G K
Thornton, who together have primary responsibility for running the Board. E Lloyd-Baker joined the Board as a Non-Executive
Director after the acquisition of HTG on 1 September 2017. On 22 February 2018, J Clarke joined the Board as a Non-Executive
Director, he will serve on the Audit, Remuneration and Nomination Committees. The Board configuration reviews it has the
skills and oversight capability in key markets on a regular basis, strengthening our ability to leverage shareholder value via the
PIE strategy.
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 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
21 to 22.
Relations with Stakeholders
The Board attaches a high level of importance to maintaining good relationships with shareholders, whether they are institutions
or private investors and all stakeholders.
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.
19
Corporate Governance (Continued)
Relations with Stakeholders (continued)
The Group understand the importance of managing relations with all stakeholders and the impact that the business can have
on employees, customers, suppliers, regulators, partners and other stakeholders. The impact is regularly reviewed to sustain
improvements and to communicate effectively with all stakeholders which in turn support the long-term performance of the
business.
Accountability and Audit
The respective responsibilities of Directors and the Auditor are set out on pages 18 and 31. 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.
Risk Management, Health, Safety and Environment (HSE) and Social Responsibility
The Groups responsibilities, policies and controls on Risk Management, Health, Safety and Environment (HSE) and Social
Responsibility are set in the Strategic Report pages 10 to 15.
S M King
Company Secretary
2 October 2018
20
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. EW
Lloyd-Baker and JS Clarke joined the Committee 1 September 2017 and 22 February 2018 respectively.
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 22.
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, E Lloyd-Baker 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.
21
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
2017
grant
22/11/2013
10/12/2014
21/12/2016
15/12/2017
95,000
100,000
450,000
–
Granted
–
–
–
140,000
645,000
140,000
25/09/2010
22/11/2013
10/12/2014
21/12/2016
15/12/2017
39,733
84,000
75,000
330,000
–
–
–
–
–
110,000
528,733
110,000
Weighted
average
exercise
price
£
Exercised
At 31 May
2018
–
–
–
–
–
–
–
–
–
–
95,000
100,000
450,000
140,000
785,000
39,733
84,000
75,000
330,000
110,000
638,733
1.760
1.110
1.930
1.815
1.784
0.395
1.760
1.110
1.930
1.815
1.696
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
2 October 2018
22
Independent Auditor’s Report to the
Members of Avingtrans plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Avingtrans plc (the ‘parent company’) and its subsidiaries (the ‘group’) for
the year ended 31 May 2018 which comprise the Consolidated income statement, the Consolidated and Company balance
sheets, the Consolidated and Company statements of changes in equity, the Consolidated and Company statements of cash
flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in the preparation of the group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31
May 2018 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.
Who we are reporting to
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a
period of at least twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
• Overall materiality: £1,577,000, which represents approximately 2% of the group’s revenues;
• Key audit matters were identified as contract accounting, acquisition accounting, impairment of
goodwill, valuation of defined benefit pension scheme and valuation of land and buildings;
• We performed full scope audit procedures on the financial statements of all group entities in the
United Kingdom. We performed analytical procedures over non-significant components in India
and China.
23
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement
impact and the extent of management judgement.
High
Trade receivables and
accrued income existence
Impairment of
goodwill
Acquisition
accounting
Potential
financial
statement
impact
Low
Valuation
of
inventory
(gross and
net)
Revenue
recognition
Contract
accounting
Valuation of land and
buildings liability
Management override
of controls
Valuation of defined
benefit pension
Existence of
inventory
Intercompany
and investments –
valuation net
Goodwill and intangibles –
valuation gross
Development costs
valuation gross
Disclosure impact of
IFRS 15
Trade receivables –
valuation net
Low Extent of management judgement High
Key audit matter Significant risk
Other risk
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
Key Audit Matter – Group
Risk 1 – Contract accounting
Revenue is recognised throughout the group as the fair value
of consideration receivable in respect of the performance of
contracts and the sale of goods.
Determining the amount of revenue to be recognised from
the performance of contracts requires management to make
significant judgements and estimates as to the stage of
completion, the costs to complete, the impact of any changes
in scope of work.
The Directors are also required to make an assessment to
determine whether onerous contract provisions are required
for loss making contracts.
Due to the significant financial statement impact of the
revenue derived from performance of contracts, as well
as the high level of estimation required in determining the
appropriate accounting treatment, we therefore identified
contract accounting as a significant risk, which was one of the
most significant assessed risks of material misstatement.
24
How the matter was addressed in the audit – Group
Our audit work included, but was not restricted to:
• documenting our understanding of management’s
process for evaluating revenue recognition and assessing
the design effectiveness of related key controls;
•
•
judgmentally selecting contracts by
to
materiality and other risk factors including loss making
contracts and contracts with significant aged work in
progress and receivables balances;
reference
for the above selected samples, assessing whether the
revenue and profit recognised are in accordance with the
group’s accounting policies and International Accounting
Standard (IAS) 11 ‘Construction Contracts’ by agreeing
inputs to contract terms, re-performing management’s
calculations and challenging management’s assumptions
and assertions underpinning their forecast for contracts’
future performance by
supporting
documentation, such as contracts KPIs, historical
performance against forecasts and discussions with key
contract accounting personnel;
reference
to
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Risk 1 – Contract accounting (continued)
•
examining those contracts identified as being at risk of
incurring future losses during the remaining life of the
contract, and challenging management’s assumptions and
assertions relating to the future results of those contracts
by reference to supporting evidence, such as forecast
models and post balance sheet contract performance.
The group’s accounting policy on long term contracts is
shown on page 34.
Key observations
Based on our audit work, we found that the assumptions and
judgements used in accounting for contracts were reasonable.
We found no significant errors in the underlying calculations.
How the matter was addressed in the audit – Group
Our audit work included, but was not restricted to:
• documenting our understanding of management’s
process for evaluating the accounting treatment to be
applied to the HTG acquisition and assessing the design
effectiveness of related key controls;
•
reperforming management’s calculation of the fair value
of the consideration transferred less the net recognised
amount of identifiable assets acquired and liabilities
assumed;
• using our internal valuation specialist to evaluate and
challenge the assumptions used, including discount rates,
growth rates and forecast future trading performance,
in the calculation of the fair value of the intangibles
recognised;
•
•
testing the completeness and accuracy of the data used
in the intangibles valuation by agreeing data to pertinent
supporting documentation such as long-term growth
forecasts; and
testing significant fair value adjustments made to
the assets and liabilities acquired and challenging
management’s assumptions in the fair value assigned to
certain assets.
The group’s accounting policy on acquisition accounting is
shown on page 33 and related disclosures are included in
note 36.
Key observations
Based on our audit work, we found that the assumptions and
judgements used in management’s accounting treatment of
the HTG business combination was reasonable. We found no
errors in the underlying calculations.
25
Key Audit Matter – Group
Risk 2 – Acquisition accounting
During the year the group acquired the entire share capital
of Hayward Tyler Group plc (HTG). This acquisition has
had a material impact on the financial statements, resulting
in the recognition of goodwill and intangible assets on
consolidation of HTG into the group.
The group measures goodwill at the acquisition date as
being the fair value of consideration transferred less the
net recognised amount of identifiable assets acquired and
liabilities assumed. Goodwill of £18.1 million was recognised
as a result of the acquisition of HTG.
Intangible assets acquired in a business combination are
deemed to have a cost to the group equal to their fair value
at the acquisition date. Intangible assets of £16.1 million
were recognised as a result of the acquisition of HTG. These
intangibles were valued, using input from a third party
valuation expert, based on discounted cash flow forecasts,
which require judgement by the Directors around key
assumptions such as revenue growth, discount rates, brand
royalty rates, customer attrition and long term growth rates.
On initial recognition, the assets and liabilities acquired in a
business combination 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. Determining the fair value of certain
assets and liabilities requires judgement to be exercised by
the Directors, particularly in respect to estimating the fair
value of assets acquired and capturing contingent liabilities
not previously recognised in the financial statements of HTG.
Due to the significant financial statement impact of the
acquisition, as well as the high level of estimation required
in determining the appropriate accounting treatment, we
therefore identified acquisition accounting as a significant
risk, which was one of the most significant assessed risks of
material misstatement.
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
Key Audit Matter – Group
Risk 3 – Impairment of goodwill
The process for assessing whether an impairment exists under
International Accounting Standard (IAS) 36 ‘Impairment of
assets’ is complex. IAS 36 requires an entity to test goodwill
acquired in a business combination for impairment annually.
Management have carried out this impairment test at year
end and determined that no impairment charge is required.
When carrying out
impairment review,
the goodwill
determining the recoverable amount for each cash-generating
unit (“CGU”) requires the management to make judgements
over certain key inputs in the value in use discounted cash
flow models. These include revenue growth, discount rates
and long term growth rates.
We therefore identified impairment of goodwill as a significant
risk, which was one of the most significant assessed risks of
material misstatement.
How the matter was addressed in the audit – Group
Our audit work included, but was not restricted to:
• documenting our understanding of management’s
process for evaluating the impairment of goodwill and
assessing the design effectiveness of related key controls;
•
•
•
•
•
•
testing the methodology applied in the value in use
calculation complies with the requirements of IAS 36
‘Impairment of Assets’;
testing the mathematical accuracy of management’s
model;
testing the key underlying assumptions for the financial
year 2019 budget (FY19);
challenging management on its cash flow forecast and the
implied growth rates for FY19 and beyond, corroborating
to relevant evidence such as external market data to
support these assumptions;
assessing the discount rates and long-term growth rates
used in the forecast including comparison to economic
and industry forecasts where appropriate; and
testing the sensitivity analysis performed by management
in respect of the key assumptions, such as discount and
growth rates, to ensure there was sufficient headroom in
their calculation.
The group’s accounting policy on accounting for goodwill
impairment is shown on page 35 and related disclosures are
included in note 12.
Key observations
Based on our audit work, we found that the assumptions made
and estimates used in management’s assessment of goodwill
impairment were balanced. Note 12 also appropriately
discloses the assumptions used in determining at the estimate.
We found no errors in the underlying calculations.
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Risk 4 – Valuation of defined benefit pension scheme
As part of the acquisition of HTG, the group acquired the
‘Hayward Tyler Pension Plan’, a defined benefit pension
scheme that provides benefits to a number of current and
former employees. At 31 May 2018 the defined benefit
pension scheme’s net surplus was £1.6 million. The gross
value of pension scheme assets and liabilities which form
the net asset amount to £14.1 million and £12.6 million
respectively.
The valuation of the pension liabilities and assets in
accordance with IAS 19 ‘Employee benefits’ involves
significant judgement and is subject to complex actuarial
assumptions. Small variations in those actuarial assumptions
can lead to a materially different defined benefit pension
26
Our audit work included, but was not restricted to:
• documenting our understanding of management’s process
for evaluating the defined benefit pension scheme and
assessing the design effectiveness of related key controls;
• using an internal actuarial specialist to challenge the
assumptions used, including discount rates, growth rates,
mortality rates and the calculation methods employed in
the calculation of the pension liability;
•
testing the accuracy of underlying membership data used
by the group’s actuary for the purpose of calculating the
scheme liabilities by selecting a sample of employees
and agreeing key member data to source records and by
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Risk 4 – Valuation of defined benefit pension scheme
(continued)
scheme asset or liability being recognised within the group
financial statements.
We therefore identified valuation of defined benefit scheme
as a significant risk, which was one of the most significant
assessed risks of material misstatement.
testing a sample of movements in the pension scheme
membership;
• directly confirming the existence of pension scheme
assets with the entity pension scheme’s external asset
managers; and
•
evaluating management’s conclusion that it is appropriate
to recognise a pension surplus within the provisions of
IFRIC 14.
The group’s accounting policy on the defined benefit pension
scheme is shown on page 39 and related disclosures are
included in note 29.
Key observations
Based on our audit work, we found
the valuation
methodologies including the inherent actuarial assumptions
to be balanced and consistent with the expectation of our
actuarial specialists. We consider that the group’s disclosures
in note 29 are appropriate. We found no errors in calculations.
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Risk 5 – Land and buildings impairment
The Luton property acquired as part of the HTG business
combination has undergone substantial refurbishment and
expansion to meet the specific growth plans of the business.
Under IAS 36, management are required to consider at the end
of each year whether there are any indicators of impairment.
At the point of acquisition, there was a write down of the
value of the land and buildings by £4.7m.
Due to the level of judgement applied in the fair value
calculation, we therefore identified land and buildings as
a significant risk, which was one of the most significant
assessed risks of material misstatement.
Our audit work included, but was not restricted to:
• documenting our understanding of management’s process
for evaluating the calculation of land and buildings’
impairment and assessing the design effectiveness of
related key controls;
•
•
•
•
•
testing the methodology applied in the fair value
calculation complies with the requirements of IFRS 13;
testing the mathematical accuracy of management’s
model;
testing the key underlying assumptions for the financial
year 2019 budget (FY19);
challenging management on its cash flow forecast and
the implied growth rates for FY19 and beyond; and
corroborating to relevant evidence such as external
market data to support these assumptions; and
assessing the discount rates and long term-growth rates
used in the forecast including comparison to economic
and industry forecasts where appropriate.
The group’s accounting policy on asset impairment is shown
on page 35.
Key observations
Based on our audit work, we found that the assumptions
made and estimates used in management’s assessment of
land and buildings valuation were balanced. We found no
errors in the underlying calculations.
27
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
We did not identify any Key Audit Matters relating to the audit of the financial statements of the parent company.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,
timing and extent of our audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality Measure
Group
Parent
Financial statements
as a whole
£1,577,000, which represents approximately
2% of the group’s revenues. This benchmark
is considered the most appropriate because
this is a key performance measure used by
the Board of Directors to report to investors
on the financial performance of the group.
Revenue
is also a consistent basis for
determining materiality compared with the
previous periods.
Materiality for the current year is higher than
the level that we determined for the year
ended 31 May 2017 as a result of the increased
group revenue the current year.
£359,000, which represents approximately
2% of the parent company total assets. The
benchmark is considered the most appropriate
as it most accurately reflects the parent
company’s status as a non-trading holding
company.
Materiality for the current year is higher than
the level that we determined for the period
ended 31 May 2017 to reflect the parent
company’s increased total assets in the current
year.
Performance
materiality used to
drive the extent of
our testing
Specific materiality
Based on our risk assessment, including the
group’s overall control environment, we
determined a performance materiality of 75%
of the financial statement materiality.
Based on our risk assessment, including the
company’s overall control environment, we
determined a performance materiality of 75%
of the financial statement materiality.
We determined a lower level of materiality
for directors’ remuneration and related party
transactions.
We determined a lower level of materiality
for directors’ remuneration and related party
transactions.
Communication of
misstatements to the
audit committee
that
£78,850 and misstatements below
threshold that, in our view, warrant reporting
on qualitative grounds.
that
£18,450 and misstatements below
threshold that, in our view, warrant reporting
on qualitative grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment and
risk profile. The components of the group were identified by the group audit team based on a measure of materiality, considering
each as a percentage of the group’s total assets, revenues and profit before taxation, to assess the significance of the component
and determine the planned audit response.
A full scope audit approach for all significant components was determined based on their relative materiality to the group and our
assessment of the audit risk. For significant components requiring a full scope approach we evaluated the processes and controls
over the financial reporting system identified as part of our risk assessment, reviewed the financial statement production process
and addressed critical accounting matters such as those related to the key audit matters as identified above. We then undertook
substantive testing on significant transactions and material account balances.
In order to respond to the audit risks identified in our risk assessment, we performed a full scope audit of the financial statements
of the parent company, Avingtrans plc (in the United Kingdom), and of all other component entities in the United Kingdom.
The significant components represented 96.2 percent of consolidated revenues, 100 percent of the loss before taxation and 95.3
percent of total assets. Statutory audits of subsidiaries, where required by local legislation, were performed to a lower materiality
where applicable.
28
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
An overview of the scope of our audit (continued)
The non-significant group components in India and China were subject to analytical procedures with a focus on the key audit
matters as identified above and the significance to the group’s balances.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report set out on pages 3 to 22, other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
•
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
•
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 17, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
29
Independent Auditor’s Report to the
Members of Avingtrans plc (continued)
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
David White
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Birmingham
2 October 2018
30
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
Insurance contracts
Not yet EU-adopted
Effective date
EU
IFRS 17
IFRS 16
Leases
IFRIC Interpretation 22
Foreign currency transactions and
advance considerations
IFRS 15
Revenue from Contracts with Customers
IFRS
IFRS 9
Financial Instruments
IFRS 14
Regulatory Deferral Accounts
Financial periods commencing on/
after 1 January 2019
Not yet EU-adopted
Financial periods commencing on/
after 1 January 2018
Financial periods commencing on/
after 1 January 2018
Deferred until final standard
released
IFRIC Interpretation 23
Uncertainty over Income Tax Treatments Not yet EU-adopted
Annual Improvements to IFRS
Standards 2015-2017 Cycle
Amendments to IAS 19
Plan Amendment, Curtailment or
Settlement
Not yet EU-adopted
Not yet EU-adopted
Amendments to IAS 40
Amendments to IFRS 2
Amendments to IFRS 9
Amendments to IAS 28
Amendments to IFRS 4
Transfers of investment property
(issued 8 December 2016)
Financial periods commencing on/
after 1 January 2018
Classification and Measurement of
Share-based Payment Transactions
Financial periods commencing on/
after 1 January 2016
Prepayment features with negative
compensation (issued 12 October 2017)
Financial periods commencing on/
after 1 January 2019
Long-term Interests in Associates and
Joint Ventures (issued 12 October 2017)
Financial periods commencing on/
after 1 January 2019
Applying IFRS 9 financial instruments
with IFRS 4 Insurance Contracts.
Financial periods commencing on/
after 1 January 2018
Amendments to References to
the Conceptual Framework in
IFRS Standards
Annual improvements to IFRS
2014-2016 Cycle
Clarifications to IFRS 15
Revenue from Contracts with Customers
Financial periods commencing on/
after 1 January 2020
Financial periods commencing on/
after 1 January 2018
Financial periods commencing on/
after 1 January 2018
31
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
Principal Accounting Policies (Continued)
Impact of IFRS 9
IFRS 9 replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’ and applies to three aspects of accounting for
financial instruments: classification and measurement of financial assets, impairment and hedge accounting. IFRS 9 is effective
for reporting periods beginning on or after 1 January 2018. With the exception of hedge accounting, retrospective application
is required but provision of comparative information is not compulsory. The Group will adopt IFRS 9 for the reporting period
commencing 1 June 2018. The Group is not required to restate 2018 comparative information and is analysing the impact of
adoption on its Financial Statements. This standard is not expected to have a material impact.
Impact of IFRS 15
IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is
recognised, an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods
or services to a client. IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts upon which the Group’s current
revenue recognition policies are based.
Either a full retrospective application or a modified retrospective application for IFRS 15 is permitted for reporting periods
beginning on or after 1 January 2018 with early adoption permitted. Management intend to adopt IFRS 15 for the period
commencing 1 June 2018 using the modified retrospective approach.
During the period management performed a detailed review of the impact from IFRS 15. Key impacts are discussed below.
Measurement over time or at a point in time
As per IFRS 15, an entity recognises revenue over time if one of the following criteria is met:
1.
2.
3.
the customer simultaneously receives and consumes all of the benefits provided by the entity as the entity performs;
the entity’s performance creates or enhances an asset that the customer controls as the asset is created; or
the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right
to payment for performance completed to date.
Applying these criteria, fewer contracts would qualify for recognition over time under IFRS 15 when compared to our current
recognition criteria. As a consequence, revenue will be recognised when the performance conditions are achieved, which typically
occurs when the customer takes control of the product.
Products purchased as a series
Often customers will place orders for a number of units of a product which are substantially the same and have the same pattern
of transfer. Where this is the case and the criteria to recognise revenue over time has been met, we would treat these units as a
single performance obligation.
Warranty
Products sold by the Group come with a warranty period and for certain contracts customers will negotiate an extended warranty
period. The current treatment is to recognise the price paid for the extended warranty as part of the price for the product. Under
IFRS 15, warranties that the customer has the option to purchase separately give rise to a separate performance obligation, with
revenue being recognised as that performance obligation is performed.
Contract modifications
Contract modifications occur regularly across the Group. Common contract modifications include additional products and
services, technical modifications to the current products and services, and changes in contract timing. IFRS 15, provides greater
clarity on how we should treat contract modifications including when contract modifications should be treated as a distinct
contract or whether it should be treated as an amendment to the existing contract.
Variable consideration
Certain contracts with customers have an element of variable consideration in the form of volume rebates or more commonly
liquidated damages. Under the new standard, these sums will be included within the total contract price once they can be
reasonably estimated and will not result in a ‘significant revenue reversal’ as defined in IFRS 15.
Management have concluded that the application of IFRS 15 impact on IFRS will be a reduction in opening reserves in the range
of £1m to £4m.
32
Principal Accounting Policies (Continued)
Impact of IFRS 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. IFRS 16 is expected to require amendments for finance costs and operating
leases however management are undertaking an exercise to determine the impact on results and have not yet quantified this for
the 2020 accounts.
Basis of consolidation
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 31 May
2018. 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.
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.
Revenue
Revenue comprises revenue from the sale of goods and the rendering of services.
Revenue is measured at the fair value of consideration received or receivable and represents amounts obtained through trading
activities, net of value added tax and trade discounts. The Group applies the revenue recognition criteria set out below to each
separately identifiable component of the sales or service transaction in order to reflect the substance of the transaction. The
consideration received from these transactions is allocated to the separately identifiable component by taking into account the
relative fair value of each component.
Revenue is recognised when the amount of revenue can be measured reliably, it is probable that the economic benefits associated
with the transaction will flow to the entity, the costs incurred or to be incurred can be measured reliably, and when the criteria
for each of the Group’s different activities has been met. These activity-specific recognition criteria are based on the goods or
solutions provided to the customer and the contract conditions in each case, and are described overleaf.
33
Principal Accounting Policies (Continued)
Revenue (continued)
(a) Original equipment manufacture
The Group manufactures a range of equipment original equipment including pumps, motors, turbines, medical imaging
equipment and nuclear waste containers.
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 reporting date. Revenue is measured at the
fair value of consideration received or receivable in relation to that activity.
When the Group cannot measure the outcome of a contract reliably, revenue is recognised only to the extent of the contract
costs incurred and to the extent that such costs are recoverable. Contract costs are recognised in the period in which they are
incurred. When it is probable that total contract costs will exceed total contract revenue, the total expected loss is recognised
immediately in profit or loss.
The stage of completion of any contract is assessed by management by taking into consideration all information available at
the reporting date. The percentage of completion is calculated by comparing costs incurred to date with the total estimated
costs of the contract. The gross amount due from customers for contract work is presented as an asset within “trade and other
receivables” 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 liability within ”trade and other
payables” for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less losses).
(b) Aftermarket
Revenue comprises the sale of spare parts and other aftermarket services, which is recognised when the Group has
transferred to the buyer the significant risks and rewards of ownership of the goods and services supplied. Significant risks
and rewards are generally considered to be transferred to the buyer when the customer has taken undisputed delivery of
the goods and services.
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.
34
Principal Accounting Policies (Continued)
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.
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
In applying the classification of leases in IAS 17, management considers its leases of equipment as finance lease arrangements.
In some cases, the lease transaction is not always conclusive and management uses judgement in determining whether the lease
is a finance lease arrangement that transfers substantially all the risks and rewards incidental to ownership.
Property leases are spilt between land and the building to assess whether they are operating or finance leases. Land is almost
always an operating lease due to its long life but judgment is required to assess the classification between operating and finance
lease for buildings which are assessed individually against the criteria in IAS 17.10.
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
35
Principal Accounting Policies (Continued)
Leased assets (continued)
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. Leases of land and buildings are classified separately
and are split into a land and a building element, in accordance with the relative fair values of the leasehold interests at the date
the asset is recognised initially.
The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the
income statement as a finance cost over the period of the lease.
All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a
straight-line basis over the lease term. Lease incentives are spread over the term of the lease.
Investments
Investments in subsidiary undertakings and participating interests are stated at cost less provision for impairment where necessary
to reduce book value to recoverable amount. Publicly traded investments are stated at cost less any provision to arrive at market
value. Cost is purchase price including acquisition expenses, but excluding any payment for accrued interest or fixed dividend
entitlement.
Investment income is recognised on a received basis.
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. The assessment of the probability of future taxable income in
which deferred tax assets can be utilised is based on the Group’s latest approved budget forecast, which is adjusted for significant
non-taxable income and expenses and specific limits to the use of any unused tax loss or credit.
The tax rules in the numerous jurisdictions in which the Group operates are also carefully taken into consideration. If a positive
forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time
limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal
or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances. All
unused tax losses and credits have been recognised in the year as management believes that use of the deferred tax asset created
is probable.
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.
36
Principal Accounting Policies (Continued)
Intangible assets
i) Order book and customer relationships
Customer lists acquired in a business combination that qualify for separate recognition are recognised as intangible assets at
their fair values.
The useful lives for these intangible assets are finite.
These intangible assets are amortised on a straight-line basis over the following periods:
• Order book
• Customer relationships
Period of order cover
-
- Up to 10 years
The amortisation charge is shown within amortisation of intangibles in the income statement.
ii) Software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and install the specific
software.
The useful lives for these intangible assets are finite.
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.
Other intangible assets include capitalised development costs incurred in the development of new products and process
development. They are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis
over their estimated useful life. Management assess the useful life of group intangible assets to be in the range of five to ten
years.
To distinguish any research-type project phase from the development phase, it is the Group’s accounting policy to require a
detailed forecast of sales or cost savings expected to be generated by the intangible asset. The forecast is incorporated into
the Group’s overall budget forecast as the capitalisation of development costs commences. This ensures that managerial
accounting, impairment testing procedures and accounting for internally-generated intangible assets is based on the same
data.
The Group’s management also monitors whether the recognition requirements for development costs continue to be met and
an assessment made of its recoverability. This is necessary as the economic success of any product development is uncertain
and may be subject to future technical problems after the time of recognition.
Costs that are directly attributable to the development phase of technology are recognised as an intangible asset, provided
they meet the following recognition requirements:
•
•
•
•
•
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.
37
Principal Accounting Policies (Continued)
Intangible assets (continued)
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.
Borrowing costs
Borrowing costs primarily comprise interest on the Group’s borrowings. Borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset, are capitalised as part of the cost of that asset when it is probable
that they will result in future economic benefits and the costs can be measured reliably. All other borrowing costs are expensed
in the period in which they are incurred and reported within “finance costs”.
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.
Foreign currency translation differences arising on the translation of the Group’s foreign entities are included in the translation
reserve.
Merger reserve was created on the acquisition of Hayward Tyler Group PLC (note 36).
Other reserves were created on redemption of preference shares.
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.
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
38
Principal Accounting Policies (Continued)
Financial assets (continued)
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
iv) derivative financial instruments that are 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.
Derivatives are financial assets or financial liabilities classified as held for trading and recorded at fair value through profit and
loss.
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.
Defined contribution pension scheme
The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period.
Post-employment benefits, short-term employee benefits and share-based employee remuneration
Post-employment benefits
Hayward Tyler Group acquired during the year by the Group provides post-employment benefits through a defined benefit plan,
this plan formed part of the business combination.
The Group provides post-employment benefits through defined benefit plans as well as various defined contribution plans.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independent entity. The
Group has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution. The
contributions are recognised as an employee benefit expense when they are due.
Plans that do not meet the definition of a defined contribution plan are defined benefit plans. Under the Group’s defined benefit
plans, the amount of pension benefit that an employee will receive on retirement is defined by reference to the employee’s
length of service and final salary. The legal obligation for any benefits remains with the Group, even if plan assets for funding
the defined benefit plan have been set aside. Plan assets may include assets specifically designated to a long-term benefit fund as
well as qualifying insurance policies.
The asset recognised in the statement of financial position for defined benefit plans is the present value of the fair value of plan
assets less the defined benefit obligation (DBO) at the reporting date. The net surplus at the end of the year is £1.6 million (On
business combination: £1.0 million).
Management estimates the DBO annually with the assistance of independent actuaries. This is based on standard rates of inflation,
salary growth rate and mortality. Discount factors are determined close to each year-end by reference to high quality corporate
bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the
terms of the related pension liability.
Service cost on the Group’s defined benefit plan is included in employee benefits expense. Employee contributions, all of which
are independent of the number of years of service, are treated as a reduction of service cost. Net interest expense on the net
defined benefit liability is included in finance costs. Gains and losses resulting from remeasurements of the net defined benefit
liability are included in other comprehensive income.
39
Principal Accounting Policies (Continued)
Post-employment benefits, short-term employee benefits and share-based employee remuneration (continued)
Short-term benefits
Short-term employee benefits, including holiday entitlement, are current liabilities included in pension and other employee
obligations, measured at the undiscounted amount that the Group expects to pay as a result of the unused entitlement.
Share-based employee remuneration
The Group operates equity-settled share-based remuneration plans for its key management personnel. None of the Group’s plans
are cash-settled.
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values.
Where employees are rewarded using share-based payments, the fair value of employees’ services is determined indirectly by
reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact
of non-market vesting conditions.
All share-based remuneration is ultimately recognised as an expense in the income statement with a corresponding credit to
share-based payment reserve. If vesting periods or other 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.
Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable.
Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from
previous estimates. Any adjustment to cumulative share-based compensation resulting from a revision is recognised in the
current period.
The number of vested options ultimately exercised by holders does not impact the expense recorded in any period.
Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, are allocated to share
capital up to the nominal (or par) value of the shares issued with any excess being recorded as 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-EPM, Energy-PRSE 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.
40
Principal Accounting Policies (Continued)
Government grants
A government grant is recognised only when there is reasonable assurance that (a) the Group will comply with any conditions
attached to the grant and (b) the grant will be received.
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.
Hayward Tyler Limited (“HTL”), based in Luton, UK, was awarded a £3.5 million grant from the Regional Growth Fund
(“RGF”) pre-acquisition by AVG. The deferred income liability is reduced by grant income that is recognised in the consolidated
income statement. This grant income is included in operating charges as a deduction from related research, development and
training expenses.
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.
The amount recognised for restoration is a management estimate in relation to the estimated cost to restore the property to the
agreed condition set out in the lease rental agreement for Peter Brotherhood’s Peterborough property.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with Adopted IFRSs requires management to make judgements, estimates
and assumptions that affect the application of policies and reported annual amounts of assets and liabilities, income and expenses.
Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future periods.
The major areas of estimation within the financial statements are as follows:
Revenue and margin on long term contracts
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 (note 20).
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.
41
Principal Accounting Policies (Continued)
Critical accounting judgements and key sources of estimation uncertainty (continued)
Fair values at acquisition
Management have made judgments regarding the fair value of assets and liabilities acquired in the period. As part of this review
we are required to identify and estimate the fair value of intangible assets. Workings to obtain the fair value of these intangible
assets are largely based on management’s estimates of attributable cash flows discounted to present their present value. Details
of acquired intangibles is presented in note 13.
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 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
The amount recognised for warranties for which customers are covered for the cost of repairs is estimated based on management’s
past experience, current knowledge and future expectation that defects may arise. The value of warranty provisions at 31 May
2018 was £1.9 million (note 20).
Dilapidations
The amount recognised for the dilapidation provision is managements estimate in relation to the estimated cost to restore the
property to the agreed condition set out in the lease rental agreement for Peter Brotherhood’s Peterborough property. The estimate
has then been discounted to its present value based on a pre-tax discount rate that reflects the current market assessments of the
time value of money and the risks specific to the liability (note 20).
Deferred tax assets
Management have recognised a deferred tax asset based on expected losses expected to be utilised over the next 5 year period.
The assessment of this utilisation is based on the Group’s latest approved budget forecast, which is adjusted for significant non-
taxable income and expenses and specific limits to the use of any unused tax loss or credit. Further details relating to deferred
tax assets are in note 26.
Defined benefit pension liability
Management estimates the defined benefit pension liability annually with the assistance of independent actuaries; however, the
actual outcome may vary due to estimation uncertainties. The estimate of its defined benefit pension gross liability of £12.6
million (On business combinations: £13.5 million) is based on standard rates of inflation and mortality. The estimate does not
include anticipation of future salary increases as there are no members with benefits related to future salary progression. Discount
factors are determined close to each period end by reference to high quality corporate bonds that are denominated in the currency
in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability.
Estimation uncertainties exist particularly with regard to medical cost trends, which may vary significantly in future appraisals of
the Group’s defined benefit pension obligations. The value of the defined benefit pension asset at 31 May 2018 was £1.6 million
(On business combination: £1.3 million). Further details of the pension scheme are in note 29.
42
Consolidated Income Statement
For the year ended 31 May 2018
Revenue
Cost of sales
Gross profit
Distribution costs
Share based payment expense
Acquisition costs
Restructuring costs
Tender share buyback costs
Amortisation of intangibles from business combinations
Other administrative expenses
Total administrative expenses
Operating loss
Finance income
Finance costs
Loss before taxation
Taxation
Loss for the financial year attributable to equity shareholders
Loss per share:
From continuing operations
- Basic
- Diluted
Consolidated Statement of Comprehensive Income
Loss for the year
Items that will not be subsequently be reclassified to profit or loss
Remeasurement of net defined benefit liability
Income tax relating to items not reclassified
Items that may/will subsequently be reclassified to profit or loss
Exchange differences on translation of foreign operations
Note
2018
£’000
2017
£’000
2
78,864
22,714
(58,787)
(18,659)
20,077
4,055
(4,050)
(69)
(1,567)
(1,699)
–
(3,303) –
(13,231)
(713)
(34)
(101)
(182)
(226)
(3,265)
(19,869)
(3,808)
2
5
6
9
(3,842)
36
(692)
(4,498)
12
(4,486)
(466)
219
(38)
(285)
(11)
(296)
11
11
(16.0)p
(16.0)p
(1.3)p
(1.3)p
2018
£’000
2017
£’000
(4,486)
(296)
71 –
(14) –
(137)
10
Total comprehensive income for the year attributable to equity shareholders
(4,566)
(286)
The principal accounting policies and notes on pages 31 to 81 form part of these financial statements.
43
Consolidated Balance Sheet
For the year ended 31 May 2018
Note
Non current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax
Pension and other employee obligations
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
Derivatives
Total current liabilities
Non-current liabilities
Borrowings
Obligations under finance leases
Deferred tax
Contingent consideration
Other creditors
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Translation reserve
Merger reserve
Other reserves
Investment in own shares
Retained earnings
12
13
14
26
29
16
17
17
9
19
21
24
23
9
20
23
24
26
36
22
27
35
Total equity attributable to equity holders of the parent
The principal accounting policies and notes on pages 31 to 81 form part of these financial statements.
2017
£’000
5,198
1,442
4,850
2018
£’000
23,369
15,612
27,595
1,454 –
1,590 –
69,620
11,490
5,618
9,038
580
52
27,703
42,991
54,481
(7,870)
(142)
(179)
10,341
34,606
–
608
6,574
52,129
121,749
(26,179)
(1,179)
(6,719)
(15) –
(6,135) –
(127) –
(40,354)
(8,191)
(4,435)
(1,375)
(2,914)
(256)
(3,339) –
(896)
(37)
(195)
(256)
(12,319)
(1,384)
(52,673)
(9,575)
69,076
44,906
1,553
13,385
1,299
(135) 2
28,949 –
180
(2,835)
26,680
69,076
958
12,771
1,299
180
(2,250)
31,946
44,906
The financial statements were approved by the Board of Directors and authorised for issue on 2 October 2018 and signed on its
behalf by:
S M King
Director
Company number: 1968354
44
Company Balance Sheet
For the year ended 31 May 2018
Note
Non current assets
Investments
Current assets
Trade and other receivables : amounts falling due within 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
Merger reserve
Other reserves
Profit and loss account
Equity shareholders’ funds
15
17
19
21
23
23
36
27
2018
£’000
35,977
35,977
32,814
123
2,065
35,002
70,979
(328)
(180)
(508)
(716)
(256)
(972)
2017
£’000
6,419
6,419
11,833
123
25,124
37,080
43,499
(155)
(179)
(334)
(896)
(256)
(1,152)
(1,480)
(1,486)
69,499
42,013
1,553
13,385
1,299
28,949 –
180
24,133
69,499
958
12,771
1,299
180
26,805
42,013
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
£1,835k loss (2017: loss of £929k).
The financial statements were approved by the Board of Directors on and authorised for issue 2 October 2018 and signed on its
behalf by:
S M King
Director
The principal accounting policies and notes on pages 31 to 81 form part of these financial statements
45
Consolidated Statement of Changes in Equity
For the year ended 31 May 2018
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
Total
£’000
(8)
180
(1,000)
52,477
64,753
At 1 June 2016
1,387
10,903
814
Ordinary shares issued
Dividends paid
Investment in
own shares
56
–
–
Tender share buyback
(485)
Share-based payments
–
1,868
–
–
–
–
–
–
–
485
–
Transactions with
with owners
Loss for the year
Other comprehensive
income
Exchange gain
Total comprehensive
income for the year
Balance at
31 May 2017
(429)
1,868
485
–
–
–
–
–
–
–
–
–
958
12,771
1,299
At 1 June 2017
Ordinary shares issued
Dividends paid
Investment in
own shares
Share-based payments
Transactions
with owners
Loss for the year
Other comprehensive
income
Actuarial gain for the
year on pension scheme
Deferred tax on actuarial
movement on pension
scheme
Exchange loss
Total comprehensive
income for the year
Balance at
31 May 2018
958
595
–
–
–
595
–
–
–
–
–
12,771
1,299
614
–
–
–
614
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28,949
–
–
–
28,949
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
10
10
2
2
–
–
–
–
–
–
–
–
(137)
(137)
–
–
–
–
–
–
–
–
–
–
–
–
(886)
1,924
(886)
(1,250)
–
(1,250)
–
–
(19,383)
(19,383)
34
34
(1,250)
(20,235)
(19,561)
–
(296)
(296)
–
–
–
10
(296)
(286)
180
(2,250)
31,946
44,906
180
(2,250)
31,946
44,906
30,158
–
(906)
(906)
–
–
–
–
–
–
–
–
–
–
–
–
(585)
–
–
69
(585)
69
(585)
(837)
28,736
–
(4,486)
(4,486)
–
–
–
–
71
71
(14)
–
(14)
(137)
(4,429)
(4,566)
1,553
13,385
1,299
28,949
(135)
180
(2,835)
26,680
69,076
The principal accounting policies and notes on pages 31 to 81 form part of these financial statements.
46
Company Statement of Changes in Equity
For the year ended 31 May 2018
Share
capital
£’000
1,387
56
–
(485)
–
Share
premium
account
£’000
10,903
1,868
–
–
–
At 1 June 2016
Ordinary shares issued
Dividends paid
Transfer on disposal
Share-based payments
Transactions with owners
(429)
1,868
Loss for the year
Total comprehensive
income for the year
Balance at
31 May 2017
At 1 June 2017
Ordinary shares issued
Dividends paid
Share-based payments
Loss for the year
Total comprehensive
income for the year
Balance at
31 May 2018
–
–
–
–
958
595
–
–
12,771
614
–
–
–
–
–
–
Transactions with owners
595
614
Capital
redemp
-tion
reserve
£’000
814
–
–
485
–
485
–
–
1,299
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28,949
–
–
28,949
–
–
Merger
reserve
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
61,253
1,924
(886)
180
47,969
–
(886)
–
–
–
–
–
–
–
–
–
–
–
–
–
(19,383)
(19,383)
34
34
(20,235)
(18,311)
(929)
(929)
(929)
(929)
–
(906)
69
42,013
30,158
(906)
69
(837)
29,321
(1,835)
(1,835)
(1,835)
(1,835)
958
12,771
1,299
180
26,805
42,013
180
26,805
1,553
13,385
1,299
28,949
180
24,133
69,499
The principal accounting policies and notes on pages 31 to 81 form part of these financial statements.
47
Consolidated Statement of Cash Flow
For the year ended 31 May 2018
Operating activities
Cash flows from operating activities
Finance costs paid
Income tax paid
Contributions to defined benefit plan
Net cash outflow from operating activities
Investing activities
Acquisition of subsidiary undertakings, net of cash acquired
Finance income
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Net cash used by in investing activities
Financing activities
Equity dividends paid
Repayments of bank loans
Repayments of obligations under finance leases
Proceeds from issue of ordinary shares
Purchase of shares - tender buyback
Proceeds from borrowings
Net cash inflow/(outflow) from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes on cash
Note
30
36
2018
£’000
(6,142)
(363)
(212)
(175) –
2017
£’000
(3,221)
(38)
(1)
(6,892)
(3,260)
(11,896)
13
(712)
(2,654)
–
(585)
219
(626)
(484)
13
(15,249)
(1,463)
(906)
(3,483)
(1,025)
47
–
6,289 –
(886)
(334)
(292)
612
(19,383)
922
(20,283)
(21,219)
27,703
81
(25,006)
52,923
(214)
Cash and cash equivalents at end of year
19
6,565
27,703
The principal accounting policies and notes on pages 31 to 81 form part of these financial statements.
48
Company Statement of Cash Flow
For the year ended 31 May 2018
Operating activities
Cash flows from operating activities
Finance costs paid
Income tax repaid
Net cash outflow from operating activities
Investing activities
Loan to subsidiary undertakings
Finance income
Net cash utilised 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 outflows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
31
2018
£’000
(10,649)
(19)
– –
2017
£’000
(11,300)
(21)
(10,668)
(11,321)
(12,500)
565
(11,935)
(906)
(182)
632
–
– –
(456)
(23,059)
25,124
(738)
274
(464)
(886)
(182)
1,862
(19,383)
(18,589)
(30,374)
55,498
2,065
25,124
The principal accounting policies and notes on pages 31 to 81 form part of these financial statements.
49
Notes to the Annual Report
For the year ended 31 May 2018
1
Corporate information
The consolidated financial statements of Avingtrans plc and its subsidiaries (collectively the Group) for the year ended 31 May
2018 were authorised for issue in accordance with a resolution of the directors on 2 October 2018. 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 infrastructure industries worldwide.
2
Segmental analysis
For management purposes, the Group is currently organised into three (2017: two) main segments Energy-EPM, Energy-PSRE
and Medical following the acquisition of HTG. The basis on which the Group reports to the Chief Executive.
Principal activities are as follows:
• Energy – EPM, built around Hayward Tyler which was acquired in the year. Hayward Tyler designs, manufactures and
services performance-critical electric motors and pumps for the global energy industry, as both an OEM supplier and a
trusted through life support partner.
• Energy – PSRE, in the design, manufacture, integration and servicing of an extensive product offering including steam
turbines, gas compressors, pressure vessels, containers and skidded systems. Plus, design and manufacture of fabricated
poles and cabinets for roadside safety cameras and rail track signalling.
• Medical – in the design and manufacture of innovative equipment for the medical, science and research communities.
Including cutting-edge products for medical diagnostic equipment; high performance pressure, vacuum vessels and
composite materials for research organisations; superconducting magnets and helium-free cryogenic systems in 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 2018
Original Equipment
After Market
Revenue
Operating profit/(loss)
Net finance costs
Taxation
Energy
EPM
£’000
15,194
21,581
36,775
Energy
PSRE
£’000
20,096
11,583
31,679
Medical
MII
£’000
Unallocated
central items
£’000
10,410
–
10,410
–
–
–
(1,532)
425
(109)
(2,626)
Loss after tax from continuing operations
Segment non-current assets
Segment current assets
37,636
23,484
27,174
22,322
4,810
3,645
–
2,678
Total
£’000
45,700
33,164
78,864
(3,842)
(656)
12
(4,486)
69,620
52,129
Segment liabilities
(28,632)
(15,933)
(2,572)
(5,536)
(52,673)
Net assets
32,488
33,563
5,883
(2,858)
69,076
Non-current asset additions
Intangible assets
Tangible assets
10
1,438
1,448
255
854
1,109
447
362
809
–
–
–
712
2,654
3,366
Unallocated assets/ (liabilities) consist primarily of interest bearing assets and liabilities and income tax assets and liabilities.
Energy-PSRE results include the acquisition of Ormandy and part of HTG acquisition which contributed £1,859,000 and
£15,023,000 to Group revenue respectively and £82,000 and £390,000 loss after tax respectively (note 36). Energy-EPM is all
part of the HTG acquisition (note 36).
50
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
2
Segmental analysis (continued)
Year ended 31 May 2017
Original Equipment
After Market
Revenue
Operating profit/(loss)
Net finance costs
Taxation
Loss after tax from continuing operations
Segment non-current assets
Segment current assets
Segment liabilities
Net assets
Non-current asset additions
Intangible assets
Tangible assets
Energy
PSRE
£’000
301
12,309
12,610
Medical
Unallocated
MII Central items
£’000
£’000
10,104
–
10,104
–
–
–
456
428
(1,350)
Total
£’000
10,405
12,309
22,714
(466)
181
(11)
(296)
7,482
10,314
4,008
6,102
–
26,575
11,490
42,991
(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.
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 (excl UK)
United States of America
Africa & Middle East
Americas & Caribbean (excl US)
China
Asia Pacific (excl.China)
Rest of World
2018
Revenue
£’000
31,970
7,197
14,210
2,766
1,190
5,286
16,117
128
78,864
2017
Revenue
£’000
2018
2017
Non-current Non-current
Assets
£’000
Assets
£’000
18,635
785
5
1,846
–
1,416
–
27
22,714
10,111
1,379
49,981
– –
17,792 –
– –
– –
1,841
6 –
– –
69,620
11,490
The Group had Medical revenue of £nil (2017: £7,229,000) with single external customers under common control, which each
represent more than 10% of the Group’s revenue.
51
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
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
Loss/(gain) on foreign exchange transactions
Staff costs (note 8)
Operating lease rentals:
- Land and buildings
- Machinery
Charitable donations
Research and development expenditure
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
- Corporate finance transaction services
- Tax advisory fee
4
Adjusted Earnings before interest, tax, depreciation and amortisation
Loss before tax from continuing operations
Share based payment expense
Acquisition costs
Restructuring costs
Tender share buyback costs
Loss on derivatives
Unwinding of discounting on dilapidation provision
Amortisation of intangibles from business combinations
Adjusted profit before tax
Finance income
Finance cost
Loss on derivatives/unwinding of discounting on dilapidation provision
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’)
2018
£’000
2,532
–
374
32,358
136
27,331
841
392
5 –
204 –
2018
£’000
61
156
20
188 –
6
2018
£’000
(4,498)
69
1,567
1,699
–
172 –
62 –
3,303 –
2,374
(36)
692
(234) –
2,796
2,532
375
5,703
2017
£’000
525
(13)
120
18,719
(34)
7,885
354
10
2017
£’000
13
65
20
27
2017
£’000
(285)
34
101
182
226
258
(219)
38
77
525
120
722
The Directors believe that the above adjusted earnings are a more appropriate reflection of the Group performance.
52
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
5
Finance income
Bank balances and deposits
Interest from other
6
Finance costs
Re-banking related finance charges
Finance charges related to the unwinding of provisions
Losses arising on the fair value of derivative contracts
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
2018
£’000
5
31
36
2017
£’000
–
219
219
Group
2018
£’000
2017
£’000
19 –
62 –
172 –
302 –
19
118
692
21
17
38
7
Directors’ emoluments
Particulars of directors’ emoluments are as follows:
Salary and
Fees
£’000
Benefits
£’000
Long Term
Incentive
£’000
Total
2018
£’000
Total
2017
£’000
Pension
Total
2018
£’000
Pension
Total
2017
£’000
Non-executive:
R S McDowell
J Clarke
J J Hamer
EW Lloyd-Baker
LJ Thomas
GK Thornton
Executive:
S McQuillan
S M King
Total emoluments
71
11
–
18
34
34
340
275
783
–
–
–
–
–
–
1
–
1
–
–
–
–
–
–
16
13
29
71
11
–
18
34
34
357
288
813
69
–
25
–
33
39
336
267
769
– –
– –
– –
– –
– –
– –
– –
– –
– –
The fees of JS Clarke, JJ Hamer, EW Lloyd-Baker, LJ Thomas and GK Thornton were paid to JS Clarke Consulting Ltd, Fin Dec
Limited, Lloyd-Baker & Associates LLP. Heriot Resources Ltd and RG Associates respectively.
The non-cash benefits comprise the provision of private health insurance for S McQuillan. The number of Directors who are
accruing benefits under money purchase schemes is nil (2017: nil).
The long term incentive represents the initial interest in the Joint Ownership Scheme (see note 35).
Employers National Insurance Contributions made relating to directors’ emoluments were £99,000 (2017: £94,000).
During 2018 S McQuillan and S M King exercised nil options as set out on page 22 (2017: S McQuillan and S M King exercised
175,000 and 125,267 share options respectively resulting in unrealised gains of £171,000 and £122,000).
53
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
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
2018
£’000
24,176
2,179
907
69
27,331
2017
£’000
6,815
778
257
35
7,885
2018
Number
2017
Number
437
43
176
656
192
13
37
242
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
Corporation tax – current year
Corporation tax – prior year
Overseas tax
Total current tax
Deferred tax (note 26)
Deferred tax – current year
Deferred tax – prior year
Deferred tax - rate
Total deferred tax
Total tax (credit)/charge
2018
£’000
1,191
4 –
43
1,238
2017
£’000
944
25
969
2018
£’000
2017
£’000
– –
3
1,153 –
1,156
(815)
(209) –
(144) –
(1,168)
(12)
(58)
(58)
69
69
11
UK corporation tax is calculated at 19.00% (2017: 19.83%) of the estimated assessable profit/loss for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
54
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
9
Taxation (continued)
The charge for the year can be reconciled to the profit per the income statement as follows:
Loss before taxation
Theoretical tax at UK corporation tax rate of 19.00% (2017: 19.83%)
Effects of:
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
Differential in overseas tax rate
Total tax charge
2018
£’000
(4,498)
(855)
553
218
(207)
2
(144)
421 –
(12)
2017
£’000
(285)
(56)
94
(4)
(8)
(4)
(11)
11
The Group has tax losses carried forward of approximately £34.8 million at 31 May 2018 (2017: £6.7million) that may be
relievable against future profits. Further details are detailed in note 26.
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
52
52
2018
£’000
608
608
(15) –
(15) –
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. An 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 2018 has
therefore been calculated using these rates.
The US tax rate was historically 39% which reduced to 27% from January 2018.
10
Dividends
Interim dividend paid of 1.2p per ordinary share (2017: 1.1p)
Final dividend paid of 2.2p per ordinary share (2017: 2.1p)
2018
£’000
230
676
906
The interim dividend declared in the half year statement of 1.3p per ordinary share was paid on 15 June 2018.
55
2017
£’000
305
581
886
55
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
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 from continuing operations
Share based payment expense
Acquisition costs
Restructuring costs
Tender share buyback costs
Loss on derivatives
Unwinding of discounting on dilapidation provision
Amortisation of intangibles from business combinations
Adjusted earnings from continuing operations
From continuing operations:
Basic loss per share
Adjusted basic earnings per share
Diluted loss per share
Adjusted diluted earnings per share
2018
No.
2017
No.
27,952,066
360,448
22,295,083
288,451
28,312,514
22,583,534
2018
£’000
(4,486)
69
1,567
1,699
–
172 –
62 –
3,303 –
2,386
(16.0)p
8.5p
(16.0)p
8.4p
2017
£’000
(296)
34
101
182
226
247
(1.3)p
1.1p
(1.3)p
1.1p
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.
The basic loss per share attributable to ordinary shareholders and diluted loss per share for the year ended 31 May 2019 are
identical because the dilutive impact of an exercise of share options would have the effect of reducing the loss per share and is,
therefore, is not a dilution under the terms of IAS33.
There are nil share options at 31 May 2018 (2017: nil) that are not included within diluted earnings per share because they are
anti-dilutive.
56
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
12
Goodwill
Cost
At 1 June 2016
Acquisition of subsidiary undertakings
1 June 2017
Acquisition of subsidiary undertaking (note 36)
At 31 May 2018
Accumulated impairment losses
At 1 June 2016 and 1 June 2017
At 31 May 2018
Net book value
At 31 May 2018
At 31 May 2017
Total
£’000
5,400
648
6,048
18,171
24,219
850
850
23,369
5,198
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-EPM
Energy-PSRE
Medical
2018
£’000
15,107 -
6,753
1,509
23,369
2017
£’000
3,689
1,509
5,198
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 2%, 4% and 5% has been used for Energy-EPM,
Energy-PSRE and Medical CGUs respectively. Recent changes to management and improvements to the contract negotiation
and costing processes are expected to increase margins whilst Medical is developing into new markets and service.
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% to 11.7% 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.
57
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
13
Other intangible assets – group
Customer
Relationships
£’000
Order book
£’000
Development
costs
£’000
Brand
£’000
Software
£’000
Cost
At 1 June 2016
Additions
Acquisition of subsidiary
undertakings
Exchange adjustments
At 1 June 2017
Additions
Acquisition of subsidiary
undertakings (note 36)
Reclassification from PPE
Exchange adjustments
At 31 May 2018
Accumulated amortisation
At 1 June 2016
Charge for the year
At 1 June 2017
Charge for the year
At 31 May 2018
–
–
–
–
–
–
10,532
–
–
10,532
–
–
–
633
633
Net book value at 31 May 2018
9,899
Net book value at 31 May 2017
–
–
–
–
–
–
–
3,096
–
–
3,096
–
–
–
2,529
2,529
567
–
–
–
–
–
–
–
2,504
–
–
2,504
–
–
–
141
141
2,363
–
2,324
625
4
–
2,953
681
783
–
(5)
4,412
1,463
76
1,539
305
1,844
2,568
1,414
294
1
–
2
297
31
54
171
–
553
225
44
269
69
338
215
28
Total
£’000
2,618
626
4
2
3,250
712
16,969
171
(5)
21,097
1,688
120
1,808
3,677
5,485
15,612
1,442
58
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
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 2016
Additions
Acquisition of subsidiary undertakings
Assets written off
Exchange adjustments
At 1 June 2017
Additions
Acquisition of subsidiary undertakings (note 36)
Transfer to other intangible assets
Assets written off
Exchange adjustments
At 31 May 2018
Depreciation
At 1 June 2016
Charge in the year
Assets written off
Exchange adjustments
At 1 June 2017
Charge in the year
Assets written off
Exchange adjustments
At 31 May 2018
2,126
41
–
–
–
2,167
1,028
11,211
–
–
(18)
14,388
265
30
–
–
295
534
–
2
831
103
12
–
–
–
115
–
1,892
–
–
–
2,007
32
19
–
–
51
121
–
–
172
5,723
311
99
(1,605)
117
4,645
1,328
8,662
–
(858)
(7)
13,770
3,478
362
(1,605)
18
2,253
1,380
(858)
13
2,788
1,005
120
5
(148)
24
1,006
298
1,091
(171)
(34)
(16)
2,174
514
114
(148)
4
484
497
(34)
6
953
Total
£’000
8,957
484
104
(1,753)
141
7,933
2,654
22,856
(171)
(892)
(41)
32,339
4,289
525
(1,753)
22
3,083
2,532
(892)
21
4,744
Net book value at 31 May 2018
13,557
1,835
10,982
1,221
27,595
Net book value at 31 May 2017
1,872
64
2,392
522
4,850
Leased assets
The net book value of assets held under finance leases are as follows:
Net book value
At 31 May 2018
At 31 May 2017
Plant and
machinery
£’000
Equipment
and motor
vehicles
£’000
440
478
48
2
Depreciation charged on assets held under finance leases was £489,000 (2017: £200,000).
Total
£’000
488
480
59
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
15
Investments
Unlisted
Capital
investments Undertakings Contributions
£’000
Group
£’000
£’000
Cost
At 1 June 2016
Acquisition of subsidiary undertakings
Unlisted investment written off
At 1 June 2017
Acquisition of subsidiary undertakings (note 36)
At 31 May 2018
Provision
At 1 June 16, 1 June 2017 and 31 May 2018
Net book value at 31 May 2018
Net book value at 31 May 2017
219
–
(219)
–
–
–
–
–
–
10,170
588
–
10,758
29,526
40,284
4,424
35,860
6,334
70
15
–
85
32
117
–
117
85
The Company has the following investments in Ordinary shares in subsidiaries:
Total
£’000
10,459
603
(219)
10,843
29,558
40,431
4,424
35,977
6,419
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)
Hayward Tyler Limited *
Hayward Tyler Inc *
Hayward Tyler Pumps (Kunshan) Co Limited *
Hayward Tyler India PTE Limited *
Hayward Tyler Fluid Handling Limited *
Peter Brotherhood Limited *
Hayward Tyler Group plc
Southbank UK Limited *
Hayward Tyler Group Limited *
Hayward Tyler Holdings Limited *
Hayward Tyler Holding Inc *
Nviro Cleantech Limited *
Nviro Cleantech Inc *
Vertus Technologies US LLC *
Vertus Technologies Limited *
Nviro Cleantech Limited *
Redglade Associates Limited *
Redglade Investments Limited *
Specialist Energy Group Trustee Limited *
Hayward Tyler Pension Plan Trustees Limited *
Hayward Tyler (UK) Limited *
Varley Pumps Limited *
60
Country of incorporation
England and Wales
England and Wales
China
China
England and Wales
England and Wales
Principal activity
Trading
Trading
Trading
Trading
Trading
Trading
England and Wales
England & Wales
USA
China
India
England & Wales
England & Wales
Isle of Man
England & Wales
England & Wales
England & Wales
USA
England & Wales
USA
USA
Cayman Islands
Cayman Islands
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Property
Property
Acts as employee benefit trust
Manages pension scheme
Dormant
Dormant
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
15
Investments (continued)
Name
Hayward Tyler Solutions Limited *
Appleton & Howard Limited *
Hayward Tyler Fluid Dynamics Limited *
Hayward Tyler Services Limited *
Sumo Pumps Limited *
Hayward Tyler Engineered Products Limited *
Capital Engineering Services Limited *
Credit Montague Limited *
Mullins Limited *
Vertus Technologies Industrial LLC *
* -Indirectly owned subsidiary.
16
Inventories
Country of incorporation
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
USA
Principal activity
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
No longer trading
Group
Raw materials and consumables
Work in progress
Finished goods
2018
£’000
4,406
3,727
2,208
10,341
2017
£’000
951
4,083
584
5,618
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 £132,000 (2017: £158,000).
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
2018
£’000
16,718
(529)
16,189
743
–
4,606
13,068
34,606
–
–
–
2017
£’000
4,301
(181)
4,120
1,491
–
2,302
1,125
9,038
–
580
580
2018
£’000
2017
£’000
– –
– –
– –
2,835
29,933
46
– –
3,700
8,127
6
32,814
11,833
– –
– –
– –
61
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
17
Trade and other receivables (continued)
The average credit period taken on sales of goods is 58 days (2017: 44 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
2018
£’000
1,195
346
1,099
2,640
2017
£’000
370
28
343
741
2018
£’000
2017
£’000
– –
– –
– –
– –
Movement in the allowance for doubtful debts
Group Company
2018
£’000
2017
£’000
2018
£’000
2017
£’000
Balance brought forward
Impairment losses recognised
Amounts written off as uncollectible
Amounts recovered during the year
On acquisition of subsidiaries
Balance carried forward
181
249
(74)
(34)
207
529
52
94
(58)
–
93
181
– –
– –
– –
– –
– –
– –
Included in the allowance for doubtful debts are individually impaired receivables.
Ageing of impaired receivables:
Group Company
60 – 90 days
90 – 120 days
120+ days
Total
2018
£’000
13
–
516
529
2017
£’000
2018
£’000
2017
£’000
–
–
181
181
– –
– –
– –
– –
The Directors consider that the carrying amount of trade and other receivables approximates to fair value.
62
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
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 £24,950,000 (2017: £2,719,000).
19
Cash and cash equivalents
Cash and cash equivalents included the following components:
2018
£’000
13,068
(5,041)
8,027
26,810
(18,783)
8,027
2017
£’000
1,451
(39)
1,412
6,318
(4,906)
1,412
Group Company
Cash at bank and in hand:
GBP
USD
EUR
Other
Overdraft (GBP)
At
31 May
2018
£’000
5,129
1,060
136
249
(9)
6,565
At
31 May
2017
£’000
26,708
431
–
564
–
27,703
At
31 May
2018
£’000
2,065
– –
– –
– –
– –
2,065
At
31 May
2017
£’000
25,124
25,124
63
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
20
Provisions
The carrying amounts and the movements in the provision account are as follows:
Carrying amount
1 June 2016 and 1 June 2017
Acquisition of subsidiary undertakings
Additional provisions
Amounts utilised
Reversals
Exchange Adjustments
31 May 2018
Warranty Loss Making
£’000
£’000
Group
Other Dilapidations
£’000
£’000
–
1,616
1,014
(479)
(259)
(36)
1,856
–
2,985
821
(1,618)
(413)
–
1,775
–
374
294
(402)
(24)
–
242
–
2,200
62
–
–
–
2,262
Total
£’000
–
7,175
2,191
(2,499)
(696)
(36)
6,135
Warranty provision: Provisions for warranty work represent the estimated cost of work provided under the terms of the contracts
with customers with reference to the length and unexpired portion of the terms provided.
Loss making contracts: Provisions for loss making contracts are the estimated total costs that exceed the total revenues from
contracts that are in progress at the reporting date.
Other provisions: The balance to carry forward in other provisions relates to liquidated damages. Provisions for liquidated damages
are the liabilities estimated to arise on the expected delay in shipment of contracts that have been shipped prior to 31 May 2018.
There were minor expected delays in the year.
Dilapidations: Provision for dilapidation represent the estimated cost to restore the property to the agreed condition set out in the
lease rental agreement for Peter Brotherhood Limited’s Peterborough property.
21
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
22
Other creditors
Non-current
Other creditors – deferred income
64
Group Company
2018
£’000
12,459
–
1,138
734
5,041
6,807
26,179
2017
£’000
4,657
–
433
509
334
1,937
7,870
2018
£’000
2017
£’000
97
– –
51
29
– –
151
328
71
43
27
14
155
Group Company
At
31 May
2018
£’000
At
31 May
2017
£’000
At
31 May
2018
£’000
At
31 May
2017
£’000
3,339
–
–
–
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
23
Borrowings
Secured borrowings
Bank overdrafts and short-term borrowings
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
2018
£’000
6,099
5,055
11,154
6,719
4,435
2017
£’000
–
1,075
1,075
179
896
2018
£’000
– –
896
896
180
716
2017
£’000
1,075
1,075
179
896
Group Company
2018
£’000
620
619
3,816
5,055
2017
£’000
180
542
174
896
2018
£’000
180
536
–
716
2017
£’000
180
542
174
896
Bank loans, overdrafts and short-term borrowings of £11,154,000 (2017: £1,075,000) are secured on certain assets of the Group.
At 31 May 2018 the Group had £7,068,000 (2017: £2,950,000) 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.
Short term borrowings and Bank loans were based on variable LIBOR rates at margins of between 2.75% - 3.0% and 1.5% - 2.5%
respectively.
24
Obligations under finance leases
Amounts due within one year
Amounts due in two to five years
Amounts due after five years
Total obligations under finance leases
Less future finance charges
Present value of lease obligations
Minimum
lease payments
2018
£’000
1,282
1,385
86
2,753
(199)
2,554
2017
£’000
146
41
–
187
(8)
179
Present value of minimum
lease payments
2018
£’000
2017
£’000
1,179
1,290
85 –
2,554
– –
2,554
142
37
179
179
Finance lease liabilities are secured on the related assets. All finance lease liabilities were at variable rates relative to local base rates.
65
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
25
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 23 and 24 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 (debt)/cash
Equity
Net (debt)/cash to equity ratio
Group Company
2018
£’000
(13,708)
6,565
(7,143)
69,076
(10.3%)
2017
£’000
(1,254)
27,703
26,449
44,906
58.9%
2018
£’000
(896)
2,065
1,169
69,416
1.7%
2017
£’000
(1,075)
25,123
24,048
42,013
57.2%
Debt is defined as long and short-term borrowings, as detailed in note 23. Equity includes all capital and reserves of the Group
attributable to equity holders of the parent. The Group is not subject to externally imposed capital requirements.
Analysis of financial instruments by IAS 39 category
Group Company
Financial assets
Loans and receivables comprising:
Trade and other 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
2018
£’000
16,189
13,068
6,574
35,831
12,459
5,041
6,807
24,307
11,154
2,554
13,708
38,015
32,455
6,394
86
38,935
(917)
38,018
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
2018
£’000
29,933
– –
2,065
31,998
97
– –
151
248
896
– –
896
1,144
293
745
–
1,038
(45)
993
2017
£’000
8,127
25,124
33,251
71
14
85
1,075
1,075
1,160
284
766
175
1,225
(65)
1,160
The fair value of the financial instruments set out above is not materially different to the book value.
66
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
25
Financial instruments (continued)
Financial assets and financial liabilities measured at fair value in the balance sheet are grouped into three levels of fair value
hierarchy. The three levels are defined based on the observability of significant inputs to the measurement as follows:
- Level one: quoted prices in active markets for identical assets or liabilities
- Level two: inputs other than quoted prices included within level one that are observable for the asset or liability, either directly
or indirectly
- Level three: unobservable inputs for the assets or liabilities
All of the financial assets and liabilities measured at fair value are classified as level 3 using the fair value hierarchy with the
exception of forward foreign exchange contracts which are at level two. All forward foreign exchange contracts expire within 12
months of the balance sheet date.
Financial assets and liabilities in the Group’s Consolidated balance sheet are either held at fair value or their carrying value
approximates to fair value, with the exception of loans, which are held at amortised cost.
There were no transfers between levels in either the current or previous financial period.
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.
Derivative contracts are measured at fair value in the statement of financial position with movements in that fair value being
recognised in profit or loss.
The Group presently has £5.0 million contracts (2017: none) to manage the transactional currency exposure on certain contracts
outstanding as at 31 May 2018.
The following table details the Group’s sensitivity to a 10% increase and decrease in Sterling against the relevant foreign currencies
on overseas assets. These changes are considered to be reasonably possible based on observation of current market conditions.
Euro currency impact
2018
£’000
2017
£’000
US $ currency impact
2017
2018
£’000
£’000
RmB currency impact
2017
£’000
2018
£’000
31
13
65
13
– –
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
£48,000. These charges are considered to be reasonably possible based on observation of current market conditions.
67
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
25
Financial instruments (continued)
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 one major customer which represents 11.4% (2017: three major customer’s which represent 24.2%, 11.5% and
11.2% respectively) of trade receivables, the Group has no other significant concentration of receivables. The bad debt provision
and ageing has increased during the year predominately due to the impact of one particular customer at an acquired subsidiary
undertaking and rebuilding their relationships with key customers at acquisitions.
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.
26
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.
Accelerated
tax
depreciation
£’000
Intangibles
£’000
Other
temporary
differences
£’000
Tax losses
£’000
At 1 June 2016
Credit to income – continuing operations
At 1 June 2017
On business combination
Arising on the fair value adjustments on business
Combinations
Credit to income – continuing operations
Charge/credit to other comprehensive income
At 31 May 2018
132
63
195
(67)
–
16
(2)
142
–
–
–
–
2,850
(627)
–
2,223
(6)
6
–
1,010
–
(438)
(23)
549
–
–
–
(1,335)
–
(119)
–
(1,454)
Total
£’000
126
69
195
(392)
2,850
(1,168)
(25)
1,460
68
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
26
Deferred tax (continued)
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
2018
£’000
2,914
(1,454) –
1,460
2017
£’000
195
195
At the balance sheet date the Group has unused tax losses of £28.7 million (2017: £6.7 million) available for offset against future
profits. A deferred tax asset has been recognised in respect of £8.6 million (2017: £nil) of such losses.
Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available in future against which
deductible temporary differences can be utilised. This is assessed based on the Group’s forecast of future operating results and the
future projected profitability of the Group. In addition the Group has an unrecognised deferred tax asset of £21k (2017: £29k) 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 (2017: £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.
A deferred tax liability of £6.1m arises on properties acquired on acquisition of the Hayward Tyler Group by Avingtrans plc. The
deferred tax liability has not been recognised on the face of the financial statements as brought forward unrecognised trading losses
of £6.1m are available to offset this liability in full.
27
Called up share capital
2018 2017
Allotted, issued and fully paid
Ordinary shares of 5p each
No.
£’000
No.
£’000
31,061,636
1,553
19,171,123
958
Reconciliation of movement in allotted, issued and fully paid share capital
At 1 June 2017 and 31 May 17
Shares issued for Acquisition in period (note 36)
Shares issued in period to ExSop (note 35)
Shares issued on exercise of share options (note 28)
At 31 May 2018
No.
£’000
19,171,123
11,533,513
330,000
27,000
31,061,636
958
577
17
1
1,553
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 27,000 options were exercised, 5,000 and 22,000 at 176.0p and 109.0p respectively. The
market price on the day of exercise was 221.0p, 225.0p and 210.5p. Further details of the scheme are given in note 28.
The market price of the Company’s shares at the end of the year was 209.5p (2017: 236.5p). The highest and lowest market prices
during the year were 256.5p and 173p (2017: 258.5p and 164.4p respectively).
69
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
28
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
2018
2017
Weighted
Average
Exercise
price (p)
152.6
–
182.07
121.41
175.74
Options
(No. ‘000)
1,213.3
(35.7)
1,180.0
(659.9)
1,697.7
Options
(No. ‘000)
231.7
–
477.0
27.0
2,147.7
490.7
129.84
231.7
Weighted
Average
Exercise
price (p)
110.11
149.70
193.00
109.79
173.61
152.60
The options outstanding at 31 May 2018 had exercise prices in the range 39.5p to 193p and a weighted average remaining contractual
life of 8.1 years (2017: 8.7 years). The average market share price of options at date of exercise was 221p (2017: 190p).
The terms of these options are as follows:
Date of grant
23/09/2013
22/11/2013
09/12/2014
10/12/2014
21/12/2016
15/12/2017
15/12/2017
Options
outstanding at
31 May 2017
39,733
187,000
24,000
230,000
1,180,000
147,000
330,000
Vesting
period
3 years
3 years
3 years
3 years
3 years
3 years
3 years
Market value at
date of grant
(p)
Exercise
price (p)
Exercise period
39.50
176.00
109.00
111.00
193.00
177.50
181.50
39.50
24/09/2013 to 23/09/2020
176.00
109.00
111.00
193.00
177.50
181.50
23/12/2016 to 22/12/2023
10/12/2017 to 09/12/2024
11/12/2017 to 10/12/2024
22/12/2019 to 21/12/2026
26/12/2020 to 15/12/2027
26/12/2020 to 15/12/2027
The performance condition for each of these options is that the increase in adjusted EPS must be at least equal to the increase in RPI
over the vesting period.
All share options are equity settled. The adjusted EPS is the basic earnings per share published in the Preliminary Announcement
of Results with adjustments made for amortisation of acquisition related intangibles costs of share-based payments, and exceptional
items agreed by the Remuneration Committee. Further adjustments to the above performance conditions may be approved by the
Remuneration Committee to reflect future changes in accounting standards.
The fair value of the options was calculated by external consultants, Pegg, Franklin & Co and Pinsent Masons.
Options granted with performance conditions are valued using the Black-Scholes model.
For all awards, recipients are required to remain in employment with the Group over the vesting period.
70
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
28
Share-based payments (continued)
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
2018
£’000
69
2017
£’000
34
There are no share-based payment transactions that were expensed immediately. A deferred tax credit of £nil (2017: £nil) was
recognised during the year in respect of share-based payments.
29
Pensions and other employee obligations
Through the business combination of HTG, the defined benefit pension plan for the subsidiary Hayward Tyler Limited has been
included. For the purposes of this disclosure, the Group has shown the movement in the plan from the business combination date 1
September 2017 through to the period ended 31 May 2018.
Within the UK the Group operates a defined benefit plan with benefits linked to final salary and a defined contribution plan.
The defined benefit pension arrangement, called the Hayward Tyler Pension Plan (the “Plan”), and provides benefits based on
final salary and length of service on retirement, leaving service or death. With effect from 1 June 2003 the Plan was closed to new
UK employees and to future service accrued for existing members who are offered membership of the defined contribution plan.
The majority of UK employees are members of one of these arrangements. The method used in assessing the Plan liabilities is
the projected unit method. A full valuation of the Plan is produced every three years (the last one being as at 1 January 2017) and
updated annually to 31 May 2018 by independent qualified actuaries.
The Plan is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Plan is carried out at least
once every three years to determine whether the Statutory Funding Objective is being met. As part of the process the Company must
agree with the trustees of the Plan the contributions to be paid to address any shortfall against the Statutory Funding Objective. The
Statutory Funding Objective does not currently impact on the recognition of the Plan in these accounts.
The Plan is managed by a board of trustees appointed in part by the Company and in part from elections by members of the Plan.
The board of trustees includes a professional trustee (Independent Trustee Services Limited). The trustees have responsibility for
obtaining valuations of the fund, administering benefit payments and investing the Plan’s assets. The trustees delegate some of these
functions to their professional advisers where appropriate.
The Plan exposes the Company to a number of risks:
•
•
Investment risk
The Plan holds investments in asset classes, such as equities, which have volatile market values and, while these assets are
expected to provide the real returns over the long-term, the short-term volatility can cause additional funding to be required if a
deficit emerges;
Interest rate risk
The Plan’s liabilities are assessed using market yields on high quality corporate bonds to discount the liabilities. As the Plan
holds assets such as equities the value of the assets and liabilities may not move in the same way;
Inflation risk
•
A significant proportion of the benefits under the Plan are linked to inflation. Although the Plan’s assets are expected to provide
a good hedge against inflation over the long-term, movements over the short-term could lead to deficits emerging;
• Longevity risk
In the event that members live longer than assumed a deficit will emerge in the Plan; and
• Concentration risk
A significant proportion of the Plan’s liabilities are in respect of a single pensioner member. The development of the liabilities
over time will therefore depend heavily on the actual experience in respect of this member.
There were no plan amendments, curtailments or settlements during the period.
71
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
29
Pensions and other employee obligations (continued)
The Group’s defined benefit obligations and plan assets may be reconciled to the amounts presented on the face of the statement of
financial position for each of the reporting periods under review as follows:
Defined benefit obligation
Fair value of plan assets
Impact of asset ceiling
Net defined benefit asset
Scheme liabilities
The defined benefit obligations for the reporting periods under review are as follows:
Defined benefit obligation at start of period
Interest cost
Changes to demographic assumptions
Changes to financial assumptions
Experience (gain)/loss on defined benefit obligation
Benefits paid
Defined benefits obligation at end of year
For determination of the pension obligation, the following actuarial assumptions were used:
Discount rate
Expected rate of pension increases
Inflation assumption
Mortality assumption
At
31 March
2018
£’000
At
1 September
2017
£’000
(12,559)
14,149
– –
(13,515)
14,835
1,590
1,320
At
31 May
2018
£’000
At
1 September
2017
£’000
13,515
250
13,857
142
(99) –
(492)
26
(641)
183
(333)
(334)
12,559
13,515
At
31 May
2018
£’000
At
1 September
2017
£’000
2.65%
2.20%
3.20%
2.40%
2.25%
3.25%
S2PXA CMI S2PXA CMI
S2PXA CMI – for males and females projected on a year of birth basis using CMI (2016) projections with a long-term rate of
improvement of 1.25% per annum with a plus 2 year age rating. The mortality assumptions imply the following life expectancies:
• Life expectancy at age 65 of male aged 45
• Life expectancy at age 65 of male aged 65
• Life expectancy at age 65 of female aged 45
• Life expectancy at age 65 of female aged 65
21.9
20.5
23.8
22.3
72
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
29
Pensions and other employee obligations (continued)
These assumptions were developed by management under consideration of expert advice provided by Barnett Waddingham,
independent actuarial appraisers. These assumptions have led to the amounts determined as the Group’s defined benefit
obligations for the reporting periods under review and should be regarded as management’s best estimate. However, the actual
outcome may vary.
No assumption is made with regard to the expected rate of salary increases as there are no members with benefits related to future
salary progression.
Scheme assets
The assets held by the pension fund can be reconciled from the opening balance to the reporting date as follows:
Fair value of plan assets at start of period
Interest income
Return on plan assets (excluding amounts included in net interest)
Contributions by the Group
Benefits paid
Fair value of plan assets at end of period
Actual return on plan assets
At
31 May
2018
£’000
At
1 September
2017
£’000
14,835
274
(494)
175
(641)
14,149
14,897
152
23
97
(334)
14,835
(45)
175
Plan assets do not include any investment in shares of the Company. Plan assets can be broken down into the following major
categories of investments:
Diversified growth funds
Gifts and LDI funds
Liquid funds
Total value of assets
At
31 May
2018
£’000
8,833
5,082
234
14,149
At
31 May
2018
%
At
1 September
2017
£’000
At
1 September
2017
%
62.4
35.9
1.7
100
9,257
5,459
119
14,835
62.4
36.8
0.8
100
All equity and debt instruments have quoted prices in active markets (Level 1).
73
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
29
Pensions and other employee obligations (continued)
Scheme expenses
Net interest income resulting from the Group’s defined benefit plans was £24,000 in the period. The employee benefits expense for
the period is £nil.
The remeasurement recorded in other comprehensive income is as follows:
(Gain)/loss on scheme assets in excess of interest
Experience losses
Gain from changes to demographic assumptions
Loss/(gain) from changes to financial assumptions
Total (gain) recognised in other comprehensive income
Sensitivity of the value placed on the liabilities
Reduce discount rate by 0.1% p.a.
Increase inflation and related assumption by 0.1% p.a.
Increase a long-term rate of longevity improvement by 0.25% p.a.
Apply a 90% loading to the mortality base table (reduces probability of death by 10% at each age)
At
31 May
2018
£’000
At
1 September
2017
£’000
494
26
(99) –
(492)
(71)
(23)
(333)
183
(173)
Approximate
effect on
liabilities
£’000
168
104
91
530
Note that the above sensitivities are approximate and only show the likely effect of an assumption being adjusted whilst all other
assumptions remain the same.
74
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
29
Pensions and other employee obligations (continued)
Risk mitigation strategies
The trustees invest the Plan’s assets in combination of Liability-Sensitive assets and Return-Generating assets. The Liability-Sensitive
assets are invested in a variety of LDI (Liability-Driven Investment) Funds. These funds invest in a combination of interest rate and
inflation rate swaps in order to mimic the movement in expected cashflows of the Plan caused by changes in interest and inflation rates.
Effect of the Plan on Group’s future cashflows
The Group is required to agree a Schedule of Contributions with the Trustees of the Plan following a valuation which must be carried
out at least once every three years. The next valuation of the Plan is due at 1 January 2020. In the event that the valuation reveals a
larger deficit than excepted the Company may be required to increase contributions above those set out in the existing schedule of
contributions. Conversely, if the position is better than expected contributions may be reduced.
The Group expects to pay contributions of £245,000 in the year to 31 May 2019.
The weighted average duration of the defined benefit obligation is around 14 years.
30
Notes to the consolidated cash flow statement
Cash flows from operating activities:
Continuing operations
Loss before income tax from continuing operations
Adjustments for:
Depreciation
Amortisation of intangible assets
Amortisation of intangibles from business combinations
Gain on disposal of property, plant and equipment
Finance income
Finance expenses
Share based payment charge
Changes in working capital
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase in trade and other payables
Increase in provisions
Other non cash changes
Cashflows from operating activities
Cash and cash equivalents
Cash
Overdrafts
2018
£’000
2017
£’000
(4,498)
(285)
2,532
374
3,303 –
–
(36)
692
69
4,144
(8,618)
(3,088)
(1,039) –
23
525
120
(13)
(219)
38
34
(2,482)
(1,654)
711
4
(6,142)
(3,221)
2018
£’000
6,574
(9) –
2017
£’000
27,703
6,565
27,703
75
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
31
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
Increase/(decrease) in trade and other payables
Other non cash changes
Cashflows from operating activities
Company
2018
£’000
2017
£’000
(1,919)
(1,057)
(565)
19
37
(8,397)
173
3
(274)
21
19
(6,313)
(3,700)
4
(10,649)
(11,300)
32
Reconciliation of liabilities arising from finance activities
Group
At 1 June 2016
Cash flows:
Repayments
Proceeds
Non-cash:
Amortisation of finance fees
Reclassification
At 1 June 2017
Cash flows:
Repayments
Proceeds
Non-cash:
Acquisition of subsidiary undertakings (note 36)
Amortisation of finance fees
Exchange adjustments
Reclassification
At 31 May 2018
Long-term
borrowings
£’000
Short-term
borrowings
£’000
Lease
liabilities
£’000
Overdraft
£’000
1,075
–
–
–
(179)
896
–
7
4,145
–
–
(613)
4,435
331
(334)
–
3
179
179
(3,484)
6,156
3,212
23
11
613
6,710
471
(292)
–
–
–
179
(1,025)
127
3,307
–
(34)
–
2,554
–
–
–
–
–
–
–
9
–
–
–
–
9
Total
£’000
1,877
(626)
–
3
–
1,254
(4,509)
6,299
10,664
23
(23)
–
13,708
76
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
32
Reconciliation of liabilities arising from finance activities (continued)
Company
At 1 June 2016
Cash flows:
Repayments
Non-cash:
Amortisation of finance fees
Reclassification
At 1 June 2017
Cash flows:
Repayments
Non-cash:
Amortisation of finance fees
Reclassification
At 31 May 2018
33
Related party transactions
Long-term
borrowings
£’000
Short-term
borrowings
£’000
Lease
liabilities
£’000
Overdraft
£’000
1,075
–
–
(179)
896
178
(182)
4
179
179
–
(182)
–
(180)
716
3
180
180
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
1,253
(182)
4
–
1,075
(182)
3
–
896
Company
The Directors benefited from dividends paid in the year (note 10) on their shareholdings as set out in the Directors report page 17.
Group
During the year the Group entered into an agreement with Sustinere Solutions Ltd (“Sustinere”), a company 21.54% owned by
Tristan Lloyd-Baker (brother of Ewan Lloyd-Baker). Subsequent to the agreement being signed, Ewan Lloyd-Baker and his wife
and purchased a 1.76% share holdings in Sustinere. The agreement is for the Group to supply a Combined Heat and Power unit
for £379,000 which will then be installed by Sustinere along with associated infrastructure at one of the Group’s premises. Once
installed this equipment will provide the Group with lower cost electricity and heating. The Group will repay the cost of the related
unit and associated infrastructure via a minimum 13 year finance arrangement with payments going to an unrelated third party
company. Payments under this finance arrangement depend upon the heat consumption and electrical load plus the Group is liable to
pay minimum usage costs which amount to £173,000 (including energy and maintenance costs) in the first year, increasing by RPI
each year. At the balance sheet date future minimum lease payments (excluding energy and maintenance costs) total £1,139,000.
At one site in the Group generators were leased from Powr Capital Ltd, a company 50% owned by Tristan Lloyd-Baker (brother
of Ewan Lloyd Baker) under an ongoing lease. The lease on the generators runs to November 2025 and in the 9 month period post
acquisition of HTG, the Group recognised an expense of £23,000 in the accounts and paid Powr Capital Ltd £26,000. At the balance
sheet date future minimum lease payments total £230,000.
34
Financial commitments
a) Capital commitments
Commitments for capital expenditure were as follows:
Contracted for, but not provided in the accounts
2018
£’000
1,346
2017
£’000
333
77
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
34
Financial commitments (continued)
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
2018
£’000
1,293
7,281
8,574
272
288 –
560
2017
£’000
345
339
684
4
4
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.
35
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 28 is achieved the option can be exercised by the beneficiaries
During the year 330,000 (2017: 795,001) shares were purchased at a cost of £598,950 (2017: £1,534,352) by the Trust and
beneficiaries, an interest in which was allocated to the Executive Directors as beneficiaries (as shown in note 28). 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 £2,835,000 (2017: £2,250,000) and shown as a deduction from equity in the statement of
changes in shareholders’ equity.
78
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
36
Acquisitions
Business combination – Hayward Tyler Group plc
On 1 September 2017 the Group acquired 100 percent of the issued share capital of Hayward Tyler Group plc (‘HTG’). The
acquisition was made to enhance the Group’s position in the Energy division. The provisional fair value of net assets acquired at the
date of acquisition were as follows:
Fair value of assets and liabilities acquired
Other intangible assets
Property, plant and equipment
Deferred tax
Pension and other employee obligations
Inventories
Trade and other receivables
Cash and cash equivalents
Current tax asset
Derivatives
Trade and other payables
Obligations under finance leases
Borrowings
Provisions
Other creditors
Net assets
Business combinations intangibles assets identified
Deferred tax on intangibles identified
Goodwill
Fair value of consideration transferred:
Repayment of loans
Shares issued
Consideration
Cash acquired
Loans repaid
Acquisition costs charged to expenses
Net cash paid relating to the acquisition
£’000
837
22,846
392
1,320
8,592
17,095
739
1,251
45
(21,110)
(3,307)
(7,357)
(7,175)
(3,545)
10,623
16,082
(2,850)
18,171
42,026
12,500
29,526
42,026
(739)
12,500
1,469
13,230
The £12,500,000 loans repaid were subject to change of control provisions. Acquisition costs arising from this transaction of
£1,469,000 have been included in administration expenses included in overheads before operating profit.
79
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
36
Acquisitions
Business combination – Hayward Tyler Group plc (continued)
The impact of the HTG acquisition on the Consolidated income statement is as follows:
Revenue
Gross profit
Overheads
Restructuring costs
Amortisation of intangibles from business combinations
Operating loss
Finance income
Finance costs
Loss before taxation
Taxation
Overall effect on the Consolidated income statement
Since acquisition HTG contributed the following to the Group’s cashflows:
Operating cashflows
Investing activities
Financing activities
Business combination – Ormandy Group
£’000
51,798
15,954
(12,954)
(1,622)
(3,300)
(1,922)
24
(959)
(2,857)
(668)
(3,525)
2018
£’000
(4,438)
(1,844)
2,011
On 19 February 2018 the Group acquired certain of the assets and IP of the Ormandy Group. The acquisition was made to enhance
the Group’s position in the PRSE - Energy division. The net assets at the date of acquisition were as follows:
Fair value of assets and liabilities acquired
Property, plant and equipment
Inventories
Trade and other payables
Net Assets
Intangibles assets identified
Goodwill & IP
Fair value of consideration transferred:
Cash
Consideration
Acquisition costs charged to expenses
Net cash paid relating to the acquisition
£’000
10
268
(193)
85
–
50
135
135
135
99
234
Management did not identify any further intangible assets on acquisition of this business due to its distressed state.
Acquisition costs arising from this transaction of £99,000 have been included in administration expenses included in overheads
before operating profit.
80
Notes to the Annual Report (Continued)
For the year ended 31 May 2018
36
Acquisitions (continued)
Business combination – Ormandy Group (continued)
The impact of the Ormandy acquisition on the Consolidated income statement is as follows:
Revenue
Gross profit
Overheads
Restructuring costs
Amortisation of intangibles from business combinations
Operating loss
Finance income & costs
Loss before taxation
Taxation
Overall effect on the Consolidated income statement
Since acquisition Ormandy contributed the following to the Group’s cashflows:
Operating cashflows
Investing activities
£’000
1,859
115
(194)
–
(3)
(82)
–
(82)
16
(66)
2018
£’000
(349)
(135)
81
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Avingtrans Plc will be held at Shakespeare Martineau LLP,
No 1 Colmore Square, Birmingham, B4 6AA on 15 November 2018 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 2018.
2. To declare a final dividend of 2.3p per ordinary share payable on 7 December 2018 payable to shareholders on the register of
members on 26 October 2018.
3. To re-elect Stephen King as a Director.
4. To re-elect Graham Thornton as a Director.
5. To elect John Clarke 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 Resolution 9 as a 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 £512,517
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 3,106,164;
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
82
Notice of Annual General Meeting (Continued)
b.
to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal
amount of £155,308 and shall expire on whichever is the earlier of the conclusion of the next Annual General Meeting of
the Company or the date falling 15 months from the date of the passing of this Resolution, except that the Company may,
before such expiry, make an offer or agreement which would or might require equity securities to be allotted after such
expiry and the Directors may allot equity securities in pursuance of such offer or agreement as if the power conferred by
this Resolution had not expired.
By order of the Board
S M King
Dated 2 October 2018
Registered office
Chatteris Business Park
Chatteris
Cambridgeshire
PE16 6SA
Notes:
Entitlement to attend and vote
1.
Only those members registered on the Company’s register of members at close of business on 13 November 2018; 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 Link Asset Services of
PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU; and received by Link Asset Services of PXS, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU no later than 11:00am on 13 November 2018.
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.
83
Notice of Annual General Meeting (Continued)
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 Link Asset Services of PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU.
If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of
proxies will take precedence.
Termination of proxy appointments
11. In order to revoke a proxy instruction you will need to inform the Company using one of the following methods:
• By sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to Link 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 Link Asset Services of PXS, 34 Beckenham Road, Beckenham,
Kent, BR3 4TU no later than 13 November 2018 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 2 October 2018, the Company’s issued share capital comprised 31,061,636 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 2 October 2018 is 31,061,636.
Documents on display
13 The following documents will be available for inspection at Chatteris Business Park, Chatteris, Cambridgeshire PE16 6SA
from 26 October 2018 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.
84
The Strategy
in action
Pinpoint-Invest-Exit
Pinpoint
Strengthening the energy market portfolio
Engineering Excellence
Performance critical, fluid filled motors
and pumps for the global energy and
chemical processing industries
Avingtrans successfully acquires Hayward Tyler Group for £29.4m in September 2017.
With a rich installed base of 1000’s of pumps and motors across the global energy space, the opportunity
to drive short term growth and profitability through focused aftermarket activity balances the medium and
longer term opportunities, as capital investment picks up in the Oil & Gas and Power Generation segments.
Ormandy Rycroft
Engineering
Avingtrans successfully acquires certain assets of Ormandy Ltd for £0.1m in February 2017.
Ormandy Group manufactures off-site plant, heat exchangers and other HVAC (heating, ventilation and
air conditioning) products and the synergies that exist between the Ormandy Group and Avingtrans’
businesses will allow Ormandy to re-establish its presence in an improving market space.
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Invest
Establishing world class capability
Energy
Medical
Metalcraft completes the second phase of the
Scientific Magnetics Ltd and MR Resources
factory development for 3m3 intermediate level
waste (ILW) boxes and successfully commissions the
first dedicated plasma robot welding station for box
production.
The first boxes have now been delivered to Sellafield
and the multi-million 10 year contract is on track.
Inc. launch a pan-European partnership, to bring
Nuclear Magnetic Resonance (NMR) system support
and service contracts to European NMR users.
The partnership results in a unique and independent
service offering for European NMR users and is
fundamental to the groups continued focus on
aftermarket support.
Exit
Returning share-holder value
“
Avingtrans is quietly confident
about the current strategic
direction and potential future
Exit opportunities
Avingtrans is now fully into the Pinpoint-Invest
phases of its two energy divisions and its medical
division since the successful Exit of the aerospace
group, Sigma Components, at an enterprise value
of £65m back in 2016.
Avingtrans is committed to medium and longer term
development plans, with the focus on exiting businesses
at advantageous valuations, at which point proceeds can
be considered for return to shareholders, or redeployed
for continued growth in shareholder value.
As the energy markets continue to recover, M&A activity
remains strong and flow control businesses command
high valuations. Avingtrans is quietly confident about
the current strategic direction and potential future
Exit opportunities.
0004281_Avingtrans_Corporate report v7.indd 6
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Invest
Establishing world class capability
Energy
Medical
Metalcraft completes the second phase of the
Scientific Magnetics Ltd and MR Resources
factory development for 3m3 intermediate level
Inc. launch a pan-European partnership, to bring
waste (ILW) boxes and successfully commissions the
Nuclear Magnetic Resonance (NMR) system support
first dedicated plasma robot welding station for box
and service contracts to European NMR users.
production.
The partnership results in a unique and independent
The first boxes have now been delivered to Sellafield
service offering for European NMR users and is
and the multi-million 10 year contract is on track.
fundamental to the groups continued focus on
aftermarket support.
Exit
Returning share-holder value
“
Avingtrans is quietly confident
about the current strategic
direction and potential future
Exit opportunities
Avingtrans is now fully into the Pinpoint-Invest
phases of its two energy divisions and its medical
division since the successful Exit of the aerospace
group, Sigma Components, at an enterprise value
of £65m back in 2016.
Avingtrans is committed to medium and longer term
development plans, with the focus on exiting businesses
at advantageous valuations, at which point proceeds can
be considered for return to shareholders, or redeployed
for continued growth in shareholder value.
As the energy markets continue to recover, M&A activity
remains strong and flow control businesses command
high valuations. Avingtrans is quietly confident about
the current strategic direction and potential future
Exit opportunities.
Performance
5 YEAR PERFORMANCE
Revenue
n
o
i
l
l
i
M
£
n
o
i
l
l
i
M
£
n
o
i
l
l
i
M
£
e
c
n
e
P
80
70
60
50
40
30
20
10
0
80
70
60
50
40
30
20
10
0
6
5
4
3
2
1
0
-1
10
8
6
4
2
0
-2
Net Assets
EBITDA
(adjusted)
EPS – Diluted
(adjusted)
2014 – 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 good will, amortisation/
impairment of intangibles and
exceptionals
78.9
23.7
22.6
21.2
22.7
2014
2015
2016
2017
2018
64.8
69.1
44.9
32.7
34.2
2014
2015
2016
2017
2018
5.7
0.3
0.4
0.7
-0.6
2014
2015
2016
2017
2018
8.4
1.0
1.1
-0.4
2015
2016
2017
2018
-1.0
2014
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www.avingtrans.plc.uk
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