Croma Security Solutions Group PLC
Annual Report 2016

Plain-text annual report

CROMA SECURITY SOLUTIONS GROUP PLC REPORT AND FINANCIAL STATEMENTS 30 June 2016 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 auditor’s report for the parent company Page 2 3 5 15 16 19 20 22 23 24 25 26 53 Parent company financial statements 55 - 63 1 COMPANY INFORMATION Directors Registered office (Executive Chairman) S J F Morley (Group Chief Executive) R M Fiorentino (Finance Director) R A Juett ACA (Executive Director) M Whettingsteel (Non – Executive) C N McMicking Lord J W E Percy (Non – Executive) A N Hewson MA FCA (Non – Executive) Unit 6 Fulcrum 4 Solent Way Whiteley Fareham Hampshire PO15 7FT Registered number 03184978 Nominated advisers and brokers WH Ireland Limited 24 Martin Lane London EC4R 0DR Registered independent statutory auditor Nexia Smith & Williamson Cumberland House, 15-17 Cumberland Place, Southampton, SO15 2BG Solicitors Registrars Principal bankers Shoosmiths Russell House, Solent Business Park Whiteley, Fareham Hampshire PO15 7AG 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 www.cssgplc.com 2 CHAIRMAN’S STATEMENT FOR THE YEAR ENDED 30 JUNE 2016 I am pleased to report Croma Security Solutions Group's final results for the year to 30 June 2016. The year has delivered on our core strategy of strong organic growth coupled with innovation and fiscal responsibility. The Group has been enlarged with the acquisition of Access Locksmiths and this business is now firmly embedded. Coupled with the acquisition, the Group has continued to win business in all sectors and across all divisions. Our market has also been extended to the Middle East where we see strong growth potential after winning our initial contracts in the region. Our aim is to build a recognised brand that is synonymous with the provision of the highest level of total security services. We are stringently focused on quality and service where our clients can have all of their security needs served by our Group. This is combined with relentless innovation across all of our divisions. Croma Vigilant has enjoyed another record year with the addition of contracts with the NHS where we have introduced an innovative method of patient safety in one of the UK's largest NHS Trusts. This combined with contract wins with property management and logistics firms has seen a new record level of turnover and operating profit. Croma Vigilant is setting itself apart from the traditional guarding model by setting the standard of front end delivery based on our ex-military ethos. This will result in ongoing contract wins across all UK sectors both private and public. Croma Security has delivered a significant level of new works for Odeon Cinemas and this has resulted in a contract win with another cinema chain. In addition to the leisure industry, Croma Security has continued to win and compete for high end security solutions for high net worth individuals and we are becoming the provider of choice in this community. Croma Security has seen an increase in turnover this year and we see this trend continuing as our strategy develops. Croma Biometrics has been involved with a number of Government initiatives in the UK and Middle East to bring Fastvein to the forefront as a potent biometric high speed human identifier. Identity management is a highly topical area and with our unique Fastvein™ system, we are placed to benefit from this as a Group. We have seen the successful installation of Fastvein into St Mary's Ascot school and this has led to further installations in the independent schools sector. We see the education sector as a key area for identity management through Fastvein™. Fastvein has seen considerable investment from the Group and although the concept is in its early stages of development, we see it is a key part of our unique offering to clients. Croma Locksmiths has expanded to seven retail locations on the south coast following the acquisition of Access Locksmiths Ltd. Our Locksmiths division is now fully integrated with the new business and we see considerable cross selling opportunities within the Group for the corporate locks market. The focus of the Group remains that of delivering sustained growth by our unique offering to the security market. Our aim is to be a group apart, a true one stop offering where clients can have all of their security needs serviced by one vertically integrated Group. The security market remains fragmented and flat footed and we aim to capitalise on this by aggressive marketing and delivery of our services. 3 CHAIRMAN’S STATEMENT (continued) FOR THE YEAR ENDED 30 JUNE 2016 During the year, our Finance Director Alex Tetley resigned to take up a new position and we thank him for his efforts during his time with the Group. We are delighted to welcome back Richard Juett to the role of Finance Director of the Group, to replace Alex. Once again, I would wish to extend our heartfelt thanks to all the employees the Group, whose unstinting hard work has delivered another good set of results, a growing reputation for excellence and most importantly, a happy ship. The Board views the coming year with considerable optimism. Forming a Group of diverse businesses has taken time and effort from our valued team and this is now taking hold and bearing reward for our shareholders. We maintain our aim of providing outstanding security services to our clients and value to our shareholders. We aim to grow and build on our successes of this past year with stringency and financial prudence. Sebastian Morley Chairman 21 November 2016 4 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2016 The Group’s strategic objectives are:     to deliver market leading full service security offerings to the top end of the corporate and residential markets. This will be achieved by maintaining quality of service as a priority, focusing efforts on clients who will appreciate our differentiated offering, and leveraging our brand and client base; to produce consistent growth in clients and financial performance, by maintaining our margins and managing our costs. Acquisitions will be pursued only when they can be seen clearly to add value to the Group without imposing excessive burdens of operational consolidation; to develop and bring to market new technologies where feasible, and; to deliver meaningful shareholder returns. Each company has Key Performance Indicators which are monitored and reported to the executive Directors on a monthly basis. These are discussed below. The Group’s longer term objectives are to grow our core offerings in the UK and abroad until we are the security provider of choice to leading large corporates, to expand our service offering to include e- security, and to develop specific high-end national projects. 2015/16 has seen the Group maintain its plans for growth. Last year mention of future acquisitions was made and Croma is pleased to have purchased “Access Locksmiths Ltd”. This was completed half way through the year and has taken the balance of the year to integrate. A great deal of energy and cost has been expended to rebrand Access as Croma Locksmiths and to merge the business into the Croma Group along with other organisational changes. Growth of the Group over the last three years had been purely organic, and whilst not as fast as originally hoped it has resulted in a solid platform upon which to build. The Board is therefore pleased by the acquisition of Access Locksmiths Ltd and is ready to consider and acquire further businesses which can add to the Group’s service offering, geographic footprint and profitability. 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. The Group also continues developing overseas opportunities in particular in the Middle East. Whilst these require a high level of input, Croma see that this market will be a large contribution to overall future expansion. 5 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 The performance of each business segment is discussed below: Croma Vigilant Croma Vigilant had another successful year. Turnover has grown by more than 14% to £14.29M from £12.50M in 2015, and operating profit for the Company has increased to £0.69M (2015: £0.46M Restated). The focus on delivering a quality premium service is being recognised by clients who place value on a reliable and effective security provider who can act as a partner to them in all aspects of physical security. 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 is the largest revenue contributor to the Group. Whilst the Company did not benefit from the provision of services to the Commonwealth Games as it did with Glasgow 2014, it was successful in securing NHS contracts which Croma Vigilant continue to win. These contracts have not only replaced the additional turnover that the Games provided but they have led to growth in turnover that is sustainable in the longer term. The continued growing reputation for quality of service has led to further client wins, and the Company’s client base is growing as quickly in London and the South East as it is in Scotland, The Midlands and Northern England. The sales effort has been reinforced to target large corporates and NHS Trust Hospitals as ideal clients. Quality of service is demonstrated by the high levels of client retention, and whilst the Company, like all operators, has seen margins continue to come under pressure it has held the line in refusing to compromise on service delivery. Croma Security Croma Security has seen turnover improve with continued orders in the leisure and education sectors. Although client budgets remain tight there is a very promising pipeline. Turnover for the year has risen 12% to £2.27M (2015: £2.0M), with operating profit up to £0.41M (2015: £0.38M). Croma Security has adjusted the sales effort by bringing on board an existing internal and highly experienced engineer. This is allowing the current team to pass over smaller items to a technically capable individual. Croma Security continues to provide a full range of electronic security solutions for a wide range of clients. The Odeon Cinema contract has improved upon last year with more new works placed. This year also saw the start of a further Cinema chain placing similar works with Croma Security for new works and on-going maintenance. Solar farm security installations have continued although at a lower level than expected. 6 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 Croma Biometric - FastVein™ We continue to develop Croma Biometrics and turnover has improved to £0.17M (2015: £0.13M). There has been continued investment in developing new software, client applications and marketing. Whilst development expenditure continues to outstrip revenues, we remain highly confident that the current development and future opportunities justify the on-going investment. We plan to deliver further installations into the education sector and propose marketing to the retail sector as we see an opportunity to assist in the monitoring of staff attendance in addition to controlling access to sensitive areas and offering demonstrable savings to our clients. Croma Locksmiths Croma Locksmiths has seen the largest change this year with the acquisition of a South Coast competitor bringing the total number of retail outlets to seven between Brighton and Poole/Bournemouth. Turnover has increased to £2.31M (2015: £1.18M) to give an overall operating profit of £0.11M (2015: £0.09M). The restructuring, rebranding and customer accreditations associated with the acquisition has impacted profitability negatively, but the ground has been laid to see a return to the expected margins moving forwards, and in the current period this early effort is bearing fruit. Croma Locksmiths will be pursuing a strategy of geographical expansion this coming year, either by opening new stores or acquiring more existing businesses. There is opportunity for further consolidation in the sector. Outlook and priorities The Group remains focused on driving growth, predominantly in the UK and overseas. An enhanced sales team straddling the entire Group is in place and awareness of the Croma brand within the target market is increasing. Croma Group’s web presence continues actively to promote services along with email, social media, and exhibitions. Croma Vigilant continues to see strong evidence that the high quality of their service offering is being well received and that intelligent and discerning companies will pay a premium for a reliable and effective guarding service. Croma Security Systems is predominantly focused on providing integrated and reliable security systems. Corporate clients represent the company’s best opportunities and best returns in terms of turnover and margin. As a highly respected specialist Croma Security is directing some attention towards security systems design and consultancy, an area of great strength which we hope to expand especially with overseas 7 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 clients where our depth of knowledge and experience is not only welcomed but projects with the necessary funding exist. Croma Biometrics will continue to develop FastVein™ in the Education and Retail Sector. In addition overseas resellers will be sought. Hardware is being redesigned on an on-going basis to improve the external appearance and reduce controller hardware size and improve efficiency and costs. Group Financials The Group financials can be summarised as follows: Revenue Gross profit EBITDA Operating Profit Earnings Per Share Net Assets Cash generated from operations Dividend paid per share 2016 £000s 19,031 3,890 588 238 0.96p 10,021 222 0.4p Restated 2015 £000s 15,829 3,276 488 222 1.5p 8,924 286 0.3p The financial results of the Group are broadly satisfactory. Revenue has grown by 20% in the year. This improvement was driven by Croma Vigilant, which has delivered new contracts at steady margins, and by the acquisition of Access Locksmiths Ltd. Although overall gross profit has increased the gross margin has fallen slightly to 20.4% (2015: 20.7%). Tighter margins have contributed to the fall but the main reason is due to our mix of revenue and particularly the impact of the increase in turnover of lower margin guarding business. Operating profit has remained steady with only a modest increase in the year. This has been affected by continued costs relating to the FastVein™ development together with increased amortisation and depreciation charges arising from new investments during the year. 2015 saw the first payment of the Group’s dividend of 0.3p per share which was followed by a further dividend of 0.4p per share paid in January 2016. The Board is aiming to maintain this progressive dividend policy. 8 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 Risk management The Board has put in place a framework of identified risks and risk management processes. Area of risk Specific risk management process Economic & Regulatory The Group operates in a highly regulated sector and must at all times adhere to the highest levels of best practice The Group is actively involved in research and development of new security technologies which will need to comply with legislative requirements Operational Risk The Group is audited by relevant regulatory bodies to validate control procedures. Internal review of processes monitors ongoing compliance. FastVein™ has been assessed by the Centre for Protection of National Infrastructure(CPNI). There is a risk of a shortfall of trained engineers / planners The Group maintains an ongoing review of staffing and manning levels. There is a risk of subcontractors not maintaining the high standards of the group. Financial All subcontractors are assessed in accordance with Security Industry Authority (SIA) requirements. 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 Credit Risk - the risk that clients will not pay on time, increasing cash requirements All clients are subject to initial and ongoing credit checks, and ongoing credit control. Overdue debts are monitored closely. Liquidity Risk - the risk that the Group has insufficient cash to meet obligations as they fall due The Group maintains sufficient cash or cash equivalents to meet 45 days of forecast liabilities Fair Value Risk - the risk that assets and liabilities on the Group’s Balance sheet are misstated. The Group keeps the fair value of all long-term assets and liabilities under annual review to identify any potential impairment adjustments required. 9 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 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 Corporate Governance Code for Small and Mid-Size Quoted Companies (the QCA Code) 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. The Group is governed by the Board of Directors, comprising four Executive Directors and three Non- Executive Directors. The Group adheres to the requirements of the QCA Code to keep the roles of Chairman and Chief Executive separate. Executive Directors: S J F Morley – Executive Chairman Responsible for the overall direction of the Group, for ensuring the Board operates efficiently, and for shareholder relations and for Corporate Governance. Mr Morley also oversees the daily operations of Croma Vigilant. R M Fiorentino – Chief Executive Responsible for overseeing the implementation of the Group’s strategy, and for delivering the coordinated service approach. In addition, Mr Fiorentino oversees daily operations of Croma Security, and is leading the development of FastVein™. R A Juett – Finance Director Responsible for overall financial strategy and for ensuring timely production of management and statutory information. M Whettingsteel Oversees daily operations and development of Croma Locksmiths. Non-Executive Directors: A N Hewson Chairman of the Audit Committee and a member of the Remuneration Committee. C McMicking Chairman of the Remuneration Committee and a member of the Audit Committee. Lord James Percy A member of both the Audit Committee and a member of the Remuneration Committee 10 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 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. Any Director needing independent professional advice in the furtherance of his duties may obtain this advice at the expense of the Group. Board meetings The Board meets monthly in person or by telephone to review and discuss strategy, financial results, business planning, sales, operations and HR matters. Directors’ attendance at Board and Committee meetings during the year was as follows: S J Morley R M Fiorentino A Tetley A N Hewson R A Juett M Whettingsteel C N McMicking Lord James Percy Board Meetings Audit Committee Remuneration Committee Attended Eligible Attended Eligible Attended Eligible 9 9 6 9 3 6 8 5 9 9 6 9 3 6 9 9 - - - 2 2 1 - - - 2 2 2 - - - 1 1 1 - - - 1 1 1 Internal control and risk assessment 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. 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. 11 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 In the context of the Group’s overall strategy the Board undertakes risk assessment as well as 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 and risk assessment 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 meets regularly and covers 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 the Board in discharging its collective legal responsibility 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 auditor may attend Audit Committee meetings. 12 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 Key performance indicators Indicator Performance Croma Vigilant Sales Sales were ahead of budget reaching a record £14.3M for the year. The division continues to bid for and win new work on a regular basis. Performance is monitored by the Operations director and business development manager reporting to the Chairman. Gross margin Gross Margin remains a highly relevant measure in a low margin industry and came in ahead of expectations at £1.9M or 13.5% of sales. Customer retention Cash Croma Security Retention of customers nearing the end of their contract is a priority of the operations director. The increase in turnover testament to our quality service offering. Croma Vigilant continues to be cash generative for the Group with borrowing facilities and cash resources being utilised to fund acquisitions and Group overheads. At 30 June 2016 borrowings were £431K but this is well within the capacity of the bank facility. Sales Sales have seen a 12% increase on 2015 up to £2.3M from £2.0M Customer retention The company monitors customer satisfaction through surveys and website feedback. Customer retention has remained strong at over 90%. Engineers Cash The engineer market is very active and engineer retention and remuneration is constantly monitored. Despite cash resources being used to help fund Group activity Croma Security has been cash generative throughout the year with year cash balances up to £222K. 13 STRATEGIC REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2016 Croma Locksmith sales are monitored weekly for shop sales, and monthly for commercial sales. With the increased number of retail branches more emphasis is placed on individual performance of the outlets with regular visits and meetings with branch managers. Shop footfall continues to slow with trend shifts to on-line. The company is actively employing sales techniques to meet this change in consumer practice including an improved e-commerce website and state of the art trade counters. . The company is looking to expand its operation throughout the UK to enable it to be more convenient for commercial users and to compete nationally for service contracts with skilled staff. To justify the continued development expenditure, the order pipeline for FastVein™ is actively monitored and although steady in 2016 more growth will be needed for the future. Croma Locksmiths Sales Shop footfall Competitive environment Croma Biometrics Order pipeline Roberto Fiorentino Chief Executive 21 November 2016 14 BOARD OF DIRECTORS FOR THE YEAR ENDED 30 JUNE 2016 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 35 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 and most recently FastVein™. Richard Juett- Finance Director Richard is a Chartered Accountant and re-joined the Board in April 2016. Richard has previously held finance roles in industry with B&Q Plc, Kia and in practice with Ernst & Young and BDO. Richard oversees the financial affairs of the Group and its operating subsidiaries. Mark Whettingsteel – Executive Director Mark joined the board in December 2015. Mark is a career locksmith with 30 years’ experience and is a member of the Master Locksmiths Association. He trained as a younger man with a predecessor of Croma Locksmiths before going on to start his own locksmithing business in 1998. He grew this business to become the largest independent locksmith on the South Coast which is now part of the Group. Nick Hewson MA FCA - 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 and Chairman of the Audit Committee 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 James 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. 15 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2016 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 2016. Principal activities The Group’s principal activities are the provision of manned guarding and asset protection services (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 £0.153M (2015: £0.22M). During the year a dividend of 0.4p per share was proposed and paid. (2015: 0.3p per share) Directors The Directors who have held office since 1 July 2015 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 A Tetley (resigned 29 April 2016) R A Juett (appointed 18 April 2016) M Whettingsteel (appointed 8 December 2015) 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 2016 had the following beneficial interest in the ordinary shares of the Company: S J F Morley R M Fiorentino M Whettingsteel R A Juett A N Hewson C McMicking Lord James Percy 2016 535,000 3,750,000 2,027,027 - 203,565 46,000 285,000 2015 535,000 3,750,000 - - 189,855 46,000 279,500 16 DIRECTORS' REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2016 Major shareholdings 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 2016: State Street Nominees Limited Fitel Nominees Limited HSBC Global Custody Nominee (UK) Limited Oceanwood Opportunities Master Fund Chase Nominees Limited Platform Securities Research and development 8.6% 6.7% 6.6% 4.7% 3.9% 3.8% Research and development expenditure, including the element of wages and salaries and amounted to approximately £82,000 (2015: £43,000). 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 There were charitable donations of £4,650 (2015: £2,720). There were no political donations in the current or prior year. 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. 17 DIRECTORS' REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2016 Dividends An interim dividend of 0.4p was declared on 4 December 2015 and paid on 3 January 2016. The total cost was £0.059M. Auditors On 27 July 2016 Grant Thornton UK LLP gave notice of resignation as auditors of the Group. Nexia Smith & Williamson Audit Limited were appointed by the Board to fill a casual vacancy and a resolution proposing their reappointment will be put to the shareholders at the forthcoming Annual General Meeting. Statement of disclosure to auditor Each of the persons who is a Director at the date of approval of this report confirms that: a) so far as they are aware, there is no relevant audit information of which the company's auditors are unaware; and b) 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 R A Juett Finance Director 21 November 2016 18 STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR THE YEAR ENDED 30 JUNE 2016 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 including FRS 102, the Financial Reporting Standard applicable in the UK). 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 R A Juett Finance Director 21 November 2016 19 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2016 We have audited the group financial statements of Croma Security Solutions Group PLC for the year ended 30 June 2016 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 and accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 19 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 Financial Reporting Council’s (FRC’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 2016 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 20 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF CROMA SECURITY SOLUTIONS GROUP PLC (Continued) FOR THE YEAR ENDED 30 JUNE 2016 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. 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 2016. Julie Mutton Senior Statutory Auditor For and on behalf of Nexia Smith &Williamson Statutory Auditors and Chartered Accountants Cumberland House 15-17 Cumberland Place Southampton SO15 2BG 21 November 2016 21 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 June 2016 2016 £000’s As restated 2015 £000’s Notes 3 19,031 15,829 3 14 13 5 8 9 (15,141) (12,553) 3,890 3,276 (3,675) 23 238 (3,081) 27 222 588 (109) (241) 238 488 (81) (185) 222 (61) (32) 177 (24) 153 153 190 33 223 223 0.96 0.95 1.49 1.49 Continuing operations: Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating profit Analysed as: Earnings before interest, tax, depreciation and amortisation Depreciation Amortisation of intangible assets Operating profit Finance expenses Profit before tax Tax Profit for the year from continuing operations Total comprehensive income 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) 22 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 June 2016 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 Current liabilities Trade and other payables Borrowings Total liabilities Net assets Issued capital and reserves attributable to owners of the parent Share capital Share premium Merger reserve Retained earnings Share options Total equity Notes 12 13 14 15 16 18 22 19 19 19 23 24 24 24 24 As restated As restated 2016 £000’s 7,213 1,401 442 9,056 643 3,446 392 4,481 13,537 (303) (140) (443) (2,433) (640) (3,073) (3,516) 10,021 844 6,129 2,139 900 9 10,021 2015 £000’s 5,867 1,041 332 7,240 237 2,290 839 3,366 10,606 (244) (40) (284) (1,371) (27) (1,398) (1,682) 8,924 743 5,230 2,139 806 6 8,924 2014 £000’s 5,867 1,142 330 7,339 223 2,483 900 3,606 10,945 (299) (5) (304) (1,731) (167) (1,898) (2,202) 8,743 743 5,230 2,139 628 3 8,743 These financial statements were approved and authorised for issue by the Board of Directors on 21 November 2016 and signed on their behalf by S J F Morley Director Croma Security Solutions Group plc – Company Number: 03184978 . 23 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 Cash flows from operating activities Profit before taxation Depreciation and amortisation Loss/(Profit) on sale of plant and equipment Net changes in working capital Financial expenses Corporation tax paid Net cash (used)/generated from operations Cash flows from investing activities Purchase of business including acquisition costs net of cash acquired 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 Utilisation/(Repayments) of invoice discounting facility Dividends paid Interest paid Net cash generated/(used) in financing activities Net (decrease) in cash Cash and cash equivalents at beginning of period Cash and cash equivalents at end of the period Notes 2016 £000’s As restated 2015 £000’s 177 350 10 (672) 61 (36) (110) (712) (73) 67 (718) (38) 539 (59) (61) 381 (447) 839 392 190 266 (2) (118) 32 (83) 285 - (133) 49 (84) (35) (167) (45) (15) (262) (61) 900 839 27 26 24 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 June 2016 Attributable to Owners of the Parent At 1 July 2014 as previously stated Prior year adjustments At 1 July 2014 as restated Profit for the year as restated Dividends paid Share option scheme charge At 30 June 2015 as restated New share issue Profit for the year Dividends paid Share option scheme charge At 30 June 2016 Share Capital Share premium Merger Reserve Retained earnings Undistributable reserve Share Options Total Equity £000’s 743 - 743 - - - 743 101 - - - 844 £000’s 5,230 - 5,230 £000’s 2,139 - 2,139 - - - 5,230 899 - - - 6,129 - - - 2,139 - - - - 2,139 £000’s 341 287 628 223 (45) - 806 - 153 (59) - 900 £000’s 422 (422) - - - - - - - - - - £000’s 3 - 3 - - 3 6 - - - 3 9 £000’s 8,878 (135) 8,743 223 (45) 3 8,924 1,000 153 (59) 3 10,021 The following notes form part of the primary financial statements 25 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 December 2017. 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 2015 and June 2016 respectively, and were renewed until June 2017 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 2016 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 a division of CSS Total Security Limited; ‘Croma Locksmiths’, which comprises the business of CSS Locksmiths Limited and Croma Locksmiths & Security Solutions Limited and Croma Biometrics which is a division of CSS Total Security Limited. 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 collectively. 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. 26 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. Accounting Policies (continued) - Revenue in respect of security personnel services is recognised over the term of the contract or, where sales contracts are on a “cost plus” basis, at the point at which manpower services have been provided. - 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 statement of financial position. - 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     over the duration of the legal agreement 3 - 10 years 4 years 3 years licenses customer relationships royalty income Capitalised Research & Development – – – – 27 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. Accounting Policies (continued) (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 IAS 38 are met. 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. 28 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. Accounting Policies (continued) 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 - 4% on cost Plant and equipment - 25% on cost Computer equipment - 33% on cost Office equipment - 15% on cost Motor vehicles - 25% on cost 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). 29 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. Accounting Policies (continued) 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. 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 the “Share Options” reserve. 30 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 2016 was £35k (2015: £29k). The effect of discounting on these financial instruments is not considered to be material. Trade receivables are analysed at Note 16. Trade receivables are recorded at their amortised cost less any provision for doubtful receivables. 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. 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) 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 premiums payable on redemptions, as well as any interest or coupon payable while the liability is outstanding. (b) Trade payables and other short-term monetary liabilities, are initially recognised at their fair value and subsequently at their amortised cost. 31 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 considers its capital to comprise its ordinary share capital, share premium, merger reserve, and accumulated retained earnings. 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. 32 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. Accounting Policies (continued) New and amended standards No new standards, interpretations and amendments, effective for the first time from 1 July 2015, have had a material effect on the financial statements of the Group. Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 July 2016 or later periods and have not been early adopted. It is anticipated that these new standards, interpretations and amendments currently in issue at the time of preparing the financial statements may have a material effect on the consolidated financial statements of the Group, however the extent of this has not yet been assessed. - - - IFRS 9 Financial Instruments IFRS 15 Revenue recognition IFRS 16 Leases 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 statement of financial position date was £7,213k. Details relating to the allocation of goodwill to cash generating units are given in note 12. Other Intangibles. Other Intangible assets, including brands, customer relationships, software licences and brand royalties are amortised over their expected useful lives, as assessed at the time of their acquisition. The expected useful lives have been reviewed and found to be reasonable, and no adjustment is felt to be needed. Research and development. Included in intangible assets is capitalised research and development, relating to costs incurred in the research and development of FastVein™ time and attendance. This project has been assessed against the requirements of IAS 38. In particular, future markets and profitability have been estimated and found to meet those requirements. 33 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 3. Segmental Reporting The Directors consider the following four business segments best represent the business segments of the Group. 2016 Business segments Croma Vigilant (Guarding) Segment revenues Gross profit Administrative expenses Amortisation Depreciation Profit/(loss) on disposal Other operating income Segment operating profit/(loss) Segment assets 2016 Segment (liabilities) 2016 Segment net assets 2016 Additions assets to non-current £000’s 14,286 1,927 (1,197) - (40) - - 690 3,312 (1,444) 1,868 21 2015 (restated) Business segments Croma Vigilant (Guarding) Segment revenues Gross profit Administrative expenses Amortisation Depreciation Profit/(loss) on disposal Other operating income Segment operating profit/(loss) Segment assets 2015 Segment (liabilities) 2015 Segment net assets 2015 Additions assets to non-current £000’s 12,497 1,610 (1,103) - (43) (2) - 462 2,458 (901) 1,557 60 Croma Biometric (FastVein™) Croma Locksmiths (Locks) Central Costs Total £000’s 170 50 (253) (50) - - - (253) 58 - 58 - £000’s 2,307 842 (621) (110) (27) - 23 107 5,205 (839) 4,366 129 Croma Biometric (FastVein™) Croma Locksmiths (Locks) £000’s 127 41 (222) (22) - - - (203) 118 - 118 32 £000’s 1,176 589 (440) (77) (6) - 27 93 2,016 (190) 1,826 1 £000’s - - (714) - - - - (714) 577 (678) (101) £000’s 19,031 3,890 (3,315) (241) (109) (10) 23 238 13,537 (3,516) 10,021 - 298 Central Costs £000’s - - Total £000’s 15,829 3,276 (513) (2,813) - - - - (513) 1,740 (198) 1,542 - (185) (81) (2) 27 222 10,606 (1,682) 8,924 133 Croma Security Systems (Alarms) £000’s 2,268 1,071 (530) (81) (42) (10) - 408 4,385 (555) 3,830 148 Croma Security Systems (Alarms) £000’s 2,029 1,036 (535) (86) (32) - - 383 4,274 (393) 3,881 40 34 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 3. Segmental Reporting (continued) Revenues Security personnel services Keyholding income Sale of goods & Installation Services Monitoring maintenance & Service fees Other income 4. Expenses Auditors’ remuneration: Audit of parent company and consolidated financial information payable to Nexia Smith & Williamson Audit of parent company and consolidated financial statements payable to Grant Thornton Audit of company’s subsidiaries pursuant to legislation payable to Grant Thornton Research and development Amount of inventory expensed as cost of sales Operating lease expense Depreciation Amortisation Loss/(profit) on disposal of property, plant and equipment 2016 2015 £000’s 14,102 141 4,170 575 43 19,031 £000’s 12,309 146 2,637 694 43 15,829 2016 £000’s 2015 £000’s 32 - - - 82 1,922 230 109 241 10 32 13 43 1,322 139 81 185 (2) 35 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 5. Finance Income and Expense Finance Income Interest on cash deposits Finance Expense Interest paid on factoring arrangements 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 The average monthly number of persons (including Directors) employed by the Parent Company during the period was: Management and administration 2016 £000’s 2015 £000’s - - 53 8 61 27 5 32 2016 No. 2015 No. 41 526 567 32 481 513 £000’s £000’s 13,443 85 1,185 14,713 11,017 - 1,026 12,043 No. 4 No. 3 36 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 7. Directors' and key management personnel remuneration 2016 S J F Morley R M Fiorentino A Tetley (resigned 29 April 2016) A N Hewson M Whettingsteel (appointed 8 December 2015) R Juett (appointed 18 April 2016) Lord James Percy C McMicking 2015 S J F Morley R M Fiorentino A Tetley A N Hewson Lord James Percy C McMicking Estimated value of benefits £000’s £000’s Fees Pension £000’s Salary £000’s 117 136 74 - 56 7 18 1 2 1 - - - - - - - 18 - - - - 408 - 4 18 36 Estimated value of benefits Salary £000’s £000’s £000’s Fees Pension £000’s 102 136 75 - 18 - - - - - - 331 - - - - - 18 - 18 36 Total £000’s 118 138 75 18 56 7 18 18 448 Total £000’s 102 136 75 18 18 - - - - - - - - - - - - - - - - 18 367 No share based payments were made to Directors in 2016 or 2015. 37 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 8. Taxation Analysis of tax charge in the year Current year tax UK corporation tax charge on profit for the year Adjustments for prior periods Total current tax Deferred tax (Note 23) Current year Adjustments for prior periods Tax on profit on ordinary activities 2016 As restated 2015 £000’s £000’s 71 (1) 70 (39) (7) 24 31 (9) 22 (45) (10) (33) Factors that may affect future tax charges Finance Act 2016 includes legislation to reduce the main rate of corporation tax from 20% to 19% from 1 April 2017 and to 17% from 1 April 2020. The bill had Royal Assent on 15 September 2016. The tax assessed for the year is lower than (2015 – lower than) the standard rate of corporation tax in the UK of 20% (2015 – 20.75%). The differences are explained below Factors affecting the tax charge for the year Profit before taxation 2016 £000’s 177 As restated 2015 £000’s 190 Profit multiplied by the standard rate of taxation of 20 % (2015: 20.75%) 35 39 Effects of: expenses not deductible for tax purposes non-taxable income adjustment to tax charge for previous periods Total tax charge/ (credit) for the year 38 2 (5) 7 (17) (8) (62) 24 (33) NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 9. Earnings per share 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. As restated 2015 2016 £000’s £000’s Numerator Earnings for the year on continuing operations and used in basic and diluted EPS 153 223 Denominator Weighted average number of shares used in basic EPS (000’s) 16,005 14,866 Weighted average number of shares used in diluted EPS (000’s) 16,012 14,872 Basic earnings per share Diluted earnings per share: Pence Pence 0.96 0.95 1.49 1.49 The difference between the number of shares used in the basic EPS calculation and the diluted EPS calculation relates only to share options. 10. Dividends On 4 December 2015 the Directors proposed an interim dividend of 0.4p per share. This dividend was paid on 4 January 2016. The total cost was £59k. 39 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 11. Business Combinations (Acquisitions) On 8 December 2015, Croma Security Solutions Group Plc purchased 100% of the share capital of Access Locksmiths Limited. The acquisition gives the Group a stronger presence on the South Coast with seven retail locations across that area. The fair value of net assets acquired is set out below: Consideration Less: the fair value of assets: Customer relationships Fixed assets Stock Trade and other debtors Cash Add: the fair value of liabilities Other creditors Goodwill £’000 2,000 (601) (98) (430) (274) (38) 787 1,346 The residual difference between the total consideration paid and the net value of the recognised assets acquired has been capitalised as goodwill. The goodwill recognised on the acquisition is mainly attributable to its workforce skills, property locations and business reputation. Satisfied by: Issue of new shares Cash paid in the year Cash paid after the year end Contingent consideration £’000 1,000 700 100 200 2,000 Net cash flow arising on the acquisition was £750k which represents the initial consideration paid and legal costs. The contingent consideration of £200k is due within one year and is adjustable depending on the level of sales achieved within a defined period. The range of potential payments of contingent consideration could vary from £0 to £200k, however the more likely outcome would be to pay £200k. If the acquisition of the shares of Access Locksmiths Limited had been completed on the first day of the financial year, group revenues for the period would have increased by £1,725k and the group profit attributable to equity holders of the parent would have increased by £67k. The business of Access Locksmiths Limited contributed £1,690k to the Group’s revenue however due to a poor period of trading there was a loss of £10k in the period after acquisition. 40 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 12. Goodwill Cost At 1 July 2014 & 30 June 2015 Additions At 30 June 2016 Impairment At 1 July 2014 & 30 June 2015 Charge for the year At 30 June 2016 Net book value At 30 June 2015 At 30 June 2016 Impairment testing Goodwill £000’s 5,867 1,346 7,213 - - - 5,867 7,213 During the year, goodwill was reviewed for impairment in accordance with IAS 36 "Impairment of Assets". No impairment charge occurred in the current year (2015: £Nil) 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: Croma Security Systems CSS Locksmiths Croma Vigilant Total Carrying value 2016 Carrying value 2015 £000’s £000’s 3,339 2,478 1,396 7,213 3,339 1,132 1,396 5,867 41 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 12. Goodwill (continued) Forecasts, growth and discount rates The recoverable amount relating to Croma Vigilant, Croma Security and Croma Locksmiths was determined based on value-in-use calculations, covering a detailed forecast for the five-year period to 30 June 2021, followed by extrapolation of expected cashflows for the remaining useful lives using a 2% growth rate. The present value for the expected cashflows was determined using a discount rate of 11.4% (2015: 11.4%) to each year, to reflect appropriate adjustments relating to market risk, specific risk factors and the weighted average cost of capital. Cashflow assumptions Croma Vigilant The business has achieved strong growth since June 2012, and 2016 turnover is 66.4% higher than in 2012. The Board however accept the assumptions below: Revenue to grow at 2% per annum (2015: 4%) Direct costs to increase at 2.5% per annum (2015: 2.5%) Indirect costs to increase at 2% per annum (2015: 3%)     Based on these assumptions the net present value of future cashflows was £4,950k Croma Security and Croma Locksmiths Both business have retained the growth forecasts adopted for the prior year based on the assumptions below:    Revenue growth of 3% (2015: 3%) Direct cost growth of 2.5% (2015: 2.5%) Indirect costs growth of 2% (2015: 2%) Based on these assumptions, net present value of future cashflows is: Croma Security - Croma Locksmiths £4,655k £3,829k - Sensitivities The Directors have applied sensitivity analysis to future cashflows to estimate the likelihood of future impairment. This analysis shows that even if long term growth were turn negative by 1% (which the Directors consider unlikely), there would be sufficient headroom to suggest no impairment adjustment would be necessary. 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 2016. 42 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 13. Other intangible assets Fair value At 30 June 2014 Additions At 30 June 2015 Additions At 30 June 2016 Amortisation At 1 July 2014 Charge for the year At 30 June 2015 Charge for the year At 30 June 2016 Carrying value at 30 June 2015 Carrying value at 30 June 2016 R&D £000’s Customer relationships Brands Software Licences Brand Royalties Total £000’s £000’s £000’s £000’s £000’s - 84 84 - 84 - - - 29 29 84 55 1,126 295 222 - - - 1,126 295 222 601 - - 1,727 295 222 399 126 525 155 680 601 1,047 66 29 95 29 124 200 171 50 22 72 22 94 150 128 31 - 31 - 31 17 8 25 6 31 6 - 1,674 84 1,758 601 2,359 532 185 717 241 958 1,041 1,401 The other intangible assets additions relate to the acquisition of Croma Locksmiths & Security Solutions (formerly Access Locksmiths) in December 2015. The balance of the intangible assets were acquired with the business of CSS Total Security and CSS Locksmiths in March 2012. 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 11.40% (2015: 11.40%) (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 neither the business of CSS Total Security Limited nor the business of CSS Locksmiths Limited or Croma Locksmiths & Security Solutions. The useful lives as noted in the accounting policies were considered appropriate. Customer relationships with a net book value of £480K have a remaining life of 4.5 years. Customer relationships with a net book value of £567K have a remaining life of 9.5 years. 43 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 13. Other intangible assets (continued) 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 6 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 licence 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 2016. The useful life of the asset as noted in the accounting policy note was considered appropriate. 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. Research and Development The Group has been researching the feasibility and commercial applicability of biometric identity solution based around Finger Vein recognition. In June 2015 the project to develop a specific time and attendance package was completed. This constituted a discrete research area within the overall programme. Since year end there have been sufficient sales to give confidence that all the conditions required under IAS 38 Intangible Assets have been met. The Directors have assessed forecast cashflows for the next 12 months and consider there is no impairment to the assets at the balance sheet date. The estimated useful life, over which the asset will be amortised, is three years. 44 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 14. Property, plant and equipment Cost At 1 July 2014 Additions Disposals At 30 June 2015 Additions Assets acquired on business combination Disposals At 30 June 2016 Depreciation At 1 July 2014 Charge for the year On disposals At 30 June 2015 Charge for the year On disposals At 30 June 2016 Carrying value at 30 June 2015 Carrying value at 30 June 2016 Fixtures, fittings, Plant and equipment £000’s Freehold property £000’s Motor vehicles £000’s Total £000’s 67 13 - 80 - 41 - 121 32 2 - 34 4 - 38 46 83 308 11 - 319 36 12 - 367 210 20 - 230 34 - 264 89 103 355 109 (95) 369 164 45 (225) 353 158 59 (45) 172 71 (146) 97 197 256 730 133 (95) 768 200 98 (225) 841 400 81 (45) 436 109 (146) 399 332 442 Motor vehicles include the following amounts where the assets are held under a hire purchase agreement: At 30 June - Cost Accumulated depreciation Net book value 2016 £000’s 261 (67) 194 2015 £000’s 122 (49) 73 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 lies with the Group. 15. Inventories Raw materials and consumables 2016 £000’s 2015 £000’s 643 237 Raw materials and consumables of £1,922k (2015: £1,322k) were expensed through the comprehensive income statement during the year 45 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 16. Trade and other receivables Trade receivables Allowance for doubtful debts Net trade receivables Other receivables Prepayments Total trade and other receivables 2016 £000’s 3,203 (35) 3,168 24 254 As restated 2015 £000’s 2,067 (29) 2,038 73 179 3,446 2,290 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 (recovered) /written off during the year 2016 £000’s 2015 £000’s 14 (20) 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. 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. Age Profile Debts past due but not impaired Under 60 days 60- 90 days Over 90 days 2016 As restated 2015 £000’s 481 36 13 530 £000’s 78 9 107 194 46 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 17. Financial Risk Management Objectives 2016 Trade and other receivables Cash Total 2015 As restated Trade and other receivables Cash Total 18. Cash and cash equivalents Cash at bank and in hand 19. Trade and other payables Trade payables Other payables 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 Finance lease liabilities (due in less than 1 year) Invoice discounting facilities Finance lease liabilities (due in 1 to 5 years) Other payables > 1 year 47 Loans and Receivables £000’s Non-financial assets £000’s 3,192 392 3,584 Loans and Receivables £000’s 2,111 839 2,950 254 - 254 Non-financial assets £000’s 179 - 179 2016 £000’s 392 2015 £000’s 839 2016 £000’s 585 391 976 840 54 563 As restated 2015 £000’s 238 66 304 578 - 489 2,433 1,371 2016 £000’s 101 539 640 £000’s 56 84 140 2015 £000’s 27 - 27 £000’s 40 - 40 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 20. Interest rate and liquidity risk Interest rate sensitivity Weighted average effective interest rate Less than 1 month or on demand 1 –12 months 1 – 3 years Total 2016 Fixed rate Trade payables Other payables Finance lease obligations Accruals and deferred income Floating rate Invoice discounting facility Total % £000’s £000’s £000’s £000’s 4.7 11.4 - 2.8 592 - - - 592 300 84 101 563 55 29 56 - 947 113 157 563 539 1,587 - 140 539 2,319 Weighted average effective interest rate Less than 1 month or on demand 1 –12 months 1 – 3 years Total 2015 As restated Fixed rate Trade and other payables Finance lease obligations Accruals and deferred income Floating rate Invoice discounting facility Total % £000’s £000’s £000’s £000’s 0 10.3 0 2.8 304 - - - 304 - 27 489 - 516 - 40 - - 40 304 67 489 - 860 21. Contingent Liabilities There are no contingent liabilities either at the year-end or up to the date of signing the financial statements. 48 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 22. Deferred Tax The movement on the deferred tax account is shown below: At 1 July 2015 Adjustment for prior year Accelerated capital allowances Short term temporary differences 2016 £000’s 244 (7) (39) - 2015 £000’s 299 (55) - - Arising on fair value adjustments recognised on business combination At 30 June 2016 105 303 - 244 The deferred tax provision at 30 June comprises the following temporary differences Capital allowances in advance of depreciation Arising on fair value adjustments recognised on business combination 198 105 303 244 - 244 At 30 June 2016 deferred tax has been provided at a rate of 18%. The Group has tax losses of approximately £1.8M (2015: £1.8M) to carry forward. The potential deferred tax asset arising on these tax losses of £322K (2015: £360K) 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: 16,893k (2015 - 14,866k) Ordinary shares of 5 pence each 2016 £000’s 2015 £000’s 844 743 Issued and fully paid 2016 Number 000’s 2016 £000’s 2015 Number 000’s 2015 £000’s Ordinary shares of 5 pence each at beginning of year 14,866 743 14,866 Ordinary shares of 5 pence each at end of year 16,893 844 14,866 743 743 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. 49 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 23. Share Capital (continued) During the current year, no options were granted. During the year ended 30 June 2015, no options were granted. During the current year 15,000 options lapsed. During the year ended 30 June 2015, no options lapsed. Share options in issue at 1 July 2015 Lapsed in year Share options in issue at 30 June 2016 57,000 (15,000) 42,000 Exercise price in respect of all share options 28.5 pence The fair value of Employment Options was estimated at the date of grant using a Black-Scholes option pricing model. The following assumptions have been used in calculating the fair value of share options: Valuation method Risk free interest rate Expected life (average years) Expected volatility Dividend yield At date of grant Black-Scholes 2% 5 60% 0% The charge to the Income statement in the year was £3k (2015: £3k) 24. Reserves The following describes the nature and purpose of each reserve within equity: Reserve Description and purpose Share Premium Merger Reserve Retained Earnings Ordinary Shares Company Share Option Scheme 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 less amounts distributed to shareholders. Amount subscribed for share capital at nominal value. This represents the change in equity relating to the issue of company share options in the year. 50 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 40.7% 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 and ex-trading premises. The total rental on these premises was £88,000 (2015: £88,000). Acquisition consideration On 8 December 2015 the Company acquired the entire share capital of Access Locksmiths Limited from M Whettingsteel. The consideration comprised a fixed element of £1.8M, satisfied by the issue of 2,027,027 new ordinary shares and £800,000 in cash. In addition, there is up to a further £200,000 which may be payable in cash after 31 December 2016, subject to meeting earn out targets. During the year all of the new ordinary shares were issued and £700,000 of the cash element was settled. At the year-end £100,000 of the cash element and £200,000 (the maximum amount payable) of the earn-out consideration is held in “other creditors”. Director’s loans As part of the acquisition mentioned above the Group took on a loan of £162,000 from M Whettingsteel carrying an interest rate of 5.13% per annum. This loan is being repaid in equal monthly instalments of £7,000. During the year £49,000 was repaid to M Whettingsteel together with £3,759 of interest. At the year-end £113,000 remained outstanding. Salaries paid to close family members During the year salaries totalling £95,794 (2015 £75,517) were paid to close family members of key management personnel 26. Operating lease commitments 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 51 2016 £000’s 2015 £000’s 167 416 404 987 86 76 - 162 1,149 74 186 66 326 19 46 - 65 391 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 27. Notes supporting the cash flow statement Net changes in working capital (Increase) in inventories (Increase)/Decrease in trade and other receivables Increase/(Decrease) in trade and other payables Cash and cash equivalents Cash at bank and in hand 28. Prior year restatement 2016 £000’s (406) (1,156) 890 (672) 2016 £000’s 392 392 As restated 2015 £000’s (14) 193 (297) (118) 2015 £000’s 839 839 A review of reserves has been undertaken and as a result a reserve of £422k previously disclosed as an undistributable reserve has been reclassified as distributable and transferred to retained earnings. The Board has also identified two significant overstatements in the published accounts for the year ended 30 June 2015. Firstly, following an administrative error, an intercompany re-charge was processed in Croma Vigilant but the corresponding cost not reflected in Croma Group. Profit before tax was overstated by £142k as a result. Secondly, also in Croma Vigilant, after introducing improved electronic processes to record employee’s accrued holiday entitlement, it was found that the accrual for holiday pay at 30 June 2015 was understated by £196k. Of this amount, £27k related to the year ended 30 June 2015 and £169k related to periods ending before 1 July 2014. Profit before tax was overstated by the same amount. Procedures are now in place to prevent a recurrence of these errors but the Board considers the adjustments are significant and accordingly the adjustments after associated tax relief have been dealt with in these accounts by restatement of the prior year comparatives and segmental analysis. 29. Subsidiary audit exemption The wholly-owned subsidiaries of Croma Security Solutions Group Plc: Vigilant Security (Scotland) Limited, Photobase Limited, CSS Total Security Limited, CSS Locksmiths Limited and Croma Locksmiths and Security Solutions Limited are exempt from the requirements of Companies Act 2006 relating to the audit of individual accounts by virtue of section 479A. 52 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2016 We have audited the parent company financial statements of Croma Security Solutions Group PLC for the year ended 30 June 2016 which comprise the parent company Statement of Financial Position, Cash Flow Statement, Statement of Changes in Equity 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) including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. 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 19 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 Financial Reporting Council’s (FRC’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 at 30 June 2016 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. 53 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CROMA SECURITY SOLUTIONS GROUP PLC (continued) FOR THE YEAR ENDED 30 JUNE 2016 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. Other matter We have reported separately on the Group financial statements of Croma Security Solutions Group PLC for the year ended 30 June 2016. Julie Mutton Senior Statutory Auditor For and on behalf of Nexia Smith & Williamson Cumberland House 15-17 Cumberland Place Southampton SO15 2BG 21 November 2016 54 STATEMENTOF FINANCIAL POSITION FOR THE YEAR ENDED 30 June 2016 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 Profit and loss account Total shareholders' equity Notes D E F G C 2016 £000’s 9,135 9,135 1,362 21 1,383 2015 £000’s 7,209 7,209 3,153 18 3,171 (671) (1,065) 712 9,847 844 6,129 2,139 735 9,847 2,106 9,315 743 5,230 2,139 1,203 9,315 These financial statements were approved and authorised for issue by the Board of Directors on 21 November 2016 and signed on its behalf by S J F Morley Director Croma Security Solutions Group plc – Company Number: 03184978. 55 STATEMENTOF CASH FLOWS FOR THE YEAR ENDED 30 June 2016 Cash flows from operating activities (Loss)/profit before taxation Provision against investments Net changes in working capital Net cash generated from operations Cash flows from investing activities Purchase of investments Dividends received Net cash used in investing activities Cash flows from financing activities Dividends paid Net cash used in financing activities Net (decrease) in cash Cash and cash equivalents at beginning of period Cash and cash equivalents at end of the period 2016 £000’s (409) 124 777 492 (750) 320 (430) (59) (59) 3 18 21 2015 £000’s 1,794 (1,735) 59 - - - (45) (45) 14 4 18 56 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 June 2016 Share Capital Share premium Merger Reserve Retained earnings Undistributable reserve At 30 June 2014 as previously stated £000’s 743 £000’s 5,230 £000’s 2,139 £000’s (968) £000’s 422 Prior Year Adjustment - - - 422 (422) At 30 June 2014 as restated 743 5,230 2,139 (546) Profit for the year Dividends paid At 30 June 2015 as restated Loss for the year Dividends paid Shares issued At 30 June 2016 The following notes form part of the primary financial statements - - - 5,230 2,139 - - 899 - - - 743 - - 101 844 1,794 (45) 1,203 (409) (59) 6,129 2,139 735 57 Total Equity £000’s 7,566 - 7,566 1,794 (45) 9,315 (409) (59) 1,000 9,847 - - - - - - NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 A. Significant accounting policies First time adoption of FRS 102 The financial statements have been prepared under the historical cost convention and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland and the Companies Act 2006. The first date at which FRS 102 was applied was 1 July 2014. In accordance with FRS 102 the Company has: - provided comparative information; - applied the same accounting policies throughout all periods presented; - retrospectively applied FRS 102 as required - applied certain optional exemptions and mandatory exemptions as applicable for first time adopters of FRS 102. The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the Company's accounting policies. The policies applied under the entity's previous accounting framework are not materially different to FRS 102 and have not impacted on equity or profit or loss. 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 an operating loss for the year of (£409k) (2015: profit £1,794k)). The Company also received dividends from its subsidiary undertakings of £320k (2015:£2,230k). 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 2016. 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. 58 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2016 A. Significant accounting policies (continued) 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. Taxes Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the statement of financial position 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. 59 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2016 B. Judgements in applying accounting policies and key sources of estimation uncertainty Estimates and judgements are evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. 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. Impairment of investments Determining whether investments are impaired requires an estimation of future cash flows expected to arise from the investment and a suitable discount rate in order to calculate the present value. The present values of those cash flows enable an estimate to be made as to whether or not there has been any impairment. C. 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 statement of the Company was £409k (2015: profit £1,794k) D. Fixed asset investments Shares in subsidiary undertakings £000’s 7,209 2,050 9,259 - (124) (124) 9,135 7,209 Cost At 1 July 2015 Additions At 30 June 2016 Impairment At 1 July 2015 Charge for the year At 30 June 2016 Net book value at 30 June 2016 Net book value at 30 June 2015 60 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2016 D. Fixed asset investments (continued) Company % ordinary shareholding (Scotland) 100% directly Vigilant Security Limited Photobase Limited 100% directly 100% directly CSS Total Security Limited 55% directly, 45% indirectly CSS Locksmiths Limited 100% directly Croma Locksmiths & Security Solutions Limited Nature of business Asset protection and security training Biometric entry systems CCTV & security systems Locksmithing, Keys and Safes Locksmithing, Keys and Safes 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. E. Debtors Amounts due from subsidiary undertakings, repayable on demand Prepayments F. Creditors: Amounts falling due within 1 year Amounts due to subsidiary undertakings, repayable on demand Other creditors Other taxes and social security Accruals and deferred income 2016 £000’s 1,350 12 1,362 2015 £000’s 3,130 23 3,153 2016 £000’s 246 358 67 - 671 2015 £000’s 1,029 32 4 - 1,065 61 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2016 G. Share Capital Authorised, allotted, called up and fully paid: 16,893k (2015 - 14,866k) Ordinary shares of 5 pence each Issued and fully paid 2016 £000’s 844 2015 £000’s 743 2016 Number 000’s 2016 2015 Number 2015 £000’s 000’s £000’s Ordinary shares of 5 pence each at beginning of year Ordinary shares of 5 pence each at end of year 14,866 16,893 743 844 14,866 14,866 743 743 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 option scheme In 2014 the Group instigated and Approved Company Share Option Scheme. Details are in Note 23 of the consolidated accounts. 62 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2016 H. 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 40.7% 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 and Carlin Ventures Limited for which A N Hewson is a director and which has been accounted for as Directors’ remuneration. 2016 £000’s 2015 £000’s 18 18 Services provided by Coburg Capital Limited for which C McMicking is a director and which has been accounted for as Directors’ remuneration. 18 18 During the year the Company provided administrative services to subsidiary undertakings totalling £316k (2015 - £110k Restated) At 30 June 2016, the Company was owed £720k by Vigilant Security Scotland Limited (2015: (£156k)), £100k by Photobase Limited (2015: £839k), £299k by CSS Total Security Limited (2015: (£338k)) and £12k by Croma Locksmith & Security Solutions (2015: £nil). At 30 June 2016 the Company owed CSS Locksmiths Limited £299k (2015: £nil) During the year the Company received dividends from its subsidiary companies of: Vigilant Security Services (Scotland) Limited CSS Total Security Services Limited Total £ 150k £ 170k £ 320k I. Prior year adjustment A review of reserves has been undertaken and as a result a reserve of £422k previously disclosed as an undistributable reserve has been reclassified as distributable and transferred to retained reserves. 63 

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