Company registration No 04095614 (England & Wales) MERCURY RECYCLING GROUP PLC GROUP FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 CONTENTS Directors Advisors Chairman's Statement Directors' Report Corporate Governance Statement Directors' Remuneration Report Statement of Directors' Responsibilities Independent Auditors' Report Consolidated Income Statement Consolidated Statement Of Comprehensive Income Consolidated Balance Sheet Parent Company Balance Sheet Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Cash Flow Statement Company Cash Flow Statement Notes to the Accounts 1 2 3 4 - 6 7 - 8 9 - 10 11 12 - 13 14 14 15 16 17 18 19 19 20- 43 YEAR ENDED 31 DECEMBER 2011 DIRECTORS The Rt Hon The Lord Barnett JP PC Non-Executive Chairman Lord Barnett is a Certified Accountant and was a former Senior Partner in what is now UHY Hacker Young Manchester LLP. He was a Member of Parliament for nearly 20 years before being elevated to a peerage in 1983. During his political career, he was a member of the Cabinet between 1977 and 1979, Chief Secretary to the Treasury, a Privy Counsellor, Chairman of the Public Accounts Committee from 1979 to 1983, Chairman of the House of Lords Select Committee on EU Monetary Policy from 1995 to 1998 and a Member of the Select Committee on Bank of England Monetary Policy, which has now become the Select Committee on Economic Affairs, from 1998 to 2004. He was Vice-Chairman of the BBC from 1986 to 1993 and Chairman of the Educational Broadcasting Trust. Bryan Neill Managing Director Bryan Neill joined Simister Engineering Services Limited in 1996, as a Sales and Marketing Director, after spending 12 years with Glaxo Welcome PLC. During that time he qualified as a Member of the Institute of Purchasing and Supply, and completed his service with Glaxo Welcome PLC as the UK Purchasing Manager. He was appointed Managing Director of Simister in 1999, and was responsible for the design, development and installation of the company’s recycling plant in the South of England. This was the first of its type in the UK and is capable of processing all types of fluorescent tubes and street lighting. Under his management, Simister enjoyed year on year growth, and he joined Mercury Recycling Group Plc as Operations Director following the acquisition of Simister in December 2003. He was subsequently appointed as Managing Director in 2008. Giles Clarke Non-Executive Director Giles Clarke is Chairman of the England and Wales Cricket Board, Westleigh Investments Holdings Limited, Amerisur Resources plc, and of several private organisations. He founded Majestic Wine in 1981 and built it into a national chain of wine warehouses. He also co-founded Pet City in 1990, which he expanded nationwide before it was listed and subsequently sold in 1996 for £150 million and co-founded Safestore which was sold in 2003 for £40 million. Nicholas Harrison Non-Executive Director Nicholas Harrison qualified as an accountant with Arthur Andersen and subsequently held a number of senior positions with other professional services organisations. He was Finance Director of Pet City and has held finance director and chief executive positions in a number of private businesses. He is currently Chief Executive of Westleigh Investments Holdings Limited, a director of Amerisur Resources plc and of a number of private organisations. MERCURY RECYCLING GROUP -PLC- 1 ADVISORS Company secretary Kirsti Jane Pinnell Company number 04095614 (England and Wales) YEAR ENDED 31 DECEMBER 2011 Registered office Nominated Adviser Broker Auditors Bankers Solicitors Registrar Mercury House 17 Commerce Way Trafford Park Manchester M17 1HW Shore Capital and Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU Shore Capital Stockbrokers Limited Bond Street House 14 Clifford Street London W1S 4JU UHY Hacker Young Manchester LLP St James Building 79 Oxford Street Manchester M1 6HT The Co-operative Bank Plc PO Box 101 1 Balloon Street Manchester M60 4EP Kuit Steinart Levy LLP 3 St Mary's Parsonage Manchester M3 2RD Capita Registrars Limited 34 Beckenham Road Beckenham Kent BR3 4TU MERCURY RECYCLING GROUP -PLC- 2 YEAR ENDED 31 DECEMBER 2011 CHAIRMAN'S STATEMENT At the time of this statement, I hoped that MRG would have concluded the negotiations regarding the acquisition of iron ore assets from Sylvania Platinum Limited. Unfortunately the transaction is taking longer to conclude than we had originally anticipated, but I am hopeful that we will shortly be in a position to move forward with the acquisition. Sales for the year were £2,537,000 compared to £2,668,000 for the previous year. Operating losses after non-recurring costs were £31,000 compared to a profit of £272,000 in 2010. The volume of lamps recycled has been consistent with the previous period but the price being paid by the sole compliance scheme company purchasing B2B lamp evidence, has been reduced. We have taken advice from Leading Competition Counsel and we have been assured that we have very strong grounds for appeal. We have done so, and are in detailed negotiations. The results do not therefore give a full picture of our future prospects and I believe that future results will demonstrate a change for the better. On the cost side, there have been substantial non-recurring costs amounting to £160,000 including the cost of preparing the site for the battery recycling business, proposed acquisition costs and a container write down resulting from a review of our container policy in the year. This container review also resulted in a change in accounting policy for our Lampsafe containers, which was accounted for as a prior period adjustment. The new WEEE Recast consultation process has been moving forward and, as I previously explained, this will be important to the lamp recycling sector, indeed it should further transform our position for the better. I can also report that our preparations for the move into the battery recycling business are now complete and that interest to date is very encouraging. Unfortunately the granting of battery treatment and export permits has taken much longer than expected but we were eventually granted the permits in February 2012 and have now started processing batteries on our newly installed battery sorting line. I am hopeful that all this will ensure that Mercury Recycling Limited will have excellent prospects in both lamp and battery recycling. Once again I would like to thank all our staff for their contribution during these major changes to the Group. Yours sincerely, The Rt Hon The Lord Barnett JP PC Chairman MERCURY RECYCLING GROUP -PLC- 3 DIRECTORS' REPORT YEAR ENDED 31 DECEMBER 2011 The Directors present their annual report, together with the audited financial statements for the year ended 31 December 2011. The Corporate Governance Statement set out on pages 7 to 8 forms part of this report. Principal activity and business review The principal activity of the Group for the year continued to be the recycling of fluorescent tubes, together with the supply of elemental mercury, and the recycling of mercury contaminated waste. The principal activity of the Company for the year was that of a holding company. The Company is required by the Companies Act to include a business review in this report. The information that fulfils the requirements of the business review can be found in the Chairman's Statement on page 3. Dividends The Directors do not propose the payment of a dividend for the year. Directors and their interests The directors, who served during the year were as follows:- The Rt Hon The Lord Barnett JP PC B Neill G Clarke N Harrison J C Dwek (resigned 17 June 2011) A J Leon (resigned 17 June 2011) The beneficial and other interests of the Directors at the year end and their families in the shares of the Company and its subsidiary undertakings were as follows: The Rt Hon The Lord Barnett JP PC B Neill G Clarke N Harrison 31 December 2011 10p ordinary shares Number 31 December 2010 10p ordinary shares Number 2,376,339 1,190,000 5,319,877 5,319,877 2,376,339 1,190,000 5,319,877 5,319,877 Mr G Clarke and Mr N Harrison's interests in 5,319,877 (2010 - 5,319,877) shares are through their shareholding in Westleigh Investments Holdings Limited. There have been no changes in interests since the year end. Details of Directors' interest in share options and share warrants are provided in the Directors' remuneration report on page 9 and 10. Supplier payment policy The Group's policy is to agree terms of payment with suppliers when agreeing the terms of each transaction. Trade payables of the Group as at 31 December 2011 were equivalent to 48 (2010 - 45) day's purchases. MERCURY RECYCLING GROUP -PLC- 4 YEAR ENDED 31 DECEMBER 2011 DIRECTORS' REPORT (continued) Political contributions and charitable donations The Group made no political contributions or charitable donations during this or the preceding year. Substantial shareholdings As at 4 April 2012 the Company had been notified of the following holdings of 3% or more of its issued share capital other than the Directors' direct holdings on page 4: HSDL Nominees Limited GHC Nominees Limited J C Dwek CBE Ronald Atkins L R Nominees Limited Barclayshare Nominees Limited Giltspur Nominees Limited Going concern Number of ordinary shares Percentage 3,764,715 10.93% 3,491,668 10.58% 3,733,764 10.42% 1,667,500 4.65% 1,403,189 4.01% 1,255,248 3.26% 1,195,650 3.09% The Company’s business activities, its future development, performance and position are set out in the Chairman’s statement on page 3. In addition, note 18 to the financial statements includes the company’s objectives, policies and processes for managing its capital, its financial risk management objectives and its exposures to credit risk and liquidity risk. together with the factors likely to affect The Directors have reviewed the financial resources and facilities available to deal with its business risks. The Directors therefore feel well placed to manage the business risks successfully within its present financial arrangements. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. MERCURY RECYCLING GROUP -PLC- 5 YEAR ENDED 31 DECEMBER 2011 DIRECTORS' REPORT (continued) Directors' indemnities The Company has made qualifying third party indemnity provisions for the benefit of its Directors which were in place during the year and remain in force at the date of this report. Statement of disclosure to auditors Each of the persons who is a Director at the date of approval of this annual report confirms that: • • so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and the Director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of the relevant audit information and to establish that the Company's auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of Companies Act 2006. the This report was approved by the Board on 1 June 2012 and signed on its behalf by: K J Pinnell Company secretary MERCURY RECYCLING GROUP -PLC- 6 YEAR ENDED 31 DECEMBER 2011 CORPORATE GOVERNANCE STATEMENT Code of best practice The Board acknowledges the importance of the UK Corporate Governance Code ("the Code") and has reviewed the Group's consistency with the provisions of the Code as appended to the Listing Rules of the Financial Services Authority. This statement explains how the Group has voluntarily applied principles of the Code and confirms that it has consistently complied with these throughout the year. The Board of Directors The Group is controlled and led by the Board of Directors with an established schedule of matters reserved for their specific approval. The Board meets regularly throughout the year and is responsible for the overall Group strategy, acquisition and divestment policy, approval of major capital expenditure and consideration of significant financial matters. It reviews the strategic direction of the Company and its individual subsidiaries, their annual budgets, their progress towards achievement of these budgets and their capital expenditure programmes. The function of the Chairman is to supervise the Board and to ensure its effective control of the business, and that of the Managing Director is to manage the Group on the Board's behalf. All Board members have access, at all times, to sufficient information about the business, to enable them to fully discharge their duties. Also, procedures exist covering the circumstances under which the Directors may need to obtain independent professional advice. The Board has established the following committees to fulfil specific functions: The Audit Committee - was chaired by A J Leon and comprised of A J Leon and J C Dwek until their resignation on 17 June 2011. From this date the committee was chaired by N Harrison and comprises of N Harrison and G Clarke. It meets twice a year, monitoring and reviewing the Group's financial reporting and internal control procedures. Due to the nature and size of the Group at present it would not be appropriate for the Group to have its own internal audit department reporting directly to the Audit Committee, this situation is reviewed annually. The Remuneration Committee , chaired by Rt Hon The Lord Barnett JP PC throughout the period in addition to A J Leon and J C Dwek to 17 June 2011 and subsequently comprising of N Harrison and G Clarke. Meetings are convened during the year to monitor, assess and report to the full Board on all aspects and policy relating to nomination, appointment and remuneration of executive Directors. The Board, as a whole, determines the remuneration of the Non-Executive Directors. Status of Non-executive directors None of the Non-Executive Directors would be deemed independent under the UK Corporate Code. However, the Non-Executive Directors have considerable experience which the Company draws upon on a regular basis. In addition, the Non-Executive Directors are sufficiently independent of management so as to be able to exercise independent judgement and bring an objective viewpoint and, thereby, protect and promote the interest of shareholders. MERCURY RECYCLING GROUP -PLC- 7 YEAR ENDED 31 DECEMBER 2011 CORPORATE GOVERNANCE STATEMENT (continued) Internal control The Board is responsible for ensuring that the Group maintains adequate internal control over the business and its assets. The effectiveness of the Group's system of internal financial controls, for the year to 31 December 2011 and for the period to the date of approval of the financial statements, has been reviewed by the Directors. Whilst they are aware that although no system can provide for absolute assurance against material misstatement or loss, they are satisfied that effective controls are in place. On the wider aspects of relating to operational and compliance controls and risk management, the Board, in setting the control environment, identifies, reviews, and regularly reports on the key areas of business risk facing the Group. internal control, The Managing Director maintains close day to day involvement in all of the Group's activities which enables control to be achieved and maintained. This includes the comprehensive review of both management and technical reports, the monitoring of interest rates, environmental considerations, government and fiscal policy issues, employment and information technology requirements and cash control procedures. In this way, the key risk areas can be monitored effectively and specialist expertise applied in a timely and productive manner. Relations with shareholders The Company maintains effective contact with its principal shareholders and welcomes communications from its private investors. MERCURY RECYCLING GROUP -PLC- 8 YEAR ENDED 31 DECEMBER 2011 DIRECTORS' REMUNERATION REPORT Compliance This report by the Remuneration Committee, on behalf of the Board, contains full details of the remuneration of each Director during the year under review. Directors' remuneration policy The Remuneration Committee aims to ensure that the remuneration packages offered are competitive and are designed to attract, retain and motivate executives of the right calibre. Emoluments of the Directors Salaries £000 Fees £000 Benefits in kind £000 2011 Total £000 The Rt Hon The Lord Barnett JP PC ** J C Dwek CBE * A J Leon DL FCA * B Neill *** G Clarke **** N Harrison **** - - - 89 - - 89 20 3 8 - - - 31 1 - - 7 - - 8 21 3 8 96 - - 2010 Total £000 21 4 12 95 - - 128 132 In addition to the above fees, the Group was charged £13,500 (2010: £2,037) by Westleigh Investments Holdings Limited for the services of G Clarke and N Harrison as Directors. * Member of the Remuneration Committee up until 17 June 2011 ** Chairman of the Remuneration Committee *** Highest-paid Director during the year **** Member of the Remuneration Committee from 17 June 2011 Pensions No pension contributions were made during the year. The Non-Executive Directors' appointments are not pensionable. Directors' service contracts The service contract of B Neill, the executive director, is terminable on 12 months notice. The Non-Executive Directors' appointments are subject to three months notice, subject always to earlier termination in specified circumstances. MERCURY RECYCLING GROUP -PLC- 9 YEAR ENDED 31 DECEMBER 2011 DIRECTORS' REMUNERATION REPORT (continued) Directors' share options and share warrants Details of the individual share options held by the Directors as at 1 January 2011 and 31 December 2011, are as follows: Option price (p) 1 January 2011 Exercised Number Cancelled Re Issued 31 December 2011 B Neill 10p 750,000 - - - 750,000 The exercise period for the options held at 31 December 2011 is 21 November 2010 to 21 May 2020. Throughout the year, share warrants were in issue over 8,399,966 shares held by Westleigh Investments Holdings Limited, a company in which G Clarke and N Harrison are interested as directors and shareholders. The warrants are exercisable at 10 pence per share and are exercisable up to 25 October 2016 providing the average closing market price of the Company's shares exceeds 15 pence over a period of 30 consecutive days The market price of the Company's shares at 31 December 2011 was 7.25p with a range of 6.00p to 13.00p during the year. There were no movements in the Directors' share options or share warrants since the year end. This report was approved by the Board on 1 June 2012 and signed on its behalf by: Chairman of the Remuneration Committee The Rt Hon The Lord Barnett JP PC MERCURY RECYCLING GROUP -PLC- 10 YEAR ENDED 31 DECEMBER 2011 STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors are required to prepare group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have also chosen to prepare the parent company financial statements under IFRSs as adopted by the European Union. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: - - - - properly select and apply accounting polices; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and make an assessment of the Company's ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors' responsibility statement We confirm that to the best of our knowledge: 1. the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and the business review, which is incorporated into the directors’ report, 2. development and performance of included in the consolidation taken as a whole, uncertainties that they face. the business and the position of together with a description of the includes a fair review of the company and the undertakings the principal risks and On behalf of the Board B Neill Director 1 June 2012 MERCURY RECYCLING GROUP -PLC- 11 INDEPENDENT AUDITORS' REPORT YEAR ENDED 31 DECEMBER 2011 Registered Auditor UHY Hacker Young Manchester LLP St. James Building 79 Oxford Street Manchester M1 6HT 1 June 2012 To the members of Mercury Recycling Group Plc We have audited the financial statements of Mercury Recycling Group Plc for the year ended 31 December 2011 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and the Company Balance Sheets, the Group and Company Cash Flow Statements, the Group and Company Statements of Changes in Equity and the related notes 1 to 25. 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. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit worked has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other then the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditors As explained more fully in the Statement of Directors Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express and opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistences with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. MERCURY RECYCLING GROUP -PLC- 12 INDEPENDENT AUDITORS' REPORT (continued) YEAR ENDED 31 DECEMBER 2011 Opinion on the financial statements In our opinion: • • • the financial statements give a true and fair view of the Group and the parent Company's affairs as at 31 December 2011 and of the Group's and the parent Company's loss for the year then ended; the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and the financial statements have been prepared in accordance with the requirements of Companies Act 2006. the Opinion on other matters prescribed by the Companies Act 2006 In our opinion, the information given in the Director's Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required 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 to be audited 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. Michael Wasinski Senior Statutory Auditor for and on behalf of UHY Hacker Young Manchester LLP Chartered Accountants Registered Auditor MERCURY RECYCLING GROUP -PLC- 13 CONSOLIDATED INCOME STATEMENT Revenue Cost of sales Gross profit Administrative expenses Operating (loss)/profit Finance costs (Loss)/profit before tax Tax (Loss)/profit for the period (Attributable to owners of the company) (Loss)/earnings per share - Basic - Diluted Note 3 4 6 7 8 8 YEAR ENDED 31 DECEMBER 2011 2011 £000 2010 Restated* £000 2,537 2,668 (148) (179) 2,389 2,489 (2,420) (2,217) (31) (4) (35) (6) (41) (0.11p) n/a 272 (7) 265 (14) 251 0.73p 0.72p The income statement has been prepared on the basis that all operations are continuing operations. There is no difference between the results as disclosed above and the results on an historical cost basis. *Further details of the prior period adjustment are provided in notes 2 and 25. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Profit for the year Other comprehensive income for the year Total comprehensive income for the year (Attributable to the owners of the Company) 2011 £000 (41) - (41) 2010 Restated* £000 251 - 251 MERCURY RECYCLING GROUP -PLC- 14 CONSOLIDATED BALANCE SHEET Non-current assets Goodwill Property, plant and equipment Current assets Trade and other receivables Cash and bank balances Current tax assets Total assets Current liabilities Trade and other payables Borrowings Current tax liabilities Non-current liabilities Trade and other payables Borrowings Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium Other reserves Retained earnings Total equity (Attributable to owners of the Company) YEAR ENDED 31 DECEMBER 2011 Note 2011 £000 2010 Restated* £000 2009 Restated* £000 10 12 14 15 16 15 16 17 19 20 20 20 4,122 1,265 5,387 465 343 18 826 4,122 1,409 5,531 448 412 - 860 4,122 1,431 5,553 478 1 10 489 6,213 6,391 6,042 (234) (68) - (302) (24) (88) (167) (279) (581) (270) (86) (17) (373) (33) (155) (157) (345) (718) (249) (139) (25) (413) (42) (225) (158) (425) (838) 5,632 5,673 5,204 3,583 235 386 1,428 5,632 3,583 235 386 1,469 5,673 3,403 242 365 1,194 5,204 *Further details of the prior period adjustment are provided in notes 2 and 25. These financial statements were approved by the Board and authorised for issue on 1 June 2012. Signed on behalf of the Board B Neill Director Company Registration No: 04095614 MERCURY RECYCLING GROUP -PLC- 15 PARENT COMPANY BALANCE SHEET Non-current assets Investments Current assets Trade and other receivables Total assets Current liabilities Trade and other payables Total liabilities Net assets Equity Share capital Share premium Other reserves Retained earnings Total equity (Attributable to owners of the Company) Note 13 14 15 19 20 20 20 YEAR ENDED 31 DECEMBER 2011 2011 £000 2010 £000 3,954 3,954 1,241 5,195 (17) (17) 1,188 5,142 (19) (19) 5,178 5,123 3,583 235 1,320 40 5,178 3,583 235 1,320 (15) . 5,123 These financial statements were approved by the Board and authorised for issue on 1 June 2012 Signed on behalf of the Board B Neill Director Company Registration No: 04095614 MERCURY RECYCLING GROUP -PLC- 16 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2011 Share Capital £000 Share Premium £000 Other Reserve £000 Retained Earnings £000 Total Equity £000 3,403 242 365 1,263 5,273 Balance at 1 January 2010 (As previously stated) Effect of change in accounting policy As restated Profit for the period (restated) Warrants issued - 3,403 - - 242 - Issue of share capital 180 (7) Credit to equity for equity-settled share based payments Balance at 31 December 2010 (Restated) Loss for the period - 3,583 - Balance at 31 December 2011 3,583 - 235 - 235 - 365 - 21 - - (69) (69) 1,194 251 - 24 5,204 251 21 173 24 386 1,469 5,673 - 386 (41) (41) 1,428 5,632 MERCURY RECYCLING GROUP -PLC- 17 COMPANY STATEMENT OF CHANGES IN EQUITY Share Capital £000 Share Premium £000 Other Reserve £000 Retained Earnings £000 Balance at 1 January 2010 3,403 242 1,299 Loss for the period Warrants issued Issue of share capital Credit to equity for equity-settled share based payments - - 180 - Balance at 31 December 2010 3,583 Profit for the period - Balance at 31 December 2011 3,583 - - (7) - 235 - 235 - 21 - - 1,320 - 1,320 14 (53) - - 24 (15) 55 40 YEAR ENDED 31 DECEMBER 2011 Total Equity £000 4,958 (53) 21 173 24 5,123 55 5,178 MERCURY RECYCLING GROUP -PLC- 18 CONSOLIDATED CASH FLOW STATEMENT Note 21 Net cash from operating activities Investing activities Purchases of property, plant and equipment Net cash used in investing activities Financing activities Proceeds on issue of equity Repayment of borrowings Net cash generated (used in)/from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of year Cash and cash equivalents at end of year 21 21 COMPANY CASH FLOW STATEMENT The parent company had no cash transactions during the year. YEAR ENDED 31 DECEMBER 2011 2010 Restated £000 525 (187) (187) 194 (66) 128 466 (70) 396 2011 £000 169 (153) (153) - (69) (69) (53) 396 343 MERCURY RECYCLING GROUP -PLC- 19 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. General information Mercury Recycling Group Plc is a company incorporated in the United Kingdom under the Companies Act 2006. Adoption of new and revised Standards In the current year, the following significant new and revised Standards and Interpretations have been adopted none of which have affected the amounts reported in these financial statements. IAS 24 - Related party disclosures IAS 32 - Financial instruments: Presentation The following standards were amended as part of Annual Improvements to IFRS (May 2010): First-time adoption of international financial reporting standards IFRS 1 IFRS 3 Business contributions IFRS 7 IAS 1 IAS 27 IAS 34 Financial instruments disclosures Presentation of financial statements Consolidated and separate financial statements Interim financial reporting the date of authorisation of At interpretations which have not been applied in these financial statements were in issue but not yet effective: the following significant standards and these financial statements, First-time adoption of international financial reporting standards Financial instruments disclosures Financial instruments IFRS 1 IFRS 7 IFRS 9 IFRS 10 Consolidated financial statements IFRS 11 Joint arrangements IFRS 12 Disclosure of interest on other entities IFRS 13 Fair value measurement IAS 1 IAS 12 IAS 19 IAS 27 Consolidated and separate financial statements IAS 28 Presentation of financial statements Income Taxes Employee benefits Investment and associates The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods. 2. Significant accounting policies The financial statements are based on the following policies which have been consistently applied: Basis of preparation The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements have been prepared on the historical cost basis. The principal accounting policies are set out below. MERCURY RECYCLING GROUP -PLC- 20 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Significant accounting policies (continued) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and all entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control. The acquisition of WEEE Recycling Limited was accounted for as a group reconstruction using merger accounting. Under IFRS 1, the Group has elected not to restate business combinations prior to the transition date to IFRS of 1 January 2006. The Group has taken advantage of s612 (2) of the Companies Act 2006 and has credited the premium arising on the acquisition of Mercury Recycling Limited to other reserves. Changes in accounting policy In the year the Company changed its accounting policy for certain storage containers used in the operations of the Group. Accordingly the Group has changed its accounting policy in these financial statement, to one which provides more reliable and relevant information in the underlying performance of the Group than the previous policy. The Directors reviewed their policy on the capitalisation and depreciation of certain storage containers and considered that due to a change in the operational focus of the Group such containers would be better reflected as consumable items and charged to the income statement when issued to clients. Previously such containers were included as assets and depreciated over their estimated useful lives. In accordance with IAS 8 (Accounting for a change in accounting estimates and errors) the change has been made retrospectively and the comparatives have been restated accordingly. Full details of the impact of the change in accounting policy are provided in note 25. Business combinations On the acquisition of a business, fair values are attributable to the Group's share of net separable assets. Where the cost of acquisition exceeds the fair values attributable to such net assets, the difference is treated as purchased goodwill and capitalised in the balance sheet in the year of acquisition. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of the subsidiary. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment annually. Any impairment is immediately recognised in the income statement. Government grants Grants towards property, plant and equipment are treated as deferred income and released to the income statement over the expected useful the assets concerned. Grants towards expenditure are recognised as income over the periods necessary to match with the related costs and are deducted in reporting the related expense. lives of MERCURY RECYCLING GROUP -PLC- 21 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Significant accounting policies (continued) Research and development Research expenditure is charged to the profit and loss account as incurred. An internally-generated asset arising from any development conditions are met: - an asset is created that can be identified; - it is probable that the asset created will generate future economic benefits; and - the development cost of the asset can be measured reliably. is recognised only if all of the following Revenue Revenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of discounts and value added tax. Taxation The tax expense represents the sum of the tax payable and deferred tax. Deferred taxation is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided on timing differences arising from revaluation of fixed assets where there is no commitment to sell the asset. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value, or if lower, at the present value of future minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation using a sum of digits method. Rentals payable under operating leases are charged to the income statement on a straight line basis over the lease period. Property, plant and equipment Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows: Property alterations Plant and machinery Fixtures, fittings & equipment Motor vehicles 10% straight line basis 10% - 25% straight line basis or reducing balance basis 10% - 25% straight line basis 25% reducing balance basis MERCURY RECYCLING GROUP -PLC- 22 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Significant accounting policies (continued) Other intangible assets Other intangible assets are stated at cost less amortisation. Amortisation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows: Software 25% straight line basis Retirement benefit costs the schemes are held The Group contributes to defined contribution pension schemes. The assets of separately from those of the Group in an independently administered funds. Contributions payable for the period are charged in the income statement. Investments Investments are stated at cost less any provision for the permanent diminution in value. Financial instruments Financial assets and financial becomes a party to the contractual provisions of the instrument. liabilities are recognised in the Group's balance sheet when the Group Trade receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method except for short-term receivables when recognition of interest would be immaterial. Appropriate allowances for the estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Financial liability and equity Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in the income statement using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade and other payables Trade payables and other financial measured at amortised cost, using the effective interest rate method. liabilities are initially measured at fair value, and are subsequently The Group's activities expose it primarily to the financial risks of changes in interest rates on long term borrowings. MERCURY RECYCLING GROUP -PLC- 23 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Significant accounting policies (continued) Share-based payments The Group issues equity-settled share-based payments to certain employees and other parties. Equity settled share-based payments are measured at fair value at the date of grant. In respect of employee related share based payments, the fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. In respect of other share based payments, the fair value is determined at the date of grant and recognised when the associated goods or services are received. Operating segments The Group considers itself to have a single purpose and therefore concludes that it has only one business segment and only one geographic segment. Critical accounting estimates and judgements The Group makes estimates and assumptions 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. Impairment of goodwill The Group is required to review, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows - actual outcomes may vary. If then impairment is made. No impairment was recognised in the period. the carrying amount exceeds the recoverable amount Useful lives of property, plant and equipment Property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the assets will generate revenue, which are based on judgement and experience and periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods. the period that MERCURY RECYCLING GROUP -PLC- 24 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Significant accounting policies (continued) Critical accounting estimates and judgements (continued) Share based payments The Group utilised an equity-settled share-based remuneration scheme for employees and other persons. Services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options are estimated by using Black-Scholes valuation method as at the date of grant. The assumptions used in the valuation include, among others, the expected volatility, expected life of the options and number of options expected to vest. 3. Revenue The revenue and profit on ordinary activities before taxation arise from the Group's principal activity. The Group's revenue has been analysed by geographic area as follows: United Kingdom 4. Operating (loss)/profit Loss/(profit) for the year is shown after charging / (crediting): Depreciation on tangible assets Government grants Profit on disposal of tangible assets Operating leases: -Land and buildings -Other Fees paid to the auditor are analysed as follows: Audit fees (Group excluding parent company) Audit fees (Parent company) Tax consultancy Other review reports 2011 £000 2010 £000 2,537 2,668 2011 £000 297 (9) - 86 37 13 4 4 13 2010 Restated £000 207 (9) 1 84 40 13 4 4 4 MERCURY RECYCLING GROUP -PLC- 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. Staff costs Wages and salaries Social security costs Share based payments Directors remuneration and fees (included above) The aggregate remuneration paid to the highest paid director was YEAR ENDED 31 DECEMBER 2011 2011 £000 980 100 - 2010 £000 928 96 24 1,080 1,048 179 96 134 95 The average monthly number of employees, including Directors, during the year was as follows: 2011 Number 2010 Number Administration and management Operational and sales 11 30 41 8 31 39 In addition to directors remuneration and fees above, the Group was charged £13,500 (2010: £2,037) by Westleigh Investments Holdings Limited for the services of G Clarke and N Harrison as Directors. Further details of the Directors' remuneration are given in the Directors' Remuneration Report on pages 9 and 10. 6. Finance costs On bank loans and overdrafts 7. Tax a) Tax charge for the period Corporation tax: Current year Adjustments in respect of prior years Deferred tax (note 17) 2011 £000 4 2011 £000 - (4) (4) 10 6 2010 £000 7 2010 Restated £000 30 (15) 15 (1) 14 MERCURY RECYCLING GROUP -PLC- 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. Tax (continued) b) Factors affecting the tax charge for the period Profit on ordinary activities for the year before taxation Profit on ordinary activities for the year before taxation multiplied by standard rate of UK corporation tax of 20.25% (2010 - 21%) Effects of : Capital allowances for the period in excess of depreciation Losses brought forward Adjustments in respect of prior years Other tax adjustments Tax expense for the year YEAR ENDED 31 DECEMBER 2011 2011 £000 (35) (7) (1) - (4) 6 (6) 2010 Restated £000 265 56 (24) (4) (15) 2 15 c) Factors that may affect future tax charges - The Group has estimated unutilised tax losses/expenses amounting to £380,000 (2010 - £531,000) the values of which are not recognised in the balance sheet. The losses represent a potential deferred taxation asset of £80,000 (2010 - £149,000) which would be recoverable should the Group make sufficient suitable taxable profits in the future. 8. (Loss)/earnings per share (Loss)/profit for the period (Loss)/earnings per share Basic (cents per share) Diluted (cents per share) 2011 £000 (41) (0.11p) n/a 2010 Restated £000 251 0.73p 0.72p Basic - The calculation of basic earnings per share is based on a loss of £41,000 (2010 - Profit - £251,000 restated) and on 35,827,462 (2010 - 34,509,795) ordinary shares, being the weighted average number of ordinary shares in issue during the year. MERCURY RECYCLING GROUP -PLC- 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. (Loss)/earnings per share (continued) Diluted - The diluted earnings per share is based on the loss for the year of £41,000 (2010 - Profit - £251,000 restated) and on 35,827,462 (2010 - 34,509,795) ordinary shares as adjusted for share options below: YEAR ENDED 31 DECEMBER 2011 Basic weighted average number of shares Dilutive potential ordinary shares: Dilution caused by options Diluted weighted average number 2011 Number 2010 Number 35,827,462 34,509,795 n/a 117,793 n/a 34,627,588 As the Group reports a loss for the current period, then in accordance with IAS 33, the share options are not considered dilutive. Details of such instruments which could potentially dilute basic earnings per share in the future are included in note 19. Under IAS 33, the share warrants in issued during the year were not considered to be diluting as the market based vesting conditions of the warrants had not been met at the year end. Further details are provided in note 19. 9. Profit attributable to owners of the parent company As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the parent Company is not presented as part of these accounts. The parent Company's profit for the financial year amounted to £55,000 (2010 - Loss - £53,000). 10. Goodwill Group Cost: At 1 January 2010, 31 December 2010 and at 31 December 2011 Goodwill £000 4,122 Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from the business combination. The Group reviews goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The Group prepares cash flow forecasts derived from the most recent management and extrapolates cash flows based on estimated growth rates. financial budgets approved by The Directors consider that no impairment occurred to the goodwill. 11. Other intangible assets At 1 January 2010, 31 December 2010 and at 31 December 2011 the Group had software costing £4,000 which was fully amortised. MERCURY RECYCLING GROUP -PLC- 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12. Property, plant and equipment Group Cost: At 1 January 2011 Additions Disposals At 31 December 2011 Depreciation: At 1 January 2011 On disposals Provided during the year At 31 December 2011 Net book value at 31 December 2011 Net book value at 31 December 2010 (Restated) Group Cost: At 1 January 2010 (As previously reported) Prior period adjustment At 1 January 2010 Additions Disposals At 31 December 2010 Depreciation: At 1 January 2010 (As previously reported) Prior period adjustment At 1 January 2010 On disposals Provided during the year At 31 December 2010 Net book value at 31 December 2010 Net book value at 31 December 2009 Net book value at 31 December 2010 (As previously reported) Net book value at 31 December 2009 (As previously reported) All non-current assets are located in the United Kingdom. Property Plant and alterations machinery £000 £000 85 - - 85 49 - 8 57 28 36 2,489 153 (314) 2,328 1,116 (314) 289 1,091 1,237 1,373 Property Plant and alterations machinery Restated £000 £000 85 - 85 - - 85 39 - 39 - 10 49 36 46 36 46 2,434 (128) 2,306 186 (3) 2,489 971 (50) 921 (2) 197 1,116 1,373 1,385 1,459 1,463 YEAR ENDED 31 DECEMBER 2011 Total £000 2,574 153 (314) 2,413 1,165 (314) 297 1,148 1,265 1,409 Total Restated £000 2,519 (128) 2,391 186 (3) 2,574 1,010 (50) 960 (2) 207 1,165 1,409 1,431 1,495 1,509 MERCURY RECYCLING GROUP -PLC- 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. Investments Company Cost: At 1 January 2011 and at 31 December 2011 Accumulated impairment losses: At 1 January 2011 and at 31 December 2011 Net book value at 31 December 2011 Net book value at 31 December 2010 YEAR ENDED 31 DECEMBER 2011 Subsidiary undertakings £000 3,954 - 3,954 3,954 Details of the investments in which the Company holds 20% or more of the nominal value of any class of share capital, all of which are included in the consolidated accounts and are registered in England and Wales, are as follows: Name of company Holding Proportion of voting rights and shares held Nature of business Subsidiary undertakings WEEE Recycling Limited Ordinary shares 100% Dormant Holding company Mercury Recycling Limited Ordinary shares Lampsafe Service Limited Ordinary shares Envirolite Limited Ordinary shares Envirolite Midlands Limited Ordinary shares Battnet Limited Ordinary shares 100% 100% 100% 100% 100% Recycling Dormant Dormant Dormant Dormant During the year the Group acquired 100% of the share capital of Battnet Limited. The nominal value of the shares acquired was £1. Battnet Limited was incorporated on 1 June 2011 and its year end is 31 December 2011. It has remained dormant throughout the period since incorporation. MERCURY RECYCLING GROUP -PLC- 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. Trade and other receivables YEAR ENDED 31 DECEMBER 2011 Trade receivables Amounts owed from Group undertakings Prepayments and accrued income Group Company 2011 £000 346 - 119 465 2010 Restated £000 337 - 111 448 2011 £000 - 1,241 - 1,241 2010 £000 - 1,181 7 1,188 Credit risk The Group's principal receivables. financial assets are bank balances, cash balances, trade receivables and other The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables. The Company has one customer representing more than 15% of the trade receivables. At the year end the debt from this customer amounted to £123,939, representing debts due from December 2011 within the credit terms. Other than this balance, exposure is spread over a large number of customers. Income from this customer exceeded 10% of total revenue and amounted to £1,198,000. 15. Trade and other payables Trade payables Taxation and social security costs Other payables Accruals and deferred income Due within 12 months Due after more than 12 months Group 2011 £000 140 51 18 49 258 (234) 24 2010 £000 155 65 15 68 303 (270) 33 Company 2011 £000 - - 5 12 17 (17) - 2010 £000 - - 5 14 19 (19) - Included in deferred income for government grants as follows:- the Group are deferred Brought forward at 1 January Released to income statement during the year Carried forward at 31 December Due within 12 months Due after more than 12 months 2011 £000 42 (9) 2010 £000 51 (9) 33 (9) 24 42 (9) 33 MERCURY RECYCLING GROUP -PLC- 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2011 16. Borrowings Bank overdrafts Bank loans The borrowings are repayable as follows: On demand or within one year In the second year In the third to fifth years Due for settlement within 12 months Due for settlement after more than 12 months Group Company 2011 £000 - 156 156 Group 2011 £000 68 68 20 156 (68) 88 2010 £000 16 225 241 2010 £000 86 68 87 241 (86) 155 2011 £000 - - - Company 2011 £000 - - - - - - 2010 £000 - - - 2010 £000 - - - - - - The bank borrowings are secured by a Group mortgage debenture incorporating a fixed and floating charge over the assets of the Group. Additional security is provided by assignment over life policy on a Director of the Company. All bank borrowings were denominated in sterling. 17. Deferred tax Balance at 1 January Income statement Balance at 31 December The deferred tax liability is made up as follows: Group 2011 £000 2010 Restated £000 157 10 158 (1) 167 157 Group 2011 £000 2010 £000 Accelerated tax depreciation 167 157 MERCURY RECYCLING GROUP -PLC- 32 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. Financial instruments The Group's policies as regards derivatives and financial instruments are set out in the accounting policies in note 2. The Group does not trade in financial instruments. Capital risk management The Group manages its capital they will be able to continue as going concern whilst maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from 2010. to ensure that The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 17, cash and cash equivalents and equity attributable to equity holders of the parent company. The Group is not subject to any externally imposed capital requirements. Interest rate risk profile The Group is exposed to interest rate risk because the Group borrows funds at both fixed and floating interest rates. The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the company. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of the transactions concluded is spread. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. On-going credit evaluation is performed on the financial condition of the accounts receivable. MERCURY RECYCLING GROUP -PLC- 33 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. Financial instruments (continued) Liquidity Risk Management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group's short, medium and long term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities' by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Details of additional undrawn facilities that the group has at its disposal to manage liquidity are set out below. Financial facilities Secured bank overdraft facility - amount used - amount unused Agreed facility Secured bank loan facilities with various maturity dates through to 2011 - amount used - amount unused Agreed facility 2011 £000 38 262 300 156 - 156 2010 £000 16 284 300 225 - 225 Financial assets The Group has no financial assets, other than short-term receivables and sterling cash deposits of £343,000 (2010 - £412,000). The cash deposits attract variable rates of interest. At the year end of the effective rate was 0.125%. Financial liabilities The Group's financial liabilities consist of bank loans, bank overdrafts and hire and lease purchase creditors. Interest rates charged on these are as follows: Weighted average effective interest % 3.16 3.16 1-5 years £000 5+ years £000 156 241 - - Total £000 156 241 31 December 2011 Variable interest rate 31 December 2010 Variable interest rate Currency exposures At 31 December 2011 the Group had no currency exposures and all assets and liabilities were denominated in Sterling MERCURY RECYCLING GROUP -PLC- 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. Share capital Group and Company Allotted, called up and fully paid 35,827,462 (2010 - 35,827,462) ordinary shares of 10p each The Company has one class of ordinary share which carry no right to fixed income. YEAR ENDED 31 DECEMBER 2011 2011 £000 2010 £000 3,583 3,583 Share options The Company has a share option scheme for certain employees and former employees of the Group. The share options in issue during the year were as follows: Date granted Exercise price As at 1 January 2011 No Exercised in year No Lapsed/ Cancelled No Re-Issued No As at 31 December 2011 No 24 February 2003 21 May 2010 10p 10p 58,335 1,600,000 - - - - - - 58,335 1,600,000 The exercise period of the above options are as follows: Date granted Exercise period 24 February 2003 21 May 2010 to 23 February 2013 to 21 May 2020 No options were issued or exercised in the period. As at 31 December 2011 No 58,335 1,600,000 MERCURY RECYCLING GROUP -PLC- 35 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. Share capital (continued) Share warrants As at 31 December 2011 the warrants in issue were; 8,399,966 issued at a price of 0.25p each with an expiry date of 24 September 2016. the Placing pursuant to the terms of a warrant instrument The share warrants were issued as part of executed by the Company and dated 24 September 2010. Under the warrant Instrument, 8,399,966 warrants were created, with each Warrant granting the holder the right to subscribe for one Ordinary Share at a price of 10p per share (subject to adjustment in limited circumstances such as a subdivision or consolidation of the Company's share capital) payable in cash on exercise. The warrants are exercisable within six years of being issued subject to the average closing market price of the Company's shares having been at least 15p per Ordinary Share over a period of at least 30 consecutive days (unless the Board waives this condition). The Company shall procure that the Ordinary Shares issued pursuant to the exercise of warrants are admitted to trading on AIM. The warrants themselves will not be dealt with or admitted to trading on any market and are only transferable in limited circumstances by their holders. Warrants represent subscription rights for ordinary shares in Mercury Recycling PLC. The warrant reserve represents the fair value of these warrants. Warrants may be exercised in whole or in part (and from time to time) prior to the final exercise date. The warrants are non-transferable. 20. Reserves Group At 1 January 2011 (As previously reported) Prior period adjustment At 1 January 2011 (Restated) Loss for the year At 31 December 2011 Breakdown of other reserves is as follows Other reserves Share premium account £000 £000 386 - 386 - 386 235 - 235 - 235 Retained earnings Restated £000 1,547 (78) 1,469 (41) 1,428 Warrant reserve £000 Other reserve account £000 Total other reserves £000 At 1 January 2011 and at 31 December 2011 21 365 386 MERCURY RECYCLING GROUP -PLC- 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2011 20. Reserves (continued) Company At 1 January 2011 Profit for the year At 31 December 2011 Breakdown of other reserves is as follows Company Other reserves £000 1,320 - 1,320 Share premium account £000 235 - 235 Retained earnings £000 (15) 55 40 Warrant reserve £000 Other reserve account £000 Total other reserves £000 At 1 January 2011 and at 31 December 2011 21 1,299 1,320 The Group and Company have taken advantage of section 612 (2) of the Companies Act 2006 and have credited the premium arising on the acquisition of Mercury Recycling Limited to the other reserve account. The balance classified as share premium is the premium on the issue of the Group's equity share capital, comprising 10p ordinary shares less any costs of issuing the shares. The warrant reserve represents the estimated fair value of share warrants issued. MERCURY RECYCLING GROUP -PLC- 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. Cash generated from operations Group Operating (loss)/profit Depreciation on property, plant and equipment Decrease in deferred income Share based payment expense Loss on disposal of property, plant and equipment Operating cash flows before movements in working capital Movement in receivables Movement in payables Cash generated by operations Interest paid Income tax paid Net cash from operations Cash and cash equivalents Cash and bank balances Bank overdrafts 2011 £000 343 - 343 YEAR ENDED 31 DECEMBER 2011 2010 Restated £000 272 207 (9) 24 1 495 40 21 556 (7) (24) 525 2009 £000 1 (71) (70) 2011 £000 (31) 297 (9) - - 257 (19) (35) 203 (4) (30) 169 2010 £000 412 (16) 396 MERCURY RECYCLING GROUP -PLC- 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. Cash generated from operations (continued) Company Operating profit Decrease in payable Net cash from operations YEAR ENDED 31 DECEMBER 2011 2011 £000 (55) 55 - 2010 £000 (40) 40 - All payments and receipts are dealt with through the subsidiary and the Company has no cash and cash equivalents. 22. Financial Commitments (a) At the balance sheet date, the Group had outstanding operating lease arrangements for future minimum lease payments under-non cancellable operating leases, which fall due as follows: Within one year In the second to fifth years inclusive After five years Land and buildings Other 2011 £000 86 171 - 2010 £000 86 257 - 2011 £000 38 34 1 2010 £000 87 41 11 (b) The Group had no capital commitments contracted for but not provided for in the financial statements. 23. Related party transactions Company Included in debtors is £1,240,643 (2010 - £1,181,486) due from Mercury Recycling Limited a wholly owned subsidiary of the Company. During the year the Company charged a management charge to Mercury Recycling Limited amounting to £308,390 (2010 - £290,037). The Company also paid £13,500 (2010 - £2,037) to Westleigh Investments Holdings Limited (in which G Clarke and N Harrison are materially interested) for the provision of services as non-executive directors. All transactions are considered to be on terms equivalent to those that prevail in arm's length transactions. 24. Control The Directors consider that there is no overall controlling party. MERCURY RECYCLING GROUP -PLC- 39 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. Change in accounting policy The impact of the change in accounting policy, described in note 2, on the previously reported figures is detailed below: Consolidated income statement 2010 As previously 2010 stated Adjustment £000 £000 Restated £000 Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance costs Profit before tax Tax Profit for the period (Attributable to owners of the Company) 2,668 (137) 2,531 (2,251) 280 (7) 273 (13) 260 - (42) (42) 34 (8) - (8) (1) (9) Earnings per share - Basic 0.75p (0.02p) - Diluted 0.75p (0.03p) 2,668 (179) 2,489 (2,217) 272 (7) 265 (14) 251 0.73p 0.72p MERCURY RECYCLING GROUP -PLC- 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. Change in accounting policy (continued) Consolidated balance sheets YEAR ENDED 31 DECEMBER 2011 Non-current assets Goodwill Property, plant and equipment Current assets Trade and other receivables Cash and bank balances Total assets Current liabilities Trade and other payables Borrowings Current tax liabilities Non-current liabilities Trade and other payables Borrowings Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium Other reserves Retained earnings Total equity (Attributable to owners of the Company) 2010 As previously 2010 stated Adjustment £000 £000 Restated £000 4,122 1,495 5,617 441 412 853 - (86) (86) 7 - 7 4,122 1,409 5,531 448 412 860 6,470 (79) 6,391 (270) (86) (35) (391) (33) (155) (140) (328) (719) 5,751 3,583 235 386 1,547 5,751 - - 18 18 - (17) (17) 1 (78) (78) (78) (270) (86) (17) (373) (33) (155) (157) (345) (718) 5,673 3,583 235 386 1,469 5,673 MERCURY RECYCLING GROUP -PLC- 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. Change in accounting policy (continued) Consolidated balance sheets YEAR ENDED 31 DECEMBER 2011 Non-current assets Goodwill Property, plant and equipment Current assets Trade and other receivables Cash and bank balances Current tax assets Total assets Current liabilities Trade and other payables Borrowings Current tax liabilities Non-current liabilities Trade and other payables Borrowings Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium Other reserves Retained earnings Total equity (Attributable to owners of the Company) 2009 As previously 2009 stated Adjustment £000 £000 Restated £000 4,122 1,509 5,631 471 1 10 482 - (78) (78) 7 - - 7 4,122 1,431 5,553 478 1 10 489 6,113 (71) 6,042 (249) (139) (39) (427) (42) (225) (146) (413) (840) 5,273 3,403 242 365 1,263 5,273 - - 14 14 - (12) (12) 2 (69) - - - (69) (69) (249) (139) (25) (413) (42) (225) (158) (425) (838) 5,204 3,403 242 365 1,194 5,204 MERCURY RECYCLING GROUP -PLC- 42 YEAR ENDED 31 DECEMBER 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. Change in accounting policy (continued) Consolidated cash flows - Year to 31 December 2010 Net cash from operating activities Purchase of property, plant and equipment 2010 As previously 2010 stated Adjustment £000 £000 Restated £000 567 229 (42) (76) 525 153 MERCURY RECYCLING GROUP -PLC- 43
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