PINPOINT-INVEST-EXIT
2019 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
About us
Delivering shareholder value through a
proven strategy of Pinpoint-Invest-Exit in
highly regulated global engineering markets
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
Sold JenaTec; Purchased Aerotech & PFW
2011
2012
2013
15
17
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
and Ormandy Group assets
2018
Purchased Tecmag;
Exited Whiteley Read
2019
32
31
45
50
43
19
67
0
10
20
30
40
50
60
1Remaining 25% of Sigma
Market Cap £m
Tender Offer £m
71
70
80
Timeline
2010 (38 GBp)
2012 (98 GBp)
2014 (148 GBp)
2016 (180 GBp)
2017 (235 GBp)
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
Energy Division
Performance
critical solutions for
energy systems
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
off ering including steam turbines, gas compressors, pressure vessels, bespoke high-integrity doors, containers and
skidded systems.
Medical Division
Innovative solutions
for medical systems
and research
Medical (MII)
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.
Financial highlights
●● Revenue from continuing operations increased by 34% to
£105.5m (20181: £78.9m)
● Reflecting the full-year impact of FY18 HTG acquisition and
11% underlying organic growth
●● Gross Margin improved to 26.7% (20181: 25.5%)
●● Adjusted2 EBITDA from continuing operations increased by 65%
to £9.4m (20181: £5.7m)
●● Adjusted2 PBT £5.3m (20181: £2.4m)
●● Adjusted2 Diluted earnings per share were boosted to
14.9p (20181: 8.4p)
●● Cash inflow from operating activities £9.0m (2018: £6.9m
outflow)
●● Net Debt £2.0m (31 May 2018: £7.1m)
●● Increased final dividend of 2.4p per share (2018: 2.3p). Full year
3.8p (2018: 3.6p)
Operational highlights – Energy
●● Revenues up 36% to £93.4m (2018: £68.4m) including first full
year of HTG results
●● Ormandy acquisition made a profit in its first full year
●● Acquisitions of Booth and Energy Steel post-period end are
proceeding to plan
●● Sellafield 3M3 boxes now in serial production
●● £10m nuclear life extension contract with Vattenfall for Forsmark
●● £10m steam turbine contract for floating production vessel
●● Exited Whiteley Read and Maloney sites, to rationalise oil and
gas assets
●● New Hayward Tyler Chinese factory in Kunshan (China)
fully operational
●● Aftermarket performance continuing to improve across all
business units
Operational highlights – Medical
●● Revenues up to £12.1m (2018: £10.4m), transition to new
markets continues
●● Acquisition of Tecmag Inc, for £0.1m including costs, providing
system capability
●● Scientific Magnetics MRI system developments progressing
broadly to plan
●● Siemens shipments remained steady in the UK and China
●● Composite Products had another solid year
1 2018 not restated for IFRS15.
2 Adjusted to add back amortisation of intangibles from business combinations, acquisition costs and
exceptional items.
“
Commenting on the results,
Roger McDowell, Chairman, said:
“It has been a record year for the Group, in
terms of orders, revenue and profit,
reinforced by the deft execution of our now
well-proven Pinpoint-Invest-Exit strategy
(PIE). The former Hayward Tyler Group
(HTG) businesses performed very well in
their first full year with the Group and the
Ormandy turnaround produced a solid, if
modest profit in its first full year since
acquisition in February 2018. The recent,
tactical acquisitions of Tecmag, Texas;
Booth, Bolton, UK; and Energy Steel,
Michigan are all integrating well thus far.
The Energy divisions and their management
teams have proven themselves to be
commercially astute and we continue to
focus on profitable growth, to build
valuable, enduring businesses. Our budding
medical division continues to make slow,
but steady progress, as it seeks to develop
new technologies, to break through into
new sectors.
We continue to concentrate on aftermarket
opportunities, servicing end-user
customers with comprehensive solutions,
resulting in good growth and strong
prospects. The nuclear life extension and
decommissioning arenas are fertile ground
for us, as demonstrated by contract wins in
the period worldwide. Other market areas
are also proving fruitful – such as
renewable energy – and a more stable oil
and gas environment has seen us win
important contracts in that sector. Brexit
and tariff wars are unwelcome distractions
for the Group, but they will not cause us to
deviate from our well-planned course.
Despite the chill in the macroeconomic air,
we remain quietly confident about our
prospects in both Energy and Medical, with
our strong Balance Sheet allowing us to be
both agile and resilient. Recent order wins
and our pipeline of opportunities underpin
that outlook.”
Company Information
For the year ended 31 May 2019
Company registration number:
01968354
Registered office:
Chatteris Business Park
Chatteris
Cambridgeshire
PE16 6SA
Directors:
Website:
Secretary:
Bankers:
Registrars:
Nominated advisor and broker:
Solicitors:
Independent Auditor:
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 resigned 30 November 2018)
J Clarke (Non-executive Director)
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 and statement of comprehensive income
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 – 23
24 – 25
26 – 31
32 – 43
44
45
46
47
48
49
50
51 – 80
81 – 83
2
Chairman’s Statement
As the long-standing Chairman of Avingtrans, it is pleasing to be able to report on another record year of results for the Group.
Orders, revenue, and profit all reached new highs and we are confident about the embedded value of the Pinpoint-Invest-Exit
strategy (PIE), as the Group continues to hit target milestones along the path towards eventual value realisation. The former
Hayward Tyler Group (HTG) businesses continued to improve, with further growth and cost savings achieved in HTG’s first full
year contribution. The combined businesses continue to demonstrate the anticipated synergies. Ormandy has also integrated well,
in its first full turnaround year within the Group. It was a year in which we drove shareholder value through Investment, but we
also Pinpointed Tecmag Inc in Houston, acquiring it to complement our technology capabilities in MRI and NMR in the Medical
division.
Post-period end, we acquired the assets of Booth Industries in Bolton, UK and Energy Steel in Michigan, USA. Each of these
turnaround opportunities were acquired following agile due diligence processes. They both augment our capabilities in the nuclear
aftermarket and decommissioning sector and Booth brings Avingtrans into the wider Critical National Infrastructure (CNI)
market. The acquisition of Energy Steel will broaden Hayward Tyler’s product offering - particularly in precision manufacturing
and solutions for “orphan” OEM components for the nuclear aftermarket - and provide cross-selling opportunities. Acquiring
Booth Industries enables the Process Solutions and Rotating Equipment (“PSRE”) division to expand its product and service
offering and deepen its relationships with its existing customers.
The Energy divisional structures and management teams have shown themselves to be highly effective in the period, continuing
to build upon two solid platforms displaying good global reach, product and service diversity. Their unwavering focus is now
on growing into formidable and valuable businesses. The Group continues to carefully build its fledgling medical and industrial
imaging division, which promises to produce a unique market offering in the longer-term. This division was reinforced in the
period with the Tecmag acquisition, to give us the necessary electronics and software capability for full system production.
Aftermarket growth is a common strategic theme across all three divisions, to develop robust value propositions, in order 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. This improved end-user model not only provides a more predictable and repeatable pipeline, which in
turn drives improved profitability, but also boosts product and service development and innovation. We are particularly keen to
maximise the revenue opportunities arising from the aftermarket access afforded by recent acquisitions (eg Energy Steel) and
partnerships (eg with ABC Compressors, Spain).
The Engineered Pumps and Motors (EPM) division bolstered its capability in India with a new motor rewind centre and officially
opened a new 3,250 square metre facility in Kunshan, China. These enhanced units are securing end-user business in the region,
including in the valuable aftermarket. Our facilities also act as operational hubs for the sale of original equipment, cost effective
sourcing, engineering and tendering. Energy Steel, which manufactures components for the civil nuclear power industry, provides
further access to the Nuclear aftermarket and is integrating into EPM well.
The PSRE division is continuing to refine its offering to the UK nuclear market – especially to Sellafield for nuclear
decommissioning - whilst also using this capability to position for longer term new nuclear technologies. Ormandy had a
profitable first full turnaround year with the group and the integration of Booth has been satisfactory to date.
The Medical and Industrial Imaging (MII) division continues to develop steadily, with both the UK and Chinese businesses
consolidating their positions in the supply chain. Scientific Magnetics and Tecmag are working with their partners to produce
new product offerings for the NMR and MRI markets. While these developments are still at a relatively early stage, the Board
is excited about the long-term potential of the division which, given time to bring these developments to fruition, is expected to
yield positive returns for the Group.
For the eighth successive year, the Board has declared an increased final dividend of 2.4 pence per share, producing a full year
total of 3.8 pence per share, underlining our commitment to long term shareholder returns and our positive view about the
prospects for the Group, underpinned by our prudent approach to debt and financial headroom.
Finally, since the last annual report, Ewan Lloyd-Baker resigned from the Board, having assisted Avingtrans with the transition of
HTG and Colin Elcoate resigned from his position as CCO. The Board and I wish Ewan and Colin all the best with their future
endeavours and thank them for their hard work whilst they were with us. I warmly welcome all of the staff in recent acquisitions
to Avingtrans. Their commitment to reinvigorate their businesses will enrich the Group. On behalf of the shareholders, I thank
all Avingtrans employees for their hard work and commitment to the Group during the past 12 months, as we look forward with
enthusiasm to FY2020.
Roger McDowell
Chairman
17 September 2019
3
Strategic Report
Group Performance
Strategy and business summary
Group Strategy
Our core strategy is to buy and build engineering companies in niche markets, particularly where we see turnaround and
consolidation prospects; 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 FY2019 was another successful year, cementing our turnaround of Ormandy and
concluding the acquisition of Tecmag for the medical division. Post year end, there have been two further acquisitions, both being
turnaround opportunities.
With an increased presence in our target markets, a focus on the aftermarket, strength in depth of the management teams and a
lean central structure, the Group continues to grow profitably and the Board has renewed its focus on seeking additions to the
Avingtrans value-add proposition. Conversely, we are also pragmatic when it comes to disposing of assets which become non-
core, such as the exit of Whiteley Read in the period.
All of the Group’s key financial metrics have trended positively, including the percentage of aftermarket penetration, despite a
period of restructuring following the successful integration of HTG.
The business is focused on the global Energy and Medical markets, both of which play into some of the world’s mega-trends, such
as: continued urbanisation; an ageing population; and an accelerating transition towards a cleaner and healthier planet.
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. Post year end, this strategy was bolstered
by the acquisition of Energy Steel in North America, which specialises in nuclear life extension. In addition, the EPM business
continues to develop solutions for new nuclear technologies and other low carbon energy sources, such as concentrated solar,
to capitalise on the global energy supply transition. In FY19 EPM secured a number of key contracts, including to provide high
temperature molten salt, nuclear life extension equipment and spare parts to nuclear reactors. As part of the division’s global
business strategy and to support continued growth, Avingtrans opened a new state of the art factory in Kunshan, China in January
2019.
Process Solutions and Rotating Equipment (PSRE, Energy): The primary strategy is to develop 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, to continue to support the nuclear
submarine fleet and facilities for the UK MOD and targeted opportunities in the equally highly regulated offshore Oil & Gas
markets. Post year end, the division’s nuclear credentials were boosted by the acquisition of the assets of Booth Industries, which
also broadened our market reach into Critical National Infrastructure (CNI).
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). In October 2018, we acquired Tecmag Inc in Texas, to strengthen our
NMR/MRI capabilities. This business is able to design and manufacture the electronics and software systems required for these
markets.
The common theme we are looking to exploit across energy and medical is the continued pressure on aftermarket expenditure,
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.
Pinpoint-Invest-Exit
Continuing its Pinpoint-Invest-Exit strategy, Avingtrans added a number of bolt-on acquisitions in the year, including Tecmag,
Inc. in October 2018; adding expertise in Magnetic Resonance Imaging and Nuclear Magnetic Resonance systems to the Group’s
developing Medical division. Based in Texas, Tecmag designs, manufactures, tests and installs instrumentation such as consoles,
spectrometers and solid-state probes for primarily Magnetic Resonance Imaging (MRI) and Nuclear Magnetic Resonance (NMR)
systems. It has strong technology and a material installed base from over 35 years of supplying custom products to these markets.
Tecmag will be integrated into Scientific Magnetics, which has expertise in superconducting magnets and cryogenics and is
focused on the same end markets. This will provide a platform for further product development and investment as management
advances its buy, build and sell strategy in Medical & Industrial Imaging.
4
Strategic Report (Continued)
Pinpoint-Invest-Exit (continued)
In June 2019, the Company announced the acquisition of Bolton-based Booth Industries Limited, a leading UK engineering
company, for a consideration of £1.8m, from the administrators of AIM-quoted Redhall Group plc (“Redhall”), with significant
read-across to the Group’s Metalcraft operations.
The Group also acquired the brand name and selected assets of Jordan Manufacturing, a provider of specialist manufacturing and
fabrication services and another division of Redhall, in August 2019, which strengthens Metalcraft’s position as a key player in
the nuclear supply chain.
Also in June 2019, the Company acquired US-based Energy Steel & Supply Co. (Energy Steel), an established manufacturer of
machined products and components to the civil nuclear power industry. US-based Energy Steel & Supply Co. (Energy Steel) is
an established manufacturer of machined products and components to the civil nuclear power industry, acquired by Avingtrans
for consideration of $0.6m. Hayward Tyler has over 600 pumps in active service in nuclear applications across the world and this
acquisition expands the Company’s nuclear capabilities and product lines for new and existing customers.
The integrations of Booth and Energy Steel are proceeding to plan thus far.
M&A activity in energy capital goods markets remains strong and businesses like ours continue to command high valuations.
Avingtrans remains confident about the current strategic direction and potential future opportunities across its chosen markets.
Markets – Energy
The global demand for energy continues to rise, driven primarily by population increase, continued urbanisation and improved
prosperity. Although 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%.
End User/Aftermarket
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 in 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 global players and the local independents.
Nuclear
Nuclear energy as a low carbon, baseload power source remains an uncertain market with respect to future growth. Almost all
of the 1GW+ new build opportunities are currently in Asia, with the exception of the limited UK programme. However, we are
still enjoying buoyant market segments, including supporting the operational fleet, continued safe operation and life extensions,
decommissioning and reprocessing. We are also working on the long-term development of the next generation of technologies –
i.e. Small Modular (SMR), or Advanced Generation IV Reactors. In addition, these segments all have the attractive backdrop of
a consolidating supply chain and paucity of expert knowledge, all of which play directly to the expanding Avingtrans capability.
The USA still operates the biggest civil nuclear fleet in the world, with 99 reactors generating more than 30 per cent. 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 provides fertile ground for further growth. Obsolescence is a key issue for
nuclear operators worldwide and the Avingtrans Energy Divisions are well positioned to support operators in addressing this key
operational issue; the recent acquisition of Energy Steel in the USA bolstering the Group’s capabilities in this regard.
The UK remains pre-eminent when it comes to decommissioning and reprocessing, in terms of innovative technology and
overall spend. The Group is embedded in the future manufacture of waste containers for Sellafield and 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
activity in the UK, Russia and South Korea and the USA and China dominating development activity. The Group views these new
technologies as an attractive route forwards for nuclear and is well positioned to develop as a global industry partner.
5
Strategic Report (Continued)
Markets – Energy (continued)
Power Generation
The world continues to electrify, with an increasing amount of primary energy going to the power sector which remains a key
focus across the Group’s energy divisions. Aside from nuclear, as 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. 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. Although not yet dominated by Asian EPCs and equipment suppliers, the Group is moving into this market 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 segment and also has expertise that can be used to develop
new products for niche parts of this market such as molten salt for concentrated solar applications.
Oil & Gas
After several years of oversupply, the industry has become relatively more stable and the price of Brent crude now trades at
over $60 a barrel. The industry is slowly 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 – operating expenditure is now being released to secure current operations, resulting in additional capex spend
for new projects. The Group is seeing increased bidding activity and is optimistic regarding future projects. The ongoing
investments in disruptive technologies – such as the subsea recovery-boosting technology from F-Subsea, where EPM is an
exclusive partner – are now poised to move through the development phase to full deployment.
• 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. While market predictions for FLNG
and FRSU vessels are bullish, real activity in the supply chain remains relatively sluggish.
• Downstream – slower growth in the demand for liquid, 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.
Digitalisation & Condition Monitoring
Companies across the energy market continue to invest in digital technologies to improve productivity, efficiency and predictability
in the field. At the equipment level this translates to a series of devices, sensors and algorithms which can predict breakdowns
before they occur and ensuring equipment is running at its optimum performance. The Group successfully launched its first
monitoring product, DataHawkTM, for Boiler Circulating Pumps last year and will build on this success by adding this capability
to both a wider set of original equipment and its aftermarket service offering. Peter Brotherhood now adds condition monitoring
to its steam turbines as a standard part of the overall package.
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 will be worth $34bn by 2024, according to Bloomberg and is expected to continue to grow
at c5% per annum over the next 10 years. The largest market is the USA (25%), followed by Europe (19%) and Japan (17%). The
fastest growing markets are China and India, which currently comprise 12% and 3% of the global market respectively.
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
an ageing global population and the global pharmaceutical industry’s research needs. MRI is approximately 16% by value of the
total diagnostic Imaging market and is projected to grow at 5% p.a. NMR is a smaller market, currently estimated at $800m p.a.
by industry sources and is also growing at c5% p.a., with Bruker enjoying a current market share of over 80%.
6
Strategic Report (Continued)
Markets – Medical (continued)
End User/Aftermarket
The MRI market segment is dominated by a handful of manufacturers, including GE, Siemens and Philips, who account for
circa 80% of revenue globally. 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 aligned with 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 begun to win service contracts with European NMR users, following our partnership
agreement with MR Resources.
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
(e.g. veterinary imaging) and their associated routes to market, with the intention of pinpointing the most promising of these for
future investment.
NMR
We are aligned 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 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 it is still early days for this initiative, we are successfully winning support contracts for end
users and the prospect list for Q One Instruments is promising. Having acquired Tecmag Inc in Houston in October 2018, to add
software and electronics capabilities to our NMR/MRI systems, we also acquired some assets from Acorn NMR in California, to
transfer to Tecmag and to broaden our NMR service offering into end-user sample analysis and characterisation.
Operations
Operational Key Performance Indicators (KPIs)
• Percentage of total revenue deriving from aftermarket sales (%)
• 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
2019
43.3
98.0
87.2
13.0
0.10
2018
42.1
97.3
84.2
17.3
0.14
We have added a new KPI this year, being aftermarket (AM) sales as a percentage of total revenue. This nudged up positively,
as our initiatives at HT began to take effect. Note that recent acquisitions like Tecmag and Ormandy have very little AM sales at
present, which dampens the overall figure in the mix. Other KPIs also trended positively, with customer quality and deliveries
moving in the right direction and staff turnover reducing, as the disruptive effects of the HTG acquisition subsided, albeit that
newer acquisitions tend to produce an initial bow wave of staff turnover, until we stabilise these businesses. It is pleasing to
note the on-going positive trend in HSE related incidents, since we place a high priority on improving these processes at newly
acquired 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.
7
Strategic Report (Continued)
EPM Division – Energy (continued)
The division finds itself in a relatively strong position, being more agile than some of its bigger competitors, having a respected
OEM brand unlike the local independents and 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 completed the opening of its new China facility
in January 2019 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. This activity was underpinned by winning a £10m order with Vattenfall in Sweden in February 2019, as well as further
orders from KHNP in S Korea and US nuclear operators.
In the UK and China, EPM signed an Authorised Channel and Service Partner agreement with Baker Hughes, a GE company
(BHGE), which has a significant installed base in the UK, but no effective local facility to service, overhaul and upgrade their
equipment.
In addition to the drive for improved end-user business, EPM is addressing the shift towards a low carbon energy future. Its
experience and product knowledge allowed it to gain its first order from a Gen IV nuclear developer in the USA for 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.
Post year end, EPM acquired Energy Steel (ES) – a specialist in nuclear aftermarket products – from Graham Corporation. This
acquisition allows us to cross-sell between HT and ES into the North American nuclear fleet and bolsters our credentials in that
market segment.
PSRE Division – Energy
The acquisition of the trade and assets of Ormandy Ltd last year has integrated well and has made a satisfactory, albeit modest,
profit in its first full year with the Group. Ormandy manufactures off-site plant, heat exchangers and other HVAC (heating,
ventilation and air conditioning) products. Its success has meant that Whiteley Read (WRE) became non-core and this site was
sold during the year to Glacier Energy, recovering the Group’s investment. Post year end, we also closed the small Maloney
site, with the remaining assets and trade from there being transferred to Ormandy and Fluid Handling, along with a few of the
employees at Maloney.
The Fluid Handling business in East Kilbride, Scotland had an excellent year, as it expanded its capability to support the nuclear
decommissioning and reprocessing market in the UK. This has further strengthened the division’s strategic relationship with
Sellafield Limited and the Nuclear Decommissioning Authority.
The Energy divisions’ footprint was expanded, post year-end, when the Group acquired the assets of Booth Industries, a leading
manufacturer of high integrity doors, used in the nuclear, oil and gas and critical national infrastructure markets. The integration
of Booth is progressing to plan.
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.
Aside from nuclear, the divisional brands also have a strong presence in the Oil and Gas market – eg through Peter Brotherhood
(PB). This market is now improving, with PB securing an order for c£10m in the period for steam turbines for a floating production
vessel.
Aligned with the overall Group strategy to focus on end-user business, the division has seen an increase in end-user sales. In
particular, PB saw further increases in aftermarket sales and won a new £5m UK government end-user contract in June 2018.
End-user service arrangements have been signed to gain better access to the reciprocating compressor installed base and an
expansion of the channel partners and agents has been concluded. Overall, the ratio of aftermarket sales for the division has not
improved in the year, but this is due to success in growing OE sales in parallel with the aftermarket.
Finally, the Crown business remains a small but positive performer in the division, although the year was quieter than anticipated,
due to delays in the roll-out of smart motorways and also that of 5G telecoms networks.
8
Strategic Report (Continued)
Operations (continued)
MII - Medical Division
We are making gradual progress at Scientific Magnetics and at Tecmag, as we seek to integrate our various sub-systems to
produce a prototype MRI demonstrator unit. We have now been able to take first images of inanimate objects in the system,
which show that everything is working at a basic level. We are now into the next phase of image refinement, to bring the system
up to the level expected in clinical diagnostic imaging. This next phase will take us a few months to complete and will continue
to absorb some cash in the intervening period.
Meanwhile, concerning NMR, our service offering has been strengthened, both in the UK and the USA, so we are optimistic
about seeing good progress over the next 12 months. We continue to work with QOne in China and Switzerland on new NMR
systems, to challenge the market leader. QOne have been successful in selling initial systems to the market over the last year,
albeit that the numbers are still small for this start-up business.
Following its acquisition in October 2018, Tecmag has performed relatively well initially and, with support from other Group
resources, managed to achieve a break-even result in its first period with Avingtrans. We were pleased to find that there is a decent
pipeline of legacy business to go for, pending our development of new products to provide additional new business opportunities.
There is no doubt that Tecmag’s IP will become indispensable in our pursuit of the targeted niche MRI and NMR markets.
Metalcraft UK’s business with Siemens for MRI components continues to be stable, although progress in China with other
vacuum vessel customers – e.g. Alltech – remains rather pedestrian. Composite Products (CP) had a reasonable year, with
deliveries to Rapiscan continuing and support from other smaller accounts at this unit.
Financial Performance
Adoption of IFRS 15 and IFRS 9
The Group has adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1 June 2018.
Adoption of IFRS 15 has led to a number of changes in the way the Group recognises revenue including whether to recognise
over time or at a point in time, the splitting of contracts into multiple performance conditions which are recognised separately, the
aggregation of a series of products into a single performance condition, reassessment of contract losses in the prior period and a
change in the methodology for the recognition of long term service agreements.
The Group has applied IFRS 15 and IFRS 9 using the cumulative effect of initially applying these new standards with an
adjustment of £1.1m to the opening retained earnings at 1 June 2018. The comparative information has not been restated and
continues to be reported under IAS11 and IAS 18.
Key Performance Indicators
The Group uses a number of financial key performance indicators to monitor the business, as set out below.
Revenue: 34% increase with underlying growth 11%
Overall Group revenue increased to £105.5m (2018: £78.9m), primarily driven by the effect of a full year results for the HTG
acquisition. Underlying revenue growth, excluding acquisitions was 11.2%.
Profit margin: significant improvement in results, driven by FY18 acquisition of HTG
Adjusted EBITDA (note 4) increased by 65% to £9.4m (2018: £5.7m) with good further progression from the acquisitions made
in FY18. Operating profit was £3.6m (2018: loss £3.8m) mainly due to the strong progression in profit and the non-recurrence
of significant HTG exceptional costs which were incurred in FY18 and a reduction of the non underlying costs to £1.6m for the
amortisation of intangibles from business combinations (2018: £3.3m).
Gross margin: solid progress continues
Group gross margin improved to 26.7% (2018: 25.5%) due to the higher HTG gross margins and an increase in the proportion of
revenue derived from aftermarket services when compared to prior year.
Tax: future profits and cash protected by available losses
The effective rate of taxation at Group level was a 20% tax charge primarily due to the US tax charge offset by a deferred tax
credit arising from the amortisation of business intangibles. The tax position will be aided in the coming years with the now
reduced US rate being supported by utilisation losses in the UK and China. We continue to be cautious, not recognising all of the
trading tax losses in the UK.
9
Strategic Report (Continued)
Financial Performance (continued)
Adjusted Earnings per Share (EPS): a 77% improvement
Adjusted diluted earnings per share and diluted earnings per share for continuing operations improved to 14.9p (2018: 8.4p) and
8.0p (2018: loss 16.0p) respectively as higher margin aftermarket and cost savings work through.
Funding and Liquidity: Net Debt post acquisition remains low
Net debt at 31 May 2019 was £2.0m (31 May 2018: net debt: £7.1m). Underlying strong profits enhanced by a £1.6m positive
working capital movement, skewed by advance payments on accounts for contracts drove a cash inflow from operating activities
of £9m (2018 outflow £6.9m), which will partly reverse in FY20. The Directors consider that the Group has sufficient financial
resources (note 22) to deliver its short term strategic objectives and is maintaining a strong relationship with its banking partners.
Dividend: steadily improving
The Board again proposes to underpin our progressive dividend policy. We are pleased to be able to recommend an improved
final dividend of 2.4 pence per share (2018: 2.3 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 6 December 2019, to shareholders on the
register at 25 October 2019.
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.
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
10
A fundamental part of the Group’s
strategy is growth from both Original
Equipment and Aftermarket sales.
is reliant on our
The growth
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.
Failure to keep-up with technological
change could give rise to the Group’s
products, services and technologies
becoming less competitive.
The Group provides 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.
Strategic Report (Continued)
Principal risks and uncertainties facing the Group (continued)
Risk
Potential Impact
Mitigation
Strategic Risk
B. PIE Strategy
mergers,
acquisitions
and disposals
regular
The Group makes
acquisitions and disposals under
its PIE strategy. In October 2018 it
acquired Tecmag Inc in Houston,
USA. During
the period, we
disposed of the Whiteley Read site.
Post period end, Energy Steel and
Booth Industries were acquired
and the Maloney site was closed
down, with some assets and staff
transferring elsewhere in the group.
could
businesses
Failure to re-establish and rebuild
these
(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.
C. Execution
services highly
The Group designs, manufactures
and
technical
products that are mission critical to
the end user.
to
satisfy
Failure
contractual
obligations could give
to
rise
losses (e.g. warranty
significant
claims, liquidated damages, etc),
cash constraints, lost future orders
and adverse impact on the Group’s
reputation.
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.
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.
D. Global
Economic
Activity and
political
uncertainties
including
Brexit
The Group operates in global energy,
industrial, defence,
infrastructure
and 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.
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.
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.
We continue to review and assess the potential impacts of US
and Chinese tariffs and Brexit, as more information becomes
available and we are engaged with trade associations, which
are in contact with government and can thus 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.
11
Strategic Report (Continued)
Principal risks and uncertainties facing the Group (continued)
Risk
Potential Impact
Mitigation
Strategic Risk
E. Employees
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.
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.
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.
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 (intra and inter-divisionally)
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
contacts with UK Export Finance, to safeguard its funding
ability.
12
Strategic Report (Continued)
Principal risks and uncertainties facing the Group (continued)
Risk
Potential Impact
Mitigation
Financial Risk
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.
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
life expectancy of
in
changes
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 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.
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 date of signing, 52% 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, benchmarked
against market norms by an expert 3rd party. 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, the only change in the period was that Ewan Lloyd Baker left the Group in November 2018. Ewan became a Non-
Executive Director following the acquisition of the Hayward Tyler Group by Avingtrans in September 2017. Having overseen the
successful handover, Ewan wished to move on and pursue other interests. Graham Thornton has expressed his intention to retire
from the Board after the AGM this year. Within the Group structure, post-period end, Colin Elcoate resigned from his position as
the Chief Commercial Officer for Avingtrans, to take up a CEO role elsewhere. The Board wish Ewan and Colin all the best in
their future chosen careers. Top level divisional management teams were largely unchanged, with the exception of the promotion
of Alvin Sim to General Manager of Hayward Tyler China, following the departure of Colin Elcoate.
In a broader sense, the management teams in each of the three divisions continue to be strengthened, with a number of 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 in-house, both through structured apprenticeship programmes and graduate development plans. The
Group continues to be recognised nationally for the strength of its apprenticeship and graduate training schemes. For example,
Metalcraft won the top accolade for ‘SME Investment in Skills’ at the SEMTA (Scientific, Engineering, Manufacturing &
Technology Alliance) 2018 Awards and is consistently rated in the Top 100 apprenticeship schemes in the UK.
Our global workforce is 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, nor 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.
14
Strategic Report (Continued)
Social Responsibility (continued)
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 have begun to roll-out “dignity and respect” training program across the Group. 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.
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, with a successful profitable growth record,
underpinned by our ‘PIE’ strategy. Recent acquisitions will provide further opportunities for the Group to build enduring value
for investors in resilient 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 the PIE strategy implementation.
The Group continues to invest in its three divisions, with a focus on the global energy and medical markets, to position them for
maximum shareholder value via eventual exits in the years to come. The HTG integration is now demonstrably complete and the
integrations of Ormandy, Tecmag, Booth and Energy Steel are all proceeding to plan, as demonstrated by the results in the period.
Our value creation targets continue to be accomplished as planned.
The energy divisions have a strong emphasis on the thermal power, nuclear and offshore oil & gas markets, all of which are
showing positive 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 profitability and market engagement, each division has a clear strategy to support end-user aftermarket operations,
servicing their own equipment and that of pertinent third parties, to capitalise on the continued market demand for efficient,
reliable and safe facilities.
We remain vigilant concerning Brexit, but we are not overly concerned, since our direct EU exposure is somewhat limited and
we have taken appropriate evasive actions in our supply chains, with likely further such actions to follow, depending on the exact
nature of the eventual Brexit outcome. Similarly, US and Chinese government tariff change risks have been largely mitigated by
an agile supply chain response and we will continue to monitor this situation closely.
As our markets continue to develop, M&A activity is still strong and businesses like ours can command high valuations at
the point of exit, as exemplified by the Sigma sale previously. The Board is confident about the current strategic direction and
potential future opportunities across our markets. We will continue to refine our business by pinpointing specific additional
acquisitions as the opportunities arise, to build businesses which can create superior shareholder value, whilst maintaining a
prudent level of financial headroom, to enable us to endure any macroeconomic headwinds.
The Strategic Report was approved by the Board on 17 September 2019 and signed on its behalf by:
Roger McDowell
Chairman
17 September 2019
Steve McQuillan
Chief Executive Officer
17 September 2019
Stephen King
Chief Financial Officer
17 September 2019
15
Report of the Directors
The Directors present their report and the audited financial statements for the year ended 31 May 2019.
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 inflow of £9.0m for
the year (FY18 6.9m). At 31 May 2019 the Group has net debt of £2.0m as detailed in note 22 (2018: Net debt £7.1m) and net
assets of £69.3m (2018: £69.1m). As discussed in more detail in the Chairman’s statement and Strategic report, looking into
2020/21 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 2020, alongside
three year budgets which indicate that the Group expects to have adequate financial resources to continue in business and work
within its current banking arrangements to deliver on its short term strategic objectives. Coupled with an ongoing supportive
relationship with the Group’s principal bankers, HSBC, the Directors continue to adopt the going concern basis in preparing the
Annual Report and accounts.
Results and dividends
The Group’s profit for the year before tax from continuing operations amounted to £3,144,000 (2018: loss of £4,498,000) for
continuing operations. A final dividend of 2.4 pence is proposed for the year ended 31 May 2019 (2018: 2.3 pence), taking the
total dividend for the year to 3.8p pence (2018: total 3.6 pence).
Substantial shareholdings
As at 17 September 2019, 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 BlackRock
Funds managed by RBC Trustees Limited
Funds managed by Unicorn Asset Management Limited
Harwood Capital
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
3,227
2,172
2,008
1,946
1,760
1,406
1,213
993
10.3%
6.9%
6.4%
6.2%
5.6%
4.5%
3.9%
3.2%
The present Directors of the Company and those that served during the year are set out on page 1. Their interests in the share
capital of the Company are set out below.
R S McDowell
S McQuillan
S M King
J Clarke
G K Thornton
L J Thomas
16
Ordinary shares of 5p each
31 May
2019
1,406,409
243,500
180,248
-
-
16,000
31 May
2018
1,406,409
243,500
180,248
-
-
16,000
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 notes 22 and 24 to the financial statements.
Research and development
During the year £822,000 (2018: £681,000) of development costs (per note 13) were capitalised as intangible assets. This was
predominately at Metalcraft in relation to waste storage equipment, Sci-Mag for helium free niche application designs and HTI
condition monitoring.
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 17 September 2019 and signed on its behalf by:
S M King
Director
18
Corporate Governance
Chairman’s Introduction
The Group is committed to maintaining high standards of corporate governance. The Board recognises the importance of good
corporate governance under AIM Rule 50 and is accountable to the Company’s shareholders and stakeholders for its adoption
throughout the Group. To facilitate this, we have adopted the Quoted Companies Alliance Corporate Governance Code 2018
(QCA Code).
This statement describes how the Group has complied with the ten high level principles set out in the QCA code.
1. Establish a strategy and business model which promote the long-term value for shareholders
The Board has established a core strategy to buy and build engineering companies in niche markets where we see consolidation
opportunities; a strategy we call Pinpoint-Invest-Exit (“PIE”) which seeks to promote long-term value for shareholders as set out
within the Strategic Report page 4.
2. Seek to understand and meet shareholder needs and expectations
The Board attaches a high level of importance to maintaining good relationships with shareholders, whether they are institutions
or private investors and all stakeholders and representing and promoting their interests, as well as being accountable to them for
the performance and activities of the Group. The Board believes it is important to engage with its shareholders and aims to do this
through presentations, conference calls, face-to-face meetings and the Annual General Meeting. Following the announcement of
the Group’s half-year and year-end results, presentations are made to analysts and major shareholders to update them on progress
and invite them to ask questions.
The Board is updated on the latest shareholder information by the receipt of shareholder register movements, analyst reports and
feedback from the Group’s brokers, following investor road shows after half-year and year-end results.
The Board encourages all Directors to attend the Annual General Meeting as an opportunity to communicate directly with
investors and actively encourages participative dialogue.
The Company provides contact details on its investor relations page on the Company’s corporate website: www.avingtrans.plc.uk.
3. Take into account wider stakeholder and social responsibilities and their implications for long-
term success
The Board recognise that our customers, suppliers and employees are crucial to the Group’s success. The Group’s responsibilities,
policies and controls on Health, Safety and Environment (HSE) and Social Responsibility are set in the Strategic Report pages
14 to 15.
We have established long-term relationships with key customers and suppliers. We encourage feedback from our employees to
improve the culture and working environment of the Company and holds regular meetings to keep them informed on matters
affecting them directly and on financial and broader economic factors affecting the Group. There are specific information channels
in respect of health & safety matters. The Group has a proactive approach to health, safety and the environment and is committed
to the highest practicable standards of safety and health management and the minimisation of adverse environmental impacts.
4. Embed effective risk management, considering both opportunities and threats, throughout the
organisation
The Board’s 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.
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.
We classify the principal 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 Strategic Report pages 10 to 13. The risks
considered during the Group-wide risk management process cover a wider range of issues than the key risks.
19
Corporate Governance (Continued)
4. Embed effective risk management, considering both opportunities and threats, throughout the
organisation (continued)
The Board, through the Audit Committee, reviews the operation and effectiveness of the systems 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 controls 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.
•
•
Internal management rules which include financial and operating control procedures for all management of the Group.
Identification and appraisal by the Board of the major risks affecting the business and the financial controls.
• Bank facilities and other treasury functions, which are monitored and policy changes approved by the Board.
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.
5. Maintain the Board as a well-functioning, balanced team led by the chair
The Board of Avingtrans plc comprises of a Non-executive Chairman, two Executive Directors and three Non-executive Directors
for the majority of the year following the resignation of E Lloyd-Baker (30 November 2018). The Board is chaired by R S
McDowell and assisted by the Senior Independent Non-executive Director G K Thornton, who have primary responsibility for
running the Board.
S McQuillan, has executive responsibilities for the remaining operations, results and strategic development of the Group. 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 available to
shareholders if they have concerns.
The Board meets regularly with no less than ten such meetings held in each calendar year rotating locations around different
business units. There is a formal schedule of matters specifically reserved to the Board for its decision to enable it to manage overall
control of the Group’s affairs. 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 to re-appoint a director.
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, L J Thomas chairs the Audit Committee and G K Thornton chairs the
Remuneration Committee. The Non-executive Directors including J S Clarke and the Chairman are members of all the above
committees.
6. Ensure that between them the directors have the necessary up-to-date experience and capabilities
The Board reviews its configuration to ensure 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.
All new Directors receive a full, formal and tailored induction on joining the Board, including meetings with senior management
and advisers and visits to the Group’s operational locations. Training requirements are reviewed periodically and appropriate
refreshers scheduled.
The Board calendar is planned to ensure that Directors are briefed on a wide range of topics throughout the year and meetings
are rotated around business units, to ensure the Non-Executive Directors have the opportunity to visit sites and discuss aspects
of the business with employees.
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.
20
Corporate Governance (Continued)
7. Evaluate Board performance based on clear and relevant objectives, seeking continuous
improvement.
The Chairman reviews the Board’s annual performance and measures its effectiveness and that of its Committees. Each Board/
Committee member completes an assessment, which provides numeric scoring against specific categories. Each Board/Committee
member also provides recommendations for improvement of the effectiveness of the Board/Committee.
The criteria for effectiveness include assessing:
• Board/Committee composition (including succession planning);
• Board/external reporting and information flows;
• Board Process, Internal Control & Risk Management
• Board Accountability
• Executive management effectiveness;
• Standards of Conduct
Alongside this review each Director receives an appraisal. The Chairman conducts appraisals in respect of the Group Chief
Executive and Non-Executive Directors; the Non-Executive Directors (following discussions with the other Directors) conducts
the Chairman’s appraisal; and the Group Chief Executive conducts appraisals in respect of the other Executive Directors.
8. Promote a corporate culture that is based on ethical values
Culture
The Company has a strong ethical culture based upon its Code of Ethics and the Company values Integrity, Quality, Agility. The
Company’s reputation is built on our values as a company, the values of our employees, and our collective commitment to acting
at all times with integrity.
Part of the work of the Audit & Risk Committee involves reviewing the Group Whistle-Blowing Policy, by which employees of
the Group may, in confidence, raise concerns about possible financial or other improprieties.
The Board’s corporate governance structures are reviewed as part of the Board and Committee effectiveness process described
above.
Compliance with laws
The Group has systems in place designed to ensure compliance with all applicable laws and regulations and conformity with all
relevant codes of business practice.
Compliance with the Bribery Act 2010 involves an Anti-Corruption Policy and a Group Whistle-blowing Policy. Training is given
to all appropriate employees through the use of online tools, to ensure that there is full understanding of the Bribery Act 2010 and
awareness of the consequences of not adhering to Group policies.
The Group has taken the appropriate steps to comply with the provisions of the Market Abuse Regulation and the Modern
Slavery Act. The Group has also taken appropriate steps to comply with the General Data Protection Regulation (GDPR) and has
appointed a Data Protection Officer, who is responsible for managing information governance and implementing the requirements
of GDPR.
Safety, health and environment
The Group has a proactive approach to Safety, Health and the Environment and is committed to the highest practicable standards
of safety and health management and the minimisation of adverse environmental impacts.
The Board ensures that Health and Safety issues for employees, customers and the public are of foremost concern in all Group
activities. The Group Chief Executive, supported by external advice, is charged with overall responsibility. The Group encourages
both internal and external training through a formal network of full-time officers and Health and Safety nominated “champions”
at all levels. Statistical analysis is used to highlight any areas where additional training or improved working practices would be
beneficial, and positive action is promptly implemented. All divisions have formulated safety management systems.
Insider trading
The Board has appropriate policies and procedures in place to guard against insider trading by employees including Directors.
Appropriate clearances are required in order that trades can be made and all applicable employees are made aware of relevant
close periods prior to financial results being announced.
21
Corporate Governance (Continued)
9. Maintain governance structures and processes that are fit for purpose and support good decision-
making by the Board
The Board
Please see details above at “5. Maintain the Board as a well-functioning, balanced team led by the chair” and has a schedule of
matters which are specifically reserved for its decision.
Board Committees
The Board has three Committees that assist in the discharge of its responsibilities:
• Remuneration;
• Audit & Risk; and
• Nominations.
Remuneration Committee
The Remuneration Committee is responsible for making recommendations to the Board on the Group’s framework of executive
remuneration and its cost. The Committee determines the contract terms, remuneration and other benefits for each of the
Executive Directors, including performance-related bonus schemes, pension rights and compensation payments. The Board
itself determines the remuneration of the Non-Executive Directors. The Remuneration Committee comprises the Non-Executive
Directors. Further details on the composition and work of the Remuneration Committee are set out in the Remuneration Report
on pages 24 to 25.
Audit & Risk Committee
The Audit & Risk Committee comprises the Non-Executive Directors. The Committee meetings are also attended, by invitation,
by the Chief Executive and Group Finance Director. The Committee meets no less than two times annually.
The Committee is responsible for reviewing a wide range of financial reporting and related matters including the annual accounts
before their submission to the Board. The Committee is required to focus in particular on critical accounting policies and practices
adopted by the Group, and any significant areas of judgment that materially impact reported results. It is also responsible for
monitoring the internal controls that are operated by management to ensure the integrity of the information reported to the
shareholders
The Committee provides a forum for reporting by the Group’s external auditors, and advises the Group Board on the appointment,
independence and objectivity of the external auditors and on their remuneration both for statutory audit and non-audit work. It
also discusses the nature, scope and timing of the statutory audit with the external auditors.
Nominations Committee
The Nominations Committee is responsible for reviewing the structure, size and composition required of the Board when
compared to its current position, and it makes recommendations to the Board with regard to any changes. It considers and reviews
succession planning for Board Directors, taking into account the challenges and opportunities facing the Company. It identifies
and nominates for Board approval suitable candidates to fill Board vacancies as and when they arise, and it keeps under review
both the Executive and Non-Executive leadership needs of the Company to enable the Company to compete effectively in the
marketplace and to ensure it has the skills and oversight capability in our key.
The Nominations Committee also has responsibility for overseeing the re-election by shareholders of any director under the
‘retirement by rotation’ provisions in the Company’s articles of association.
Executive Management Committee
The Board is supported by Executives, who meet at least quarterly to review performance and governance for the Group and
regularly perform site visits.
Evolution of governance framework
The Board continuously monitors its composition and governance framework, taking into account effectiveness and the
Company’s plans for future growth.
22
Corporate Governance (Continued)
10. Communicate how the Company is governed and is performing by maintaining a dialogue with
shareholders and relevant stakeholders
The corporate governance principles are set out in this statement governance above and the performance of the Company is set
out in the Strategic Report page 4.
The Board maintains an active dialogue with both its institutional and private investors and stakeholders through the Annual
Report, full-year and half-year announcements, the Annual General Meeting, General Meetings and one-to-one meetings with
larger existing, or potential new shareholders.
The Board encourages all Directors to attend the Annual General Meeting as an opportunity to communicate directly with
investors and actively encourages participative dialogue.
The Company provides a full range of corporate information (including all Company announcements, Annual and half year
Statements and presentations, contact details) to shareholders, investors and the public on the Company’s corporate website:
www.avingtrans.plc.uk.
The results of the proxy votes for the Company’s previous Annual General Meeting on 16 November 2018 were published
through RNS.
Roger McDowell
Chairman
17 September 2019
23
Report of the Directors on Remuneration
Composition
The Remuneration Committee during the period comprised G K Thornton (Chairman), R S McDowell, L J Thomas and JS
Clarke, EW Lloyd-Baker resigned from the committee 30 November 2018.
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.
Avingtrans Remuneration Principles
Our remuneration principles are driven by the idea that executive remuneration should be simple and straightforward. Additionally,
it should support the delivery of the Pinpoint-Invest-Exit (PIE) strategy and pay only for results when we exit businesses at an
enhanced shareholder value. Our remuneration structure has the following attributes:
• The base salary, benefits and annual bonus of the executive Directors are positioned around the average for our peer group on
AIM, relative to our scale.
• Long-term incentives are directly aligned to shareholders’ interests, by linking remuneration specifically to the creation of
shareholder value.
The Group’s PIE strategy is well known to our shareholders. The Committee believes that the strategy should be linked to
the Directors’ Remuneration. This means that the base salary, benefits and annual bonus for the executive Directors is set at
around average, relative to peers, but with a weighting towards long-term incentives. These incentives reward Directors only for
significant outperformance and where shareholders also share in the resulting gains. Specifically:
• The executive Directors and the Chairman are aligned with shareholders, as material investors in Avingtrans.
• Management are incentivised to maximise returns for shareholders in two ways:
•
•
Via awards of share options, which are again pegged at around the average award level for our peer group on AIM and
which can only be exercised on the achievement of substantial share price growth.
By means of Exit bonus elements, which only trigger on the disposal of businesses and which are calculated as a
percentage of the shareholder value enhancement for that asset – ie taking account of the initial investment on
acquisition, any additional investment during the period that the business is owned by Avingtrans and the disposal
proceeds, net of costs.
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.
Divisional Long-term incentives
The Committee has instigated long-term incentives for divisional senior management which align this cohort with shareholders,
since they are based purely on performance and on the increase in value of the Group - ie:
• Via awards of appropriate share options, such as using a standard “CSOP” HMRC-approved scheme.
• By means of Exit bonuses, which trigger on the disposal of businesses and, are calculated as a percentage of the shareholder
value enhancement – ie taking account of the initial investment on acquisition, any additional investment during the period
that the business is owned by Avingtrans and the disposal proceeds, net of costs.
Exit bonus arrangements are intended to incentivise Directors and senior managers to create value for the Group and our
shareholders. These bonus elements only pay out if a material exit has occurred and if substantial shareholder added value is the
result. The Board has ultimate control of Exit timing, to ensure that optimum value is achieved.
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 25.
24
Report of the Directors on Remuneration (continued)
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, L Thomas and J Clarke 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.
Share options
Details of the share options of all Directors are as follows:
Executive:
S McQuillan
S M King
Date of At 31 May
2018
grant
22/11/2013
10/12/2014
21/12/2016
15/12/2017
15/11/2018
95,000
100,000
450,000
140,000
–
Granted
–
–
–
–
115,000
785,000
115,000
25/09/2010
22/11/2013
10/12/2014
21/12/2016
15/12/2017
15/11/2018
39,733
84,000
75,000
330,000
110,000
–
–
–
–
–
–
100,000
638,733
100,000
Weighted
average
exercise
price
£
Exercised
At 31 May
2019
–
–
–
–
–
–
–
–
–
–
–
–
–
95,000
100,000
450,000
140,000
115,000
900,000
39,733
84,000
75,000
330,000
110,000
100,000
738,733
1.760
1.110
1.930
1.815
2.200
1.838
0.395
1.760
1.110
1.930
1.815
2.200
1.764
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
17 September 2019
25
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 2019 which comprise the Consolidated income statement, the Consolidated statement of comprehensive
income, the Consolidated and Company balance sheets, the Consolidated and Company statements of changes in equity, the
Consolidated and Company statements of cash flows, a summary of significant accounting policies and notes to the financial
statements. The financial reporting framework that has been applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
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
2019 and of the group’s profit for the year then ended;
•
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
•
European Union and as applied in accordance with the 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.
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: £1,000,000, which represents approximately 1% of the group’s
revenues;
• Key audit matters were identified as contract accounting, the revenue cycle includes
fraudulent transactions and valuation of defined benefit pension scheme;
• We performed full scope audit procedures on the financial statements of all group
entities in the United Kingdom and Hayward Tyler Inc a company registered in the
United States. We performed analytical procedures over the non-significant
components in India and China.
•
•
26
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
Key audit matters
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 and 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 identified contract
accounting 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 revenue recognition and assessing the design
effectiveness of related key controls;
judgmentally selecting contracts by reference to materiality and
other risk factors including loss making contracts and contracts
with significant aged work in progress and receivables balances;
for the selected items and samples, assessing whether the
revenue and profit recognised are in accordance with the group’s
accounting policies and IFRS 15 by verifying revenue is
recognised in line with the 5-step model;
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 reference to supporting documentation, such
as contracts KPIs, historical performance against forecasts and
discussions with key contract accounting personnel; and
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 of the financial statements and related disclosures are
included in note 2. The associated key judgements are shown on page
43.
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.
27
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 2 – The revenue cycle includes fraudulent
transactions
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.
Revenue is a key driver of the business and is also a
significant amount in the financial statements. We therefore
identified revenue recognition (focusing on occurrence) 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:
•
•
•
reviewing and testing revenue recognition policies to ensure
these are reasonable and applied correctly and consistently;
performing analytical procedures comparing revenue on a month
by month basis to prior years to ensure that revenue is in line
with expectations;
discussing any significant fluctuations with management to
ensure explanations regarding specific projects and the related
revenue are reasonable and corroborating these explanations to
supporting documentation where necessary;
• For certain entities, Testing the operating effectiveness of key
controls in the revenue recognition process, verifying a sample
of revenue transactions from each material revenue stream to
supporting documentation including proof of delivery; and
• Where the operating effectiveness of key controls is not relied
upon, performing testing on a sample of material revenue
streams, verifying sales transactions throughout the year to
supporting documentation including proof of delivery.
The group’s accounting policy on revenue recognition is shown on
page 34.
Key observations
Our testing did not identify any material misstatements in the revenue
recognised during the year in accordance with stated accounting
policies.
Risk 3 – Valuation of defined benefit pension scheme
Our audit work included, but was not restricted to:
At 31 May 2019 the defined benefit pension scheme’s net
surplus was £1.3million. The gross value of pension scheme
assets and liabilities which form the net asset amount to
£14.2 million and £12.9 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
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.
28
• Checking managements policy for compliance with IAS19;
•
•
•
•
•
documenting our understanding of management’s process for
evaluating the defined benefit pension scheme and assessing the
design effectiveness of related key controls;
using our 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 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
confirming management’s conclusion that it is appropriate to
recognise a pension surplus within the provisions of IFRIC
14 IAS 19—The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction.
The group’s accounting policy on the defined benefit pension scheme
is shown on page 41 and related disclosures are included in note 28.
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 28 are appropriate. We
found no errors in calculations.
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
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
£1,000,000, which represents approximately
1% 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 lower than
the level that we determined for the year
ended 31 May 2018 as a result of a reduction
in the bench mark percentage applied in the
current year.
£360,000, which represents approximately
0.5% 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.
Total assets 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 period
ended 31 May 2018 to reflect the parent
company’s increased total assets in the current
year.
Performance
materiality used to
drive the extent of our
testing
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.
Specific 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
£50,000 and misstatements below
that
threshold that, in our view, warrant reporting
on qualitative grounds.
£18,000 and misstatements below
that
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 group audit team evaluated the identified components of the group to assess the significance of that component
and to determine the planned audit response based on a measure of materiality. Significance was determined by considering each
as a percentage of the group’s total assets, revenues and profit before taxation.
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 as
well as Hayward Tyler Inc, a company registered in the United States. The significant components represented 92.6 percent of
consolidated revenues and 97.2 percent of total assets. Statutory audits of subsidiaries, where required by local legislation, were
performed to a lower materiality where applicable.
The non-significant group components in India and China were subject to analytical procedures.
29
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, 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 pages 17 to 18, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
30
Independent Auditor’s Report to the
Members of Avingtrans plc (Continued)
Use of our report
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.
David White
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Birmingham
17 September 2019
31
Principal Accounting Policies
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and those parts of the Companies Act 2006 that are relevant to companies which apply IFRS.
The Company has elected to prepare its Parent Company financial statements in accordance with IFRS also, these are presented
alongside the Group Disclosures throughout the accounts.
The consolidated financial statements are presented in sterling and all values are rounded the nearest thousand (£’000) except
where otherwise indicated.
The following Standards and Interpretations, which are relevant to the Group but have not been applied during the year, were in
issue but not yet effective:
Framework Pronouncement
IFRS
IFRS
IFRS
IFRS 17
IFRS 16
Insurance contracts
Not yet EU-adopted
Effective date
EU
Leases
IFRS
IFRIC Interpretation 22
Foreign currency transactions and
advance considerations
IFRS 14
Regulatory Deferral Accounts
Financial periods commencing on/
after 1 January 2019
Not yet EU-adopted
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 IFRS 9
Amendments to IAS 28
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
Amendments to References to
the Conceptual Framework in
IFRS Standards
Financial periods commencing on/
after 1 January 2020
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
Changes in accounting policies
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was adopted on 1 June 2018, replacing IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 includes requirements for the classification and measurement of financial instruments, impairment of financial assets and
hedge accounting.
The application of IFRS 9 has led to an increase of £9,000 in the levels of bad debt provision across the group as we move from
an “incurred loss” model under IAS 39 to an “expected credit loss”.
Comparative financial information has not been restated under IFRS 9, and the impact on the income statement for the 12 months
ended 31 May 2019 is a credit of £10,000.
Further information on the adoption of IFRS 9 is provided on note 22 financial instruments.
32
Principal Accounting Policies (Continued)
IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 Revenue from Contracts with Customers using the modified retrospective approach on 1 June 2019.
Comparative information has not been restated.
IFRS 15 establishes a single five-step model for recognising revenue from contracts with customers and supersedes IAS 18
(Revenue) and IAS 11 (Construction Contracts).
IFRS 15 introduces principles to allocate the transaction price to performance obligations and recognise revenue as those
performance obligations are satisfied and control of the goods or services are transferred to the customer.
The impact of adoption of IFRS 15 on these Financial Statements is:
• At 1 June 2018 a reduction in opening retained earnings of £1.1million;
• For the 12 months ending 31 May 2019 an increase in revenue of £3.1 million and an increase in profit before tax of £0.4
million.
• At 31 May 2019 an increase in contract assets of £0.9 million and a reduction in inventories of £0.3 million.
IFRS 16 Leases
IFRS 16 is effective from 1 January 2019 and replaces IAS 17 Leases and related interpretations. It will result in almost all leases
being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the
new standard, a right-of-use asset and a financial liability for future lease payments are recognised.
The Group expect to adopt the exceptions not to recognise low value leases (less than £5,000) and short term leases (less than 1
year).
The Group will apply the Standard from 1 June 2018. The Group expects to apply the modified retrospective transition approach
and will not restate comparative amounts for the year ended 31 May 2019. In the majority of cases the Group has elected to
measure right-of-use assets at the amount of the lease liability on adoption.
The Group expects to adopt the following practical expedients on transition:
•
not to capitalise a right-of-use lease asset or related lease liability where the lease expires before 31 May 2019;
•
•
•
•
not to reassess contracts to determine if the contract contains a lease and not to separate lease and non-lease elements;
to use hindsight in determining the lease term;
to exclude initial direct costs from the measurement of the right-of-use asset; and
to apply the portfolio approach where a group of leases has similar characteristics.
The adoption of IFRS 16 is expected to have a material impact on the Group’s financial statements. At 31 May 2019 the Group
had operating lease commitments of £9.1 million. On adoption of IFRS 16, the Group expects to recognise a lease liability and
right of use asset of between £7.0 million and £9.0 million.
Significant accounting policies
Basis of consolidation
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 31 May
2019. 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.
33
Principal Accounting Policies (Continued)
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
The Group adopted IFRS 15 (Revenue from Contracts with Customers) using the modified retrospective approach on 1 June
2018. Revenue is recognised when control of the goods or services transfers to the customer. The Group applies the following
five step framework when recognising revenue.
Step 1: Identify the contracts with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue
At the inception of the contract, the Group assesses the goods or services that have been promised to the customer, and identify
as a performance obligation:
•
•
a good or service (or bundle of goods or services) that is distinct;
or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the
customer.
Contracts often contain a bundle of goods and services (i.e. a motor with an installation). We determine if a good or service is
distinct where both of the following criteria are met:
the customer can benefit from the good or service on its own or in conjunction with other readily available resources; and
the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the
contract.
•
•
34
Principal Accounting Policies (Continued)
Revenue (continued)
The criteria the Group uses to identify the performance obligations within a contract are:
•
•
the customer must be able to benefit from the goods or services either on its own or in combination with other resources
available to the customer; and
the entity’s promise to transfer the good or service to the customer is separable from other promises in the contract.
The transaction price is the value that the Group expects to be entitled to from the customer and includes discounts, rebates,
credits, price concessions, incentives, performance bonuses, penalties and liquidated damages, but is not reduced for bad debts.
It is net of any Value Added Tax (VAT) and other sales related taxes. Variable consideration that is dependent on certain events
is included in the transaction price when it is “highly probable” that the variable consideration will occur. Revenue is recognised
over time as the product is being manufactured or a service being provided if any of the following criteria are met:
•
•
•
The Group is creating a bespoke item which doesn’t have an alternative use to the Group and the entity has a right to payment
for work completed to date including a reasonable profit.
The customer controls the asset that is being created or enhanced during the manufacturing process i.e. the customer has the
right to significantly modify and dictate how the product is built during construction.
Services provided where the customer simultaneously receives and consumes the benefits provided by the Group’s
performance as the Group performs.
Judgement is made when determining if a product is bespoke and the value of revenue to recognise over time as products are
being manufactured. To calculate the amount of revenue to be recognised the Group apply a percentage of completion method.
This method calculates revenue by multiplying the contract revenue by the percentage of costs incurred relative to total estimated
costs.
If the criteria to recognise revenue over time is not met then revenue is recognised at a point in time when the customer obtains
control of the asset and the performance obligation is satisfied. The customer obtains control of the asset when the customer can
direct the use of the asset and obtain the benefits from the asset. The majority of revenue across all our operating segments is
recognised over time as costs are incurred.
Factors the Group considers when determining the point in time when control of the asset has passed to the customer and revenue
recognised include:
1. The Group has a right to payment;
2. Legal title is transferred to the customer;
3. Physical possession of the asset has been transferred to the customer;
4. The customer has the significant risks and rewards of ownership; and
5. The customer has accepted the asset.
Control normally passes and revenue recognised when the goods are either despatched or delivered to the customer (in accordance
with the terms and conditions of the sale) or the installation and testing is completed.
Dilapidations
When there is reasonable certainty of the cash outflow in respect of dilapidations this is provided for within accruals in the
financial statements. Where there is significant uncertainty in respect of the amount or timing of the payment of dilapidations,
this is included within provisions.
Dividends
Dividends are recognised when the shareholders right to receive payment is established. Dividend distributions payable to equity
shareholders are included in “other short term financial liabilities” when the dividends are approved in general meeting prior to
the balance sheet date. Interim dividends are recognised when paid.
Exceptional items
Operating costs which are material by virtue of their size or incidence and are not expected to be recurring are disclosed as
exceptional items. Exceptional costs comprise acquisition and restructuring costs as set out in note 4.
Non-underlying items
Non-underlying costs for the year include amortisation of acquired intangibles, share based payment charge and finance charges
as set out in note 4.
35
Principal Accounting Policies (Continued)
Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Assets held under finance
leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the
relevant lease.
Disposal of assets
The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying
amount of the asset and is recognised in the income statement. The gain or loss arising from the sale is included in administrative
expenses in the income statement
Depreciation
Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment other than
freehold land by equal annual instalments over their estimated useful economic lives. The rates/periods generally applicable are:
Freehold buildings
2%
Leasehold improvements
Period of lease
Plant and machinery
6.7 - 20%
Equipment and motor vehicles
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
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.
36
Principal Accounting Policies (Continued)
Leased assets (continued)
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.
37
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.
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.
38
Principal Accounting Policies (Continued)
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.
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 and liabilities
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the
financial instrument.
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the
financial asset and substantially all the risks and rewards are transferred.
A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a significant financing component and are measured at the transaction
price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where
applicable).
Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:
•
•
•
amortised cost
fair value through profit or loss (FVTPL)
fair value through other comprehensive income (FVOCI).
In the periods presented the Group does not have any financial assets categorised as FVOCI. The classification is determined by
both:
•
•
the entity’s business model for managing the financial asset
the contractual cash flow characteristics of the financial asset.
All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance
income or other financial items, except for impairment of trade receivables which is presented within cost of sales.
39
Principal Accounting Policies (Continued)
Financial assets and liabilities (continued)
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL):
•
•
they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows
the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the
principal amount outstanding
After initial recognition, these are measured at amortised cost using the effective interest method.
Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other
receivables fall into this category.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets that are held within a different business model other than ‘hold to collect’ or ‘hold to collect and sell’ are
categorised at fair value through profit and loss. Further, irrespective of business model, financial assets whose contractual cash
flows are not solely payments of principal and interest are accounted for at FVTPL. All derivative financial instruments fall into
this category.
Impairment of financial assets
IFRS 9 impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit
loss (ECL) model’. This replaced the ‘incurred loss model’ in IAS 39. Instruments within the scope of the new requirements
included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets
recognised and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are
not measured at fair value through profit or loss.
Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers
a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current
conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
•
•
financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit
risk (‘Stage 1’) and
financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not
low (‘Stage 2’).
‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.
‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for
the second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected
life of the financial instrument.
Trade and other receivables and contract assets
The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records
the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering
the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical
experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.
The Group assess impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have
been grouped based on the days past due. Refer to Note 22 Financial Instruments for a detailed analysis of how the impairment
requirements of IFRS 9 are applied.
Classification and measurement of financial liabilities
The Group’s financial liabilities include trade payables, borrowings and lease liabilities. The Group has derivative financial
instruments which can be either an asset or liability depending on the value of the underlying asset.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group
designated a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and
financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or
loss (other than derivative financial instruments that are designated and effective as hedging instruments).
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included
within finance costs or finance income.
40
Principal Accounting Policies (Continued)
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
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 £1.3 million (2018:
£1.6 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.
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.
41
Principal Accounting Policies (Continued)
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-MII.
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.
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.
42
Principal Accounting Policies (Continued)
Critical accounting judgements and key sources of estimation uncertainty
When preparing the financial statements, management makes a number of judgements, estimates and assumptions about the
recognition and measurement of assets, liabilities, income and expenses.
Significant management judgements
The following are the judgements made by management in applying the accounting policies of the Group that have the most
significant effect on the financial statements.
Revenue and margin on contracts
For sales of goods where we judge revenue should be recognised over time, the Group applies the percentage of completion
method. This method calculates revenue by multiplying the contract revenue by the percentage of costs incurred relative to total
estimated costs. 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.
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 25.
Estimation uncertainty
Information about estimates and assumptions that may have the most significant effect on recognition and measurement of assets,
liabilities, income and expenses is provided below. Actual results may be substantially different.
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 contract assets and trade receivables
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. Contract assets and trade receivables and are detailed in note
17.The value of contract assets at 31 May 2019 was £10.6m.
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
2019 was £1.5 million (note 19).
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 19).
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 £12.9
million (2018: £12.6 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 2019 was £1.3 million (2018: £1.6million).
Further details of the pension scheme are in note 28.
43
Consolidated Income Statement
For the year ended 31 May 2019
Revenue
Cost of sales
Gross profit
Distribution costs
Other administrative expenses
Operating profit before amortisation of acquired intangibles, other
non-underlying items and exceptional items
Amortisation of acquired intangibles
Other non-underlying items
Exceptional items
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) before taxation
Taxation
Note
2019
£’000
2018
£’000
2
105,516
78,864
(77,314)
(58,787)
28,202
20,077
(4,722)
(4,050)
(19,852)
(19,869)
5,805
2,796
(1,595)
(98)
(484)
3,628
132
(616)
3,144
(633)
(3,303)
(69)
(3,266)
(3,842)
36
(692)
(4,498)
12
4
4
4
2
5
6
9
Profit/(loss) for the financial year attributable to equity shareholders
2,511
(4,486)
Earnings/(loss) per share:
From continuing operations
- Basic
- Diluted
Consolidated Statement of Comprehensive Income
Profit/(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
11
11
8.0p
8.0p
(16.0)p
(16.0)p
2019
£’000
2018
£’000
2,511
(4,486)
(581)
99
445
71
(14)
(137)
Total comprehensive income for the year attributable to equity shareholders
2,474
(4,566)
The principal accounting policies and notes on pages 32 to 80 form part of these financial statements.
44
Consolidated Balance Sheet at 31 May 2019
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
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
Note
12
13
14
25
28
16
17
9
18
20
23
22
9
19
22
23
25
21
26
34
2019
£’000
23,369
14,483
26,576
1,423
1,299
2018
£’000
23,369
15,612
27,595
1,454
1,590
67,150
69,620
14,441
31,549
234
8,909
10,341
34,606
608
6,574
55,133
122,283
52,129
121,749
(31,405)
(750)
(4,945)
(69)
(5,340)
(44)
(26,179)
(1,179)
(6,719)
(15)
(6,135)
(127)
(42,553)
(40,354)
(3,817)
(1,420)
(2,073)
(256)
(2,870)
(4,435)
(1,375)
(2,914)
(256)
(3,339)
(10,436)
(12,319)
(52,989)
(52,673)
69,294
69,076
1,568
14,018
1,299
310
28,949
180
(3,435)
26,405
1,553
13,385
1,299
(135)
28,949
180
(2,835)
26,680
Total equity attributable to equity holders of the parent
69,294
69,076
The principal accounting policies and notes on pages 32 to 80 form part of these financial statements.
The financial statements were approved by the Board of Directors and authorised for issue on 17 September 2019 and signed
on its behalf by:
S M King
Director
Company number: 1968354
45
45
Company Balance Sheet at 31 May 2019
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
Note
2019
£’000
2018
£’000
15
36,029
35,977
17
18
20
22
22
26
36,029
35,977
34,298
–
60
32,814
123
2,065
34,358
35,002
70,387
70,979
(542)
(180)
(328)
(180)
(722)
(508)
(536)
(256)
(716)
(256)
(792)
(972)
(1,514)
(1,480)
68,873
69,499
1,568
14,018
1,299
28,949
180
22,859
1,553
13,385
1,299
28,949
180
24,133
68,873
69,499
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
£254k loss (2018: loss of £1,835k).
The financial statements were approved by the Board of Directors and authorised for issue on 17 September 2019 and signed on
its behalf by:
S M King
Director
Company number: 1968354
The principal accounting policies and notes on pages 32 to 80 form part of these financial statements.
46
Consolidated Statement of Changes in Equity
For the year ended 31 May 2019
Capital
Share redemp
Share premium
capital account
£’000
£’000
-tion Merger
reserve
£’000
reserve
£’000
958
595
-
-
-
595
-
-
-
-
-
12,771
614
-
1,299
-
-
-
28,949
-
-
-
614
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28,949
-
-
-
-
-
Investment
Trans
-lation Other
reserve reserves
£’000
£’000
in own Retained
shares earnings
£’000
£’000
Total
£’000
2
-
-
-
-
-
-
-
-
(137)
(137)
180
-
-
(2,250)
-
-
31,946
-
(906)
44,906
30,158
(906)
-
-
-
-
-
-
-
-
(585)
-
-
69
(585)
69
(585)
-
(837)
(4,486)
28,736
(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
1,553
13,385
1,299
28,949
(135)
180
(2,835)
26,680
69,076
-
-
-
-
-
1,553
15
-
-
-
15
-
13,385
633
-
-
-
633
-
-
-
-
-
-
-
-
-
1,299
-
-
-
-
28,949
-
-
-
-
(135)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
445
445
-
180
-
-
-
-
-
-
-
-
-
-
-
(1,284)
(1,284)
(2,835)
-
-
(600)
-
25,396
-
(1,118)
-
98
67,792
648
(1,118)
(600)
98
(600)
-
(1,020)
2,511
(972)
2,511
-
-
-
-
(581)
(581)
99
-
99
445
2,029
2,474
1,568
14,018
1,299
28,949
310
180
(3,435)
26,405
69,294
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
At 1 June 2018
Adjustment of
transitioning to IFRS 15
and 9
Adjusted equity as
at 1 June 2018
Ordinary shares issued
Dividends paid
Investment in own shares
Share-based payments
Transactions with owners
Profit for the year
Other comprehensive
income
Actuarial loss
for the year on pension
scheme
Deferred tax on actuarial
movement on pension
scheme
Exchange profit
Total comprehensive
income for the year
Balance at
31 May 2019
The principal accounting policies and notes on pages 32 to 80 form part of these financial statements.
47
Company Statement of Changes in Equity
For the year ended 31 May 2019
Share
capital
£’000
958
595
-
(485)
-
Share
premium
account
£’000
12,771
614
-
-
-
At 1 June 2017
Ordinary shares issued
Dividends paid
Transfer on disposal
Share-based payments
Transactions with owners
595
614
Loss for the year
Total comprehensive
income for the year
Balance at
31 May 2018
Ordinary shares issued
Dividends paid
Share-based payments
Transactions with owners
Loss for the year
Total comprehensive
income for the year
Balance at
31 May 2019
-
-
-
-
13,385
633
-
-
633
-
-
15
-
-
15
-
-
Capital
redemp
-tion
reserve
£’000
1,299
-
-
485
-
-
-
-
Merger
reserve
£’000
-
28,949
-
-
-
28,949
-
-
Other
reserves
£’000
Retained
earnings
£’000
180
26,805
Total
£’000
42,013
30,158
(906)
-
(906)
(19,383)
(19,383)
69
69
(837)
29,321
(1,835)
(1,835)
(1,835)
(1,835)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,118)
98
69,499
648
(1,118)
98
(1,020)
(372)
(254)
(254)
(254)
(254)
1,553
13,385
1,299
28,949
180
24,133
69,499
At 1 June 2018
1,553
1,299
28,949
180
24,133
1,568
14,018
1,299
28,949
180
22,859
68,873
The principal accounting policies and notes on pages 32 to 80 form part of these financial statements.
48
Note
29
35
Consolidated Statement of Cash Flows
For the year ended 31 May 2019
Operating activities
Cash flows from operating activities
Finance costs paid
Income tax repaid
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 issue of ordinary shares
Net cash used in investing activities
Financing activities
Equity dividends paid
Repayments of bank loans
Repayments of obligations under finance leases
Proceeds from issue of ordinary shares
Proceeds from borrowings
Net cash (outflow)/inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes on cash
Cash and cash equivalents at end of year
18
The principal accounting policies and notes on pages 32 to 80 form part of these financial statements.
2019
£’000
10,468
(608)
(569)
(243)
2018
£’000
(6,142)
(363)
(212)
(175)
9,028
(6,892)
(132)
131
(848)
(2,344)
248
(11,896)
13
(712)
(2,654)
-
(2,945)
(15,249)
(1,118)
(3,278)
(1,033)
48
597
(4,784)
1,299
6,565
189
8,053
(906)
(3,483)
(1,025)
47
6,289
922
(21,219)
27,703
81
6,565
49
Company Statement of Cash Flows
For the year ended 31 May 2019
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 used in investing activities
Financing activities
Equity dividends paid
Repayments of bank loans
Proceeds from issue of ordinary shares
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
30
2019
£’000
(1,216)
(18)
(13)
2018
£’000
(10,649)
(19)
-
(1,247)
(10,668)
(850)
744
(12,500)
565
(106)
(11,935)
(1,118)
(182)
648
(652)
(2,005)
2,065
(906)
(182)
632
(456)
(23,059)
25,124
60
2,065
The principal accounting policies and notes on pages 32 to 80 form part of these financial statements.
50
Notes To The Annual Report
For the year ended 31 May 2019
1
Corporate information
The consolidated financial statements of Avingtrans plc and its subsidiaries (collectively the Group) for the year ended 31 May
2019 were authorised for issue in accordance with a resolution of the directors on 17 September 2019. 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 main segments Energy-EPM, Energy-PSRE and Medical-
MII. The basis on which the Group reports to the Chief Executive.
The principal activities are as follows:
• Energy - EPM, built around Hayward Tyler which 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, is the design, manufacture, integration and servicing of an extensive product offering including steam
turbines, gas compressors, pressure vessels, blast doors, containers and skidded systems. Plus, design and manufacture of
fabricated poles and cabinets for roadside safety cameras and rail track signalling.
• Medical – MII, is 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 2019
Original Equipment
After Market
Revenue
Operating profit/(loss)
Net finance costs
Taxation
Profit after tax from continuing operations
Energy
EPM
£’000
13,888
35,069
Energy
PSRE
£’000
31,527
12,884
Medical
MII
£’000
Unallocated
central items
£’000
12,048
100
48,957
44,411
12,148
-
-
-
2,874
1,939
(204)
(981)
Total
£’000
57,463
48,053
105,516
3,628
(484)
(633)
2,511
Segment non-current assets
Segment current assets
44,285
20,756
17,903
28,051
4,962
5,036
-
1,290
67,150
55,133
Segment liabilities
(27,563)
(21,040)
(1,417)
(2,969)
(52,989)
Net assets
37,478
24,914
8,581
(1,679)
69,294
Non-current asset additions
Intangible assets
Tangible assets
171
1,258
1,428
378
826
1,204
299
261
560
-
-
-
848
2,344
3,192
Unallocated assets/ (liabilities) consist primarily of interest bearing assets and liabilities and income tax assets and liabilities.
Medical MII results include the acquisition of Tecmag which contributed £772,000 Group revenue and £13,000 profit after tax
respectively (note 35).
51
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
2
Segmental analysis (continued)
Year ended 31 May 2018
Original Equipment
After Market
Revenue
Operating profit/(loss)
Net finance costs
Taxation
Energy
EPM
£’000
15,194
21,581
Energy
PSRE
£’000
20,096
11,583
Medical
MII
£’000
Unallocated
central items
£’000
10,410
-
36,775
31,679
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.
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. USA)
China
Asia Pacific (excl. China)
Rest of World
2019
Revenue
£’000
38,592
11,057
14,045
3,867
3,228
10,240
24,487
-
2018
Revenue
£’000
2019
2018
Non-current Non-current
Assets
£’000
Assets
£’000
31,970
7,197
14,210
2,766
1,190
5,286
16,117
128
50,660
-
14,455
-
-
2,018
17
-
49,981
-
17,792
-
-
1,841
6
-
The Group had Energy - EPM revenue of £12,336,000 (2018: £6,987,000) with a single external customer which represented
more than 10% of the Group’s revenue.
105,516
78,864
67,150
69,620
52
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
2
Segmental analysis (continued)
Contract assets and contract liabilities
Contract assets:
Energy – EPM
Energy – PSRE
Contract liabilities:
Energy – EPM
Energy – PSRE
31 May 2019 1 June 2018
£’000
£’000
4,965
5,679
10,644
4,397
4,986
9,383
(4,260)
(6,762)
(3,068)
(2,121)
(11,022)
(5,189)
Contract assets and contract liabilities in the current and prior period have been presented on an IFRS 15 basis.
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 on foreign exchange transactions
Staff costs (note 8)
Operating lease rentals:
- Land and buildings
- Machinery
Charitable donations
Research and development expenditure
Auditor’s remuneration
2019
£’000
3,240
(13)
393
61,378
263
36,503
1,008
388
13
308
2018
£’000
2,532
-
374
32,358
136
27,331
841
392
5
204
2019
£’000
2018
£’000
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
58
141
-
-
-
61
156
20
188
6
53
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
4
Adjusted Earnings before interest, tax, depreciation and amortisation
Profit/(loss) before tax from continuing operations
Share based payment expense
Acquisition costs
Restructuring costs
(Gain)/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 before interest, tax and amortisation from business combinations (‘EBITA’)
Depreciation
Amortisation of other intangible assets
Adjusted Earnings before interest, tax, depreciation and amortisation (‘EBITDA’)
2019
£’000
3,144
98
89
395
(83)
85
1,595
5,323
(132)
616
(2)
5,805
3,240
393
9,438
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
The Directors believe that the above and adjusted earnings are a more appropriate reflection of the Group performance.
5
Finance income
Bank balances and deposits
Other interest
Interest from defined benefit pension scheme
Gain arising on the fair value of derivative contracts
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
54
Group
2019
£’000
2018
£’000
4
-
45
83
132
5
7
24
-
36
Group
2019
£’000
2018
£’000
28
85
-
375
18
110
616
19
62
172
302
19
118
692
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
7
Directors’ emoluments
Particulars of directors’ emoluments are as follows:
Salary and
Fees
£’000
Benefits
£’000
Long Term
Incentive
£’000
Total
2019
£’000
Total
2018
£’000
Pension
Total
2019
£’000
Pension
Total
2018
£’000
Non-executive:
R S McDowell
J Clarke
EW Lloyd-Baker*
LJ Thomas
GK Thornton
Executive:
S McQuillan
S M King
Total emoluments
72
33
24
35
44
406
329
943
-
-
-
-
-
1
-
1
-
-
-
-
-
17
15
32
72
33
24
35
44
424
344
976
71
11
18
34
34
357
288
813
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
* EW Lloyd-Baker resigned from the Board on 30 November 2018.
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 (2018: nil).
The long term incentive represents the initial interest in the Joint Ownership Scheme (see note 34).
Employers National Insurance Contributions made relating to directors’ emoluments were £128,000 (2018: £99,000).
During 2019 and 2018 S McQuillan and S M King exercised nil options as set out on page 25.
55
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
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
2019
£’000
32,139
3,034
1,232
98
2018
£’000
24,176
2,179
907
69
36,503
27,331
2019
Number
2018
Number
462
130
174
766
437
43
176
656
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 25)
Deferred tax – current year
Deferred tax – prior year
Deferred tax - rate
Total deferred tax
Total tax charge/(credit)
2019
£’000
1,379
10
42
1,431
2019
£’000
-
369
975
1,344
(625)
(86)
-
(711)
2018
£’000
1,191
4
43
1,238
2018
£’000
-
3
1,153
1,156
(815)
(209)
(144)
(1,168)
633
(12)
UK corporation tax is calculated at 19% (2018: 19.00%) of the estimated assessable profit/loss for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
56
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
9
Taxation (continued)
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit/(loss) before taxation
Theoretical tax at UK corporation tax rate of 19% (2018: 19.00%)
Effects of:
Expenditure that is/is not tax deductible
Un-provided deferred tax differences
Adjustments in respect of prior years
Recognition of previously unrecognised losses
Rate differential on timing differences
Change in deferred tax rate
Differential in overseas tax rate
Total tax charge/(credit)
2019
£’000
2018
£’000
3,144
(4,498)
598
(855)
(69)
122
283
(459)
(46)
-
204
633
553
218
(207)
-
2
(144)
421
(12)
The Group has tax losses carried forward of approximately £35.4 million at 31 May 2019 (2018: £34.8million) that may be
relievable against future profits. Further details are detailed in note 25.
The Group’s corporation tax assets and liabilities can be summarised as follows:
Current tax assets
Corporation tax
Current tax liabilities
Corporation tax
2019
£’000
234
234
(69)
165
2018
£’000
608
608
(15)
(593)
Factors that may affect future tax charges
The substantively enacted UK corporation tax rate at 31 May 2019 and 2018 was 19%. A reduction to 17% (effective from 1 April
2020) was substantively enacted on 6 September 2016. This will reduce the Company’s future current tax charge accordingly. The
deferred tax asset at 31 May 2019 has been calculated based on these rates.
10
Dividends
Interim dividend paid of 1.3p per ordinary share (2018: 1.2p)
Final dividend paid of 2.3p per ordinary share (2018: 2.2p)
2019
£’000
404
714
1,118
The interim dividend declared in the half year statement of 1.4p per ordinary share was paid on 14 June 2019.
2018
£’000
230
676
906
57
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
11
Earnings per ordinary share
Basic and diluted earnings/(loss) per share have been calculated in accordance with IAS 33 which requires that earnings should
be based on the net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares in
issue during the year.
For diluted earnings/(loss) 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
Profit/(loss) from continuing operations
Share based payment expense
Acquisition costs
Restructuring costs
(Gain)/loss on derivatives
Unwinding of discounting on dilapidation provision
Amortisation of intangibles from business combinations
Adjusted earnings from continuing operations
From continuing operations:
Basic earnings/(loss) per share
Adjusted basic earnings per share
Diluted earnings/(loss) per share
Adjusted diluted earnings per share
2019
Number
2018
Number
31,225,440
340,920
27,952,066
360,448
31,566,360
28,312,514
2019
£’000
2,511
98
89
395
(83)
85
1,595
4,690
8.0p
15.0p
8.0p
14.9p
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
The Directors believe that the above adjusted earnings per share calculation for continuing operations is a more appropriate
reflection of the Group’s underlying performance.
There are 490,000 share options at 31 May 2019 (2018: nil) that are not included within diluted earnings per share because they
are anti-dilutive.
58
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
12
Goodwill
Cost
At 1 June 2017
Acquisition of subsidiary undertakings
1 June 2018
Acquisition of subsidiary undertaking
At 31 May 2019
Accumulated impairment losses
At 1 June 2017 and 1 June 2018
Impairment charge
At 31 May 2019
Net book value
At 31 May 2019
At 31 May 2018
Total
£’000
6,048
18,171
24,219
-
24,219
850
-
850
23,369
23,369
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-MII
2019
£’000
15,107
6,753
1,509
2018
£’000
15,107
6,753
1,509
23,369
23,369
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 between 0% and 5% has been used for Energy-EPM,
Energy-PSRE and Medical-MII 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 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 0% growth in revenue and discount rate of 13% 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.
59
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
13
Other intangible assets – group
Customer
Relationships
£’000
Order book
£’000
Development
costs
£’000
Brand
£’000
Software
£’000
Cost
-
At 1 June 2017
Additions
-
Acquisition of subsidiary undertakings 10,532
-
Reclassification from PPE
-
Exchange adjustments
At 1 June 2018
Additions
Acquisition of subsidiary undertakings
(note 35)
Disposals
Exchange adjustments
10,532
-
-
-
-
-
-
3,096
-
-
3,096
-
-
-
-
-
-
2,504
-
-
2,504
-
-
-
-
2,953
681
783
-
(5)
4,412
822
-
-
13
297
31
54
171
-
553
26
-
(1)
(1)
Total
£’000
3,250
712
16,969
171
(5)
21,097
848
-
(1)
12
At 31 May 2019
10,532
3,096
2,504
5,247
577
21,956
Accumulated amortisation
At 1 June 2017
Charge for the year
At 1 June 2018
Charge for the year
At 31 May 2019
Net book value at 31 May 2019
Net book value at 31 May 2018
-
633
633
845
1,478
9,054
9,899
-
2,529
2,529
567
3,096
-
567
-
141
141
194
335
2,169
2,363
1,539
305
1,844
318
2,162
3,085
2,568
269
69
338
65
403
174
215
1,808
3,677
5,485
1,988
7,473
14,483
15,612
60
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
14
Property, plant and equipment – group
Cost
At 1 June 2017
Additions
Acquisition of subsidiary undertakings
Transfer to other intangible assets
Assets written off
Exchange adjustments
At 1 June 2018
Additions
Transfers
Assets written off
Exchange adjustments
At 31 May 2019
Depreciation
At 1 June 2017
Charge in the year
Assets written off
Exchange adjustments
At 1 June 2018
Charge in the year
Assets written off
Exchange adjustments
At 31 May 2019
Freehold Leasehold
improve-
land and
buildings
£’000
Plant and
ments Machinery
£’000
£’000
Equipment
and motor
vehicles
£’000
2,167
1,028
11,211
-
-
(18)
14,388
229
136
(2)
33
115
-
1,892
-
-
-
2,007
-
-
-
-
4,645
1,328
8,662
-
(858)
(7)
13,770
1,282
7
(514)
55
1,006
298
1,091
(171)
(34)
(16)
2,174
833
(143)
(119)
59
Total
£’000
7,933
2,654
22,856
(171)
(892)
(41)
32,339
2,344
-
(635)
147
14,784
2,007
14,600
2,804
34,195
295
534
-
2
831
725
-
12
1,568
51
121
-
-
172
149
-
-
321
2,253
1,398
(858)
13
2,806
1,805
(293)
7
4,325
484
479
(34)
6
935
561
(107)
16
1,405
3,083
2,532
(892)
21
4,744
3,240
(400)
35
7,619
Net book value at 31 May 2019
13,216
1,686
10,275
1,399
26,576
Net book value at 31 May 2018
13,557
1,835
10,964
1,239
27,595
Leased assets
The net book value of assets held under finance leases are as follows:
Net book value
At 31 May 2019
At 31 May 2018
Plant and
machinery
£’000
Equipment
and motor
vehicles
£’000
1,496
440
256
48
Depreciation charged on assets held under finance leases was £726,000 (2018: £489,000).
Total
£’000
1,755
488
61
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
15
Investments
Total
£’000
10,843
29,558
40,401
52
40,453
4,424
36,029
35,977
Unlisted
Capital
investments Undertakings Contributions
£’000
Group
£’000
£’000
Cost
At 1 June 2017
Acquisition of subsidiary undertakings
At 1 June 2018
Acquisition of subsidiary undertakings
At 31 May 2019
Provision
At 1 June 17, 1 June 2018 and 31 May 2019
Net book value at 31 May 2019
Net book value at 31 May 2018
-
-
-
-
-
-
-
-
10,758
29,526
40,284
-
40,284
4,424
35,860
35,860
85
32
117
52
169
-
169
117
The Company has the following investments in Ordinary shares in subsidiaries:
Name
Crown UK Limited
Stainless Metalcraft (Chatteris) Limited
Metalcraft (Chengdu) Limited *
Metalcraft (Sichuan) Limited *
Maloney Metalcraft Limited
Composite Products Limited
Space Cryomagnetics Limited
(trading as Scientific Magnetics Limited)
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 *
Tecmag Inc *
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 Limited *
Nviro Cleantech Limited *
Redglade Associates Limited *
Redglade Investments Limited *
Hayward Tyler Pension Plan Trustees Limited *
Hayward Tyler (UK) Limited *
Appleton & Howard Limited *
Credit Montague Limited *
Mullins Limited *
* -Indirectly owned subsidiary.
62
Country of incorporation
England and Wales
England and Wales
China
China
England and Wales
England and Wales
England and Wales
England & Wales
USA
China
India
England & Wales
England & Wales
USA
Isle of Man
England & Wales
England & Wales
England & Wales
USA
England & Wales
USA
Cayman Islands
Cayman Islands
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Principal activity
Trading
Trading
Trading
Trading
Trading
Trading
Trading
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
Property
Property
Manages pension scheme
Dormant
Dormant
Dormant
Dormant
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
16
Inventories
Group
Raw materials and consumables
Work in progress
Finished goods
2019
£’000
6,646
5,220
2,575
2018
£’000
4,406
3,727
2,208
14,441
10,341
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 £384,000 (2018: £132,000).
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
Contract assets
2019
£’000
17,058
(497)
2018
£’000
16,718
(529)
16,561
16,189
1,061
-
3,283
10,644
743
-
4,606
13,068
3,435
30,829
34
-
2019
£’000
2018
£’000
-
-
-
-
-
-
2,835
29,933
46
-
31,549
34,606
34,298
32,814
The average credit period taken on sales of goods is 41 days (2018: 58 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.
An explanation of credit risk relating to trade receivables is provided on note 24 financial instruments.
63
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
18
Cash and cash equivalents
Cash and cash equivalents included in the following components:
Group Company
At
31 May
2019
£’000
At
31 May
2018
£’000
At
31 May
2019
£’000
At
31 May
2018
£’000
Cash at bank and in hand:
GBP
USD
EUR
Other
Total cash at bank and in hand
Overdraft (GBP):
Total cash and cash equivalents
1,852
4,834
1,078
1,145
8,909
(856)
8,053
5,129
1,060
136
249
6,574
(9)
6,565
60
-
-
-
60
-
60
19
Provisions
The carrying amounts and the movements in the provision account are as follows:
Carrying amount
1 June 2017
Acquisition of subsidiary undertakings
Additional provisions
Amounts utilised
Reversals
Exchange Adjustments
1 June 2018
Acquisition of subsidiary undertakings
IFRS 15 adjustments
Additional provisions
Amounts utilised
Reversals
Exchange Adjustments
31 May 2019
Warranty Loss Making
£’000
£’000
Group
Other Dilapidations
£’000
£’000
-
1,616
1,014
(479)
(259)
(36)
1,856
8
(75)
816
(679)
(462)
55
1,519
-
2,985
821
(1,618)
(413)
-
1,775
-
600
1,058
(1,753)
(355)
-
1,325
-
374
294
(402)
(24)
-
242
-
-
334
(449)
-
-
127
-
2,200
62
-
-
-
2,262
24
-
83
-
-
-
2,369
2,065
-
-
-
2,065
-
2,065
Total
£’000
-
7,175
2,191
(2,499)
(696)
(36)
6,135
32
525
2,291
(2,881)
(817)
55
5,340
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 2019. There
were minor expected delays in the year.
Dilapidations: Provision for dilapidation mainly represents 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, which resulted from the sale and leaseback of
the property.
64
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
20
Trade and other payables
Trade payables
Other tax and social security
Other payables
Contract liabilities
Accruals
21
Other creditors
Non-current
Deferred income
Group Company
2019
£’000
11,694
1,334
1,143
11,022
6,212
2018
£’000
12,459
1,138
734
5,041
6,807
31,405
26,179
2019
£’000
2018
£’000
65
28
143
-
306
542
97
51
29
-
151
328
Group Company
At
31 May
2019
£’000
At
31 May
2018
£’000
At
31 May
2019
£’000
At
31 May
2018
£’000
2,870
3,339
-
-
22
Financial assets and liabilities
The carrying amounts of financial assets and financial liabilities in each category are as follows:
Financial assets at amortised cost:
Trade and other receivables
Contract assets
Cash and cash equivalents
Financial assets measured at FVTPL:
Derivative financial instruments
Group Company
2019
£’000
2018
£’000
2019
£’000
16,561
10,644
8,909
16,189
13,068
6,574
30,737
-
60
2018
£’000
29,933
-
2,065
36,114
35,831
30,797
31,998
-
127
-
-
Total financial assets
36,114
35,958
30,797
31,998
Financial liabilities at amortised cost:
Trade payables
Borrowings
Lease obligations
Financial liabilities measured at FVTPL:
Contingent consideration
11,694
8,762
2,170
12,459
11,154
2,554
22,626
26,167
256
256
65
716
-
781
256
97
896
-
993
256
Total financial liabilities
22,882
26,423
1,037
1,249
A description of the Group’s financial instrument risks is included in note 24.
65
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
22
Financial assets and liabilities (continued)
All of the Group’s derivative financial instruments in the current and prior year relate to USD forward contracts. All derivative
financial instruments in the current and prior period have a maturity within 12 months of their respective balance sheet date.
Borrowings comprise of:
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
2019
£’000
856
7,906
2018
£’000
6,099
5,055
8,762
11,154
4,945
3,817
6,719
4,435
2019
£’000
2018
£’000
-
716
716
180
536
-
896
896
180
716
Group Company
2019
£’000
612
3,205
-
3,817
2018
£’000
619
3,816
-
4,435
2019
£’000
180
356
-
536
2018
£’000
180
536
-
716
Bank loans, overdrafts and short term borrowings of £8,762,000 (2018: £11,154,000) are secured on certain assets of the Group.
At 31 May 2019 the Group had £10,255,000 (2018: £7,068,000) 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.
23
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
2019
£’000
1,092
1,325
1,338
3,755
(1,585)
2,170
2018
£’000
1,282
1,385
86
2,753
(199)
2,554
Present value of minimum
lease payments
2019
£’000
2018
£’000
750
862
558
2,170
-
2,170
1,179
1,290
85
2,554
-
2,554
Finance lease liabilities are secured on the related assets. All finance lease liabilities were at variable rates relative to local base rates.
66
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
24
Financial instruments
The Group is exposed to various risks in relation to financial instruments. The Group’s financial assets and liabilities by category are
summarised in Note 22. The main types of risks are capital risk, market risk, foreign currency risk, interest risk, price risk, credit
risk, and liquidity risk.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the
return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt,
which includes the borrowings disclosed in notes 22 and 23 cash and cash equivalents and equity attributable to equity holders of the
parent, comprising issued capital, reserves and retained earnings as disclosed in the statement of changes in equity.
The Board closely monitor current and forecast cash balances at monthly Board meetings to allow the Group to maximise return
to shareholders by way of dividends, whilst maintaining suitable amounts of liquid funds and facilities to allow acquisitions to be
funded as opportunities arise and continued investment in property, plant and equipment and research and development. The level of
dividends are set by the Board to meet the expectations of the shareholders based on cash generated by the Group.
The gearing ratio at the year-end is as follows:
Debt
Cash and cash equivalents
Net (debt)/cash
Equity
Group Company
2019
£’000
2018
£’000
(10,932)
8,909
(13,708)
6,565
(2,023)
(7,143)
2019
£’000
(716)
60
(656)
2018
£’000
(896)
2,065
1,169
69,294
69,076
68,873
69,416
Net debt to equity ratio
2.9%
10.3%
1.0%
1.68%
Debt is defined as long and short-term borrowings, as detailed in note 22. Equity includes all capital and reserves of the Group
attributable to equity holders of the parent. The Group is not subject to externally imposed capital requirements.
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 £0.8 million (2018: £5.0 million) to manage the transactional currency exposure on certain contracts
outstanding as at 31 May 2019.
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
2019
£’000
2018
£’000
US $ currency impact
2018
2019
£’000
£’000
RmB currency impact
2018
£’000
2019
£’000
Impact (+/-) on
Profit for the financial year/equity
(38)
31
332
65
-
-
67
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
24
Financial instruments (continued)
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
£23,000. These charges are considered to be reasonably possible based on observation of current market conditions.
Price risk management
Where possible the Group enters into long term contracts with suppliers to mitigate any significant exposure to materials and utilities
price risk.
Credit risk management
The Group’s principal financial assets are bank balances, cash, and trade receivables. The credit risk is managed on a group basis
based on the Group’s credit risk management policies and procedures.
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 no major customer which representing more than 10% (2018: one major customer’s which represents 11.4%) 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.
The Group applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items
do not have a significant financing component.
In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit
risk characteristics. They have been grouped based on the days from invoice date.
The expected loss rates are based a review of historical customer payment profiles as well as the corresponding historical credit
losses during that period. The historical rates are adjusted to reflect current and forwarding looking macroeconomic factors affecting
the customer’s ability to settle the amount outstanding.
Trade receivables are written off (ie derecognised) when there is no reasonable expectation of recovery. Usually this occurs when the
customer goes into administration or ceases trading.
68
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
24
Financial instruments (continued)
The closing balance of the of the trade receivables loss allowance as at 31 May 2019 reconciles with the trade receivables loss
allowance opening balance as follows:
Provision for doubtful debts at brought forward under IAS 39
Additional loss allowance under IFRS 9 on 1 June 2018
Reduction in loss allowance due to IFRS 15 on 1 June 2018
Impairment losses recognised
Amounts written off as uncollectible
Amounts recovered during the year
On acquisition of subsidiaries
Balance carried forward
Ageing of past due but not impaired trade debtors is as follows:
60 - 90 days
90 - 120 days
120+ days
Total
Ageing of trade debtors provided for:
60 - 30 days
30 - 60 days
60 - 90 days
90 - 120 days
120+ days
Total
Group Company
2019
£’000
2018
£’000
2019
£’000
2018
£’000
529
159
(150)
538
284
(213)
(112)
-
497
181
-
-
181
249
(74)
(34)
207
529
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Group Company
2019
£’000
342
220
835
1,397
2018
£’000
1,195
346
1,099
2,640
2019
£’000
2018
£’000
-
-
-
-
-
-
-
-
Group Company
2019
£’000
2018
£’000
2019
£’000
2018
£’000
68
44
19
19
347
497
-
-
13
-
516
529
-
-
-
-
-
-
-
-
-
-
-
-
The Directors consider that the carrying amount of trade and other receivables approximates to fair value.
The average credit period taken on sales of goods is 41 days (2018: 58 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.
69
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
24
Financial instruments (continued)
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.
Details about the maturity of financial liabilities can be found in Note 22 Financial assets and liabilities.
All facilities are secured on the assets of the Group.
25
Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current
and prior reporting period.
Accelerated
tax
depreciation
£’000
Intangibles
£’000
Other
temporary
differences
£’000
Tax losses
£’000
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 1 June 2018
Credit to income – continuing operations
Charge/credit to other comprehensive income
At 31 May 2019
195
(67)
-
16
(2)
142
(474)
-
(332)
-
-
2,850
(627)
-
2,223
(303)
-
1,920
-
1,010
-
(438)
(23)
549
35
(99)
485
-
(1,335)
-
(119)
-
(1,454)
31
-
(1,423)
Total
£’000
195
(392)
2,850
(1,168)
(25)
1,460
(711)
(99)
650
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
2019
£’000
2,073
(1,423)
2018
£’000
2,914
(1,454)
650
1,460
At the balance sheet date the Group has unused tax losses of £35.4 million (2018: £28.7 million) available for offset against future
profits. A deferred tax asset has been recognised in respect of £8.4 million (2018: £8.6 million) 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 £28k (2018: £21k) in
respect of share based payments.
70
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
25
Deferred tax (continued)
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 (2018: £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.
26
Called up share capital
2019 2018
Allotted, issued and fully paid
Ordinary shares of 5p each
No.
£’000
No.
31,362,053
1,568
31,061,636
Reconciliation of movement in allotted, issued and fully paid share capital
At 1 June 2018 and 31 May 18
Shares issued in period to ExSOP (note 34)
Shares issued on exercise of share options (note 27)
At 31 May 2019
No.
31,061,636
285,000
15,417
31,362,053
£’000
1,553
£’000
1,553
14
1
1,568
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 15,417 options were exercised, 10,000 and 5,417 at 109.0p and 193.0p respectively. The
market price on the day of exercise was 216.0p and 218.5p. Further details of the scheme are given in note 27.
The market price of the Company’s shares at the end of the year was 215p (2018: 209.5p). The highest and lowest market prices
during the year were 235.0p and 172.5p (2018: 256.5p and 173p respectively).
27
Share-based payments
The Group has recognised a portion of the fair value of these options in calculating the profit for the current and prior year.
Outstanding at the start of the year
Lapsed during the year
Issued during the year
Exercised during the year
2019
2018
Weighted
Average
Exercise
price (p)
175.74
191.26
219.37
138.51
Options
(No. ‘000)
231.7
-
477.0
27.0
Weighted
Average
Exercise
price (p)
152.6
-
182.07
121.41
Options
(No. ‘000)
2,147.7
44.6
490.0
15.4
Outstanding at the end of the year
2,577.7
183.99
2,147.7
175.74
Exercisable at the end of the year
480.7
130.27
490.7
129.84
The options outstanding at 31 May 2019 had exercise prices in the range 39.5p to 220.0p and a weighted average remaining contractual
life of 7.6 years (2018: 8.1 years). The average market share price of options at date of exercise was 217p (2018: 221p).
71
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
27
Share-based payments (continued)
The terms of these options are as follows:
Date of grant
23/09/2010
22/11/2013
09/12/2014
10/12/2014
Options
outstanding at
31 May 2017
39,733
187,000
24,000
230,000
21/12/2016
1,135,500
15/12/2017
15/12/2017
15/11/2018
15/11/2018
142,000
330,000
205,000
285,000
Vesting
period
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
Market value at
date of grant
(p)
Exercise
price (p)
39.50
176.00
109.00
111.00
193.00
177.50
181.50
218,50
220.00
39.50
176.00
109.00
111.00
193.00
177.50
181.50
218.50
220.00
Exercise period
24/9/2013 to
23/9/2020
23/12/2016 to
22/12/2023
10/12/2017 to
9/12/2024
11/12/2017 to
10/12/2024
22/12/2019 to
21/12/2026
16/12/2020 to
15/12/2027
16/12/2020 to
15/11/2027
16/11/2021 to
15/11/2028
16/11/2021 to
15/11/2028
The performance condition for each of these options is that the increase in adjusted EPS must be at least equal to the increase in RPI
over the vesting period.
All share options are equity settled. The adjusted EPS is the basic earnings per share published in the Preliminary Announcement
of Results with adjustments made for amortisation of acquisition related intangibles costs of share based payments, and exceptional
items agreed by the Remuneration Committee. Further adjustments to the above performance conditions may be approved by the
Remuneration Committee to reflect future changes in accounting standards.
The fair value of the options was calculated by external consultants, Pegg, Franklin & Co and Pinsent Masons.
Options granted with performance conditions are valued using the Black-Scholes model.
For all awards, recipients are required to remain in employment with the Group over the vesting period.
Future volatility at the date of grant has been estimated by reference to the historical volatility at that time.
The expected life used in the models has been adjusted, based on management’s best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
Total charge to the income statement in respect of share-based payments
In respect of:
Equity settled share options
2019
£’000
98
2018
£’000
69
There are no share based payment transactions that were expensed immediately. A deferred tax credit of £nil (2018: £nil) was
recognised during the year in respect of share based payments.
72
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
28
Pensions and other employee obligations
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 2019 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;
• Mortality 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. 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:
Group
Defined benefit obligation
Fair value of plan assets
Net defined benefit asset
At 31 May
2019
£’000
(12,930)
14,229
At 31 May
2018
£’000
(12,559)
14,149
1,299
1,590
73
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
28
Pensions and other employee obligations (continued)
Scheme liabilities
The defined benefit obligations for the reporting periods under review are as follows:
Group
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
At 31 May
2019
£’000
At 31 May
2018
£’000
12,559
323
-
833
-
(785)
13,515
250
(99)
(492)
26
(641)
Defined benefits obligation at end of year
12,930
12,559
For determination of the pension obligation, the following actuarial assumptions were used:
Group
Discount rate
Expected rate of pension increases
Inflation assumption
Mortality assumption
At 31 May
2019
£’000
At 31 May
2018
£’000
2.25%
2.35%
3.35%
2.65%
2.20%
3.20%
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
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.
74
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
28
Pensions and other employee obligations (continued)
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
The remeasurement recorded in other comprehensive income is as follows:
Group
(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
2019
£’000
14,149
367
252
245
(785)
Group
At
31 May
2018
£’000
14,835
274
(494)
175
(641)
14,229
14,149
620
(45)
At 31 May
2019
£’000
At 31 May
2018
£’000
(252)
-
-
833
581
494
26
(99)
(492)
(71)
Approximate
effect on
liabilities
£177,000
£119,000
£108,000
£596,000
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.
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.
75
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
28
Pensions and other employee obligations (continued)
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 expected 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 £258,000 in the year to 31 May 2020.
The weighted average duration of the defined benefit obligation is around 14 years.
29
Notes to the consolidated cash flow statement
Cash flows from operating activities:
Continuing operations
Profit/(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
(Increase)/decrease in inventories
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Decrease in provisions
Other non cash changes
2019
£’000
2018
£’000
3,144
(4,498)
3,240
393
1,595
(13)
(132)
616
98
(2,213)
1,158
4,150
(1,458)
(110)
2,532
374
3,303
-
(36)
692
69
4,144
(8,618)
(3,088)
(1,039)
23
Cashflows from operating activities
10,468
(6,142)
2019
£’000
8,909
(856)
8,053
2018
£’000
6,574
(9)
6,565
Cash and cash equivalents
Cash
Overdrafts
76
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
30
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 in trade and other payables
Other non cash changes
Cash flow from operating activities
31
Reconciliation of liabilities arising from finance activities
2019
£’000
(241)
(744)
18
46
(511)
214
2
2018
£’000
(1,919)
(565)
19
37
(8,397)
173
3
(1,216)
(10,649)
Group
At 1 June 2017
Cash flows:
Repayments
Proceeds
Non-cash:
Acquisition of subsidiary undertakings
Amortisation of finance fees
Exchange adjustments
Reclassification
At 1 June 2018
Cash flows:
Repayments
Proceeds
Non-cash:
Acquisition of subsidiary undertakings (note 35)
Amortisation of finance fees
Exchange adjustments
Reclassification
At 31 May 2019
Company
At 1 June 2017
Cash flows:
Repayments
Non-cash:
Amortisation of finance fees
Reclassification
At 1 June 2018
Cash flows:
Repayments
Non-cash:
Amortisation of finance fees
Reclassification
At 31 May 2019
Long-term
borrowings
£’000
Short-term
borrowings
£’000
Lease
liabilities
£’000
Overdraft
£’000
896
-
7
4,145
-
-
(613)
4,435
(6)
-
-
9
-
(621)
3,817
179
179
(3,484)
6,156
(1,025)
127
3,212
23
11
613
6,710
3,307
-
(34)
-
2,554
(3,780)
500
(1,033)
597
-
19
19
621
-
-
52
-
4,089
2,170
-
-
9
-
-
-
-
9
(9)
681
175
-
-
-
856
Long-term
borrowings
£’000
Short-term
borrowings
£’000
Lease
liabilities
£’000
Overdraft
£’000
896
-
-
(180)
716
-
-
(180)
536
179
(182)
3
180
180
(182)
2
180
180
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
£’000
1,254
(4,509)
6,299
10,664
23
(23)
-
13,708
(4,828)
1,778
175
28
71
-
10,932
Total
£’000
1,075
(182)
3
-
896
(182)
2
-
716
77
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
32
Related party transactions
Company
The Directors benefited from dividends paid in the year (note 10) on their shareholdings as set out in the Directors report page 16.
Group
The Group have an agreement with Sustinere Solutions Ltd (“Sustinere”) to maintain a Combined Heat & Power unit on the Group’s
premises but not owned by the Group. Sustinere is 21.54% owned by Tristan Lloyd-Baker (brother of Ewan Lloyd-Baker) and 1.76%
owned by Ewan Lloyd-Baker and his wife. During the year the Group invoiced Sustinere £16,000 and received £3,000.
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 the Group recognised an expense
of £29,700 in the accounts (2018: £23,000) and paid Powr Capital Ltd £35,640 (2018: £26,000). At the balance sheet date future
minimum lease payments total £193,050 (2018: £230,000).
33
Financial commitments
a) Capital commitments
Commitments for capital expenditure were as follows:
Contracted for, but not provided in the accounts
2019
£’000
511
2018
£’000
1,346
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
Over 5 years
Other asset lease obligations falling due:
Within one year
In the second to fifth years inclusive
2019
£’000
1,279
3,939
3,881
9,099
212
232
444
2018
£’000
1,293
2,559
4,722
8,574
272
288
560
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.
78
Notes to the Annual Report (Continued)
For the year ended 31 May 2019
34
Investment in own shares
On 22 June 2011 the Company approved, adopted and established the Avingtrans Employees’ Share Trust (‘the ExSOP Trust). A
summary of the Trust Deed is as follows:
It has been established that the original trustee is RBC CEES Trustee Limited
•
• The primary objective of the ExSOP Trust is to hold the capital and income of the Trust for the beneficiaries
• The beneficiaries and the Trustee jointly subscribe for an initial interest in the shares purchased by the Trust
•
If the performance condition as set out in note 27 is achieved the option can be exercised by the beneficiaries
During the year 285,000 (2018: 330,000) shares were purchased at a cost of £627,000 (2018: £598,950) by the Trust and beneficiaries,
an interest in which was allocated to the Executive Directors as beneficiaries (as shown in note 27). All shares held by the trust are
under option to Directors. Costs are charged to profit and loss as incurred.
The above holdings are held at a cost of £3,435,000 (2018: £2,835,000) and shown as a deduction from equity in the statement of
changes in shareholders’ equity.
35
Acquisitions
Business combination – Tecmag Inc.
On 22 October 2018 the Group acquired 100 percent of the issued share capital of Tecmag Inc. for $1. The acquisition was made to
enhance the Group’s position in the Medical 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 receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Provisions
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
-
151
105
40
(95)
(170)
(31)
-
-
-
-
132
132
89
221
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 £89,000 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 2019
35
Acquisitions (continued)
Business combination – Tecmag Inc. (continued)
The impact of the Tecmag acquisition on the Consolidated income statement is as follows:
Revenue
Gross profit
Overheads
Operating profit
Finance income & costs
Loss before taxation
Taxation
Overall effect on the Consolidated income statement
Since acquisition Tecmag contributed the following to the Group’s cashflows:
Operating cashflows
Investing activities
Financing activities
36
Events after the balance sheet date
Booth Industries
£’000
772
423
(403)
20
(7)
13
-
13
2019
£’000
(95)
(72)
77
On 10 June 2019 the Group acquired the trade and certain assets of Booth Industries Limited for total consideration of £1.8 million. In
the 7 months to April 2019 Booth Industries had turnover of £4,537,000 and a trading loss before tax of £752,000 before exceptional
costs of £358,000.
Business combination - Energy Steel
On 24 June 2019 the Group acquired 100 percent of the issued share capital of Energy Steel & Supply Co. for $0.6m with no debt
assumed and $70k of associated transaction costs incurred. In its previous financial year Energy Steel & Supply Co. had turnover of
$8.3m and a trading loss before tax of $1.6m.
Management are assessing assets and liabilities purchased and are unable to confirm the value, given that they are currently in the
process of reviewing the records of the business.
80
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Avingtrans Plc will be held at Shakespeare Martineau LLP, No1 Colmore Square,
Birmingham, B4 6AA on 14 November 2019 at 11:00am for the following purposes:
To consider, and if thought fit, to pass the following resolutions numbered 1 to 5 as ordinary resolutions
1. To receive and adopt the reports of the Directors and the auditor and the financial statements for the year ended 31 May 2019.
2. To declare a final dividend of 2.4p per ordinary share payable on 6 December 2019 payable to shareholders on the register of members
on 25 October 2019.
3. To re-elect Roger McDowell as a Director.
4. To re-elect Les Thomas as a Director.
5. To reappoint Grant Thornton UK LLP as auditor of the Company to hold office until the conclusion of the next general meeting at which
accounts are laid before the Company and that their remuneration to be fixed by the Directors.
To transact any other ordinary business of an Annual General Meeting and as special business to consider the following Resolutions,
Resolutions 6 and 7 being proposed as Ordinary Resolutions and Resolution 8 as a Special Resolutions.
6. That the Directors be generally and unconditionally authorised to exercise all the powers of the Company to allot relevant securities
as defined in Section 551 of the Companies Act 2006 (the “Act”) up to an aggregate nominal value of £517,474 provided that this
authority shall expire in whichever is the earlier of the conclusion of the next Annual General Meeting of the Company or the date
falling 15 months from the date of the passing of this Resolution, except that the Company may before such expiry make an offer or
agreement which would or might require relevant securities in pursuance of any such offer or agreement as if the authority conferred by
this Resolution had not expired, and that this authority shall be in substitution for all previous authorities conferred upon the Directors
pursuant to section 551 of the Act.
7. That the Company be generally and unconditionally authorised, in accordance with Article 9 of its Articles of Association and Section
701 of the Act to make market purchases (within the meaning of Section 693 of the Act) of ordinary shares of 5p each of the Company
on such terms and in such manner as the Directors may from time to time determine provided that:
a.
the maximum number of ordinary shares authorised to be purchased is 3,136,205;
b.
c.
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);
the maximum price which may be paid for an ordinary share is an amount equal to 105% of the average of the middle market
quotations for an ordinary share of the Company derived from the London Stock Exchange for the five business days immediately
preceding the day on which the ordinary share is purchased (exclusive of expenses and advance corporation tax, if any, payable by
the Company); and
d.
the authority conferred shall expire at the conclusion of the next Annual General Meeting of the Company except that the Company
may, prior to such expiry, make a contract to purchase its own shares which will or may be completed or executed wholly or partly
after such expiry.
8. That the Directors be empowered pursuant to Section 571 of the Act to allot equity securities (as defined in Section 560(1) of the Act)
for cash pursuant to the authority conferred upon them by Resolution 7 as if Section 561 of the Act did not apply to any such allotment
provided that such power shall be limited:
a.
b.
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
to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount of
£156,810 and shall expire on whichever is the earlier of the conclusion of the next Annual General Meeting of the Company or the
date falling 15 months from the date of the passing of this Resolution, except that the Company may, before such expiry, make an
offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity
securities in pursuance of such offer or agreement as if the power conferred by this Resolution had not expired.
By order of the Board
S M King
Registered office
Chatteris Business Park
Chatteris
Cambridgeshire
PE16 6SA
Dated:
17 September 2019
81
Notice of Annual General Meeting (Continued)
Notes:
Entitlement to attend and vote
1.
Only those members registered on the Company’s register of members at close of business on 12 November 2019; 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 12 November 2019.
In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf
by an officer of the company or an attorney for the company.
Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or
authority) must be included with the proxy form.
Appointment of proxy by joint members
9. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint
holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior).
Changing proxy instructions
10. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the
cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy
appointment received after the relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another
hard-copy proxy form, please contact Link Asset Services of PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU.
82
Notice of Annual General Meeting (Continued)
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 12 November 2019 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 17 September 2019, the Company’s issued share capital comprised 31,362,053 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 17 September 2019 is 31,362,053.
Documents on display
13 The following documents will be available for inspection at Chatteris Business Park, Chatteris, Cambridgeshire PE16 6SA
from 25 October 2019 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.
83
84
The Strategy
in action
Pinpoint-Invest-Exit
Pinpoint
Strengthening the energy market portfolio
Booth Industries
Avingtrans successfully acquires Booth Industries on 11 June 2019 for £1.8 million.
Booth designs and manufacturers blast doors,
prefabricated fire and blast wall systems, fire doors
(integrity and insulated), radiation shielding doors,
acoustic doors, security doors, multi-performance and
large bespoke doors. Their products are sold into a
range of markets, including offshore oil and gas,
marine, rail and infrastructure, security and nuclear.
The acquisition of Booth Industries enables the Process
Solutions and Rotating Equipment (“PSRE”) division to
expand its product and service offering as well as
deepen its relationships with its existing customers.
Energy Steel
Avingtrans successfully acquires Energy Steel on 24 June 2019 for $0.6 million.
Energy Steel & Supply Co. (Energy Steel) are an
established manufacturer of machined products and
components to the US civil nuclear power industry.
Energy Steel will be integrated with Avingtrans’ Hayward
Tyler businesses, expanding its product offering,
particularly in precision manufacturing and solutions
for “orphan” OEM components for nuclear aftermarket.
Invest
Establishing world class capability
Energy
Energy
Production ramp-up on the Sellafield 3M3
intermediate level waste boxes contract at Metalcraft.
Continued investment has been made in the Chatteris
site ready to go to full production in FY20. Metalcraft’s
approach to this project won them the Best Supply
Chain Collaboration Award at the Nuclear
Decommissioning Authority’s annual awards.
In January 2019, Hayward Tyler formally
opened its new, state of the art, 3,250m2 factory
in Kunshan, Peoples Republic of China.
The new factory will provide existing Chinese customers
with an enhanced local service capability as well as
manufacturing a wider range of Hayward Tyler’s highly
engineered products for the power generation, oil and
gas and chemical industries, both in China and for the
rest of the world.
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
£
n
o
i
l
l
i
M
£
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.
Historical results have not been
restated for IFRS 15.
120
100
80
60
40
20
0
80
70
60
50
40
30
20
10
0
10
8
6
4
2
0
15
12
9
6
3
0
-3
105.5
78.9
22.6
21.2
22.7
2015
2016
2017
2018
2019
64.8
69.1
69.3
44.9
34.2
2015
2016
2017
2018
2019
9.4
5.7
0.3
0.4
0.7
2015
2016
2017
2018
2019
14.9
8.4
1.0
1.1
-0.4
2015
2016
2017
2018
2019
www.avingtrans.plc.uk