Croma Security Solutions Group PLC
Annual Report 2020

Plain-text annual report

CROMA SECURITY SOLUTIONS GROUP PLC REPORT AND FINANCIAL STATEMENTS 30 June 2020 CONTENTS Company information Chairman’s statement Strategic report Corporate Governance 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 4 14 22 23 26 27 31 32 33 34 35 63 Parent company financial statements 66 - 74 COMPANY INFORMATION Directors Registered office S J F Morley (Executive Chairman) R M Fiorentino (Group Chief Executive) R A Juett ACA (Finance Director) P Williamson (Executive Director) (Non-Executive) C N McMicking A N Hewson MA FCA (Non-Executive) Unit 7 & 8 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 Neville House Steelpark Road Halesowen B62 8HD Lloyds Banking Group plc PO Box 1000 London BX1 1LT Svenska Handelsbanken AB 3 Thomas More Square London E1W 1WY Website www.cssgplc.com 1 CHAIRMAN’S STATEMENT FOR THE YEAR ENDED 30 JUNE 2020 Introduction I am pleased to be able to confirm a better than expected performance by the Group, with the results for the full year exceeding our earlier guidance. Like many at the outset of the pandemic our reaction was one of caution, and we suspended our interim dividend payment, closed our retail stores and worked to conserve cash and protect the business. As events unfolded it became clear the business was going to be able to weather the crisis reasonably safely, and while some areas such as retail would naturally be affected, other areas would prosper. Ultimately, Covid-19 did impact the results for the year, but our operations remain largely intact and the Board is confident in the Group’s ability to continue to trade successfully through this crisis which is reflected in our decision to re-instate the interim dividend and pay a final dividend of 1.2p representing an increase of 9% over the prior year. I would also like to make a particular mention of the way our teams have pulled together during a very challenging period, which has been the key factor behind our ability to continue to operate so successfully. So, on behalf of the Board, I would like to thank all our employees for their commitment and flexibility during an extraordinary period. Strategy for Growth The strategic direction for Croma is unchanged. Our focus is on establishing Croma as the British security brand in Britain. Two years ago, there was a marked shift in demand for the Group’s services, driven by an increased and perceived level of risk across society arising from a mix of terror incidences and rising crime levels. The response from both the public and private sector was to increase the protection of their assets and themselves by opting for premium security services as offered by Croma. This created an opportunity to expand the Group’s market position and commence establishing a national network of Croma Security Centres. The Centres have evolved from the Group’s retail stores to provide the full range of the Group’s services from manned guarding to CCTV, intruder alarm and advanced security systems as well as high security locks. Whereas previously stores focused on the consumer market only, the Croma Security Centres now sell successfully into both commercial and domestic markets. Currently, the Group has 10 centres and is actively seeking to acquire independent locksmith stores or small chains in suitable locations to be integrated into the Croma Security centre network. During 2020 the pandemic has slowed the Group’s ability to complete transactions but also added to the pipeline of future opportunities. At the heart of the Group’s security activities is a strong ex-military ethos. It is this ethos that ensures Croma provides a premium level approach to every aspect of delivering security services and solutions. Perhaps the best example of the Company’s ethos is through the approach of the Group’s largest business, the manned guarding division, Croma Vigilant. The industry as a whole has a poor reputation for providing low paid and lowly motivated security officers. By contrast, Croma’s security officers are capable and highly trained with the skillsets to manage a range of scenarios. Providing a smart, premium service has enabled us to set new standards across the industry for the provision of manned guarding. The final element to our strategy for growth is the incorporation of technology and innovation into the security solutions we provide. From using the latest in biometrics recognition technology to introducing a new front of house security service called PROception, we are very focused on leading our industry in developing modern security solutions. 2 CHAIRMAN’S STATEMENT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 Trading Performance With the backdrop of operating alongside the pandemic, all three divisions performed resiliently in the year under review. Trading levels were slightly lower than the prior year but the underlying performance of all the businesses is sound. Croma Vigilant, our manned guarding division performed well. While revenues contracted overall, this was partially offset by an increase in project work. Critically, the division secured two major contract wins and extensions in the year with Savills and a well-known London focused property company which together are worth £6.3 million annually. PROception is the emerging jewel in the crown, enabling the team to present existing and new clients with a new approach to safeguarding buildings that integrates security into front of house services. The trading performances of both Croma Security Systems and Locksmiths were naturally also affected by the pandemic but overall, given the store closures forced upon us during the period, they performed resiliently. Croma Biometrics remains a significant opportunity for the Group with FastVein™ coming to the forefront as a potent biometric high-speed human identifier. The impairment referred to in note 11 of these accounts was largely driven by an increase in our cost of capital to 12.7% (2019: 11.6%). Nevertheless our balance sheet remains strong with no significant borrowings (other than lease liabilities) and cash at the year-end of £4.1m (2019:1.7m). Dividend Reflecting strong cashflow over the year, the Board is pleased to recommend a final dividend to shareholders of 1.2p per share (total 1.95p per share for the year) and subject to approval at the Annual General Meeting to be held on 25 November 2020, the final dividend will be paid on 27 November 2020 to all shareholders on the register at the close of business on 13 November 2020. The shares will be marked ex-dividend on 12 November 2020. Outlook An extraordinary year did not derail our business but instead the Group has adapted well to the new challenges enabling us to maintain our services fully. This is testimony to the strength in depth of the Group and to its contingency planning when client services were maintained despite significant numbers of staff in quarantine or furloughed. This was a test for our Group as it was for all companies and I believe we passed. This bodes well for the near future as we continue to operate under restrictions, and we are now confident in our ability to do so. Importantly, we have also shown our ability to win material new mandates during the period, and since the year end the business is trading well. Taken together, we believe we are well positioned to make good progress for the year ahead. Sebastian Morley (Oct 20, 2020 15:38 GMT+1) Sebastian Morley Chairman 20 October 2020 3 STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2020 Operational Review The Group’s strategic objectives are:     to deliver market leading full-service security offerings to some of the largest corporations and government departments. This is achieved by maintaining quality of service as a priority, focusing on meeting the full range of our clients’ security needs, and leveraging both our brand and our client base; to produce consistent growth in 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; to develop and bring to market new technologies, and; to deliver attractive 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. The maintenance and expansion of solutions to the present client base is fundamental. The Group continues to expand the services to long-term 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 performance of each business segment is discussed below: Croma Vigilant Croma Vigilant, our largest division, generated sales of £27.0m (2019: £28.5m) and operating profit of £1.1m (2019: £1.4m). Covid-19 was responsible for some contraction of sales which were partially offset by increased project work including keyholding and patrols in new areas due to the pandemic. A critical factor in achieving this result was the ability of the division to adapt to the new challenges arising from Covid-19 and one of the advantages of managing a business with a strong military ethos is that there is within the management team a familiarity with adapting to a crisis situation. The Company had in the ordinary course of managing the business run a series of business continuity scenarios in December 2019 which were directly applicable to providing the operational response in the last six months. As a result, despite having over 100 security staff in self isolation at one time, the Company was still able to deliver its premium guarding services to all existing clients and critically meet the increased demand created by Covid-19. This was achieved whilst implementing all safety precautions set out by the UK government and providing the necessary PPE workwear. Contracted revenues over a period exceeding one month represented approximately 84% of income, ensuring that the Company continues to have good visibility over the reliability of future revenues. There was a similar split in income to previous years between private and public, remaining at approximately two thirds/one third respectively. Project work remains an important income stream and while it is often higher margin, it is less predictable. Our focus is on securing longer-term contracts, which are a better basis upon which to build the 4 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 business for the future, good examples of which are the two larger contracts won during the year under review together worth £6.3 million annually. Croma Vigilant provides manned guarding for assets and individuals and now employs over 850 security personnel throughout the UK. Fundamental to the division’s success is the military ethos that pervades all aspects of the way the division is run, and all contact with customers. Alongside this approach is a focus on innovation, and a fundamental change for the division and its future has been the creation of PROception. Led by ex-policewoman Ruth McGowan, PROception is the Group’s innovative new front of house concept, making the modern reception part of a building’s security strategy. PROception provides security trained receptionists to both manage the front desk and play an active role in security and is transforming the way manned security services are delivered in offices, hotels and public institutions. There is no doubt that the response to PROception amongst our customers has been very positive and that we are behind a transformation in the way many ‘front-of-house’ services will be managed going forward. This is translating into an expanded and often higher margin role for Croma Vigilant by incorporating PROception into a total manned guarding security solution. Croma Vigilant is part of the Community Safety Accreditation Scheme enabling the division to provide private security within communities using mobile and foot patrol officers. This continues to be an area of growth as local councils and local communities take action to control their neighbourhoods. Croma Vigilant’s reputation is growing in this area though our ability to provide a highly disciplined force of security personnel able to support the local police. The first months of the new financial year have started positively and while Covid-19 restrictions do remain in place we are now confident in our ability to work within them. Croma Security Systems Croma Security Systems recorded sales of £2.46m (2019: £2.70m) and an operating profit before impairment of £0.28m (2019: £0.34m). In support of the Group’s focus on providing total security solutions, Croma Security Systems continues to provide a full range of electronic security solutions including CCTV, high security locks to FastVein™ biometrics technology for high speed human identification. During the financial year Croma Security Systems successfully gained a licence from the Financial Conduct Authority (“FCA”) and is now able to provide product and services to certain customers on a deferred payment or credit basis. Croma Locksmiths Croma Locksmiths, which operates through 10 security centres on the South Coast of the UK and centrally through the Group, delivered a resilient performance with sales of £2.89m (2019: £3.42m) and operating profit before impairment of £0.36m (2019: £0.48m). As a result of Covid-19 all stores closed on 23 March 2020 and reopened on a phased basis from May 20. Since re-opening trading has been positive and retail sales and footfall are moving back towards pre-Covid-19 levels. 5 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 Under the Group’s strategy to become the British Homeland security brand through establishing a national chain of modern security centres, this division has evolved substantially over the past 18 months. All retail outlets have been converted into security centres and offer the full range of Croma’s security solutions from manned guarding, CCTV, intruder alarm and advanced security systems as well as high security locks. The focus is no longer to cater for the security needs of the individual consumer, but instead the security centres are able to provide sophisticated security solutions for both domestic and commercial customers, if needed, drawing upon all the resources and services of the larger Group. In the last 18 months, the Company has acquired three locksmith stores which have all been converted into security centres. The opportunity to acquire further stores has been slowed by the pandemic but the market is highly fragmented and there are opportunities coming available as independent store owners choose to retire or the market environment makes a sale the preferred option. The Group has a clear set of acquisition criteria which based on the progress of the first acquisitions are working well. Currently, the store network is focused on affluent areas close to London and in the South of England. Trading in the security centres is returning to normal following re-opening and unless there is further disruption from Covid-19 the division is well placed to continue to expand. Croma Biometrics Croma Biometrics trades as a division of Croma Security and recorded turnover of £121k (2019: £101k). Our FastVein™ biometrics technology provides significant future potential for the Group. Currently deployed across the retail, education and construction sectors it provides customers with quick, easy to use, accurate and cost-effective data. Group Financials The Group financials can be summarised as follows: Revenue Gross profit Gross margin % EBITDA Other operating income Impairment of goodwill Operating profit (Loss)/earnings per share Net assets Cash generated from operations Cash and cash equivalents Dividend per share in relation to the year 2020 £000's 32,321 5,516 17.1% 1,754 615 (857) 136 (0.90p) 11,692 3,044 4,076 1.95p 2019 £000's 34,599 6,490 18.8% 1,871 - - 1,449 7.82p 11,990 462 1,729 1.8p Due to a reduction in higher margin project work and also the impacts of the Covid-19 crisis (mainly to our Locksmith and Security divisions), gross profit reduced by 15% to £5.5m (2019: £6.5m). However, some divisions of the Group benefited from various Government support initiatives with furlough and local authority grant income of £0.6m included in other operating income. 6 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 The reduction in trade debtors and other receivables by £1.7m was the main contributory factor to the increase in cash generated from operations and the boost in cash and equivalents to £4.1m. With cashflow remaining robust, the Group has not considered it necessary to avail itself of the various Coronavirus loan support initiatives available to it, including the Coronavirus Large Business Interruption Loan Scheme. Operating profits, earnings per share and net assets were all impacted by an impairment charge of £0.9m against the goodwill of our Security and Locksmiths divisions. This is discussed in more detail at note 11 to the accounts. Without this adjustment, which the Board consider to be a one-off, the Group would report earnings per share of 4.8p. With all divisions continuing to trade profitably and showing positive cashflow, the Board is pleased to be able to maintain its progressive dividend policy and recommends a final dividend to shareholders of 1.2p per share (2019:1.1p). Risk management The Board has put in place a framework of identified risks and risk management processes. Regulatory environment The Group operates in a highly regulated sector and is audited and accredited by a number of regulatory bodies including the SIA, NSI, and CHAS. An inability to respond and adapt to changes in the sector and comply with the regulatory requirements would adversely affect our business. Controls and mitigating strategies Our regulatory compliance is monitored by key members of staff who work with external consultants to maintain our processes and procedures at the required standards. Liquidity and funding If needed, the group has appropriate borrowing facilities in place for its short-term liquidity and long-term funding. Controls and mitigating strategies The group finance director is responsible for reviewing our banking covenants and capital structure. Robust budgets and cashflow forecasts are prepared and presented to the Board. A good relationship is enjoyed with our banks. Health and safety environment Instances of non-compliance with Health & Safety and Environmental regulations could expose our people, the environment and our reputation. Controls and mitigating strategies Responsibility for health and safety compliance is delegated to experienced members of staff who work with external consultants. Training is provided to all employees. 7 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 Risk management (continued) Fraud and uninsured losses A significant fraud or uninsured loss could damage the financial performance of our business. Controls and mitigating strategies Systems, policies and procedures are in place to segregate duties and minimise any opportunity for fraud. Timely management reporting of identified anomalies. Where possible, our insurance strategy minimises other risks. Customer Service The failure of our customer services could undermine our business performance. Controls and mitigating strategies We undertake regular customer satisfaction surveys with unsatisfactory comments being addressed. Any complaints received at Board level are dealt with on a timely basis by the affected operating division. Cyber Security Failure of the Group’s IT systems and the security of our internal systems, data and our websites can have significant impact to our business. Controls and mitigating strategies Responsibility for all our IT systems is delegated to our in-house IT department who implement and monitor cyber security across the Group. Credit Risk If our customers do not pay on time, our cashflow and liquidity may be compromised. Controls and mitigating strategies Responsibility for credit control is delegated to experienced staff in our operating divisions. Through invoice discounting (when needed) we can obtain funding of up to 90 days on our sales ledger and while there continue to be instances where customers have settled beyond these terms, this has not caused us any difficultly. Covid-19 Pandemic The COVID-19 crisis, which affected the entire market, has tested the resilience preparedness of the Group. Controls and mitigating strategies Immediately following the announcement of lockdown in March 2020, the Board formed a crisis management team which now meets on a weekly basis to monitor business operations, weekly sales, cashflow and debt collection. The Group rapidly provided the capacity and capability for more staff to work from home which has continued beyond full lockdown to the present day. 8 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 Executive Directors: S J F Morley – Executive Chairman Responsible for the overall direction of the Group, for ensuring the Board operates efficiently, for the strategic direction and forward order book of Croma Vigilant and for shareholder relations and for Corporate Governance. 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, Croma Locksmiths and Croma Biometrics. R A Juett – Finance Director Responsible for overall financial strategy and for ensuring timely production of management and statutory information. P Williamson Oversees daily operations and development of Croma Vigilant. Non-Executive Directors: A N Hewson Chairman of the Audit Committee and a member of the Remuneration Committee. C N McMicking Chairman of the Remuneration Committee and a member of the Audit Committee. Matters reserved for the Board The Board reserves formulation, dissemination and implementation of strategy to itself. 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. 9 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 Board meetings The Board normally meets formally on a monthly basis, usually in person but more recently by video conference to review and discuss strategy, financial results, business planning, sales, operations and HR matters. The Board has also been meeting weekly on a more informal basis and by video conference since the commencement of the lockdown in March 2020. Directors’ attendance at formal Board and Committee meetings during the year was as follows: Board Meetings Audit Committee Eligible Attended Eligible Attended Remuneration Committee Attended S J Morley R M Fiorentino A N Hewson R A Juett P Williamson C N McMicking 10 11 11 11 10 11 11 11 11 11 11 11 - - 2 - - 2 - - 2 - - 2 - - 2 - - 2 Eligible - - 2 - - 2 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. 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. 10 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 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 normally encouraged to attend and vote at our Annual General Meeting, however due to Covid-19 restrictions, this will not be possible for the forthcoming AGM. Section 172 statement Section 172 of the UK Companies Act 2006 requires Directors to act in a way they consider, in good faith, would most likely promote the success of the Group for the benefit of its members as a whole. In doing this the Directors are required to have regard to the interest of the Group’s employees and other stakeholders, including the impact of its activities on the community, environment and the Group’s reputation, when making decisions. Details on how the Board operates and the way Directors reach decisions, including some of the matters discussed during the year and the key stakeholder considerations that were central to those discussions, are included in the Corporate Governance Report on pages 14 to 22. The Board considers that the impact of the Group’s operations on the community and environment are minimal. However, measures including the regular replacement of company vehicles so that our fleet meets the most up to date emission standards; occupation of modern energy efficient premises; route planning to minimise company mileage; and encouraging employees to work from home where possible, so as to reduce their carbon footprint; are all matters which are given importance. 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. 11 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 Key performance indicators Indicator Croma Vigilant Performance Sales Sales were £27.0m for the year which although down on the prior year, represents a good performance in the current environment. The division continues to bid for and win new work on a regular basis and the continued promotion of our PROception offering has yielded new work and helped to retain work from our more larger customers, who increasingly demand this service. Performance is monitored by development manager reporting to the Chairman. the Operations director and business Gross margin Customer retention Largely due to the expected reduction in higher margin project work, gross margin was £3.3m which is down from the record £3.9m seen in the prior year. The industry remains highly competitive, and the gross margin performance of each contract is monitored closely to ensure cost savings are maximised using new technology and ways of working. Retention of customers nearing the end of their contract is a priority of the operations director and the stability in turnover is testament to our quality service offering. The majority of revenue is from contracts with renewal dates of between 1 and 5 years (see note 3) Cash Croma Vigilant continues to be cash generative with borrowing facilities which remain unused along with positive cash resources at the year-end of £2.7m. Croma Security Systems (including Croma Biometrics) Sales Impacted by Covid-19 sales have seen 7% reduction to £2.5m, from £2.7m in the prior year. Biometric sales are stable at £0.1m. Customer retention Engineers We continue to invest in our sales team and actively market our Systems business through our chain of security centres. Customer retention remains good, with our largest customers, two national cinema chains, delivering contracted revenues of £0.8m. The engineer market remains very active and engineer retention and remuneration is constantly monitored. Croma Security has maintained its pool of engineers during the year, so this has not been a constraint to its business development. Cash Croma Security has remained cash generative and at the year-end cash balances are at £0.3m. 12 STRATEGIC REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 Croma Locksmiths Sales and retail performance Using in-house developed EPOS software, sales and footfall are monitored on a daily basis for retail, and monthly basis for commercial sales. Emphasis is placed on individual performance of the outlets with regular visits and meetings with branch managers. In a difficult year, impacted by Covid-19, sales fell by 15% in the year to £2.9m. Our strategy, which has been put on hold while Covid-19 continues, is to develop our existing geographic coverage by expanding our branch network and to gain more profitable commercial contracts on the back of this. Cash Croma Locksmiths has remained cash generative and at the year-end cash balances are at £1.0m. Roberto Fiorentino Roberto Fiorentino (Oct 20, 2020 15:41 GMT+1) Roberto Fiorentino Chief Executive 20 October 2020 13 CORPORATE GOVERNANCE FOR THE YEAR ENDED 30 JUNE 2020 Statement of Corporate Governance The Company (and thereby its group (the “Group”)) is ultimately managed by the Board of directors of the Company (the “Directors” or “Board”), who (individually and as a group) are responsible for running the Company for the benefit of its shareholders in accordance with their fiduciary and statutory duties. The Board comprises, the Executive Chairman; S J F Morley, the Chief Executive Officer; R M Fiorentino, two Executive Directors and two Non-Executive Directors. The Biographies of the Directors are set in this report on page 22 and on the website at www.cssgplc.com. These show the range of business and financial experience upon which the Board can call. The Board’s goal is to ensure that its membership should be balanced between Executives and Non-Executives and have the appropriate skills and experience and knowledge of the business. The Board recognises the special position and role of the Chairman under the QCA (“Quoted Companies Alliance”) Corporate Governance Code and has approved the formal division of responsibilities between the Chairman and Chief Executive. Chairman The Chairman is responsible for the leadership of the Board and ensuring its effectiveness, and the Chief Executive manages the Group and has the prime role, with the assistance of the Board, of developing and implementing business strategy. Non-Executives One of the roles of the Non-Executive Directors under the leadership of the Chairman is to undertake detailed examination and discussion of the strategies proposed by the Executive Directors, so as to ensure that decisions are in the best long-term interests of shareholders and take proper account of the interests of the Group’s other stakeholders. The Chairman ensures that meetings of Non-Executive Directors without the Executive Directors are held. The QCA guidelines acknowledge for growing companies it may not be possible for boards to meet the definition of “independence” for Non-Executive Directors, however it sets out that it is important for the board to foster an attitude of independence of character and judgement. Based on the QCA guidelines the Board concludes that the Non-Executives are independent in terms of character and judgement in how they execute their role as Non-Executive Directors. The Board is mindful of the threat to independence and actively manages the potential risk to ensure that the Non-Executives provide the independent constructive challenge to help develop the Board’s proposals on strategy. 14 CORPORATE GOVERNANCE (continued) FOR THE YEAR ENDED 30 JUNE 2020 Board Committees The Board has three standing committees (the “Committees”): the Audit Committee, the Remuneration Committee and the Executive Committee. The Terms of Reference for each of the Committees are available on the Company’s website. The Board does not have a formally established nominations committee. Any nominations are considered and recommended by the full Board (and are subject to a shareholder vote at the next Annual General Meeting). Rules concerning the appointment and replacement of Directors of the Group are contained in the Articles of Association (“Articles”). Amendments to the Articles must be approved by a special resolution of shareholders. Under the Articles, all Directors are subject to election by shareholders at the first Annual General Meeting following their appointment, and to re-election thereafter at intervals of no more than three years. Committees of the Board Executive Committee The Executive Committee consists of the Executive Directors under the chairmanship of Mr Morley and is responsible for the development of strategy, annual budgets and operating plans linked to the management and control of the day-to-day operations of the Group. The Executive Committee is also responsible for monitoring key commercial opportunities and relationships, day to day stakeholder engagement and for ensuring that the Board policies are carried out on a Group-wide basis. Audit Committee The Audit Committee consists of the Non-Executive Directors; A N Hewson and C N McMicking. The Committee meets at least twice a year under the Chairmanship of Mr Hewson who is a Fellow of the Institute of Chartered Accountants in England and Wales and has relevant financial experience. Whilst Mr Hewson has been a member of the Board for more than ten years, the Board nevertheless considers that Mr Hewson fulfils the roles of Audit Chair and NED with independence of character and judgment and has concluded that it is appropriate to retain the financial experience, corporate memory and knowledge of the business possessed by Mr Hewson in his role as Chairman of the Audit Committee. The Audit Committee’s duties include monitoring internal controls throughout the Group, approving the Group’s accounting policies, and reviewing the Group’s interim results and full year financial statements before submission to the full Board. The Audit Committee also reviews and approves the scope and content of the Group’s annual risk assessment programme and the annual audit and monitors the independence of the external Auditors. The Audit Committee acts to ensure that the financial performance of the Group is properly recorded and monitored, and in fulfilling its role it meets annually with the Auditors and reviews the reports from the Auditors relating to accounts and internal control systems. 15 CORPORATE GOVERNANCE (continued) FOR THE YEAR ENDED 30 JUNE 2020 The Group does not have an independent Internal Audit function, as it is not considered appropriate given the scale of the Group’s operations. However, the Group operates internal peer reviews, with a scope of evaluating and testing the Group’s financial control procedures, to standardise processes around best practice. Any significant issues are reported to the Chairman of the Audit Committee and shared with the external Auditors as appropriate. The Group Finance Director and the external Auditors attend meetings of the Audit Committee by invitation. The Committee may also hold separate meetings with the external Auditors, as appropriate. Remuneration Committee The Remuneration Committee consists of the Non-Executive Directors; Mr McMicking and Mr Hewson. The Committee meets at least twice a year under the Chairmanship of Mr McMicking. The purpose of the committee is to review the performance of the full time Executive Directors and to set the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of the shareholders. In fulfilling this responsibility, the Remuneration Committee is responsible for setting salaries, incentives and other benefit arrangements of Executive Directors and overseeing the Group’s employee share scheme. The Remuneration Committee has engaged previously with external advisers to establish a remuneration plan going forward, based on budgets established by management and approved by the Committee, with a plan to remunerate management measured against targets in excess of the budgets. Directors’ remuneration is disclosed at note 7. Members of the Remuneration Committee do not participate in decisions concerning their own remuneration. Frequency of meetings Where possible, the Board meets on a formal basis every month, and during the Covid-19 crisis every week on an informal basis. Relevant information is distributed to Directors in advance of the meetings. The Board makes decisions on all material matters including long term and commercial strategy, annual operating and capital budgets, capital structure and financial and internal controls. The Group has a formal schedule of matters reserved to the Board which is periodically reviewed and approved by the Board. Evaluating board performance The Board has a number of sources of information from which it judges its own performance and that of the individual Directors, and these include but are not limited to: i. ii. iii. iv. v. vi. financial performance indicators including, revenue, order book (including contract wins and losses), gross margin, net margin, earnings per share and cash flow; the Company’s share price; reports from external auditors; shareholder feedback; customer feedback; and employee feedback. All these factors are considered, and action taken to improve performance as appropriate. 16 CORPORATE GOVERNANCE (continued) FOR THE YEAR ENDED 30 JUNE 2020 Communication with shareholders The Board attaches great importance to providing shareholders with clear and transparent information on the Group’s activities, strategies and financial position, in addition to having regard to its obligations as a quoted public company and the AIM Rules. The Group holds meetings with significant shareholders on a regular basis and regards the Annual General Meeting as a good opportunity to communicate directly with shareholders via an open question and answer session. The Group lists contact details on its website should shareholders wish to communicate with the Board. All announcements and results, including those released via RNS and RNS Reach, are available on the Group’s website. Risk management and internal controls The Board reviews and approves an Annual Budget and Business Plan prior to the start of each financial year. This includes reviewing the key strategic, operational and financial objectives for the year, together with a detailed financial budget. The Executive Committee is accountable to the Board for delivery of the Annual Business Plan. The Executives report performance against the plan on a monthly basis, which includes detailed analysis of budgetary variances and updated financial projections. Each Executive Director is responsible for identifying and managing the risks relating to their respective areas of responsibility, including the risks relating to strategy, the Annual Business Plan, and day-to-day business. To provide a framework for the delivery of the Group’s strategy and plans, the Executive Committee has developed an organisational structure with clear roles and responsibilities, and clear lines of reporting. In addition to day-to-day risk management, the Executive Directors formally assess the major business risks and evaluate their potential impact on the Group. These risks and the reporting of the risk assessment is included in the annual report and accounts within the Strategic Report. City code on takeovers and mergers The Company is subject to the City Code on Takeovers and Mergers 17 CORPORATE GOVERNANCE (continued) FOR THE YEAR ENDED 30 JUNE 2020 QCA Corporate governance code In accordance with AIM rule 26 the Company has adopted the QCA code and sets out below how it has adopted and complied with the QCA code. 1. Establish a strategy and business model which promotes long-term value for shareholders The strategy and business model of the Group is expressed more clearly in the Chairman’s Statement and the Strategic Report. In summary, the Group seeks to build a recognised brand that is synonymous with the provision of the highest level of security services. The Group is stringently focused upon delivering outstanding service delivery for all our clients, and in such a way that in time our clients can have all their security needs met by one service provider, ourselves. The values we adopt are largely driven by our ex-military ethos, and we pride ourselves on endeavouring to engage employees that can deliver a capable, well trained highly motivated service, with as many as possible with a military background. We believe that this approach will deliver market leading full-service security offerings to the top end of the corporate and residential markets, as well as leading public service providers such as utilities, hospitals and schools. The business has a reasonable appetite for risk and we actively engage in developing new technologies to assist our service provisions even where such new technologies have a long development phase. Our markets are highly regulated, audited and accredited by a number of regulatory bodies, including the SIA, NSI and CHAS, all of which require our Board and operational employees to be personally regulated, thus adding to the maintenance of the values and standards we operate to. 2. Seek to understand shareholder needs and expectations The Board attaches great importance to providing shareholders with clear and transparent information on the Group’s activities, strategy and financial position. Details of all shareholder communications are provided on the Group’s website, with copies of the accounts of the Group and other regulatory communications going back to the earliest days of the existence of the company on the AIM market. Additionally, the Board holds regular one-to-one meetings with larger shareholders and regards the Annual General Meeting as a good opportunity to understand the voting decisions and debate the expectations of shareholders via an open question and answer session. The Company lists contact details on its website and on all announcements released via RNS, should shareholders wish to communicate directly with the Board or its advisers. 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success The Board endeavours to create a platform for delivering a high-quality service and this requires us to utilise best in class suppliers (such as Hitachi, Assa Abloy, and Bosch), for customers who appreciate and therefore pay for a higher level of service, and a workforce that is trained to the highest standards to give of its best at all times. During the year we successfully completed our contract with a major water utility busines which was run in collaboration with a major lock supplier. This required continuous engagement between the supplier and our chief executive via face to face meetings, telephone and video conference. 18 CORPORATE GOVERNANCE (continued) FOR THE YEAR ENDED 30 JUNE 2020 We operate within the ‘high compliance’ segment of the SIA approved contractor scheme (ACS), which ensures that the regulatory standards we set ourselves are rigorous and necessary in a highly fragmented security market, where mistakes are invariably costly in every sense, to all our stakeholders. We expect to get it right first time, because getting it wrong in a security environment can have consequences that far outweigh the cost. We constantly solicit feedback, some of which is on the website of the Company in terms of customer experiences, and supplier confidence in us and in our operations. Our feedback from our staff is best expressed by our staff turnover which for our industry is exceptionally low. Our customers are of course pivotal to the success of our business. Through our sales and operations teams, we endeavour to supply a knowledgeable and targeted service. Our security solutions are mainly tailored to exactly meet our client’s requirements. We are well placed to meet our customers security needs by bringing all the skills across our divisions together to provide a one-stop solution. Where possible we engage with our customers at Board level and this is certainly the case with our operations director and chief executive who regularly monitor and attend meetings with our larger customers. Our significant contract wins of £6.3m during the current year can be directly attributed to this face to face approach. For our smaller customers we continue to conduct telephone calls following the completion of our services and the results of these are monitored closely to ensure our reputation for excellence is maintained. Being primarily a service business, our people are our most valuable-asset and are critical to the delivery of our strategy of growth. We currently employ over 850 people and correct engagement with them is vital. We are fortunate to have a great team of talented and motivated people in our Group and it is important to retain and develop them so that we can attract and inspire new people to join us as we grow our operations. We operate an open-door policy and employees can speak and engage with senior management or the Board about issues or ideas. We have a formal induction and appraisal processes for new and existing employees. We have a web- based employee portal primarily used by our guarding and PROception staff, for them to manage their work shifts, holidays, and personal information. This portal undergoes continuous development. We also have a cross company integrated email system and utilise Microsoft Teams for collaboration between our people internally and between us and our customers and suppliers. When possible, we hold regular social events for our employees who are also encouraged to engage in charity events such as the three peaks challenge. We encourage our people to have a culture of respect and integrity and we reward long-service. 19 CORPORATE GOVERNANCE (continued) FOR THE YEAR ENDED 30 JUNE 2020 The Board recognises that the COVID-19 crisis has caused our people difficulties and hardship. To address this, we have provided additional IT equipment to enable more employees to work from home where possible and although it has been necessary to furlough some employees, we have continued to top up their wages and salaries to full value. We are delighted to report that so far, no significant redundancies have been necessary as a direct result of the COVID-19 crisis. The Directors’ Report reports further on the Company’s attitude to Employment for disabled persons, employee involvement in Group operations, Charitable donations where appropriate, and Group policies on the environment. 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board has established an audit committee which also serves as a risk management committee, a summary of which is set out in the Strategic Report and in the Directors’ Report, and on the website. Additionally, we only work with accredited suppliers able to satisfy our customer requirements for locking systems for instance that are best in class, and CCTV equipment that is the highest definition. Additionally, we can only employ security professional who have passed SIA and other regulatory standards and had all the necessary prior history clearances before SIA accreditation for instance can be effective. Added to all this, we aim to employ primarily ex-military personnel and indeed two executive directors are themselves ex-military, trained in the appreciation of and the effective amelioration of risk. We have further considered areas of single point dependency within our divisions, examining key management positions, infrastructure, political issues including Brexit, loss of major contracts, staffing and supplier failure, technology failure and cyber-attack, health and pandemic risk as well as fire, weather and reputation risk protection. We provide regular training programmes to support our business continuity plans so that our business is prepared for and resilient to emergency and crisis situations. Our Guarding division continues to work to achieve accreditation under ISO 27001. 5. Maintain the Board as a well-functioning, balanced team led by the chair The Board, the identities and biographies, the Board committees and the timing of Board meetings and a detailed summary of attendances at those meetings is considered in the Strategic Report, the Directors’ Report and elsewhere in the Accounts The Board considers that both its non-executive directors are independent and that they have the time necessary to be able to provide rigorous challenge to the executive directors when necessary as well as support as needed. Nevertheless, guidance on time served by a non-executive, changes to over-board criteria, and the recent substantial increase in volume of the turnover of the business means the Board will keep this under review as necessary. 6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities The Board recognises that balance of capabilities and capacities within itself, as well as the necessity for all Board members to remain up to speed on relevant industry changes are vital to the proper functioning of a leadership team in any organisation. The Board are all regulated by the SIA and as such undergo a 20 CORPORATE GOVERNANCE (continued) FOR THE YEAR ENDED 30 JUNE 2020 timely recertification of their appropriateness for such an appointment. Additionally, certain members of the Board are themselves members of other professional bodies which require certain continuing professional development obligations to be complied with. All members of the Board are encouraged to attend management development courses. The Board is rigorous in reviewing the performance of each of its directors and where there are actions that need to be taken, the Board is proactive in carrying out what needs to be done. 7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement The Board recognises the importance of considering succession planning, and each division has a leader and deputies, who are able, effectively, to step into the shoes of the leader. The Company seeks external advice on specific remuneration matters, externally facilitating the process of managing the strategic goals of the business by division, and the risks and rewards attaching thereto. Discussions between Board members about key development needs of individual directors are encouraged and debated rigorously in a positive atmosphere. The effectiveness review of the Board is considered above and in the Strategic Report. 8. Promote a corporate culture that is based on ethical values and behaviours The Board wishes to promote a can-do culture across the Group, whereby a customer need can be fulfilled, no customer request is too much, and this is how the Group aims to deliver outstanding service. This is not done at any cost, and the Group is strict on maintaining margin in a low margin industry, where differentiating the offer is key. Our marketing strategy is assertive and where necessary aggressive in a very fragmented industry yet with some entrenched relationships where our future customers have not yet come to appreciate our unique offering. The Group uses social media where necessary to promote the culture of ‘can-deliver’, both internally and externally, and monitors the culture and attitude of the staff with regular surveys and staff meetings. 9. Maintain governance structures and processes that are fit for purpose and support good decision- making by the Board The Board meets once a month, in person or where necessary by conference call, and considers monthly accounts and operational matters, and in addition the audit and remuneration committees of the Board meet when necessary to consider assurance and risk, and the adequacy of the reward structures of the Group. With a Board of this size, separate Nominations and other committees are not considered necessary, nor is the appointment of any one non-executive director as a Senior Independent Director. 10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders The Board attaches great importance to providing shareholders with a clear and transparent information on any group activities, strategy, and financial position. Details of all shareholder communications are provided on the group website. The Board holds regular meetings with the larger shareholders and regards the annual general meeting as a good opportunity to communicate directly with shareholders via an open question and answer session. The company lists contact details on its website and on all announcements released via RNS, should shareholders wish to communicate with the Board. 21 BOARD OF DIRECTORS FOR THE YEAR ENDED 30 JUNE 2020 Sebastian Morley - Executive Chairman Having enjoyed a successful military career, Sebastian worked with organisations in the surveillance and security sector before he joined 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 39 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, Video Analytics and most recently FastVein™. As a result of this Croma is ideally placed to offer high level security design and consultancy services. Richard Juett - Finance Director Richard is a Chartered Accountant and has previously held finance roles in industry with B&Q Plc, Kia Motors and in practice with Ernst & Young and BDO. Richard oversees the financial affairs of the Group and its operating subsidiaries. Paul Williamson – Executive Director Paul founded Vigilant Security in 1997 having served in the Army from 1987 to 1992 and worked in a number of commercial operations thereafter. Nick Hewson MA FCA - Non-Executive Director Nick is a Chartered Accountant and has been on the Board of a number of listed companies since 1986, more recently in a non-executive capacity. He has been an investor in Croma since the very early days of the Group’s corporate life. Nick is also Senior Independent Director and Chairman of the Audit and Nominations Committees of Redrow plc, and Chairman of Supermarket Income REIT. 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. 22 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2020 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 2020. 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); Locksmithing Keys, Locks and Safes (Croma Locksmiths). Result for the year The loss for the year after taxation, was £0.13m (2019: profit £1.17m) Directors The Directors who have held office since 1 July 2020 and up to the date of signing of these financial statements are as follows: Executive Directors: Non-executive Directors: S J F Morley R M Fiorentino R A Juett P Williamson A N Hewson C N McMicking The Non-Executive Directors sit on the Remuneration Committee and on the Audit Committee. Including immediate relatives, the Directors in office as at 30 June 2020 had the following beneficial interest in the ordinary shares of the Company S J F Morley R M Fiorentino R A Juett A N Hewson C N McMicking P Williamson 2020 575,000 3,902,175 12,500 203,565 65,000 170,639 2019 575,000 3,902,175 12,500 203,565 50,000 170,639 23 DIRECTORS' REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 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 2020: Canaccord Genuity Group Inc. Liontrust Investment Partners LLP Francis Erard 11.60% 5.20% 5.00% There are no options currently in issue over the company’s shares. At 30 June 2020, 996,514 shares were held in treasury, being 6.3% of the issued share capital. Matters covered in the strategic report Statutory disclosures required under company law within the Directors report are included where relevant within the strategic report. Financial Risk Management Details of exposure to price, credit, liquidity and cash flow risk are included in notes 16 and 20. Research and development There was no significant Research and development expenditure during the year or the prior year. 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 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. 24 DIRECTORS' REPORT (Continued) FOR THE YEAR ENDED 30 JUNE 2020 Employee involvement The Group has considerably more than 250 UK based employees and its 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, especially in the year under review, 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, and particularly in regard to health and safety at work. Political and charitable donations Charitable donations were £4,407 (2019: £2,265). 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. Dividends An interim dividend of 0.75p per share was declared on 7 March 2020 and cancelled on 19 March 2020 due to Covid-19 concerns. The interim dividend was subsequently reinstated and paid on 4 September 2020 at a cost of £0.1m. Subject to approval at the AGM, the Board recommends a final dividend of 1.2p per share. Auditors A resolution proposing the reappointment of Nexia Smith & Williamson Audit Limited 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 Richard Juett (Oct 20, 2020 15:45 GMT+1) R A Juett - Finance Director 20 October 2020 25 STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR THE YEAR ENDED 30 JUNE 2020 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 Richard Juett (Oct 20, 2020 15:45 GMT+1) R A Juett - Finance Director 20 October 2020 26 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2020 Opinion We have audited the group financial statements of Croma Security Solutions Group plc (the ‘group’) for the year ended 30 June 2020 which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity, and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 2020 and of its loss 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. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the group financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, as applied to SME listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:  the directors’ use of the going concern basis of accounting in the preparation of the group financial statements is not appropriate; or  the directors have not disclosed in the group financial statements any identified material uncertainties that may cast significant doubt about the group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the group financial statements are authorised for issue. Key audit matters We identified the key audit matters described below as those which were most significant in the audit of the financial statements of the current period. Key audit matters include the most significant assessed risks of material misstatement, including those risks that had the greatest effect on our overall audit strategy, the allocation of resources in the audit, and the direction of the efforts of the audit team. In addressing these matters, we have performed the procedures below which were designed to address the matters in the context of the financial statements as a whole and in forming our opinion thereon. Consequently, we do not provide a separate opinion on these individual matters. 27 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2020 Key audit matter Description of risk How the matter was addressed in the audit Recoverability of intangibles including goodwill in relation to the group and investment in subsidiaries in relation to the parent company We challenged the assumptions used in the impairment model for goodwill, other in intangible assets and subsidiaries described in notes 11 and 12. investments As part of our procedures we:  assessed actual trading performance in the financial year against budget to determine the reasonableness of using budgets for the impairment model;  assessed budgets for the next financial year against actual current year trading performance, and then reviewed the appropriateness of the assumptions concerning growth rates and inputs to the discount rate against latest market expectations, and;  considered sensitivity analysis of key variables included within the value in use calculations. In performing our procedures, we used internal valuation specialists to assess the suitability of the model and discount rate applied. The group has material goodwill and other intangible assets relating to three cash generating units. The Group’s assessment of carrying value requires significant judgement, regarding cash flows, growth rates, discount rates, and sensitivity assumptions The parent company has material investments in subsidiaries. The parent company’s assessment of carrying value requires significant judgement, regarding cash flows, growth rates, discount rates, and sensitivity assumptions Our application of materiality The materiality for the financial statements of the Group as a whole was set at £484,000. This has been determined with reference to the benchmark of the Group’s revenue, which we consider to be one of the principal considerations for members of the company in assessing the performance of the Group. Materiality represents 1.5% of turnover. The materiality for the financial statements of the Parent as a whole was set at £303,500. This has been determined with reference to the benchmark of the Parent’s total assets as the company carries on no trade in its own right. Materiality represents 3% of total assets as presented on the face of the Statement of Financial Position. An overview of the scope of the audit Of the Group’s eight reporting components, we subjected one to a full scope audit and the other seven reporting components to specific audit procedures where the extent of our audit work was based on our assessment of the risk of material misstatements and of the materiality of the component. 28 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2020 The components within the scope of our work covered 100% of Group revenue, 100% of Group profit before tax, and 100% of Group net assets. Other information The other information comprises the information included in the Report and Financial Statements, other than the group and parent company financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the group financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit:   the information given in the strategic report and the directors’ report for the financial year for which the group financial statements are prepared is consistent with the group financial statements; and the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. 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. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 27, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the group financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so. 29 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2020 Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matter We have reported separately on the parent company’s financial statements of Croma Security Solutions Group Plc for the year ended 30 June 2020. Use of our report This report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Nexia Smith & Williamson Nexia Smith & Williamson (Oct 20, 2020 16:17 GMT+1) Julie Mutton Senior Statutory Auditor, for and on behalf of Nexia Smith & Williamson Statutory Auditor Chartered Accountants Cumberland House 15-17 Cumberland Place Southampton Hampshire SO15 2BG Date: 30 20/10/2020 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Continuing operations: Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating profit 2020 2019 Notes £000's £000's £000's £000's 3 32,321 34,599 (26,805) (28,109) 5,516 (5,995) 615 136 (49) 87 (221) (134) 6,490 (5,041) - 1,449 (2) 1,447 (281) 1,166 1,871 - (190) (232) 1,449 Analysed as: Earnings before interest, tax, depreciation amortisation Impairment Amortisation of intangible assets Depreciation Financial expenses Profit before tax Tax (Loss)/profit for the year from continuing operations 1,754 (857) (191) (570) 136 11 12 13 5 8 Total comprehensive (loss)/income attributable to owners of the parent (134) 1,166 Earnings per share 9 Basic and diluted (loss)/earnings per share (pence) from continuing operations (0.90) 7.82 31 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2020 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Right-of-use assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Liabilities Non-current liabilities Deferred Tax Lease liabilities Current liabilities Trade and other payables Borrowings and lease liabilities Total liabilities Net assets Issued capital and reserves attributable to owners of the parent Share capital Treasury shares Share premium Merger reserve Capital redemption reserve Retained earnings Total equity Notes 2020 £000's 2019 £000's 11 12 13 14 15 16 26 21 18 18 18 22 23 23 23 23 23 6,454 456 574 1,120 8,604 764 4,535 4,076 9,375 7,311 647 668 - 8,626 825 6,163 1,729 8,717 17,979 17,343 (128) (837) (965) (4,982) (340) (5,322) (6,287) (158) (23) (181) (5,126) (46) (5,172) (5,353) 11,692 11,990 794 (399) 6,133 2,139 51 2,974 11,692 794 (399) 6,133 2,139 51 3,272 11,990 These financial statements were approved and authorised for issue by the Board of Directors on 20 October 2020 and signed on their behalf by Sebastian Morley (Oct 20, 2020 15:38 GMT+1) S J F Morley- Director Croma Security Solutions Group plc - Company Number: 03184978 32 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Notes 2020 £000's 2019 £000's 25 Cash flows from operating activities Profit before taxation Depreciation amortisation and impairment losses (Profit) on sale of property, plant and equipment Net changes in working capital Financial expenses Corporation tax paid Net cash generated from operations Cash flows from investing activities Purchase of business 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 Payments to reduce lease liabilities Payments to reduce borrowings Dividends paid Interest paid Net cash used in financing activities Net increase/(decrease) in cash Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 26 87 1,618 (2) 1,698 49 (406) 3,044 - (121) 11 (110) (408) (15) (164) - (587) 2,347 1,729 4,076 1,447 422 - (973) 2 (436) 462 (245) (356) 12 (589) (42) (1) (253) (2) (298) (425) 2,154 1,729 33 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Attributable to owners of parent At 1 July 2018 Profit for the year Dividends paid Transfer on lapse of options At 30 June 2019 Loss for the year Dividends paid At 30 June 2020 Share Capita l Capital Redemption Reserve Treasury Shares Share Premium Merger Reserve Retained Earnings Share Options Total Equity £000's £000's £000's £000's £000's £000's £000's £000's 794 - - - 794 - - 794 51 - - - 51 - - 51 (399) - - (399) - - (399) 6,133 - - - 6,133 - - 6,133 2,139 - - - 2,139 - - 2,139 2,347 1,166 (253) 12 3,272 (134) (164) 2,974 12 - - (12) - - - - 11,077 1,166 (253) - 11,990 (134) (164) 11,692 The following notes form part of the primary financial statements 34 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 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 financial statements have been prepared on a going concern basis. The Group’s activities are funded by long-term equity capital and by cash generated from trading. In considering the ability of the Group to meet its obligations as they fall due, the Board has considered the expected trading and cash requirements of the Group until the end of October 2021. Despite the impacts of Covid-19 the Board continues to be positive about the retention of customers and the outlook of its trading operations. Profit and cash flow projections support the Board’s view that the Group will meet its obligations as they fall due with the use of cash surpluses from trading. 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 The Directors consider there to be three operating segments namely ‘Croma Vigilant’ which comprises the business of Vigilant Security (Scotland) Limited; ‘Croma Security Systems’ which includes Croma Biometrics and comprises the business of CSS Total Security Limited; and ‘Croma Locksmiths’, which comprises the business of Croma Locksmiths & Security Solutions Limited and of Basingstoke Locksmiths 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 transaction price 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 performance obligations, as described below. 35 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 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. - Sale of goods is recognised at the point that the goods are delivered to a client on signature of a goods received note or to a customer in one of our retail outlets which is the point that control of over the asset is transferred. Installation income is recognised straight line over the period of the installation. - - Maintenance and service fees are recognised when the service has been provided, which is typically a period of three to four months from invoice date, leading to contract liabilities which is held under ‘Accruals and contract liabilities’ in the statement of financial position. - Monitoring income is recognised over the term of the contract, leading to contract liabilities which is also held under ‘Accruals and contract liabilities’ in the statement of financial position. 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    Customer relationships Brand royalties Research & development – – – 10 years 4 years 3 years 36 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 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. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. Government grants Grants are accounted for under the accruals model under IAS20. Grants of a revenue nature are recognised in the Consolidated Statement of Comprehensive Income in the same period as the related expenditure. Grants awarded to provide financial support or assistance rather than relating to specific expenditure are recognised in the Consolidated Statement of Comprehensive Income in the period which they become receivable. Grant income has been recognised as other operating income in the Consolidated Statement of Comprehensive Income. 37 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 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 Leasehold property Plant, computer and office equipment Motor vehicles - - - - 4% on cost Over the term of the lease Between 10% and 35% on cost 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 statement of financial position 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 statement of financial position date and are expected to apply when the deferred tax liabilities/ (assets) are settled/(recovered). 38 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 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:   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. the same taxable Group company; or Leased assets The Group has applied IFRS 16 Leases using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS17. The details of accounting policies under IAS17 are disclosed separately if they are different from those under IFRS 16 and the impact of changes is disclosed in Note 19. Accounting policy applicable before 1 July 2019 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. 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. Accounting policy applicable after 30 June 2019 IFRS 16 was adopted as of 1 July 2019 without restatement of comparative figures. A right of use asset and a lease liability has been recognised for all leases except leases of low value assets, which are considered to be those with a fair value below £4,500, and those with a duration of 12 months or less. The right-of-use asset has been measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date. The Group will depreciate the right-of-use assets on a straight-line basis from the lease commencement date to the earlier end of the useful life of the right-of-use asset or the end of the lease term. Where impairment indicators exist, the right of use asset will be assessed for impairment. The lease liabilities are measured at the present value of the lease payments due to the lessor over the lease term, discounted using the interest rate implicit in the lease if that rate is readily available or the Group's incremental borrowing rate. 39 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 1. Accounting policies (continued) After initial measurement, any payments made will reduce the liability and the interest accrued will increase it. Any reassessment or modification will lead to a remeasurement of the liability. In such case, the corresponding adjustment will be reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero. On the statement of financial position, right-of-use assets have been disclosed separately from property, plant and equipment. 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 22. 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. Financial assets Financial assets are trade receivables and other receivables. Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as defined in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are recognised based on lifetime expected credit losses in profit or loss. Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at fair value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short term nature. A provision for impairment is established based on 12-month expected credit losses unless there has been a significant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision is recognised in profit or loss. The Group de-recognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. Where the Group has transferred trade receivables under invoice discounting arrangements and it retains substantially all the risks and rewards of ownership of the transferred trade receivables, the Group continues to recognise the trade receivables and also recognises a liability for the proceeds received. 40 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 1. Accounting policies (continued) 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. Capital management The Group manages capital to safeguard its ability to continue as a going concern with the aim of strengthening its capital base to provide returns to shareholders. Excluding credit card and lease liabilities the Group has no short 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 and deposits held at call with banks. New and amended standards adopted by the group and company The Group has adopted for the first time IFRS 16 "Leases". The Company has elected to adopt the modified retrospective method (including practical expedients of C10 of IFRS16) with the cumulative effect of initially applying the new standard recognised on 1 July 2019. These new standards required additional disclosures which have been provided in notes 4 and 19. The adoption of these new standards has had a material impact on the consolidated financial statements of the group. There are no other new standards or amendments to standards which are mandatory for the first time for the financial year ended 30 June 2020. 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 2020 or later periods and have not been early adopted. The effect on the consolidated financial statements of the Group for these new standards, interpretations and amendments has not yet been assessed. 41 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 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. In order to derive the present value, the discount rate that has been calculated is 12.7% (2019: 11.6%). The carrying amount of goodwill at the statement of financial position date was £6,454k. Details relating to the allocation of goodwill to cash generating units are given in note 11. The directors do not consider there to be any key areas of judgement. 42 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 3. Segmental reporting ` Croma Vigilant (Guarding) Croma Security Systems (Electronic) Croma Locksmiths (Locks) Central Total 2020 Business Segments Segment revenues £000's 26,968 £000's 2,459 £000's £000's 2,894 Gross profit 3,335 996 1,184 - - (716) - - - - £000's 32,321 5,515 (4,378) (191) (570) 2 615 993 (857) (688) (62) (88) - 126 (770) (129) (251) (1) 324 284 357 (716) (433) (424) - (2,204) - (231) 3 165 1,068 - 1,068 (149) (67) (716) 136 Administrative expenses Amortisation Depreciation Profit/(loss) on disposal Other operating income Operating profit/(loss) before impairment Impairment of goodwill Operating profit/(loss) after impairment Segment assets Segment (liabilities) 7,201 (3,919) 4,459 (856) 4,950 (1,357) 1,369 (155) 17,979 (6,287) Segment net assets 3,282 3,603 3,593 1,214 11,692 Additions to non-current assets 82 30 11 - 123 2019 Business Segments £000's £000's £000's £000's £000's Segment revenues 28,477 2,702 3,420 - 34,599 Gross profit 3,873 1,113 1,511 (7) 6,490 Administrative expenses Amortisation Depreciation (Loss)/profit on disposal (2,392) - (71) (4) (629) (61) (80) (827) (129) (81) - 4 (771) - - - (4,619) (190) (232) - Segment operating profit/(loss) 1,406 343 478 (778) 1,449 Segment assets Segment (liabilities) 8,259 (4,168) 4,600 (802) 5,113 (629) (1,126) 743 17,343 (5,353) Segment net assets 4,091 3,798 3,987 114 11,990 Additions to non-current assets 112 - 424 - 536 43 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 3. Segmental reporting (continued) An analysis of revenue by type is shown below: Revenues from UK sources Security Personnel Services Sale of Goods & Installation Services Monitoring Maintenance and Service fees Biometric Installation and Maintenances fees Keyholding income 2020 £000's 26,682 4,712 527 121 279 2019 £000's 28,300 5,513 499 101 186 32,321 34,599 The following is an estimate of future revenues arising from unsatisfied performance obligations based on contract renewal dates and projected monthly billing: To be satisfied in the next financial year To be satisfied in subsequent financial years 2020 £000's 2019 £000's 20,521 17,200 19,887 17,614 37,721 37,501 There were three customers where revenue was greater than 10% of the total (2019: three). Revenue from these customers was derived from Security Personnel Services. Significant customer analysis: Customer 1 Customer 2 Customer 3 Total revenue 2020 £000's 5,391 4,504 4,097 2020 % 17% 14% 13% Total revenue 2019 £000's 2019 % 6,610 4,490 3,742 19% 13% 11% 44 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 4. Expenses Amount of inventory expensed as cost of sales Write down of inventories Operating lease expense Lease rentals - low value assets Impairment loss Depreciation - owned assets Depreciation - right of use assets Amortisation Auditors’ remuneration: Audit of parent company and consolidated financial information payable to Nexia Smith & Williamson Fees paid to the auditor in respect of tax compliance services 5. Financial expenses Interest on hire purchase agreements Interest on other lease liabilities 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 cost (for the above persons): Wages and salaries Pension Social security costs 45 2020 £000's 2019 £000's 2,081 7 - 5 857 208 362 191 2,262 22 391 - - 232 190 44 5 38 5 2020 £000's 2019 £000's - 49 49 2020 No. 30 874 904 2 - 2 2019 No. 30 925 955 £000's £000's 23,957 456 2,230 26,643 24,965 445 2,351 27,761 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 7. Directors' and key management personnel remuneration 2020 S J F Morley R M Fiorentino P Williamson R A Juett A N Hewson C McMicking Salary and bonus £000's Estimated value of benefits £000's Pension £000's Total £000's 173 236 172 68 25 25 699 5 4 12 2 2 - 25 4 - 1 14 - - 19 182 240 185 84 27 25 743 There were no share-based payments during the year or the prior year 2019 S J F Morley R M Fiorentino P Williamson R A Juett A N Hewson C McMicking Salary and bonus £000's Estimated value of benefits £000's Pension £000's Total £000's 171 236 140 69 25 25 666 4 3 25 1 1 - 34 5 - 1 13 - - 19 180 239 166 83 26 25 719 Key management personnel compensation Key management personnel compensation comprises short-term employee benefits which total £796k (2019: £789k) and long-term employee benefits which total £19k (2019: 19k) 46 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 8. Taxation Analysis of the tax charge in the year Current year tax charge UK corporation tax charge on profit for the year Adjustments for prior periods Total current tax Deferred tax (note 21) Current year Adjustments for prior periods Tax on profit on ordinary activities Factors which may affect future tax charges 2020 £000's 2019 £000's 239 14 253 (51) 19 221 313 7 320 (28) (11) 281 The tax assessed for the year is higher than the standard rate of corporation tax in the UK of 19% (2019 - 19%). The differences are explained below: Factors affecting the tax charge for the year Profit before taxation Profit multiplied by the standard rate of taxation of 19% (2019: 19%) Effects of: Expenses not deductible for tax purposes Adjustment to tax charge for previous periods Total tax charge for the year 2020 £000's 87 18 170 33 221 2019 £000's 1,447 275 10 (4) 281 47 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 9. Earnings per share The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders, from continuing operations, divided by the weighted average number of shares in issue during the year, calculated on a daily basis. The calculation of diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares and the post-tax effect of dividends and interest on the assumed conversion of all other dilutive options and other potential ordinary shares. Numerator (Loss)/Earnings for the year on continuing operations and used in basic and diluted EPS Denominator Weighted average number of shares used in basic and diluted EPS (000’s) Basic and diluted (loss)/earnings per share 10. Dividends 2020 £000's 2019 £000's (134) 1,166 14,902 14,902 Pence Pence (0.90) 7.82 A final dividend of 1.1p per share for the year ended 30 June 2019 was paid on 29 November 2019 at a cost of £164k. An interim dividend for the year ended 30 June 2020 of 0.75p per share was declared, cancelled, re- declared and finally paid on 4 September 2020. Subject to approval at the AGM, the directors recommend a final dividend of 1.2p per share for the year. 48 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 11. Goodwill Cost At 1 July 2019 & 30 June 2020 Accumulated impairment losses At 1 July 2019 Arising in the year At 30 June 2020 Net book value At 1 July 2019 At 30 June 2020 Impairment testing £000's 7,311 - 857 857 7,311 6,454 During the year, goodwill was reviewed for impairment in accordance with IAS 36 "Impairment of Assets". An impairment charge of £857k (2019: £Nil) occurred 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 Croma Locksmiths Croma Vigilant 2020 £000's 2,906 2,152 1,396 6,454 2019 £000's 3,339 2,576 1,396 7,311 49 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 11. Goodwill (continued) Forecasts, growth and discount rates The recoverable amount relating to Croma Vigilant, Croma Security Systems and Croma Locksmiths was determined based on value-in-use calculations, covering a detailed forecast for the five-year period to 30 June 2025, 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 pre-tax discount rate of 12.7% which is based on a number of factors including the risk-free rates in the UK (using the yield from 20 year British Government Securities, with a nominal zero coupon, as at 30 June 2020), the Group’s estimated market risk premium, the anticipated future rates of corporation tax and a premium to reflect size of the Group and current economic environment associated with the COVID-19 pandemic. Cashflow assumptions Croma Vigilant The effect of the COVID-19 pandemic on the business of Croma Vigilant is considered minimal and for the year to 30 June 2021 turnover is forecast to increase by 13% through the growth of the existing customer portfolio. Direct costs are forecast to increase proportionately and overheads by approximately 4%. For the period from 2021 to 2024 the same assumptions have been made as for the prior year, namely:     Revenue to grow by 3% per annum (2019: 3%) Direct wages to rise in proportion to revenue Other direct costs to increase at 2.5% per annum (2019: 2.5%) Indirect costs to increase at 2% per annum (2019: 2%) For the year ended 30 June 2025 onwards, net revenues are assumed to increase by 2% per annum. Based on these assumptions the net present value of future cashflows is considerably in excess of the carrying value of goodwill. Croma Security Systems including Croma Biometric For the year ended 30 June 2020 sales were impacted by the COVID-19 pandemic and fell by 7% mainly as a result. On the basis that any future Government lockdown provisions do not impact the business, we forecast a modest 5% increase in turnover for the year ending 30 June 2021 from this lower base. For the period from 2021 to 2025 the following assumptions have been made:    Revenue growth of 3.14% (2019: 3.14%) Direct cost growth of 4.0% (2019: 2.6%) Overheads growth of 2.30% (2019: 2.06%) For the year ended 30 June 2025 onwards, net revenues are assumed to increase by 2% per annum. Primarily driven by the increase in the discount rate applied and based on these assumptions the net present value of future cashflows is £3,718k which when compared to the carrying value of goodwill and net assets has resulted in an impairment loss of £433k. 50 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Croma Locksmiths Towards the end of March through to May 2020 sales were severely impacted by lockdown measures and during the phased reopening of our retail units sales have remained below the levels seen during the period from July to February 2020. Since the year end and following full reopening, we have seen a continued improvement in our retails sales but in the commercial sector we are still seeing reluctance to spend particularly for customers trading in the entertainment and holiday sectors. For the year ended 30 June 2021 therefore we have prepared a conservative forecast which indicate a slight reduction from the level seen during the year ending 30 June 2020 and operating profits reducing by approximately 3%. For the period from 2021 to 2025 the following assumptions have been made:    Revenue growth of 3.14% (2019: 3.14%) Direct cost growth of 2.6% (2019: 2.6%) Indirect costs growth of 2.19% (2019: 1.97%) For the year ended 30 June 2025 onwards, net revenues are assumed to increase by 2% per annum. Primarily driven by the increase in the discount rate applied and based on these assumptions the net present value of future cashflows is £3,937k which when compared to the carrying value of goodwill and net assets has resulted in an impairment loss of £424k. Sensitivities The Directors have applied sensitivity analysis to future cashflows to estimate the likelihood of future impairment. The cashflow forecasts are sensitive to changes in the discount rate and to long term revenue growth. For example, for each 0.1% increase in the discount rate the value of future cashflows reduces by approximately £70K and for each 0.1% decrease in long term revenue growth the value of future cashflows reduces by approximately £50k, each change would impact the impairment loss in a negative way. In difficult trading conditions the Directors have prepared conservative and achievable forecasts and believe it is likely that long term revenue growth can be achieved or exceeded. The discount rate which increased by 1.1% during the year, is determined largely by factors outside of the directors control, however the directors consider it unlikely that a similar increase will be seen in the year to 30 June 2021 and so if a further impairment adjustment is necessary it is unlikely to be of the magnitude seen in the current year under review. 51 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 12. Other intangible assets Fair value At 1 July 2018 Additions At 30 June 2019 & 2020 Amortisation At 1 July 2018 Charge for the year At 30 June 2019 Charge for the year At 30 June 2020 Carrying Value at 1 July 2019 Carrying Value at 30 June 2020 R&D £000's Customer relationships £000's Brands £000's Software licences £000's Brand Royalties £000's Total £000's 86 - 86 86 - 86 - 86 - - 1,727 295 - - 1,727 295 1,003 161 1,164 162 1,326 563 401 184 29 213 29 242 82 53 222 2 224 222 - 222 - 222 2 2 31 - 2,361 2 31 2,363 31 - 31 - 1,526 190 1,716 191 31 1,907 - - 647 456 R&D was developed internally. The other intangible assets were acquired with the business of CSS Total Security Limited, CSS Locksmiths Limited, Croma Locksmiths & Security Solutions Limited and Basingstoke Locksmiths Limited. The amortisation expense of £191k has been categorised as an administrative expense in the consolidated statement of comprehensive income. 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 12.70% (2019: 11.60%) was then applied to give the present value of these future cashflows. No impairment adjustment has been found to be necessary against the carrying value of customer relationships acquired with the business of CSS Total Security Limited and the business of Croma Locksmiths & Security Solutions Limited. The useful lives as noted in the accounting policies were considered appropriate. Customer relationships with a net book value of £401k have a remaining life of between 1.5 to 5.5 years. 52 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 12. 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 2 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. Brands with a net book value of £53k, have a remaining useful life of 2 years. 13. Property, plant and equipment Property £000's Plant and office equipment £000's Motor vehicles Total £000's £000's Cost At 30 June 2018 Additions Disposals At 30 June 2019 Additions Disposals At 30 June 2020 Accumulated depreciation At 30 June 2018 Charge for the year On disposals At 30 June 2019 Charge for the year On disposals At 30 June 2020 Carrying amount At 30 June 2020 At 30 June 2019 583 208 - 791 96 - 887 385 114 - 499 120 - 619 268 292 314 58 (19) 353 23 (24) 352 113 100 (7) 206 62 (17) 251 101 147 1,040 436 (19) 1,457 121 (24) 1,554 564 232 (7) 789 208 (17) 980 574 668 143 170 - 313 2 - 315 66 18 - 84 26 - 110 205 229 53 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 14. Right-of-use assets Cost At 1 July 2019 Adjusted on adoption of new accounting standards At 1 July 2019 (amended) Additions At 30 June 2020 Accumulated depreciation At 1 July 2019 Charge for the year At 30 June 2020 Carrying amount At 30 June 2020 At 30 June 2019 15. Inventories Raw materials and consumables Work in progress Property £000's Motor vehicles £000's Total £000's - 1,282 1,282 - 1,282 - 283 283 999 - - 154 154 46 200 - 79 79 - 1,436 1,436 46 1,482 - 362 362 121 - 1,120 - 2020 £000's 2019 £000's 742 22 764 761 64 825 54 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 16. Trade and other receivables Trade receivables Allowance for bad debts Net trade receivables Other receivables Prepayments 2020 £000's 2019 £000's 4,160 - 4,160 30 345 5,702 (7) 5,695 10 458 Total trade and other receivables 4,535 6,163 Owing to the short-term nature of the trade receivables, their fair value is the same as the book value. A provision for impairment of trade receivables is established using an expected loss model. Expected loss is calculated from a provision matrix based on the expected lifetime default rates and estimates of loss on default. Provision for impairment of trade receivables As at 1 July Charge for the period Uncollected amounts written off, net of recoveries As at 30 June 2020 £000’s 2019 £000’s 7 10 (17) - 35 10 (38) 7 In the view of the Board the level of credit risk remains low, due to a wide mix of clients in different trade sectors. No significant impairment has arisen because of the Covid-19 crisis. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable set out above. The Directors review debt collection at each Board meeting and close attention is paid to collection of debt and credit control. Although there has been some deterioration in cash collection this is largely due to operational difficulties with our more significant customers and is not an indication of an increase in credit risk. Age profile Debts past due but not paid Under 60 days 60-90 days Over 90 days Debtor days 55 2020 £000's 2019 £000's 455 206 233 894 44 407 342 37 786 55 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 17. Categories of financial asset Loans and receivables Trade and other receivables Cash at bank and in hand 18. Trade and other payables Trade payables Other payables Other taxes and social security Corporation tax liability Accruals and contract liabilities 2020 £000's 2019 £000's 4,190 4,076 8,266 5,705 1,729 7,434 2020 £000's 2019 £000's 345 158 503 1,854 166 2,459 603 103 706 1,253 319 2,848 Total trade and other payables, excluding borrowings and lease liabilities 4,982 5,126 Interest bearing borrowings and lease liabilities due within 1 year Lease liabilities (due in less than 1 year) Credit card liabilities Lease liabilities due after 1 year Lease liabilities (due in 1 to 5 years) 2020 £000's 2019 £000's 325 15 340 837 837 16 30 46 23 23 Lease liabilities are secured against the assets to which they relate. Due to the COVID-19 crisis, HMRC has allowed the Group to defer payment of certain VAT and PAYE liabilities 56 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 19. Leases As indicated in note 1, the Group has adopted IFRS 16 Leases retrospectively from 1 July 2019 but has not restated comparatives for the 2019 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019. The new accounting policies are disclosed in note 1. Relevant practical expedients have been used in applying IFRS 16 as noted below. The Group has lease contracts for property, vehicles and other assets which have lease terms varying between 1 and 10 years. The Group also has certain leases with lease terms of 12 months or less and leases of office equipment with low value; these leases have been expensed in accordance with the practical expedients permitted under IFRS 16. Contracts may contain both lease and non- lease components. The Group allocates consideration between lease and non-lease components based on the price a lessor, or similar supplier, would charge to purchase that component separately. The lease term begins at the commencement date and includes any rent-free periods provided by the lessor. Lease terms vary between contracts and depend on the individual facts and circumstances of the contract. Lease liabilities are measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as at 1 July 2019. The Group's incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted average rate applied was 3.5%. The Group has taken advantage of the practical expedient permitted under IFRS 16 to apply a single discount rate to a portfolio of leases with similar characteristics. A reconciliation of the changes to reported operating lease commitments for 2019 is as follows: Operating lease commitments disclosed at 30 June 2019 New arrangements entered into on 1 July 2019 Less: Low value leases recognised as an expense Discounted using the incremental borrowing rate at 1 July 2019 Lease liability and right of use assets recognised at 1 July 2019 Minimum lease payments fall due as follows: Gross obligations repayable: Within one year Between one and five years Over five years Net obligations repayable: Within one year Between one and five years Over five years Amounts recognised in the consolidated statement of comprehensive income: Interest on lease liabilities Amounts recognised in the consolidated statement of cashflows: Payments to reduce lease liabilities 57 £000's 1,359 245 (3) (165) 1,436 360 598 335 325 525 312 49 408 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 20. Interest rate and liquidity risk 2020 Fixed rate Trade and other payables Lease obligations Accruals Floating rate Credit card liabilities Total 2019 Weighted average effective interest rate % Less than one month or on demand £000's 1-12 months £000's 1-3 years £000's 3.50% 345 - 1,265 158 325 1,194 - 837 - Total £000's 503 1,162 2,459 2.80% - 15 - 15 1,610 1,692 837 4,139 Weighted average effective interest rate % Less than one month or on demand £000's 1-12 months £000's 1-3 years £000's Total £000's Fixed rate Trade and other payables Lease obligations Accruals and contract liabilities Floating rate Credit card liabilities 11.40% 2.80% 603 - - - 103 16 2,848 30 - 23 - - 706 39 2,848 30 Total 603 2,997 23 3,623 21. Contingent liabilities There are no contingent liabilities either at the year-end or up to the date of signing the financial statements. 58 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 21. Deferred tax The movement on the deferred tax account is shown below At 1 July Charged to the statement of comprehensive income At 30 June 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 Other short term temporary differences 2020 £000's 2019 £000's 160 (32) 128 59 83 (14) 128 197 (39) 158 55 109 (6) 158 At 30 June 2020 deferred tax has been provided at a rate of 19% (2019: 17%) The Group has tax losses of approximately £1.8m (2019: £1.8m) to carry forward which could not be utilised against trading profits. The potential deferred tax asset arising on these tax losses of £324k (2019: £306k) has not been recognised as it is doubtful that it will be utilised in the foreseeable future. 22. Share capital Authorised, allotted, called up and fully paid: Ordinary shares of 5 pence each Issued and fully paid Ordinary shares of 5 pence at the start and end of the year 2020 £000's 2019 £000's 794 794 Number 000's Number 000's 15,899 15,899 59 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 22. Share capital (continued) The Group operates the CSSG Share Option Scheme 2014 (the Scheme), which is a share option scheme approved by HMRC. Although there are no current share options in issue, the Board keep the scheme under review, and consider new options as a way 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 third 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 5th anniversary of date of grant. At the start and end of the year, the number of options not exercised is as follows: Share options in issue at the start of the year Lapsed in the year Exercised in the year Share options in issue at the end of the year 2020 Number 2019 Number - - - 2,000 (2,000) - The charge to the statement of comprehensive income in the year was £nil (2019: £nil) 60 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 23. Reserves The following describes the nature and purpose of each reserve within equity: Reserve Share Premium Merger Reserve Description and purpose Amount subscribed for share capital in excess of nominal value less related professional and regulatory fees. The merger reserve arose on the acquisition of the CSS Group to the extent that this was funded by the issue of new shares. Retained Earnings Cumulative net gains and losses recognised in the statement of comprehensive income less amounts distributed to shareholders. Capital Redemption Reserve The capital redemption reserve arose on the purchase and cancellation of own shares. Ordinary Shares Amount subscribed for share capital at nominal value. Treasury Shares Reserve Arose on the purchase of own shares Company Share Option Scheme This represents the change in equity relating to the issue of company share options. 24. 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 33% 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 £117k (2019: £117k) and in respect of these leases, £484k (2019: £nil) is included in lease liabilities at 30 June 2020. Salaries paid to close family members During the year salaries totalling £70k (2019: £78k) were paid to close family members of key management personnel. 61 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 25. Notes supporting the cash flow statement Net changes in working capital Decrease/(increase) in inventories Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables 26. Cash and cash equivalents 2020 £000's 2019 £000's 61 1,628 9 1,698 2020 £000's (67) (49) (857) (973) 2019 £000's Cash at bank and in hand 4,076 1,729 27. Reconciliation of liabilities arising from financing activities Invoice discounting and credit card liabilities £000's Lease liabilities £000's 47 34 (42) 39 1,436 1,475 46 (359) 1,162 31 - (1) 30 - 30 - (15) 15 Total £000's 78 34 (43) 69 1,436 1,505 46 (374) 1,177 At 1 July 2018 New lease liabilities Cash flows At 30 June 2019 Application of IFRS16 At 1 July 2019 (amended) New lease liabilities Cash flows At 30 June 2020 28. Subsidiary audit exemption The wholly-owned subsidiaries of Croma Security Solutions Group Plc: Vigilant Security (Scotland) Limited, CSS Total Security Limited, CSS Locksmiths Limited, Croma Locksmiths and Security Solutions Limited and Basingstoke Locksmiths Limited are exempt from the requirements of Companies Act 2006 relating to the audit of individual accounts by virtue of section 479A. 62 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2020 Opinion We have audited the financial statements of Croma Security Solutions plc (the ‘parent company’) for the year ended 30 June 2020 which comprise the statement of financial position, the statement of cash flows, the statement of changes in equity and the parent company notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice). In our opinion, the parent company financial statements:  give a true and fair view of the state of the parent company’s affairs as at 30 June 2020;  have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and  have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the parent company financial statements section of our report. We are independent of the parent company in accordance with the ethical requirements that are relevant to our audit of the parent company financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:  the directors’ use of the going concern basis of accounting in the preparation of the parent company financial statements is not appropriate; or  the directors have not disclosed in the parent company financial statements any identified material uncertainties that may cast significant doubt about the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the parent company financial statements are authorised for issue. Other information The other information comprises the information included in the Report and Financial Statements other than the group and parent company financial statements and our auditor’s reports thereon. The directors are responsible for the other information. Our opinion on the parent company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the parent company financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the parent company financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine 63 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2020 whether there is a material misstatement in the parent company financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit:   the information given in the strategic report and the directors’ report for the financial year for which the parent company financial statements are prepared is consistent with the parent company financial statements; and the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:  adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or  the parent company financial statements are not in agreement with the accounting records and returns; or  certain disclosures of directors’ remuneration specified by law are not made; or  we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on 27, 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, and for such internal control as the directors determine is necessary to enable the preparation of parent company financial statements that are free from material misstatement, whether due to fraud or error. In preparing the parent company financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the parent company financial statements Our objectives are to obtain reasonable assurance about whether the parent company financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company financial statements. A further description of our responsibilities for the audit of the parent company financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 64 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF CROMA SECURITY SOLUTIONS GROUP PLC FOR THE YEAR ENDED 30 JUNE 2020 Other matter We have reported separately on the group financial statements of Croma Security Solutions Group Plc for the year ended 30 June 2020. This separate auditor’s report on the group financial statements includes other audit planning and scoping matters that relate to the parent company audit. The recoverability of investment in subsidiaries was considered to be a key audit matter in relation to the parent company and has been reported on in the separate auditor’s report on the group financial statements. Use of our report This report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Nexia Smith & Williamson Nexia Smith & Williamson (Oct 20, 2020 16:17 GMT+1) Julie Mutton Senior Statutory Auditor, for and on behalf of Nexia Smith & Williamson Statutory Auditor Chartered Accountants Cumberland House 15 – 17 Cumberland Place Southampton Hampshire SO15 2BG Date: 65 20/10/2020 STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2020 Assets Fixed assets Investments Current assets Debtors Cash and bank and in hand Current liabilities Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities Notes 2020 £000's 2019 £000's E F 8,498 8,498 1,544 76 1,620 8,935 8,935 1,484 47 1,531 G (413) (631) 1,207 900 9,705 9,835 Issued capital and reserves attributable to owners of the parent Share capital Capital redemption reserve Treasury shares Share premium Merger reserve Profit and loss account H C 794 51 (399) 6,133 2,139 987 794 51 (399) 6,133 2,139 1,117 Total equity 9,705 9,835 The company profit for year totalled £34k (2019:£911k) These financial statements were approved and authorised for issue by the Board of Directors on 16 October 2020 and signed on their behalf by Sebastian Morley (Oct 20, 2020 15:38 GMT+1) S J F Morley Director Croma Security Solutions Group plc - Company Number: 03184978 66 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Cash flows from operating activities Profit before taxation Net changes in working capital Impairment losses Net cash generated from operations Cash flows from financing activities Dividends paid Net cash used in financing activities Net increase in cash Cash and cash equivalents at beginning of period Cash and cash equivalents at end of the period Notes J 2020 £000's 34 (278) 437 192 (164) (164) 28 47 75 2019 £000's 911 (633) - 278 (253) (253) 25 22 47 67 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Share Capital £000s Capital Redemption Reserve £000s Treasury Shares £000s Share Premium £000s Merger Reserve £000s Retained Earnings £000s Total Equity £000s At 1 July 2018 Profit for the year Dividends paid At 30 June 2019 Profit for the year Dividends paid At 30 June 2020 794 - - 794 - - 794 51 - - 51 - - 51 (399) 6,133 2,139 459 9,177 - - (399) - - (399) - - 6,133 - - 6,133 - - 2,139 - - 2,139 911 (253) 1,117 34 (164) 987 911 (253) 9,835 34 (164) 9,705 The following notes form part of the primary financial statements 68 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 A. Significant accounting policies Croma Security Solutions Group Plc is a public limited company incorporated and domiciled in England and Wales and in AIM listed. The address of the registered office is Unit 7&8 Fulcrum 4, Solent Way, Whiteley, Fareham, Hampshire PO15 7FT Basis of accounting The separate financial statements of the Company 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 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 £767k (2019: £389k). Dividends of £0.8m were received from its subsidiary undertakings (2019: £1.3m). The Company's activities are funded by long term equity capital and by profits and cash generated from the activity of a holding company. The financial statements do not reflect the adjustments that would be necessary were the performance of the Company to deteriorate and the Group’s funding from invoice discounting to become unavailable. However, the Directors have considered expected cash requirements of the Company until 31 October 2021 and these projections suggest that the Company will meet its obligations as they fall due at least until this date. 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 statement of financial position when the Company becomes a party to the contractual provision of the instrument. 69 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2020 A. Significant accounting policies (continued) 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 statement of financial position. Finance costs and gains or losses relating to financial liabilities are included in the statement of comprehensive income. 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. 70 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2020 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. Estimates and assumptions: Impairment of investments in subsidiaries. The directors have considered if there are any areas of impairment and concluded that under current market conditions, and in particular the unknown future impacts of the COVID-19 crisis on cashflow projections that there are indicators of impairment. Determining whether investments in subsidiaries is impaired requires an estimation of the value in use of the cash generating units to which the investment relates. The value in use calculation requires the entity to estimate the future cashflows expected to arise from the cash generating unit. In order to derive the present value, the discount rate that has been calculated is 12.7%. An impairment of £437k against fixed assets investments has been recorded and at the year end the carrying value of investments totalled £8,498k (2019:£8,935k). The directors do not consider there to be any key areas of judgement. 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 profit dealt within the financial statements of the Company was £33k (2019: £911k). D. Staff costs The average monthly number of persons (including Directors) employed by the company during the period was: Management and administration Staff cost (for the above persons): Wages and salaries Pension Social security costs 71 2020 No. 2019 No. 6 6 £000's £000's 521 18 72 611 540 15 93 648 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2020 E. Fixed asset investments Cost At 1 July 2019 and 30 June 2020 Impairment At 1 July 2019 Arising in the year At 30 June 2020 Net book value At 30 June 2020 At 30 June 2019 Shares in subsidiary undertakings £000's 9,059 124 437 561 8,498 8,935 The principal fixed asset investments are as follows: Company % Ordinary shareholding Vigilant Security (Scotland) Limited CSS Total Security Limited Croma Locksmiths & Security Solutions Limited 100% directly 100% directly 100% directly Basingstoke Locksmiths Limited CSS Locksmiths Limited Centre Security Limited Access Key and Lock Limited 100% indirectly 55% directly 45% indirectly 100% indirectly 100% indirectly Nature of business Asset protection and guarding CCTV and security systems Locksmithing, Keys and Safes Locksmithing, Keys and Safes Dormant Dormant Dormant The registered office of CSS Total Security Limited, CSS Locksmiths Limited, Croma Locksmiths & Security Solutions Limited and Centre Security & Access key and Lock Limited is Units 7 & 8 Fulcrum 4, Fareham, Whiteley PO15 7FT The registered office of Vigilant Security (Scotland) Limited is 1st Floor Left, 161 Brooms Road, Dumfries, Scotland, DG1 2SH 72 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2020 F. Debtors Amounts due from subsidiary undertakings, repayable on demand Prepayments G. Creditors: Amounts falling due within 1 year Amounts due to subsidiary undertakings, repayable on demand Trade creditors Other creditors Other taxes and social security H. Share capital Authorised, allotted, called up and fully paid: Ordinary shares of 5 pence each Issued and fully paid 2020 £000's 1,531 13 1,544 2020 £000's 259 20 22 112 413 2019 £000's 1,456 28 1,484 2019 £000's 521 23 51 36 631 2020 £000's 2019 £000's 794 794 2020 Number 000's 2019 Number 000's Ordinary shares of 5 pence at the start and end of the year 15,899 15,899 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 an Approved Company Share Option Scheme. Details are in Note 22 of the consolidated accounts. 73 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2020 I. 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 33% of the voting shares. Full details of compensation to Key Management Personnel of the parent company is included in note 7 to the financial statements of the Group. J. Notes supporting the cash flow statement Net changes in working capital (Increase)/decrease in trade and other receivables (Decrease)/Increase in trade and other payables 2020 £000's 2019 £000's (60) (218) (278) (829) 196 (633) 74 

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