Croma Security Solutions Group PLC
Annual Report 2014

Plain-text annual report

CROMA SECURITY SOLUTIONS GROUP PLC REPORT AND FINANCIAL STATEMENTS 30 June 2014 CONTENTS Company information Chairman’s statement Strategic Report Board of Directors Directors report Statement of directors’ responsibilities Independent auditor’s report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the financial statements Independent auditors’ report for the parent company Parent company financial statements Page 1 2 3 12 13 16 17 19 20 21 22 23 48 50 COMPANY INFORMATION Directors Secretary Registered office S J F Morley (Executive Chairman) R M Fiorentino (Group Chief Executive) A Tetley FCA (Finance Director) C N McMicking (Non-Executive) Lord J W E Percy (Non-Executive) A N Hewson MA FCA CF (Non-Executive) A Tetley Unit 6 Fulcrum 4 Solent Way Whiteley Fareham Hampshire PO15 7FT Registered number 03184978 Nominated advisers and brokers Registered independent auditors Solicitors Registrars Principal Bankers WH Ireland Limited 24 Martin Lane London EC4R 0DR Grant Thornton UK LLP 95 Bothwell Street Glasgow G2 7JZ Shepherd & Wedderburn LLP 1 Exchange Crescent Edinburgh EH3 8UL Neville Registrars Limited 18 Laurel Lane West Midlands B63 3DA Lloyds Banking Group plc PO Box 1000 London BX1 1LT Svenska Handelsbanken AB 3 Thomas More Square London E1W 1WY Website http://www.cssgroupplc.com/ 1 CHAIRMAN’S STATEMENT FOR THE YEAR ENDED 30 JUNE 2014 I have pleasure in reporting the Group’s final results for the year to 30th June 2014 which has seen the Group exceed expectations. The strategy of the Group remains to deliver an integrated security offering with emphasis on high service levels, seamless management of diverse security requirements and an overall focus on quality. We deliver a total security service to individuals and corporations who demand the best. Integration of services is a work in progress, some clients of our ex-military guarding arm do not require a systems solution and vice versa, but nevertheless each component of the Group has delivered record levels of turnover and we have exceeded our internally budgeted sales and profits. Our financial year has undoubtedly been helped by our successful bid for the provision of security services to the Commonwealth Games 2014 in Glasgow. This was a profitable project which greatly enhanced our profile. We were one of few contractors who delivered a flawless performance and earned high praise from our client. The UK guarding market is competitive but we are finding that customers are moving away from lowest cost providers, a model we have rigorously avoided, and are recognising that security officers are more than just a presence. Our ex-military security service delivers everything from a reception service to a robust crime deterrent often all in one building. Well recruited, well trained and pragmatically managed security officers under an ex- military banner are commanding an increasingly large market place in the UK. Alarms and Locks are pursuing a similar strategy, providing high quality high specification systems for clients who see their security as being more than just a commodity. High levels of service, time and effort devoted to surveying and planning, and well executed installation and ongoing maintenance have all helped us to show 18% topline growth. The market is large and we believe is continuing to grow, and amongst our key assets are the engineers who produce such high quality work. Fastvein™ is now bearing fruit, repaying the years of investment in this exciting new technology. We have secured contracts with schools and a police force in the UK, and we have active proposals going forward in the UK, in Europe, and in the Middle East and Africa. We are all enormously excited by the opportunities that FastVein™ offers, and we are putting in place the necessary corporate architecture to ensure we can deliver the anticipated demand. I would like to thank our previous Finance Director Richard Juett who left us at Christmas, and to welcome his successor Alexander Tetley. Richard gave sterling service to the Group in his time here and we wish him well for the future. The focus of the Group remains that of delivering sustained organic growth by concentrating on our specialist offering to the security market. Our aim is to offer a total, vertically integrated security service to clients who demand the most exacting service and technology. The security market remains fragmented and presents a clear opportunity for an integrated provider. Finally, I am delighted to be able to inform shareholders that our performance this year leads the Board to believe it is time to pay a dividend, and I look forward to making an announcement regarding an interim dividend for next year very soon. 2 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 Strategy and Objectives The Business Model 2013/14 has seen a strong performance across the Group, with all key constituents showing growth in turnover and profitability. Across the piece the Group is delivering profitability close to the forecasts prepared at the time of the acquisition, which is pleasing given the amount of reorganisation required in 2012/13. Since the acquisition of Total Security Limited and County Locksmiths Limited in 2012, which resulted in the formation of the current Croma Group, the Board and management teams have been successfully integrated. Likewise the security service offerings have integrated into a joined up and simple proposition. However, growth in cross selling between divisions has been slower than initially anticipated due to the constraints of existing contracts and geographical separation. The maintenance and expansion of solutions to the present client base is fundamental. The Group continues to develop historical clients, some of whom currently use a diverse range of contractors, in order to bring all their needs under one roof when this makes good business sense for both parties. Croma Vigilant Croma Vigilant has had a particularly successful year; Turnover has grown by 12%, and profit after tax has increased to £3.26m (2013: £2.88m). This is due to a more proactive approach to business development, an awareness on the part of clients that there is value in a premium offering, and in no small part to the Commonwealth Games 2014. Croma Vigilant was able to demonstrate its suitability to be part of the overall security offering for the Games, and the organisers have recognised the excellent service the company provided. Whilst it is essentially a one-off contract it has certainly increased the standing and profile of the company to the point where it is being invited to more, and more profitable, tender opportunities. Croma Vigilant continues to operate in the upper echelon of the manned guarding market with the delivery of its manned guarding, key holding and commissionaire services and it is the largest revenue contributor to the Group. On top of its healthy retained client base, which has seen high levels of retention in the year, Croma Vigilant was part of the security provider team for Commonwealth Games Glasgow 2014. This contract lasted from May until August and generated revenues of £800 m at very good margin. Importantly, the service delivery was found to be faultless and Croma Vigilant was the only operator amongst a total pool of ten companies that incurred no penalties or fines for poor or non-performance. Croma Vigilant continues to enjoy strong relationships with its long term customers, and revenues from retained clients are growing. The company’s firm belief is that a client retained is worth three clients won, and great effort goes into ensuring we are meeting and exceeding client expectations at all levels. The ex-military ethos is also bearing fruit, and there is a strong and capable team of guards and supervisors. The company has inherited many guards through TUPE (Transfer of Undertakings (Protection of Employment)), and the first priority is always to ensure that new arrivals understand and share this approach. Croma Security Systems Croma Security Solutions has seen an even more marked growth in turnover and profits, coming back to the pre-acquisition levels of performance. Sales have grown 20% to £2.57m and profit has increased to £0.41m. The company is concentrating on delivering high value systems to private and corporate clients, with the emphasis being on access control and intruder alarm. 3 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 (continued) National contracts have been renegotiated and are now performing satisfactorily, and high value security installations continue to allow the company to demonstrate its high levels of service and technical expertise. Croma Security Systems have been working with Croma Vigilant in the support of one of the former’s major clients, and opportunities to increase security services to existing clients by cross selling continue to be identified. This remains a challenging approach, but both Croma Vigilant and Security Systems are investing in sales and marketing resource to improve target market penetration. The company is currently addressing an industry – wide issue of a shortage of trained engineers; during the recent recession the industry spent less time and money on training, resulting in a skills gap. Croma Security Systems are taking on trainees to ensure it is able to field a full engineering team. Croma Security Systems has been pushing its new products, FastVein™ and Vehicle Impact Protection System (VIPS). Both of these products are gaining traction. VIPS has secured good sales with COLAS and AOne plus, and is looking to expand into Europe as well as the UK. FastVein™ is attracting very strong interest in the UK and Europe, as well as the Middle East. Both FastVein™ and VIPS have been the subject of successful claims for Research and Development Tax Credits. The Board is clear that the core revenue streams of the Group; that of manned guarding and security systems and locks, will continue to drive results to the forecast numbers and beyond. The main effort will remain there, and new products will form the basis of incremental revenues and earnings. In CSS Locksmiths there has been a shift in the nature of business away from consumers and towards commercial clients. The high street market is highly competitive and margins are being eroded, whereas the commercial sector tends to recognise the Master Locksmith expertise more readily. This shift inevitably impacts on credit risk and working capital absorption but builds stronger more defensible relationships. The opportunities for expansion are twofold; increase our geographical footprint by acquisition or franchise, and expand the range of services beyond locksmithing. Of these, the former is preferable as it plays to the core strengths of technical expertise and reputation. Fastvein® Development of the Fastvein™ suite of products is ongoing, and some modules are now being deployed whilst others are being finalised. FastVein™ is attracting very strong interest in UK and Europe, as well as the Middle East. The Group has created a team to manage the brand development and to generate sales leads. Inevitably with a new technology there is considerable inertia to overcome, but the board are hopeful of confirmed orders before Christmas. VIPS The roll-out of VIPS by COLAS to its UK fleet of motorway maintenance vehicles has gone ahead successfully, and the executive team is working with COLAS to expand the technology into Europe. The potential market for VIPS is considerable, and the company is determined to push this life saving product to emergency services, roadside assistance and breakdown vehicles and buses and other Public Service Vehicles. Outlook and Priorities All Group entities are looking to pursue an active strategy for organic growth in the coming year, with increased sales effort and active cost control. 4 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 (continued) Vigilant are clear that their emphasis on quality of service is giving them a marked edge and will allow them to target higher margin clients. The directors feel that the company has the right assets and people in place to drive significant growth, and the evidence of the first quarter of 2014/15 shows this to be working. CSS Total Security is investing in an increased sales and marketing resource and will use that, with strong reputation and industry referral to continue to grow. The key limitation will be the availability of skilled engineers, and to address that the company is training more and more of its own staff to the required standard. The company will continue to deliver differentiated high quality service, and additionally is going to expand into the broader market with a lower cost offering for customers who feel their security needs are less pressing. This is a market that they have avoided in the past, but market research shows that there is an appetite for a reputable low – cost option. FastVein™ and VIPS continue to be developed, and the Board look forward to briefing its stakeholders on exciting new contracts for each of these in the first half of this year. Overseas opportunities appear every bit as promising as those in the UK, and the Board is reviewing all options for accessing an export market. The Board views the coming year with optimism, and welcomes the great progress made in the last eighteen months. The Group is resourced and ready to move forward, and has sufficient interest and sales pipeline to view the coming year with confidence. Group Financials The financial results of the Group are pleasing and demonstrate that it has settled in to the new structure and is delivering the anticipated results. Group turnover increased broadly ahead of expectations from £13.2m to £14.8m. Importantly, margin has improved and has resulted in operating profits of £0.34m (2013: £0.09m) after amortisation and impairment charges of £0.28m. This represents a fivefold increase in profitability and is ahead of expectations. These results go a long way to confirming the board’s confidence in the fundamentals of the acquisition and put the Group back on track with their long term projections. Sales pipelines are encouraging and the board is confident that it will be able to maintain margins and thus see a continued growth in operating profits for the coming year. Revenue Gross Profit EBITDA EPS Net Assets Operating Cashflow Revenue 2014 £’000 14,813 3,663 621 2.16 8,879 666 2013 £’000 13,251 3,269 340 0.55 8,555 392 Revenue growth has been delivered by all group companies. Vigilant has seen a 12% growth in revenue, in part due to the Commonwealth Games but not exclusively. Croma Security Systems has grown revenue by 20%, and Locksmiths by 7%. Gross Margin Group Gross Margin was steady at 24.7% (2013; 24.7%). Whilst Vigilant was able to increase 1 percentage point to 12.8%, Total and Locksmiths saw some slight erosion in an increasingly competitive market. The ability to 5 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 (continued) pass on price increases from suppliers has been constrained by the increase in low cost operators, and has encouraged both Total and Locksmiths to target higher value clients. Overheads Group overheads have increased by 5% to £3.35 m (2013: £3.20 m). Whilst overall cost control has been effective, the increased level of activity in Vigilant has required an increase in the administrative set up, and there has been a ramp up in sales and marketing spend. Included in overheads is £143 m (2013: £124 m) of research and development expenditure which is the subject of Research and Development Tax Credit claims. Risk Management The Board has put in place a framework of identified risks and risk management processes. Area of Risk Economic & Regulatory Operational Risk Financial Credit Risk Specific Risk Management Process The Group operates in a highly regulated sector and must at all times adhere to the highest levels of best practice. The Group is impacted by prevailing economic conditions. The Group is actively involved in research and development of new security technologies which will need to comply with legislative requirements. Internal review of processes monitors ongoing compliance. The annual NSI audit permits external validation of our control procedures. There is a risk of a shortfall of trained engineers/planners, and a subsequent risk of subcontractors not maintaining the high standards of the group. We maintain an ongoing review of staffing and manning levels and we conduct regular audits of sub-contractors The Group has set policies which mitigate financial risk without impacting on competitiveness and flexibility. The Group’s financial position is reviewed by the Board each month to assess the following key areas: The risk that clients will not pay on time, increasing our cash requirements. All clients are subject to initial and ongoing credit checks, and ongoing credit control. 6 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 (continued) Area of Risk Liquidity Risk Fair Value Risk Specific Risk Management Process The risk that the Group has insufficient cash to meet obligations as they fall due. The risk that assets and liabilities on the Group’s Balance sheet are misstated. All new clients are subject to credit checks and debtor days are monitored. The Group maintains sufficient cash or cash equivalents to meet 45 days of forecast liabilities. The Group keep the Fair Value of all long term assets and liabilities under review to identify any potential alterations required. Statement of Corporate Governance The directors recognise the importance of sound corporate governance. As a company whose shares are traded on the London Stock Exchange (Alternative Investment Market) (AIM), the Company is not obliged to comply with the corporate governance regime as set out in the UK Corporate Governance Code, but it does support the principles of the Code. It intends to comply with the Quoted Companies Alliance’s Corporate Governance Guidelines for Smaller Quoted Companies insofar as it is reasonably practicable for a public company of its size and nature. The directors have adopted a code of conduct for dealings by directors and employees which complies with the AIM Rules and are committed to maintaining the highest standards of corporate governance. The company is subject to the UK City Code on Takeovers and Mergers. Information Summary CSSG is governed by the Board of Directors, comprising The Chairman, The Chief Executive, Finance Director, and three Non-Executive Directors. The Board meets monthly in person or by telephone to review monthly management accounts, sales and operations developments and personnel and HR matters. In addition, the Board will review strategy and the business plan on a half yearly basis. Roles The Group adheres to the requirements of the Code to keep the roles of Chairman and Chief Executive separate, Chairman – Sebastian Morley. Mr Morley is responsible for the overall direction of the Group, for ensuring the Board operates efficiently, and is responsible for shareholder relations and for Corporate Governance. In addition, Mr Morley oversees the daily operations of Vigilant Security Limited, the Group’s manned guarding arm. Chief Executive – Roberto Fiorentino. Mr Fiorentino is responsible for overseeing the implementation of the Group’s strategy, and for delivering the coordinated service approach which is the Group’s USP. 7 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 (continued) In addition, Mr Fiorentino oversees daily operations of Croma Security and Croma Locksmiths, and is leading the development and launch of the Group’s biometric identity product FastVein™. Finance Director – Alexander Tetley. Mr Tetley is responsible for overall financial strategy and for ensuring timely production of management and statutory information. In addition, Mr Tetley is company secretary and implements all matters of corporate governance as directed by the Chairman. Non-Executive Directors Mr Nicholas Hewson. Chairman Audit Committee, member of the remuneration committee. Mr Charles McMicking. Chairman Remuneration Committee, member of the audit committee. Lord James Percy. Member of the audit committee and the remuneration committee. Matters Reserved for the Board The Board reserves formulation, dissemination and implementation of strategy. It also handles stakeholder relations, dividend policy, and oversight of cash management. Other operational matters are devolved to directors and managers, with the exception of investment – level decisions involving material balances which require Board consideration. All directors have access to the Group Secretary and any director needing independent professional advice in the furtherance of his duties may obtain this advice at the expense of the Group. Board Meetings Directors’ attendance at Board and committee meetings during the year to 30 June 2014 was as follows: Board Meetings Audit Committee Remuneration Committee Attended Eligible Attended Eligible Attended Eligible 9 10 5 5 9 8 6 10 10 5 5 10 10 10 – – – – 2 2 1 – – – – 2 2 2 – – – – 1 1 1 – – – – 1 1 1 SJ Morley RM Fiorentino R Juett (resigned 31.1.2014) A Tetley (appointed 1.2.2014) AN Hewson CN McMicking Lord James Percy Internal control The Board is responsible for maintaining an appropriate system of internal controls to safeguard the shareholders’ investment and Group assets. The directors continue to review the financial reporting procedures and internal controls of the Group companies to ensure they are robust enough to deliver timely, detailed reporting that will allow accurate monitoring of the Group’s performance. 8 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 (continued) Internal financial control procedures undertaken by the Board include: • • • review of monthly financial reports and monitoring performance approval of all significant expenditure including all major investment decisions review and approval of treasury policy. The Board in the context of the Group’s overall strategy undertakes risk assessment and the review of internal controls. The review covers the key business, operational, compliance and financial risks facing the Group. In arriving at its judgement of what risks the Group faces, the Board has considered the Group’s operations in the light of the following: • • • • the nature and extent of risks which it regards as acceptable for the Group to bear within its overall business objective the threat of such a risk becoming a reality the Group’s ability to reduce the incidence and impact of risk on its performance the cost and benefits to the Group of operating the relevant controls. The Board has reviewed and is satisfied with the operation and effectiveness of the Group’s system of internal control for the financial year and the period up to the date of approval of these financial statements. Relations with shareholders Communication with shareholders is given a high priority by the Board and the directors are available to enter into dialogue with shareholders. All shareholders are encouraged to attend and vote at the Annual General Meeting during which the Board is available to discuss issues affecting the Group. Corporate governance committee The Board meet regularly and cover audit and remuneration committee matters as they arise from time to time. Audit committee matters The terms of reference of the Audit Committee are to assist themselves as directors in discharging their individual and collective legal responsibilities for ensuring that: • • • the Group’s financial and accounting systems provide accurate and up-to-date information on its current financial position; the Group’s published financial statements represent a true and fair reflection of this position; and the external audit, which the law requires in order to provide independent confirmation that these legal responsibilities are being met, is conducted in a thorough, efficient and effective manner. The external auditors attend the audit committee meeting and as such it provides them with a direct line of communication to the directors. 9 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 (continued) Key Performance Indicators Indicator Croma Vigilant Sales Gross margin Customer retention Cash Croma Security Sales Performance Sales were on or slightly above budget for the first nine months of the year, and then significantly exceeded budget with the award of the Commonwealth Games contract. Performance is monitored by the Operations director and business development manager reporting to the Chairman. Gross Margin remains a highly relevant measure in a low margin industry. Margin held at 12% for the year, rising above 14% at the year end. The directors have targeted 13.5% for 2014/15. The company managed to retain all bar one customer during the year, which is a testament to good service and value. Retention of customers nearing the end of their contract is a priority of the operations director. Croma Vigilant has been cash generative for the year, showing cash inflows of £144,000. This was very pleasing given the increase in turnover and resultant rise in working capital. Croma Security have seen a very encouraging 20% growth in revenue. This has been achieved through the year, and has been helped by good larger contracts with Odeon and Hilton Group. The directors have improved sales lead generation, which should allow sales growth to continue in 2014/15. Customer retention Customer Retention rate is monitored monthly. The company monitors client satisfaction through surveys and website feedback. Engineers Cash Croma Locksmiths Sales Shop footfall The Engineering pool is now settling down after a period of transition. The engineer market is very active and engineer retention and remuneration is constantly monitored. Croma Security has continued to generate cash and has been cash positive throughout the year. CSS Locksmith sales are monitored weekly for shop sales, and monthly for commercial sales. The year has seen a shift towards the latter, set against an overall turnover growth of 7% Shop footfall is slowing down as competition increases. The company is employing active sales techniques to meet this change in consumer practice. 10 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2014 (continued) Competitive environment The company has seen a steady increase in relatively low skilled competitors, and is focussing on higher skilled higher value work. Croma Biometrics Order pipeline Module development S J F Morley Chairman 5 November 2014 Some modules of FastVein™ are developed and marketable, and these are attracting considerable interest. The main markets being investigated are in the UK, towards public sector and larger financial institutions, and also the Middle East. The development of a series of web-based modules is ongoing, with the intention of making a standardised suite of products with little or no requirement for specialist client tailoring. This development is considered to be on schedule. 11 BOARD OF DIRECTORS FOR THE YEAR ENDED 30 JUNE 2014 Sebastian Morley – Executive Chairman Having enjoyed a successful military career, Sebastian worked with organisations in the surveillance and security sector before he established Vigilant in 2001. Sebastian joined the Board on the acquisition of Vigilant Security (Scotland) Limited in February 2006 and became Group Chairman in 2012. Roberto Fiorentino – Chief Executive Officer Roberto has been involved in the security industry for over 30 years and has been responsible for a number of ground breaking technological advances within the electronic security sector, including the installation of High Security Master Key Locking systems, Vehicle Alarm Systems, Access Control, CCTV with transmission systems, CCTV and, most recently, Video Analytics. Alexander Tetley- Finance Director Alexander is a fellow of the Institute of Chartered Accountants in England & Wales. He was in practice with Grant Thornton and Baker Tilly, and before that served in the Scots Guards. Alexander oversees the financial affairs of the Group and its operating subsidiaries. Nick Hewson MA FCA CF – Non-Executive Director Nick has been on the Board of a number of listed companies since 1986, more recently in a non-executive capacity. Nick has concentrated on grooming and growing smaller businesses in the public and private arenas, and has a particular interest in low carbon and carbon reduction initiatives in business. He has been an investor in Croma since the very early days of the Group’s corporate life. Nick is also a Non-Executive Director of Redrow plc. Charles McMicking – Non-Executive Director Charles is Chairman of RailSimulator.com and director of Coburg Capital and F4G Software. Charles has specialised in financing and developing dynamic fast-growth companies, and was previously Head of Private Equity at Noble Group. Lord Percy – Non-Executive Director Lord James is a published author with previous experience in the shipping industry and the manufacture and sale of super yachts, and now works with J Barbour and Sons. Lord James is Colonel of the 5th Battalion Royal Regiment of Fusiliers and a member of the Moorland Association, as well as former Chairman of the Countryside Foundation for Education 12 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 The directors submit their report and the audited annual financial statements of Croma Security Solutions Group PLC and its subsidiary undertakings for the year ended 30 June 2014. Principal activity The Group’s principal activities are the provision of manned guarding and asset protection (Croma Vigilant); CCTV security, fire and alarm systems (Croma Security Systems); Identity management and access control (Croma Biometrics); Locksmithing Keys, Locks and Safes (Croma Locksmiths). Results and dividends The profit for the year after taxation, was £320,557 (2013: £79,796). The directors do not recommend the payment of a dividend, for the current or prior year. Directors The directors who have held office since 1 July 2013 and up to the date of signing of these financial statements are as follows: Executive directors: Non-executive directors: S J F Morley R M Fiorentino R A Juett (resigned 31 January 2014) A Tetley (appointed 1 February 2014) A N Hewson C McMicking Lord James Percy The non-executive directors sit on the remuneration committee and on the audit committee. The directors in office at 30 June 2014 had the following beneficial interest in the ordinary shares of the Company: S J F Morley R M Fiorentino R A Juett (resigned 31 January 2014) A Tetley A N Hewson C McMicking Lord James Percy 2014 2013 535,000 535,000 3,750,000 – – 189,855 46,000 279,500 3,711,053 – – 171,355 46,000 279,500 During the year the Board approved the creation of an HMRC approved Company Share Option Scheme. This scheme is not open to directors. Further details can be found at Note 23. 13 DIRECTORS’ REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2014 Apart from the interests of the directors referred to above, the Company has received the following notifications of holdings of more than 3 per cent of the ordinary share capital of the Company as at 30 June 2014: State Street Nominees Limited Fitel Nominees Limited Giltspur Nominees Limited HSBC Global Custody Nominee (UK) Limited Chase Nominees Limited Vidacos Nominees Limited The Honourable Robert Anthony Rayne Research and development 9.6% 9.4% 5.1% 6.3% 3.4% 5.4% 3.0% Research and development expenditure, including the element of wages and salaries relating to research and development, amounted to £143,043 (2013: £125,042). Employment of disabled persons The Group gives full consideration to applications for employment from disabled persons where the candidate’s particular aptitudes and abilities are consistent with adequately meeting the requirements of the job. All necessary assistance with initial training courses is given. Once employed, a career plan is developed so as to ensure suitable opportunities for each disabled person. Arrangements are made, wherever possible, for retraining employees who become disabled, to enable them to perform work identified as appropriate to their aptitudes and abilities. Employee involvement The Group’s policy is to consult and discuss with employees, through staff councils and at meetings, matters likely to affect employees’ interests. Information on matters of concern to employees is given through information bulletins and reports which seek to achieve a common awareness on the part of all employees of the financial and economic factors affecting the Group’s performance. Political and charitable donations The Group made no charitable or political donations during the year (2013: £nil). Environmental policy The Group recognises the importance of environmental responsibility. The nature of its activities has a minimal effect on the environment but where it does the Group aims to act responsibly and is aware of its obligations at all times. Dividends No interim dividend payments have been made and the directors do not recommend the payment of a final dividend. Auditors A resolution proposing the re-appointment of Grant Thornton UK LLP will be put to the shareholders at the forthcoming Annual General Meeting. 14 DIRECTORS’ REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2014 Statement of disclosure to auditor Each of the persons who is a director at the date of approval of this report confirms that: a) b) So far as they are aware, there is no relevant audit information of which the company’s auditors are unaware, and They have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the company’s auditors are aware of that information. By order of the Board A Tetley Secretary 5 November 2014 15 STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR THE YEAR ENDED 30 JUNE 2014 Directors’ responsibilities The Directors are responsible for preparing the Directors’ report and the Group and Parent company 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 elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). 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 of the Group and company and of the profit or loss of the Group 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 accounting standards 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 the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and which 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 requirements of the Companies Act 2006. They are also responsible for the Group’s system of internal financial control, safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the on-going integrity of the financial statements contained therein. Signed on behalf of the Board A Tetley Director 5 November 2014 16 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2014 We have audited the group financial statements of Croma Security Solutions Group PLC for the year ended 30 June 2014 which comprise the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of financial position, the consolidated statement of cash flows, and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 18 the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate Opinion In our opinion the group financial statements: • • • give a true and fair view of the state of the Group’s affairs as at 30 June 2014 and of the Group’s profit for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and Directors’ Report for the financial year for which the group financial statements are prepared is consistent with the group financial statements. 17 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CROMA SECURITY SOLUTIONS GROUP PLC (continued) Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • • 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 Other matter We have reported separately on the parent company financial statements of Croma Security Solutions Group PLC for the year ended 30 June 2014. Andrew Howie Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants GLASGOW 5 November 2014 18 Notes 2014 £ 2013 £ 3 14,813,444 4 (11,150,460) 13,250,699 (9,981,692) –––––––––– –––––––––– 3,269,007 (3,195,790) 20,400 –––––––––– –––––––––– 93,617 3,662,984 (3,347,618) 21,453 336,819 4 13 12 12 18 5 8 9 620,863 (99,172) (184,872) – – 336,819 (32,235) 339,518 (108,491) (210,780) (84,362) 157,732 93,617 (50,241) –––––––––– –––––––––– 43,376 36,420 –––––––––– –––––––––– 79,796 –––––––––– –––––––––– 304,584 15,973 320,557 320,557 79,796 –––––––––– –––––––––– –––––––––– –––––––––– 2.16 2.16 0.55 0.55 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014 Continuing operations: Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating profit Analysed as: Earnings before interest, tax, depreciation, amortisation and impairment Depreciation Amortisation of intangible assets Impairment of intangible assets Reduction in contingent consideration Operating profit Finance expenses Profit before tax Tax Profit for the year from continuing operations Total comprehensive Profit for the year attributable to owners of the parent Earnings per share Basic and diluted earnings per share (pence) - Earnings from continuing operations - Diluted Earnings per share (pence) 19 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2014 Notes 2014 £ 2014 £ 2013 £ 2013 £ Assets Non-current assets Goodwill Other Intangible assets Property, plant and equipment Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Liabilities Non-current liabilities Deferred tax Trade and other payables Provisions Current liabilities Trade and other payables Borrowings Total liabilities Net assets 11 12 13 14 15 5,866,961 1,141,290 329,356 222,958 2,485,885 899,693 ––––––––– 22 18 20 (299,474) (5,263) – ––––––––– 18 (1,596,053) (166,682) 18 ––––––––– Issued capital and reserves attributable to owners of the parent Share capital Share premium Merger reserve Retained earnings Undistributable Reserves Share Options Total equity 23 24 24 24 24 24 5,866,961 1,326,162 385,915 220,202 2,651,009 677,858 ––––––––– (368,447) (27,091) (4,119) ––––––––– (1,648,326) (524,789) ––––––––– ––––––––– 7,337,607 3,608,536 ––––––––– 10,946,143 ––––––––– ––––––––– (304,737) (1,762,735) ––––––––– (2,067,472) ––––––––– 8,878,671 ––––––––– ––––––––– 743,307 5,230,276 2,139,454 340,533 422,322 2,779 ––––––––– 8,878,671 ––––––––– ––––––––– ––––––––– 7,579,038 3,549,069 ––––––––– 11,128,107 ––––––––– ––––––––– (399,657) (2,173,115) ––––––––– (2,572,772) ––––––––– 8,555,335 ––––––––– ––––––––– 743,307 5,230,276 2,139,454 19,976 422,322 – ––––––––– 8,555,335 ––––––––– ––––––––– These financial statements were approved and authorised for issue by the Board of directors on 2014 and signed on their behalf by S J F Morley Director Croma Security Solutions Group plc – Company Number: 03184978. 20 Notes 2014 £ 2013 £ 27 304,584 284,044 8,103 – 37,286 32,235 – –––––––– 666,252 –––––––– (49,589) 14,100 –––––––– (35,489) –––––––– (23,742) (358,107) – (27,079) –––––––– (408,928) –––––––– 221,835 677,858 –––––––– 899,693 –––––––– –––––––– 43,376 403,633 (1,432) (5,350) (95,751) 50,241 (2,718) –––––––– 391,999 –––––––– (85,097) 26,163 –––––––– (58,934) –––––––– (43,722) (7,264) (243,710) (46,235) –––––––– (340,931) –––––––– (7,866) 685,724 –––––––– 677,858 –––––––– –––––––– CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013 Cash flows from operating activities Profit before taxation Depreciation, amortisation and impairment Loss/(Profit) on sale of plant and equipment Movement on provisions Net changes in working capital Financial expenses Corporation tax paid Net cash generated from operations Cash flows from Investing activities Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Hire purchase loan repayments Repayments of invoice discounting facility Repayment of borrowings Interest paid Net used from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of the period 27 21 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2014 Attributable to Owners of the Parent Share Capital £ 725,127 – – 18,180 ––––––––– 743,307 – – ––––––––– 743,307 ––––––––– ––––––––– Share premium £ 5,176,644 – – 53,632 ––––––––– 5,230,276 – – ––––––––– 5,230,276 ––––––––– ––––––––– Merger Reserve £ 2,139,454 – – – ––––––––– 2,139,454 – – ––––––––– 2,139,454 ––––––––– ––––––––– Retained earnings £ (78,605) 79,796 18,785 – ––––––––– 19,976 320,557 – ––––––––– 340,533 ––––––––– ––––––––– Undistri– butable reserve £ 422,322 – – – ––––––––– 422,322 – – ––––––––– 422,322 ––––––––– ––––––––– Other Reserves £ 18,785 – (18,785) – ––––––––– – – 2,779 ––––––––– 2,779 ––––––––– ––––––––– Total Equity £ 8,403,727 79,796 – 71,812 ––––––––– 8,555,335 320,557 2,779 ––––––––– 8,878,671 ––––––––– ––––––––– At 1 July 2012 Profit for the year Loan note redemption Issue of share capital At 30 June 2013 Profit for the year Share Option scheme Issuance At 30 June 2014 The following notes form part of the primary financial statements 22 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. Accounting Policies The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards (IFRS’s), International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“adopted IFRS’s”). Going concern The Group’s activities are funded by a combination of long term equity capital, and short term invoice discounting and bank overdraft facilities. The day to day operations are funded by cash generated from trading and primarily invoice discounting facilities. In considering the ability of the Group to meet its obligations as they fall due, the Board have considered the expected trading and cash requirements of the Group until November 2015. The Board remains positive about the retention of customers and outlook of its main trading operations. The Board’s profit and cash flow projections suggest that the Group will meet its obligations as they fall due with the use of existing uncommitted invoice discounting facilities. The invoice discounting and overdraft facilities were reviewed in June 2014 and were renewed until June 2015 when the Board are confident the facility will be continued based on current and forecast trading of the Group. Basis of consolidation Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries (“the Group”) as if they formed a single entity. Inter-company transactions and balances between Group companies are therefore eliminated in full. Segment reporting At 30 June 2014 the directors consider there to be four operating segments namely ‘Croma Vigilant’ which comprises the business of Vigilant Security (Scotland) Limited; ‘Croma Security Systems’ which comprises the business of CSS Total Security Limited; ‘Croma Locksmiths’, which comprises the business of CSS Locksmiths Limited and Croma Biometrics which comprises the business of Photobase Limited. During the year the business of the Alarm Bell Company Limited was transferred to CSS Total Security Limited, and Alarm Bell Company Limited was wound up. The operating segments identified above are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive Directors. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. The Group recognises revenue when the amount of revenue can be reliably measured, when it is probable that future economic benefits will flow to the entity, and when specific criteria have been met for each of the Group’s activities, as described below. The Group bases its estimate of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. 23 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. Accounting Policies (continued) • • • • Keyholding income is recognised in equal instalments over the period of the contract. Sale of goods is recognised at the point that they are delivered to client’s premises on signature of a goods received note. Maintenance fees are recognised over the term of the contract. Where a maintenance fee is not itemised in the contract but is still provided as part of the contractual arrangement, an apportionment is taken as the maintenance amount, based upon its fair value. The value of this amount is held as deferred income under ‘Accruals and deferred income’ in the balance sheet. The fair value of any revenues associated with the sale of software licences is recognised over the period of the licence. Cost of sales Cost of sales are the direct costs relating to customer generated revenue and comprise direct labour payroll costs, other costs associated with direct labour, stock purchases, installation and subcontracted costs all sold on to customers. Intangible assets (a) Goodwill Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date. (b) Other intangible assets Intangible assets acquired separately are carried initially at cost. An intangible asset acquired as part of a business combination is recognised separately from goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets with a finite life are amortised on a straight line basis over their expected useful life as follows – – – licenses – over the duration of the legal agreement customer relationships – 3-8 years royalty income – 3 years (c) Internally-generated intangible assets – research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the Group’s development activity is recognised only if all of the conditions of IAS38 are met. 24 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. Accounting Policies (continued) Internally-generated intangible assets are amortised on a straight-line basis over their useful lives. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. Impairment testing Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash-generating unit (i.e. the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows). Goodwill is allocated on initial recognition to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination giving rise to the goodwill. Impairment charges are included separately in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed. Business combinations The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the consolidated statement of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. Goodwill 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 (i.e. gain on a bargain purchase) is recognised in profit or loss immediately. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. Contingent consideration Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IFRS 13 in the consolidated statement of comprehensive income. Property, plant and equipment Property, plant and equipment are stated at costs less depreciation. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost of each asset less its estimated residual value evenly over its estimated useful life, as follows: Freehold property Plant and equipment Computer equipment Office equipment Motor vehicles – – – – – 4% on cost 25% on cost 33% on cost 15% on cost 25% on cost 25 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. Accounting Policies (continued) Inventories Inventories are valued at the lower of cost and net realisable value. Cost is based on the cost of purchase on a first in first out basis together with costs in bringing it to its present condition and location. Work in progress and finished goods include attributable overheads. Net realisable value is based on estimated selling price less additional costs to completion and disposal. Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when interim dividends are paid. In the case of final dividends, this is when approved by the shareholders at the AGM. Taxes 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. Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on: • • • the initial recognition of goodwill the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: • • the same taxable Group company; or different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. 26 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. Accounting Policies (continued) Leased assets • Finance leases The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards of ownership of the leased asset. Where the Group is a lessee in this type of arrangement, the related asset is recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance lease 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. See property, plant and equipment accounting policy for the depreciation methods and useful lives for assets held under finance lease. The corresponding finance lease liability is reduced by lease payments net of finance charges. The interest element of lease payments represents a constant proportion of the outstanding capital balance and is charged to profit or loss, as finance costs over the period of the lease. • Operating leases All other leases are treated as operating leases. Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. Share capital Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group’s ordinary shares are classified as equity instruments. Finance cost Finance costs of debt are recognised in the profit or loss over the term of such instruments at a constant periodic rate on the carrying amount. Share-based payments The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they were granted. Judgement is required in determining the most appropriate valuation model for a grant of equity instruments depending on the terms and conditions of the grant. Management are also required to use certain assumptions in determining the most appropriate inputs to the valuation model including expected life of the option, volatility, risk free rate and dividend yield. The assumptions and models used are fully disclosed in note 23. All share-based remuneration plans are ultimately recognised as an expense in the statement of comprehensive income with a corresponding credit to ‘other reserves. 27 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. Accounting Policies (continued) Financial assets Financial assets are loans, trade receivables and other receivables. Loans and receivables assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The provision at 30th June 2014 was £20,277 (2012: £47,871). The effect of discounting on these financial instruments is not considered to be material. Trade receivables are analysed at Note 15. Trade receivables are recorded at their amortised cost less any provision for doubtful receivables. Where relevant, trade receivables due in more than one year are discounted to their present value. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable the amount of such provision being the difference between the net carrying amount and the present value of the future expected cashflows associated with the impaired receivable. For trade receivables which are reported net, such provisions are reported in a separate allowance account with the loss being recognised within administrative expenses in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Cash equivalents are deemed to be deposits that we hold with a maturity of under 3 months. Cash and cash equivalents include cash in hand, deposits held at call with banks with an original maturity of less than 3 months, and bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the statement of financial position. Financial Liabilities (a) (b) (c) Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs and premia payable on redemptions, as well as any interest or coupon payable while the liability is outstanding. Trade payables and other short-term monetary liabilities, are initially recognised at their fair value and subsequently at their amortised cost. All other financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group’s ordinary shares are classified as equity instruments. The Group considers its capital to comprise its ordinary share capital, deferred share capital, share premium, merger reserve, and accumulated retained earnings. 28 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. Accounting Policies (continued) Provisions Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan’s main features to those affected by it. Provisions are not recognised for future operating losses. 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. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. 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. Capital management The Group manages capital so as to safeguard its ability to continue as a going concern with the aim of strengthening its capital base so as in due course to provide returns to shareholders. The Group currently assigns a part of its Vigilant Security Scotland Limited debtor book as a means of funding short term working capital, and has some lease funding secured over selected tangible assets, but otherwise has no short term or long term debt. the Group has a net cash position of £733,015 (2013: £153,069) Net (cash) Bank, Bank overdrafts, invoice discounting and loans Total Equity Exceptional items 2014 £ 2013 £ (733,015) –––––––– (733,015) –––––––– 8,822,718 –––––––– –––––––– (153,069) –––––––– (153,069) –––––––– 8,555,335 –––––––– –––––––– Exceptional items are those significant items that are separately disclosed by virtue of their size and nature to enable a full understanding of the Group’s financial performance. Cash and cash equivalents In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks and bank overdrafts. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities. 29 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. Accounting Policies (continued) Changes in accounting policy and disclosures There were no additional standards, amendments and interpretations that had a material impact on the Group’s financial statements during the year. The following standard and amendments were effective in the year but had no material impact on the Group’s financial statements: • • • IFRS 13 (May 2011) Fair Value Measurement (effective 1 January 2013). Amendments to IAS 1 (June 2011) Presentation of Items of Other Comprehensive Income (effective 1 July 2012). Amendments to IAS 19 (June 2011) Employee Benefits (effective 1 January 2013). New standards and interpretations not yet effective The International Accounting Standards Board has issued the following standards and interpretations with an effective date after the date of these financial statements: IFRS 9 will eventually replace IAS 39 in its entirety and is intended to simplify the classification and measurement requirements for financial instruments. The process has been divided into three main phases, classification and measurement; impairment; and hedge accounting. In addition the following new amendments and interpretations of existing standards that are not yet effective and have not been adopted early by the Group are not expected to have any material impact on the Group’s consolidated financial statements: • • • • • • • • IFRS 10 (May 2011) Consolidated Financial Statements. IFRS 11 (May 2011) Joint Arrangements. IFRS 12 (May 2011, updated January 2012) Disclosures of Interests in Other Entities. Amendments to IAS 19 (November 2013) Defined Benefit Plans: Employee Contributions (effective 1 July 2014). Amendments to IAS 32 (December 2011) Offsetting Financial Assets and Financial Liabilities (effective 1 January 2014). IAS 27 (May 2011) Separate Financial Statements (effective 1 January 2014) for EU. IAS 28 (May 2011) Investments in Associates and Joint Ventures (effective 1 January 2014) for EU. Amendments to IFRS 10, 12 & 27 Investment Entities (effective 1 January 2014). 2. Critical Accounting Estimates and Judgements The Group makes certain estimates and judgements regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Estimates and assumptions: 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 cashflows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the balance sheet date was £5,866,961. Details relating to the allocation of goodwill to cash generating units are given in note 11. 30 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 3. Segmental Reporting The directors consider the following four business segments best represent the business segments of the Group. 2014 Business segments £ Segment revenues Gross profit Administrative expenses Amortisation Depreciation Profit/(loss) on disposal Other operating income Segment operating profit/(loss) Segment assets 2014 2013 Business segments Segment revenues Gross profit Administrative expenses Amortisation Impairment Depreciation Profit/(loss) on disposal Other operating income Segment operating profit/(loss) Segment assets/(liabilities) 2013 Croma Vigilant (Guarding) 10,958,448 –––––––––– –––––––––– 1,407,792 (951,232) – (48,790) 8,006 – –––––––––– 415,776 –––––––––– –––––––––– 935,200 –––––––––– –––––––––– Croma Vigilant (Guarding) 9,823,749 ––––––––– ––––––––– 1,157,380 (782,592) – – (47,313) 2,089 – ––––––––– Croma Security Systems (Alarms) 2,572,616 –––––––––– –––––––––– 1,545,311 (1,100,189) – (38,710) – – –––––––––– 406,412 –––––––––– –––––––––– 500,274 –––––––––– –––––––––– Croma Security Systems (Alarms) 2,180,716 ––––––––– ––––––––– 1,433,664 (1,125,838) – – (44,950) (657) – ––––––––– Croma Biometric (FastVein™) 48,337 –––––––––– –––––––––– 39,863 (56,950) – (768) – – –––––––––– (18,125) –––––––––– –––––––––– (80,216) –––––––––– –––––––––– Croma Biometric (FastVein™) 81,009 ––––––––– ––––––––– 44,995 (140,250) – – (2,796) – 20,400 ––––––––– Croma Plc Locksmiths Consolidation adjustments (Locks) 1,283,362 –––––––––– –––––––––– 655,205 (527,234) – (11,792) – 21,453 –––––––––– 137,632 –––––––––– –––––––––– 714,504 –––––––––– –––––––––– (49,319) –––––––––– –––––––––– 14,813 (435,975) (184,872) – – – –––––––––– (604,876) –––––––––– –––––––––– 6,808,909 –––––––––– –––––––––– Croma Plc Locksmiths Consolidation adjustments (Locks) 1,205,071 ––––––––– ––––––––– 632,968 (524,590) (76,477) – (13,212) – – ––––––––– (39,846) ––––––––– ––––––––– – (220,539) (134,303) (84,362) – – – ––––––––– Total 14,813,444 –––––––––– –––––––––– 3,662,984 (3,071,580) (184,872) (99,172) 8,006 21,453 –––––––––– 336,819 –––––––––– –––––––––– 8,878,671 –––––––––– –––––––––– Total 13,250,699 ––––––––– ––––––––– 3,269,007 (2,793,809) (210,780) (84,362) (108,271) 1,432 20,400 ––––––––– 329,564 ––––––––– ––––––––– 262,219 ––––––––– ––––––––– (77,651) ––––––––– ––––––––– 95,166 ––––––––– ––––––––– (515,681) ––––––––– ––––––––– 93,617 ––––––––– ––––––––– 584,258 ––––––––– ––––––––– 346,770 ––––––––– ––––––––– (80,216) ––––––––– ––––––––– 587,194 ––––––––– ––––––––– 7,117,329 ––––––––– ––––––––– 8,555,335 ––––––––– ––––––––– 31 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 3. Segmental Reporting (continued) Segment and Group revenues Segmental operating profit Group head office costs not allocated Reduction in contingent consideration Elimination of inter-segment charges Group operating profit Finance costs CSOP cost Group profit before tax Assets Total reportable segment assets Other assets Revenues Security personnel services Keyholding income Sale of goods & Installation Services Monitoring Services Maintenance & Service fees Other income 4. Expenses Auditors’ remuneration: Audit of parent company and consolidated financial statements Audit of company’s subsidiaries pursuant to legislation Tax compliance Other services Research and development Amount of inventory expensed as cost of sales Operating lease expense Depreciation Amortisation Impairment charge (Profit)/loss on disposal of property, plant and equipment 32 2014 £ 2013 £ 941,695 (418,418) – 186,679 14,813,444 13,250,699 ––––––––– ––––––––– ––––––––– ––––––––– 314,155 (568,038) 157,732 189,767 ––––––––– ––––––––– 93,617 (50,241) – ––––––––– ––––––––– 43,376 ––––––––– ––––––––– ––––––––– ––––––––– 336,598 (32,235) (2,779) 304,584 1,823,223 7,055,448 1,438,005 7,117,330 ––––––––– ––––––––– 8,555,335 8,878,671 ––––––––– ––––––––– ––––––––– ––––––––– 10,842,312 109,334 2,944,738 160,453 703,058 53,549 9,536,856 62,815 2,799,112 162,864 630,119 58,933 ––––––––– ––––––––– 14,813,444 13,250,699 ––––––––– ––––––––– ––––––––– ––––––––– 2014 £ 2013 £ 31,500 12,000 – – 143,043 1,611,354 109,635 99,172 184,872 (8,300) 26,300 18,200 – – 125,392 1,366,669 136,191 108,491 210,780 84,362 (1,432) NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 5. Finance Income and Expense Finance Income Interest on cash deposits Finance Expense Interest paid on bank overdraft Interest paid on factoring arrangements Loan note interest on convertible loans Interest on hire purchase agreements 6. Staff and Staff Costs The average monthly number of persons (including directors) employed by the Group during the period was: Management and administration Service and product provision Staff costs (for the above persons): Wages and salaries Pension Social security costs 2014 £ 619 2013 £ 532 – 26,107 – 6,747 7 22,197 22,321 6,249 ––––––––– ––––––––– 50,241 ––––––––– ––––––––– ––––––––– ––––––––– 32,235 2014 No. 2013 No. 25 416 24 369 ––––––––– ––––––––– 393 441 2014 £ 2013 £ 9,743,393 23,352 946,069 9,366,028 – 892,187 ––––––––– ––––––––– 10,712,814 10,258,215 ––––––––– ––––––––– ––––––––– ––––––––– The average monthly number of persons (including directors) employed by the Parent Company during the period was: Management and administration No. 4 No. 4 33 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 7. Directors’ and key management personnel remuneration 2014 S J F Morley R M Fiorentino R A Juett (resigned 31 January 2014) A Tetley (appointed 1 February 2014) A N Hewson Lord James Percy C McMicking 2013 S J F Morley R M Fiorentino R A Juett A N Hewson Lord James Percy C McMicking Estimated value of benefits £ – 10,000 – – – – – –––––––– 10,000 –––––––– –––––––– Estimated value of benefits £ Fees £ Pension £ Total £ – – – – 18,000 – 18,000 –––––––– 36,000 –––––––– –––––––– – – – – – – – –––––––– – –––––––– –––––––– 97,910 130,636 25,000 36,250 18,000 11,500 18,000 –––––––– 337,296 –––––––– –––––––– Fees £ Pension £ Total £ 504 1,400 – – – – –––––––– 1,904 –––––––– –––––––– – – – 13,500 18,750 15,250 –––––––– 28,750 –––––––– –––––––– – – – – – – –––––––– – –––––––– –––––––– 77,594 145,090 33,327 13,500 15,250 –––––––– 303,511 –––––––– –––––––– Salary £ 97,910 120,636 25,000 36,250 – 11,500 – –––––––– 291,236 –––––––– –––––––– Salary £ 77,090 143,690 33,327 – 18,750 – –––––––– 272,857 –––––––– –––––––– No share based payments were made to directors in 2014 or 2013 34 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 8. Taxation Current year tax UK corporation tax Adjustments for prior periods Deferred tax (Note 22) Current year Adjustments for prior periods Factors affecting the tax charge for the year Profit before taxation Profit multiplied by the standard rate of taxation of 22% (2012: 23.75%) Effects of: Disallowed expenditure Non-taxable income Depreciation in excess of capital allowances Adjustment to tax charge for previous periods Marginal relief Total tax (credit) for the year 9. Earnings per share 2014 £ 2013 £ 96,000 (43,200) –––––––– 52,800 30,295 8,288 –––––––– 38,583 (40,624) (28,149) –––––––– (15,973) (61,228) (13,775) –––––––– (36,420) 317,604 –––––––– –––––––– 43,376 –––––––– –––––––– 69,873 10,302 5,448 (26,063) (22,031) (43,200) – –––––––– (15,973) –––––––– –––––––– 2,422 (37,461) – (5,487) (6,195) –––––––– (36,420) –––––––– –––––––– The calculation of the basic earnings per share is based on the profit attributable to ordinary shareholders, from continuing operations, divided by the weighted average number of shares in issue during the year, calculated on a daily basis. The calculation of diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares and the post-tax effect of dividends and interest on the assumed conversion of all other dilutive options and other potential ordinary shares. Numerator Earnings for the year on continuing operations and used in basic and diluted EPS Denominator Weighted average number of shares used in basic EPS Weighted average number of shares used in diluted EPS 2014 £ 2013 £ 320,557 79,796 14,866,138 14,556,326 14,872,100 14,556,326 35 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 9. Earnings per share (continued) Basic earnings per share Diluted earnings per share: 10. Dividends The directors do not recommend a payment of a dividend (2013: £Nil) 11. Goodwill Cost At 30 June 2013 & 30 June 2014 Impairment At 30 June 2013 & 30 June 2014 Net book value At 30 June 2013 & 30 June 2014 Pence 2.16 pence 0.55 2.16 0.55 Goodwill £ 9,105,140 3,238,179 5,866,961 During the year, goodwill was reviewed for impairment in accordance with IAS 36 “Impairment of Assets”. No impairment charge occurred in the current year (2013: £84,593) as a result of this review. For this review goodwill was allocated to individual cash generating units (CGU) on the basis of the group’s operations. The carrying value of goodwill by each CGU is as follows: Impairment testing Croma Security Systems Croma Locksmiths Croma Vigilant Total Carrying value 2014 £ 3,338,813 1,131,758 1,396,930 5,866,961 The recoverable amount of a CGU is determined based on value in use calculations. These calculations use pre- tax cash flow projections based on financial budgets approved by the board for the next 5 years. The assumptions used for the CGU included within the impairment reviews are as follows, the growth rates do not exceed the average long term growth rates for the areas the CGUs operate in – – Long term growth rate of 2.5% Pre-tax discount rate of 13.5% Having considered the above sensitivities, the Board are of the opinion that the forecasts have been prepared on a prudent basis with sufficient headroom to indicate that no impairment adjustment is required at 30 June 2014. 36 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 12. Other intangible assets Fair value At 30 June 2012, 30 June 2013 & 30 June 2014 Amortisation At 1 July 2012 Charge for the year Impairment charge At 30 June 2013 Charge for the year At 30 June 2014 Carrying value at 30 June 2013 Carrying value at 30 June 2014 Customer relationships £ Brands £ Software Licences £ Brand Royalties £ Total £ 1,126,000 –––––––– –––––––– 295,000 –––––––– –––––––– 222,000 –––––––– –––––––– 31,000 –––––––– –––––––– 1,674,000 –––––––– –––––––– 37,833 151,332 84,362 –––––––– 273,527 125,424 –––––––– 398,951 –––––––– –––––––– 852,473 –––––––– –––––––– 727,049 –––––––– –––––––– 7,375 29,496 – –––––––– 36,871 29,496 –––––––– 66,367 –––––––– –––––––– 258,129 –––––––– –––––––– 228,633 –––––––– –––––––– 5,550 22,200 – –––––––– 27,750 22,200 –––––––– 49,950 –––––––– –––––––– 194,250 –––––––– –––––––– 172,050 –––––––– –––––––– 1,938 7,752 – –––––––– 9,690 7,752 –––––––– 17,442 –––––––– –––––––– 21,310 –––––––– –––––––– 13,558 –––––––– –––––––– 52,696 210,780 84,362 –––––––– 347,838 184,872 –––––––– 532,710 –––––––– –––––––– 1,326,162 –––––––– –––––––– 1,141,290 –––––––– –––––––– The other intangible assets additions relate to the acquisition of CSS Group in March 2012 and arose following a fair value assessment which was undertaken at the time. At the year end the directors reviewed intangible assets for impairment; Customer relationships Customer relationships extant at the date of acquisition were considered. A forecast was prepared of future gross revenues from the relationships after giving due consideration to historic attrition rates. A discount rate of 13.50% (relating to market risk, specific risk factors and weighted average cost of capital) was then applied to give the present value of these future cashflows. No impairment adjustment has been found to be necessary against the carrying value of customer relationships acquired with the business of CSS Total Security Limited not the business of CSS Locksmiths Limited. The useful lives as noted in the accounting policies were considered appropriate. Brands The brand of Croma Locksmiths is enduring within its locality. An assessment of the brand value was made by applying a comparable third party royalty rate of 7.5% to forecast turnover using a nil rate growth model. After-tax revenues of the remaining estimated useful life of 8 years were then valued using the same discount factor noted above and no impairment adjustment to the carrying value of the brand was considered necessary. The useful life of the asset as noted in the accounting policy note was considered appropriate. Software licences The software licence continues to be valued using an estimate of the costs which would be necessary to re-create the software if it had to be re-written. The directors have considered the future revenue streams which might derive from fully exploiting the software licence and consider the carrying value of the licence not to be impaired at 30 June 2014. The useful life of the asset as noted in the accounting policyy note was considered appropriate. 37 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 12. Other intangible assets (continued) Royalties An assessment was made of the brand royalties (franchise fees) receivable using the same discounted cashflow methods described above. No impairment triggers were identified. The useful life of the asset as noted in the accounting policy note was considered appropriate. 13. Property, plant and equipment Fixtures, fittings and Plant and Freehold property equipment equipment £ £ £ Cost At 1 July 2012 Additions Disposals At 30 June 2013 Additions Disposals At 30 June 2014 Depreciation At 1 July 2012 Charge for the year On disposals At 30 June 2013 Charge for the year On disposals At 30 June 2014 Carrying value at 30 June 2013 Carrying value at 30 June 2014 67,327 – – –––––––– 67,327 – – –––––––– 67,327 –––––––– –––––––– 26,921 2,361 – –––––––– 29,282 2,241 – –––––––– 31,523 –––––––– –––––––– 38,045 –––––––– –––––––– 35,804 –––––––– –––––––– 146,994 21,666 (4,304) –––––––– 164,356 9,678 – –––––––– 174,034 –––––––– –––––––– 83,648 27,594 (3,685) –––––––– 107,557 13,904 – –––––––– 121,461 –––––––– –––––––– 56,799 –––––––– –––––––– 52,573 –––––––– –––––––– 116,499 – – –––––––– 116,499 16,977 – –––––––– 133,476 –––––––– –––––––– 76,205 2,891 – –––––––– 79,096 9,564 – –––––––– 88,660 –––––––– –––––––– 37,403 –––––––– –––––––– 44,816 –––––––– –––––––– Motor vehicles £ 340,038 95,561 (47,513) –––––––– 388,086 22,934 (56,503) –––––––– 354,517 –––––––– –––––––– 82,174 75,646 (23,401) –––––––– 134,419 73,463 (49,527) –––––––– 158,355 –––––––– –––––––– 253,668 –––––––– –––––––– 196,163 –––––––– –––––––– Total £ 670,858 117,227 (51,817) –––––––– 736,268 49,589 (56,503) –––––––– 729,354 –––––––– –––––––– 268,948 108,491 (27,086) –––––––– 350,353 99,172 (49,527) –––––––– 399,998 –––––––– –––––––– 385,915 –––––––– –––––––– 329,356 –––––––– –––––––– Motor vehicles includes the following amounts where the assets are held under a hire purchase agreement: At 30 June – Cost Accumulated depreciation Net book value 2014 £ 2013 £ 90,519 (35,647) –––––––– 54,872 –––––––– –––––––– 161,853 (84,535) –––––––– 77,319 –––––––– –––––––– The Group leases various vehicles and machinery under non-cancellable hire purchase agreements. Their lease terms are up to four years, and ownership of the assets lie with the Group. 38 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 14. Inventories Raw materials and consumables 2014 £ 2013 £ 222,958 220,202 Raw materials and consumables of £1,611,354 (2013: £1,366,669) were expensed through the comprehensive income statement during the year. 15. Trade and other receivables Trade receivables Allowance for doubtful debts Net trade receivables Other receivables Corporation tax repayable Prepayments Total trade and other receivables 2014 £ 2013 £ 2,333,971 (20,277) –––––––– 2,313,694 16,931 – 155,260 2,486,690 (47,871) –––––––– 2,438,819 1,967 24,367 185,856 ––––––––– ––––––––– 2,651,009 ––––––––– ––––––––– ––––––––– ––––––––– 2,485,885 Owing to the short term nature of the trade receivables, their fair value is the same as the book value. An allowance for impairment is made where there is an identified event which, based on previous experience, is evidence of a reduction in the recoverability of the outstanding amount. Bad debts written off during the year 2014 £ 2013 £ 20,048 35,998 The level of credit risk is, in the view of the Board, generally low, due to a wide mix of clients in different trade sectors. During the year credit control procedures were strengthened further with the employment of a new member of staff primarily dedicated to this role. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable set out above. No interest is charged on receivables within agreed credit terms. Thereafter, interest may be charged. There are only immaterial debts due in excess of credit terms. The directors of the Group and the subsidiaries review debt collection rates at each Board meeting and close attention is paid to collection of debt and credit control. Sensitivity analysis Current average debtor days Effect on working capital if debtor days increased by 10% Effect on working capital if debtor days increased by 25% 2014 2013 47 £ 53 £ 221,647 554,118 248,669 621,672 39 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 15. Trade and other receivables (continued) With the availability of invoice discounting facilities to Croma Vigilant of up to 120 days it is anticipated that the Group could continue to trade with no impact on cash flow of an increase of over 100% of debtor days. In the opinion of the Board, such a large increase is unlikely. There is one customer of Croma Vigilant whose turnover exceeds 10% (2013 – one). Age Profile Under 60 days 60- 90 days Over 90 days 2014 £ 1,992,269 234,846 86,579 –––––––– 2,313,694 –––––––– –––––––– 2013 £ 1,552,089 484,025 402,704 –––––––– 2,438,819 –––––––– –––––––– 16. Financial Risk Management Objectives The Group’s financial instruments comprise investments designated at Fair Value, cash, and various items such as trade and other receivables and trade and other payables which arise from normal operations. The carrying values of all the Group’s financial instruments approximate their fair values at 30 June 2014 and 30 June 2013. Note 2 above outlines measurement techniques. An analysis of the statement of financial position, relevant to an analysis of risk management, is as follows: 2014 Trade and other receivables Cash Total 2013 Trade and other receivables Cash Total Loans and Receivables £ 2,330,625 899,693 –––––––– 3,230,318 –––––––– –––––––– Loans and Receivables £ 2,465,153 677,858 –––––––– 3,143,011 Non-financial assets £ 155,260 – –––––––– 155,260 –––––––– –––––––– Non-financial assets £ 185,856 –––––––– 185,856 Total £ 2,485,885 899,693 –––––––– 3,385,578 –––––––– –––––––– Total £ 2,651,009 677,858 –––––––– 3,328,867 The Group’s policy on management of credit risk is described in the Strategic Report on page 6. 17. Cash and cash equivalents Cash at bank and in hand 2014 £ 2013 £ 899,693 677,858 40 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 18. Trade and other payables Trade payables Other payables Finance lease liabilities (due in less than 1 year) Other taxes and social security Corporation Tax Liability Accruals and deferred income Total trade and other payables, excluding loans and borrowing classified as financial liability measured at amortised cost Interest bearing loans and borrowings due within 1 year Other short term borrowings Invoice discounting facilities Finance lease liabilities (due in 1 to 5 years) 2014 £ 275,309 75,437 27,426 –––––––– 378,172 724,377 53,000 440,504 –––––––– 2013 £ 305,602 136,402 33,321 –––––––– 475,325 844,042 – 328,959 –––––––– 1,596,053 1,648,326 ––––––––– ––––––––– ––––––––– ––––––––– 2014 £ 9,912 156,770 –––––––– 166,682 2013 £ 6,824 517,965 –––––––– 524,789 2014 £ 5,263 2013 £ 27,091 Other payables include deferred consideration of £15,949 (2013: £91,559) payable to the sellers of the CSS Group. 19. Interest rate and liquidity risk Interest rate sensitivity Most financing is via confidential invoice discounting. Typically, the invoice discounting facilities available to Croma Vigilant allow a drawdown of 80% – 90% of the value of an invoice including VAT on issue to a customer. A discount charge applies to the value of transactions processed through the facility as well as an interest rate charge on advances until invoices are settled by customers. The sensitivity analysis has been based on the year-end exposure to floating rate debt during the year. Liquidity and interest rate risk tables The following table details the Group’s remaining contracted maturity for its financial liabilities. The tables have been drawn up based on the undiscounted contractual maturities of the financial liabilities. 41 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 19. Interest rate and liquidity risk (continued) Based on the level of floating rate debt at the year end a 1% increase in interest rates would result in an increase of approximately £5K in interest charges. 2014 Fixed rate Trade and other payables Finance lease obligations Accruals and deferred income Floating rate Invoice discounting facility Credit card borrowings Total 2013 Fixed rate Trade and other payables Finance lease obligations Accruals and deferred income Floating rate Invoice discounting facility Overdraft Total 20. Onerous lease provision Due in less than one year Due between one and five years Weighted average Less than 1 effective month or interest rate on demand £ % 1 – 12 months 1 – 3 years £ £ Total £ 0.0 10.3 0.0 2.8 0.0 402,529 – – – 27,426 232,654 – 5,263 – – 9,912 –––––––– 412,441 –––––––– –––––––– 156,770 – –––––––– 416,850 –––––––– –––––––– – – –––––––– 5,263 –––––––– –––––––– 402,529 32,689 232,654 – 156,770 9,912 –––––––– 834,554 –––––––– –––––––– Weighted average Less than 1 effective month or interest rate on demand £ % 1 – 12 months 1 – 3 years £ £ Total £ 0.0 10.3 0.0 2.8 7.0 442,004 – – – 33,321 328,959 – 27,901 – 442,004 61,222 328,959 – 6,824 –––––––– 448,828 –––––––– –––––––– 517,965 – –––––––– 880,245 –––––––– –––––––– – – –––––––– 27,901 –––––––– –––––––– 517,965 6,824 –––––––– 1,356,974 –––––––– –––––––– 2014 £ – – –––––––– – –––––––– –––––––– 2013 £ 4,119 – –––––––– 4,119 –––––––– –––––––– The premises formerly occupied by Photobase Limited were sub-let at a rent lower than the rent being paid to the landlord. As such the lease on these premises was classed as onerous, to the extent of the difference between the rent received from the sub-tenant and the amount paid to the landlord for the remainder of the lease. The lease has now expired. 42 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 21. Contingent Liabilities There are no contingent liabilities either at the year end or up to the date of signing the financial statements. 22. Deferred Tax The movement on the deferred tax account is shown below: At 1 July Accelerated capital allowances Short term temporary differences On amortisation of intangible assets At 30 June The deferred tax provision at 30 June comprises the following temporary differences Capital allowances in advance of depreciation Arising on intangible assets amortised through the income statement 2014 £ 368,447 (26,175) 1,029 (41,823) –––––––– 299,474 –––––––– –––––––– 2013 £ 443,450 (9,125) 4,750 (70,628) –––––––– 368,447 –––––––– –––––––– 257,651 41,823 –––––––– 299,474 –––––––– –––––––– 331,133 37,314 –––––––– 368,447 –––––––– –––––––– At 30 June 2014 deferred tax has been provided at a rate of 22%. Because of the uncertainty as to when deferred tax timing differences will reverse the Board have decided not to provide for deferred tax using the year end corporation tax rate of 20%. From 1 April 2014 the main rate of Corporation Tax reduces to 20%. If this rate was applied to timing differences at 30 June 2014 the deferred tax provision would reduce by £27,225 to £272,249. The Group has tax losses of approximately £1.7m (2013: £1.7m) to carry forward. The potential deferred tax asset arising on these tax losses of £0.37m (2012: £0.41m) has not been recognised as it is doubtful that they will be utilised in the foreseeable future. 23. Share capital Authorised, allotted, called up and fully paid: 14,866,142 (2012 – 14,502,532) Ordinary shares of 5 pence each Issued and fully paid Ordinary shares of 5p (2012: 0.1p) each at beginning of year New share issue * Ordinary shares of 5 pence each at end of year 2014 £ 2013 £ 743,307 743,307 2014 Number 2014 £ 2013 Number 2013 £ 14,866,142 – 14,866,142 743,307 14,502,536 363,606 743,307 14,866,142 – 725,127 18,180 743,307 43 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 23. Share capital (continued) In 2013, as part of deferred consideration, 363,606 shares were issued to the sellers of CSS Total Security Limited and CSS Locksmiths Limited. This was the last tranche of any such consideration to be satisfied by the issue of shares arising from the sale and purchase agreement. Rights attaching to shares The holders of the ordinary shares of 5 pence each are entitled to receive dividends and a return of capital on liquidation as well as attend and vote at a general meeting of the company. The Group operates CSSG Share Option Scheme 2014 (the Scheme), which is a share option scheme approved by HMRC. The scheme was initiated on 28 May 2014. The Scheme is open to all employees. Options are granted by the Board taking into account the need to motivate, retain and recruit high calibre employees and with regard to the contribution that such employees are expected to make in achieving the Group’s objectives. Employment Options vest and become exercisable on the fifth anniversary of date of grant, and lapse on the earlier of cessation of employment (or 6 months thereafter if options have vested at cessation date) or the 10th anniversary of date of grant. During the current year, 64,000 options were granted. During the year ended 30 June 2013 no options were granted. The current year movement in Share Options is summarised below: Date of Grant 28 May 2014 At 1 April 2013 0 0 No of Options No of Weighted Average At 31 Options Exercise granted in exercised laspsed in March 2014 64,000 64,000 in year – – year 64,000 64,000 No of Options year – 0 Price 0 Weighted Average Exercise Price £0.28 Exercise Price £0.28 £0.28 Date first exercisable Expiry date 28 May 2019 28 May 2024 Options were valued using a Black-Scholes option pricing model. The following assumptions have been used in calculating the fair value of share options: 2014 Valuation method Risk free interest rate Expected life (average years) Expected volatility Dividend yield Black-Scholes 2% 5 60% 0% 44 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 24. Reserves The following describes the nature and purpose of each reserve within equity: Reserve Share Premium Merger Reserve Retained Earnings Description and purpose Amount subscribed for share capital in excess of nominal value less related professional and regulatory fees. The merger reserve arose on the acquisition of the CSS Group to the extent that this was funded by the issue of new shares. Cumulative net gains and losses recognised in the statement of comprehensive income. Ordinary Shares Amount subscribed for share capital at nominal value. Undistributable Reserves The surplus recognised in 2008 on the conversion of ordinary share capital from 5p shares to 0.1p shares. Company Share Option Scheme This represents the change in equity relating to the issue of company share options in the year. 25. Related party transactions Identity of related parties The Parent Company has a controlling related party relationship with its subsidiary companies. The Group has a related party relationship with its directors, executive officers, pension funds and trusts, who with their immediate relatives control 31.7% of the voting shares. Rental of Premises R M Fiorentino and his family are beneficiaries of the County Access Systems Limited Retirement Benefits Scheme from which the Group leases trading premises. The total rental on these premises, which were transacted at arm’s length, was £88,000 (3 months ended 30 June 2012: £88,000). Loan Notes In 2013 the Group held convertible loan notes from Westminster Gardens Holdings Limited. A N Hewson is a director of Westminster Gardens Holdings Limited, but holds no beneficial interest therein. The loan notes were repaid in 2013. Deferred Consideration During the year deferred consideration of £21,650 (2013: £54,000) was paid to Mr R Fiorentino as deferred consideration for the purchase of Alarm Bell Company Limited. At the balance sheet date the total deferred consideration outstanding was £15,949. This is due to be paid within the year and considered to be the fair value. No loans to directors subsisted during the year. 45 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 25. Related party transactions (continued) The following open market purchase of shares by a director occurred during the year. Mr N Hewson Mr R Fiorentino 26. Operating lease commitments 5p shares 18,500 38,947 The Group has annual commitments under non-cancellable operating leases, the most significant of which are detailed below. CSS Total Security Limited has annual lease rental commitment on leased premises of £31,500 on a 10 year lease renewable in 2018. CSS Locksmiths Limited has leases on three trading premises with an annual commitment of £56,500. The leases of two premises are held under formal leases with variable renewal terms. The lease on a third property has not been formalised, but it has been assumed that the company will remain in this premises until at least 30 June 2014. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Land & Buildings No later than 1 year Between 1 and 5 years Over 5 years Other operating leases No later than 1 year Between 1 and 5 years Over 5 years Total 2014 £ 2013 £ 91,600 186,000 66,000 –––––––– 343,600 –––––––– –––––––– 21,347 51,596 – –––––––– 72,943 –––––––– 434,543 –––––––– –––––––– 111,392 186,900 75,000 –––––––– 373,292 –––––––– –––––––– 21,347 51,596 – –––––––– 72,943 –––––––– 446,235 –––––––– –––––––– 46 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 27. Notes supporting the cash flow statement Net changes in working capital (Increase) in inventories Decrease in trade and other receivables Decrease in trade and other payables Cash and cash equivalents Cash at bank and in hand Bank overdraft and other borrowings 2014 £ 2013 £ (2,756) 141,548 (101,506) –––––––– 37,286 –––––––– –––––––– (40,459) 45,566 (100,858) –––––––– (95,751) –––––––– –––––––– 2014 £ 2013 £ 899,693 – –––––––– 899,693 –––––––– –––––––– 677,858 – –––––––– 677,858 –––––––– –––––––– 47 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2014 We have audited the parent company financial statements of Croma Security Solutions Group PLC for the year ended 30 June 2014 which comprise the parent company balance sheet and related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 17 the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion In our opinion the parent company financial statements: • • • give a true and fair view of the state of the Company’s affairs as at 30 June 2014; have been properly prepared in accordance United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • • • • • adequate accounting records have not been kept by the parent company 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. 48 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CROMA SECURITY SOLUTIONS GROUP PLC (continued) Other matter We have reported separately on the Group financial statements of Croma Security Solutions Group PLC for the year ended 30 June 2014. Andrew Howie Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants GLASGOW 5 November 2014 49 COMPANY BALANCE SHEET FOR THE YEAR ENDED 30 JUNE 2014 Assets Fixed assets Investments Current assets Debtors Cash at bank and in hand Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities Issued capital and reserves attributable to owners of the parent Called-up share capital Share premium account Merger reserve Undistributable Reserves Other reserves Profit and loss account Total shareholders’ equity Notes 2014 £ 2014 £ 2013 £ 2013 £ C D E F H H H H H 7,209,100 ––––––––– 7,293,462 7,209,100 ––––––––– 7,293,462 1,354,508 4,235 ––––––––– 1,358,743 (1,002,470) ––––––––– 1,202,977 31,663 ––––––––– 1,234,640 (586,738) ––––––––– 647,901 ––––––––– 7,941,363 ––––––––– ––––––––– 743,307 5,230,276 2,139,454 422,322 – (593,996) ––––––––– 7,941,363 ––––––––– ––––––––– 356,273 ––––––––– 7,565,373 ––––––––– ––––––––– 743,307 5,230,276 2,139,454 422,322 – (969,986) ––––––––– 7,565,373 ––––––––– ––––––––– These financial statements were approved and authorised for issue by the Board of Directors on 5 November 2014 and signed on their behalf by S J F Morley Director Croma Security Solutions Group plc – Company Number: 03184978. The following notes form part of the primary financial statements 50 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 A. Significant accounting policies Basis of accounting The separate financial statements of the Company are presented as required by the companies Act 2006. They have been prepared under the historical cost convention and in accordance with United Kingdom Accounting Standards and law. The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year. Going Concern These financial statements have been drawn up on the going concern basis. The company made a loss for the year of (£375,395) (2013: £(400,591). The company’s activities are funded by long term equity capital. The day-to-day operations are funded by cash generated from trading. In considering the ability of the company to meet its obligations as they fall due, the directors have considered the expected trading and cash requirements of the company until 31 December 2015. The Board remains positive about the retention of customers and the outlook for its main trading operations. The Board’s profit and cash flow projections suggest that the company will meet its obligations as they fall due . The financial statements do not reflect the adjustments that would be necessary were the trading performance of the company to deteriorate and funding from invoice discounting to become unavailable. The financial statements do not include the adjustments that would result if the group was unable to continue as a going concern. Investments Fixed Asset investments in subsidiaries are shown at cost less provision for impairment. Financial instruments Financial assets and financial liabilities are recognised on the company’s balance sheet when the Company becomes a party to the contractual provision of the instrument. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets after deducting all of its financial liabilities. Where the contractual obligations of the financial instruments (including share capital) are equivalent to a similar debt instrument they are classified as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity are debited direct to equity. 51 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2014 A. Significant accounting policies (continued) Taxes Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of timing differences can be deducted. Deferred tax is measured on a non-discounted basis at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. B. Profit attributable to ordinary shareholders The Company has taken advantage of the exemption under Section 408 of the Companies Act 2006 from presenting its own profit and loss account. The loss dealt with in the financial statements of the Company was £375,990 (2013 – loss £400,591) C. Fixed asset investments Shares in subsidiary undertakings £ 10,958,425 3,664,963 84,362 –––––––– 3,749,325 7,293,462 7,209,100 Cost At 30 June 2013 and 30 June 2014 Provision for impairment At 30 June 2013 Charge for the year At 30 June 2014 Net book value At 30 June 2013 At 30 June 2014 52 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2014 C. Fixed asset investments (continued) Company Vigilant Security (Scotland) Limited % ordinary shareholding 100% directly Photobase Limited CSS Total Security Limited CSS Locksmiths Limited 100% directly 100% directly 55% directly, 45% indirectly Nature of business and protection Asset security training Biometric entry systems CCTV & security systems Locksmithing, Keys and Safes During the year Alarm Bell Company Limited was struck off the company register. In order to accurately assess any potential impairment of investments, the carrying value of the investment in all companies transferred is considered together against the future cash flows and net asset position of those companies which received the trade and net assets. D. Debtors Amounts due from subsidiary undertakings Prepayments E. Creditors: Amounts falling due within 1 year Amounts due to subsidiary undertakings Trade creditors Other creditors Other taxes and social security Accruals and deferred income F. Share Capital Authorised, allotted, called up and fully paid: 14,866,142 (2013 – 14,866,142) Ordinary shares of 5 pence each 2014 £ 1,354,508 – ––––––––– 1,354,508 ––––––––– ––––––––– 2014 £ 957,366 – 15,948 6,360 22,796 ––––––––– 1,002,470 ––––––––– ––––––––– 2013 £ 1,190,925 12,052 ––––––––– 1,202,977 ––––––––– ––––––––– 2013 £ 424,520 32,465 91,598 1,852 36,304 ––––––––– 586,738 ––––––––– ––––––––– 2014 £ 2013 £ 743,307 743,307 Issued and fully paid Ordinary shares of 5p (2012: 0.1p) each at beginning of year New share issue * Ordinary shares of 5 pence each at end of year 2014 Number 2014 £ 2013 Number 14,866,142 – 14,866,142 743,307 – 743,307 14,502,536 363,606 14,866,142 2013 £ 725,127 18,180 743,307 53 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2014 F. Share Capital (continued) Rights attaching to shares The holders of the ordinary shares of 5 pence each are entitled to receive dividends and a return of capital on liquidation as well as attend and vote at a general meeting of the Company. Share options During the year the Group instigated an Approved Company Share Option Scheme. Details are in Note 23 of the consolidated accounts. G. Related party transactions Identity of related parties The Parent Company has a controlling related party relationship with its subsidiary companies. The Group has a related party relationship with its directors, executive officers, pension funds and trusts, who with their immediate relatives control 31.7% of the voting shares. The services of certain non-executive Directors were provided to the Company and in the following amounts which are also disclosed in note 7 of the Group accounts: Services provided by Grosvenor Equity Managers Limited for which A N Hewson is a director and which has been accounted for as Directors’ remuneration. Services provided by Coburg Capital Limited for which C McMicking is a director and which has been accounted for as Directors’ remuneration. 2014 £ 18,000 18,000 2013 £ 13,500 15,250 During the year the Company provided administrative services to subsidiary undertakings totalling £191,200 (2013 – £189,767) At 30 June 2014, the Company was owed £155,526 by Vigilant Security Scotland Limited (2013: – £155,526) and £839,240 by Photobase Limited (2013: – £839,240). It owed CSS Total Security Limited £338,198 (2013: – £338,198) The following open market purchase of shares by a director occurred during the year. Mr N Hewson Mr R Fiorentino 5p shares 18,500 38,947 The Company is exempt from disclosing transactions with the Group under FRS 8.3(c) 54 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2014 H. Reserves Share Capital £ 725,127 – – 18,180 –––––––– 743,307 – –––––––– 743,307 –––––––– –––––––– Share premium £ 5,176,644 – – 53,632 –––––––– 5,230,276 – –––––––– 5,230,276 –––––––– –––––––– Merger Reserve £ 2,139,454 – – – –––––––– 2,139,454 – –––––––– 2,139,454 –––––––– –––––––– At 30 June 2012 Loss for the year Loan note redemption Issue of share capital At 30 June 2013 Loss for the year At 30 June 2014 Retained earnings £ (212,190) (400,591) 18,785 – –––––––– (593,996) (375,990) –––––––– (969,986) –––––––– –––––––– Undistri- butable Other reserve Reserves £ £ 422,322 – – – –––––––– 422,322 – –––––––– 422,322 –––––––– –––––––– 18,785 – (18,785) – –––––––– – – –––––––– – –––––––– –––––––– Total Equity £ 8,270,142 (400,591) – 71,812 –––––––– 7,941,363 (375,990) –––––––– 7,565,373 –––––––– –––––––– 55 sterling 164530 

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