F W Thorpe Plc Designers, manufacturers and suppliers of professional lighting systems Annual Report and Accounts 2005 INDUSTRIAL (cid:2) COMMERCIAL (cid:2) ARCHITECTURAL (cid:2) ILLUMINATED SIGNS (cid:2) EMERGENCY (cid:2) LOW ENERGY (cid:2) HERITAGE (cid:2) ENERGY CONSERVING SYSTEMS F W Thorpe Plc Professional Lighting Solutions Contents Chairman’s Statement Directors and Advisers Report of the Directors Directors’ Remuneration Report Statement of Directors’ Responsibilities Independent Auditor’s Report Consolidated Profit and Loss Account Consolidated and Company Balance Sheets Consolidated Cash Flow Statement Notes to the Accounts Notice of Meeting Form of Proxy Five Year Financial Record Financial Calendar 2 4 5 9 14 15 16 17 18 19 33 35 IBC IBC “Your Company will continue to drive forward and continue to try and please its customers with service and products” F W Thorpe Group designs and manufactures a comprehensive range of interior and exterior lighting, which is produced in the UK and sold throughout the world. Our quality products enhance the lives of people every day. The Group management team is passionate about developing the business for the benefit of shareholders, employees and customers. With the energy and ability of our staff we look to the future with enthusiasm. Financial Highlights Turnover Operating Profit Earnings per share £41.6m £5.4m £37.3m £32.7m £5.0m £3.5m 36.9p 33.1p 22.4p 2003 2004 2005 2003 2004 2005 2003 2004 2005 F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 01 Chairman’s Statement “Trading has remained encouraging for the year as a whole” In the financial year to 30 June 2005 your Company produced a turnover of £41.6m, an increase of 12% on last year’s turnover of £37.2m, with a resulting operating profit before exceptional items of £5.8m being a 16% increase on the previous year’s £5.0m. The operating profit for the Group was £5.4m after accounting for exceptional costs at Sugg Lighting, an increase of 8% over the previous year. Investment income rose by 29% arising from the investment of cash generated from operations during the year and resulting in a profit before tax of £5.8m, up 9% on last year. The pattern of trading through the year varied unexpectedly from previous years, probably due to the economic effects of the UK national election. These variations were marked but differently felt by different Group member companies. Some Group members experienced a noticeable drop in orders and activity over the election period whilst others did not or only sustained mild effects. The effect appeared to be in proportion to project size with smaller jobs being more easily suspended over the election period than larger projects, which are carried forward by their own inertia. These effects have probably led to some loss of business during the year. Generally, however, as can be seen and understood from the Group performance figures, overall trading has remained encouraging for the year as a whole. This year there have been no single large investments in plant, buildings, equipment or systems, but your Company has continued to invest substantial amounts of money back into the business in a myriad of smaller projects involving both manufacturing plant and IT systems. One of the larger projects has been to strengthen Group IT infrastructure which, with the increase in business levels in recent years, had been left lacking in both capacity and speed of operation. We now enjoy the benefits of the improved IT capability which in itself will allow us to develop and upgrade our operational system software. The Company has, as usual, derived the majority of its business from within the UK but this result should not cloud the determination expressed last year to increase the proportion of business obtained from overseas mature markets especially within the EU. Group exports this year were 14% of total turnover, an increase of 17% on the last financial year. At the halfway stage I made some comment in regard to mixed performance within the Group and whilst in hindsight some of that performance may well have been due to the effects of the election period, reviews prompted in certain areas of the business have, in themselves, been very useful; for example, in bringing Thorlux back to the high level of productivity previously enjoyed but which had been reducing due to the pressure of rapid output growth in very recent years. These reviews also helped in refocusing product direction at Mackwell Electronics and crystallising a new forward plan for Sugg Lighting. The above results have prompted your Board to recommend a final dividend of 7.5p which, taken with the already paid interim dividend, makes a total for the year of 10.0p being a 16% increase compared to last year. Review of Divisions Thorlux Lighting Thorlux, the Group’s manufacturer of commercial, flood and industrial lighting products and systems, has again enjoyed buoyant trading throughout the year and, with a “close eye” on operations, Thorlux has returned a turnover up 16% on 2004 resulting in an operating profit up 26% over that period. Few new products were introduced during this financial year but a high proportion of sales emanated from those new products added within the very recent years. Product design, however, continued apace so that 2005/6 will see further exciting new products added to the Thorlux portfolio. On the “heaviest end” the Thorlux tunnel luminaire range and its associated remote control systems have enjoyed further success with new tunnel lighting projects having been gained within the UK. On the export front, whilst Thorlux sales to traditional export markets via a traditional agency network have been maintaining in value, the proportion of total turnover has continued to decline. The wish to carve out a substantial market under the trade name Thorlux in the sophisticated EU area remains, and the Company’s spearhead Munich- 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 02 Chairman’s Statement based operation in Germany has enjoyed an encouraging year giving the confidence to double the staff to two. The root foundations, as mentioned last year, have been laid and the current mission is to find quality customers who are willing to try products from the “new kid on the block”. On the same theme Thorlux will also be reverting to Company employed staff to cover the Republic of Ireland. Mackwell Electronics Mackwell, the Group’s manufacturer of electronic emergency lighting control gear and systems, undertook a product review during the year and subsequently withdrew from one area of business that showed little future profit potential and one that would require substantial investment but which could well fall prey to high volume competition from the Far East. These actions caused a loss of turnover and some profit but I am pleased to report that virtually all of the vacated capacity has been taken up reducing lead times and improving service to existing customers and for the manufacture of a new emergency lighting system. Despite these events, Mackwell’s turnover ended the year up 7% with a profit up 6% over last year. Compact Lighting Compact Lighting, supplier of display lighting to the retail trade, enjoyed a busy year with mixed success, producing a turnover up 15% on last year but with a 26% reduction in profit level. Certain well-known High Street names on Compact’s client list delayed refurbishment programmes due to uncertainty in the retail market and although new customers were gained, some of the new business proved more difficult than expected. Philip Payne Philip Payne, the Group’s manufacturer of quality specialist and bespoke exit signage, has enjoyed a mixed trading year with a patch of poor business over the election period, although it is difficult to understand why this occurred in the case of Philip Payne. Opportunity was taken, however, during that time to reappraise the Company structure and instigate changes to enable future growth. This appraisal resulted in strengthening human resources from fourteen to seventeen people and Payne is now well set to resume growth well beyond current levels. The result of this unusual pattern of trading and the reappraisal left Philip Payne some 6% down on turnover and 24% down on profit. Profit to sales ratio was still perfectly respectable and I am pleased to report that at, this time, trading at Payne’s is back to, if not in excess of, previous levels. Sugg Lighting Sugg Lighting, manufacturer and refurbisher of heritage lighting, suffered a severe downturn in business for some five months over the election period which caused an unfortunate return to losses after a period of five months of profitability. Sales order input has now returned to that of last year’s levels but the increase in sales required to put Sugg on a firm footing is still elusive. Your Board is currently considering a number of options. People It has been said that a business runs on its people. Well, a short number of years ago the Company found it very difficult to recruit people at all. Over the last year or so, a fresh wind has been blowing from the direction of Central Europe bringing with it many of our current workforce. It is rewarding to find people who want to work and accept our offer of jobs. To these new arrivals and to our more long- standing employees may I, again, offer our thanks for their loyalty and diligence over the last year. The Future The cautionary tune mentioned in earshot last year did not bring great tides of woe. However, some of the words of the song still hang in the air and those involving house prices, retail sales, pressures on government budgets seem to give more concern now than twelve months ago. I must say again, therefore, that your Company will continue to drive forward, continue to try and please its customers with service and products and we must still trust that our markets will stay fair. Andrew Thorpe Chairman 20 September 2005 F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 03 Directors and Advisers Directors A B Thorpe Chairman and Joint Chief Executive P D Mason BSc Eng FCA MIEE Financial Director and Joint Chief Executive M Allcock FIEE Technical Director and Managing Director of Thorlux Lighting D A Dimeloe BSc PhD Managing Director of Mackwell Electronics D M Lippold BSc ACA Managing Director of Compact Lighting Auditors PricewaterhouseCoopers LLP, Cornwall Court, 19 Cornwall Street, Birmingham, B3 2DT Bankers Lloyds TSB, Church Green East, Redditch, Worcestershire, B98 8BZ Solicitors Martineau Johnson, No 1 Colmore Square Birmingham, B4 6AA Registrars Lloyds TSB Registrars, The Causeway, Goring-by-Sea, Worthing, West Sussex, BN99 6DA C M Brangwin BSc CEng MIEE (aged 67) Non-executive Director After joining the Company in 1963, he was appointed a Director in 1969, later as joint Managing Director and in 1995 was appointed Chairman. He became non-executive Chairman in 2000, resigning from this role on 30 June 2003. I A Thorpe (aged 59) Non-executive Director Manufacturing Director of Thorlux Lighting from 1978 until 1993 when he became Personnel Director. He became a non-executive Director on 1 October 1997. Secretary P D Mason BSc Eng FCA MIEE Registered Office Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH Registered No. 317886 Web Sites www.thorlux.com www.thorlux.de www.mackwell.co.uk www.compact-lighting.co.uk www.p-payne.co.uk www.sugglighting.co.uk 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 04 Report of the Directors The Directors have pleasure in submitting their annual report and the audited accounts of the Group for the year ended 30 June 2005. Principal activity and business review The main activity of the Group continues to be the manufacture of industrial and commercial lighting equipment. A review of the business is included in the Chairman’s Statement on page 2. Results and dividends The results for the year are set out in detail on page 16. On 10 May 2005 the Company paid an interim dividend of 2.5p per share (2004: 2.2p). A final dividend of 7.5p (2004: 6.4p) per ordinary share is proposed and, if approved, will be paid on 17 November 2005. Directors The Directors of the Company at the date of this report are set out on page 4. The Directors retiring by rotation are I A Thorpe and P D Mason who, being eligible, offer themselves for re-election. The contract for P D Mason is terminable on three years’ notice. I A Thorpe does not have a service contract. Directors’ share interests The details of the Directors’ share interests are set out in the Directors’ Remuneration Report on pages 9 to 13. Substantial shareholdings At 13 October 2005 the Company had received notification of the following interests in 3 per cent or more of the issued share capital, excluding holdings of Directors: Rights and Issues Trust Plc E G Thorpe 500,000 shares 661,530 shares (4.2 per cent) (5.6 per cent) Group research and development activities The Group is committed to research and development activities in order to maintain its market share in the industrial and commercial lighting market. These activities encompass constant development of both new and existing products to ensure that a leading position in the lighting market is maintained. Fixed assets The Directors are of the opinion that the market value of the freehold land and buildings cannot be reliably estimated to be significantly different to the net book value. Charitable gifts During the year the Group gave £2,260 (2004: £1,972) for charitable purposes. The Company allocates an annual amount for charitable giving which is based on the previous year’s profitability, and is considered appropriate in order to help foster its business relationships including those with its customers, suppliers, employees and the local community. The Company made one donation over £200 during the year. This donation was made to support the work of the Engineering Education Scheme which aims to give young people invaluable experience and insight into the world of engineering. This donation is consistent with the charitable giving policy. Creditor payment policy The Group’s policy concerning the payment of its trade creditors is to accept and follow the normal terms of payment amongst suppliers to the lighting industry. Payments are made when they fall due which is usually on the day after the end of the calendar month following the month in which delivery of goods or services is made. Where reasonable settlement discount terms are offered for early payment, these terms are usually taken up. The number of days represented by the Company’s and the Group’s year end trade creditors is 42 and 49 respectively (2004: 50 and 53). Employee policies Employees are kept informed of matters of concern to them as employees by publication and distribution of a Company newsletter and other notices, or by specially convened meetings. Committees representing the different groups of employees meet regularly to ensure the views of employees are taken into account in making decisions that are likely to affect their interests. F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 05 Report of the Directors The involvement of employees in the Group’s performance is encouraged by various incentive schemes including a profit-related bonus scheme. Information on the financial and economic factors affecting the performance of the Group is made available twice yearly at the time of publication of the interim and annual statements to shareholders. The Group is committed to developing a safe and healthy working environment for all employees consistent with the requirements of the Health and Safety at Work Act. Within the constraints of health and safety, disabled people are given full and fair consideration for job vacancies. Depending on their skills and abilities, disabled people enjoy the same career prospects as other employees, and if employees become disabled every effort is made to ensure their continued employment, with appropriate training where necessary. Policies for recruiting employees are designed to ensure equal opportunities irrespective of colour, ethnic or national origin, nationality, sex or marital status. Auditors A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Company will be proposed at the annual general meeting. Directors’ Authority to Issue Shares The UK Listing Authority no longer requires the consent of shareholders to each issue by the Company of equity share capital for cash made otherwise than to existing shareholders in proportion to their existing shareholdings. This relaxation is subject to the Company obtaining the authority of shareholders under Section 95 of the Companies Act 1985 to disapply generally the provisions of Section 89 of that Act. Ordinary resolution number 7 and special resolution number 8 would give the Directors the authority to allot ordinary shares up to an aggregate nominal amount of £312,912, and would further empower them to allot ordinary shares for cash up to a maximum of £59,390 (representing 5% of the issued equity share capital of the Company) other than pro rata to existing members as if section 89(1) of the Companies Act did not apply. These authorities, if approved, would expire at the conclusion of the next Annual General Meeting, save that the authority relating to Section 89(1) would expire 15 months after being passed, if earlier. Purchase of Own Shares Resolution 9 set out in the notice of the Annual General Meeting will, if it is approved, allow the Company to exercise the authority contained in the Articles of Association to purchase its own shares. The Board has no firm intention that the Company should make purchases of its own shares if the proposed authority becomes effective, but would like to be able to act quickly if circumstances arise in which such a purchase would be desirable. Purchases will only be made on the London Stock Exchange and only in circumstances where the Directors believe that they are in the best interests of the shareholders generally. Furthermore, purchases will only be made if the Directors believe that they would result in an increase in earnings per share. The proposed authority will be limited by the terms of the special resolution to the purchase of 1,183,888 ordinary shares representing 10% of the Company’s issued ordinary share capital and a nominal value of £118,781 at 13 October 2005. The minimum price per ordinary share payable by the Company (exclusive of expenses) will be 10p. The maximum to be paid will be an amount not more than 5% above the average of the middle market quotations for ordinary shares of the Company as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the date of each purchase. Any shares purchased by the Company will be cancelled and the number of shares in issue will be reduced accordingly. The maximum number of shares and the permitted price range are stated in order to comply with statutory and Stock Exchange requirements and should not be taken as representative of the number of shares (if any) which may be purchased, or the terms of such a purchase. The authority will lapse on the date of the Annual General Meeting of the Company in 2006. However, in order to 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 06 Report of the Directors maintain the Board’s flexibility of action it is envisaged that it will be renewed at future Annual General Meetings. Corporate governance The listing rules of the UK Listing Authority require listed companies to explain how they have applied the principles of the code of practice known as the Combined Code. This statement explains how the Company has applied the principles set out in Section 1 of the Combined Code. The Directors have examined carefully how far the current practice of the Company conforms with the recommendations made in the Combined Code and fully endorse the principles of openness, integrity and accountability of the Code. The Directors consider the Company to be compliant with the principles of best practice with the exception of the matters listed below. The Board does not have an independent audit committee. At least half the Board does not comprise independent non-executive Directors and the Board has not appointed a senior independent Director. The terminable period of the service contracts for A B Thorpe and P D Mason exceeds one year. The pensionable salary includes benefits in kind and/or profit bonus for those Directors who are members of the defined benefit scheme. The Board has combined the roles of Joint Chief Executive and Chairman. audit and nomination committees, as recommended by the Code, as matters that would normally be considered by an audit or nomination committee are addressed by the full Board with the non-executive Directors present and the auditors attending as appropriate. A remuneration committee has been established with the following people serving on it: C M Brangwin Non-executive Director and Chairman of the committee I A Thorpe Non-executive Director Terms and conditions for the operation of this committee are in place and it meets as and when required. The committee’s report is presented on pages 9 to 13. The auditors have direct access to all members of the Board and attend and present their reports at appropriate Board meetings. The Board considers, at least annually, the relationships and fees in place with the auditors to confirm their independence is maintained. Nomination committees are formed when it is felt to be appropriate for senior personnel and subsidiary Board appointments. Any appointment to a Group Board position would involve all Board Members in the selection process. The Board meets regularly during the year and has a schedule of matters reserved for its approval, which only the Board may change. Relations with shareholders The Directors believe that the exceptions, which are more fully explained in the sections relating to the Board constitution and the Directors’ remuneration report, are appropriate for the size and context of the Group’s business. Directors are kept informed of the views of shareholders by face to face contact at the Company’s premises on the day of the Annual General Meeting and if appropriate by meeting with major shareholders at other times during the year. Board constitution Internal control The Company continues to be proprietorial in nature and the Directors act as a unitary Board and as a consequence are unable to see the benefits of splitting the Board into sub-committees and in particular of constituting The Board of Directors has overall responsibility for the system of internal control and for reviewing its effectiveness throughout the Group. The internal controls systems are designed to meet the Group’s particular F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 07 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Report of the Directors needs and the risks to which it is exposed, and by their nature can only provide reasonable but not absolute assurance against misstatement or loss. Internal financial control The Directors have responsibility for maintaining a system of internal control which provides reasonable assurance of the effective and efficient operations, internal financial control and compliance with laws and regulations. During the year a member of the Group finance department has visited all operating sites to assess their compliance with a selection of key control procedures and non-compliance has been reported to the Group Board. Significant areas of non-compliance noted as part of this process have been addressed. In addition, the executive Directors regularly visit all operating sites and review with local management financial and commercial issues affecting the Group’s operations. Regular financial reporting includes budgets, rolling forecasts and monthly financial reports comparing performance against plan. These reports are reviewed locally with a Group representative and monitored by the Group Board. Accordingly, the Directors do not consider that an internal audit department is required. Other areas of control The Combined Code introduced a requirement that Directors review the effectiveness of the Group’s systems of internal controls on an annual basis. This requirement extends the Directors’ review to cover all controls, including operational, compliance and risk management as well as financial. During the year and continuing after the year end the Board has operated a formal risk identification and evaluation programme as part of a continuous review of the Group’s internal controls. This programme considers financial, operational and compliance risks and includes participation from senior executives from all operating subsidiaries. The results of this process to date have been utilised by the Board to focus the ongoing process for identifying, evaluating and managing the Group’s significant risks. The programme is utilised to monitor the potential impact of the risks identified and, where appropriate, actions are taken to ensure they are effectively controlled. This process is extended to include a detailed review of risk as assessed by local senior executives, and procedures have been established to ensure that the Group Board is made aware of any additional significant risks identified and to consider appropriate action. This process culminated in the provision of a certificate, by senior executives at the operating sites, confirming that they have identified and addressed the risks arising in their business and reported them to the Group Board accordingly. Adoption of International Financial Reporting Standards Under present regulation, the Company is required to adopt International Financial Reporting Standards for the financial year ending 30 June 2006. A preliminary review has shown that the major impact of the first time adoption of the new accounting standards will arise from the introduction of IAS 19 relating to pension costs. The current effects of adoption of FRS 17 relating to pension costs are disclosed in note 24. Going concern The Directors confirm that they are satisfied that the Group has adequate resources to continue in business for the foreseeable future, and for this reason, they continue to adopt the going concern basis in preparing the accounts. By order of the Board P D Mason Company Secretary 13 October 2005 Registered Office: Merse Road North Moons Moat Redditch Worcestershire B98 9HH 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 08 Directors’ Remuneration Report The Board has prepared this report to the shareholders, taking into account the provisions in Schedule B of the Combined Code on Corporate Governance and Directors’ Remuneration Report Regulations 2002. The Board has delegated the responsibility for the executive Directors’ remuneration to the remuneration committee. The scope of their responsibilities includes the executive Directors’ service contracts, salaries and other benefits, which comprise their terms and condition of employment. Remuneration committee The current members of the remuneration committee are the non-executive Directors, C M Brangwin (Chairman of the committee) and I A Thorpe. The committee has met as and when required during the financial year. No member of the committee has any personal financial interest in the matters to be decided other than as shareholders. There are no conflicts of interest arising from cross-directorships or day-to-day involvement in running the business. The committee has access to market data provided by Monks Partnership when considering the remuneration of the executive Directors. Remuneration policy — executive Directors The aim of the committee is to ensure that the executive Directors are fairly rewarded for their responsibilities and contribution to the performance of the Group. The committee seeks to achieve this with a combination of performance and non-performance related remuneration designed to attract, retain and motivate the Directors. The performance related remuneration is linked to both short-term and long-term goals. In establishing the salaries of the Directors, the committee takes into account the responsibilities and performance of the individual together with data from comparable organisations and indicative trends for the business and its economic sector. The remuneration package consists of the following elements. 1. Basic salary, benefits in kind and other benefits. The salary is determined in August each year, unless there has been a change in responsibilities, where an adjustment will be made at the same time. The benefits in kind mainly consist of the provision of a car and health insurance. A Director may choose to take a cash allowance instead of a car. Other benefits consist of pension arrangements and life assurance. 2. Annual bonus. The bonus is made up of two elements. The first element relates to the operating profit of the business unit for which the Director has specific performance responsibilities. The second element relates to the operating profit of the Group as a whole. The bonuses are paid in September and relate to the period ending on 30 June in the same year. 3. Share options. There are currently two executive share option schemes, and options were granted to Directors on 6 May 1999 — the majority of which are provided as part of an Inland Revenue approved scheme. Both schemes allow the executives to participate in share price growth and are normally exercisable between 3 and 10 years after grant provided certain performance criteria are met. Remuneration policy — non-executive Directors The Board as whole determines the remuneration of the non-executive Directors. The Board takes into account the contribution made and the relative time spent on the Company’s affairs. The non-executive Directors do not receive bonuses or participate in the executive share option scheme. Their benefits in kind consist of the provision of health insurance. Directors’ service contracts The policy for Directors’ service contracts is to follow the Code for new appointments. However, for contracts in existence prior to the date the Code became effective no amendment is expected to be made in view of the predicted service lives of the people concerned. D A Dimeloe, D M Lippold and M Allcock have service contracts terminable on one year’s notice. F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 09 Directors’ Remuneration Report P D Mason and A B Thorpe have service contracts renewed annually in March, which are terminable on three years’ notice immediately after renewal and two years’ notice one year later when the contracts are considered for renewal. These contracts do not comply with the Code because they are in excess of one year. C M Brangwin and I A Thorpe do not have service contracts with the Company. Performance graph The graph below shows the comparative data for the FTSE all share index and the FTSE electronic and electrical equipment sector as these are considered to be the most appropriate comparative indices for the Company’s business. e c i r P 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 F W Thorpe Plc FTSE All Share Index FTEE Share Index June 00 June 01 June 02 June 03 June 04 June 05 Audited information The audited information relating to Directors’ emoluments is set out below. Directors’ emoluments Executive Directors A B Thorpe P D Mason M Allcock D A Dimeloe D M Lippold Non-executive Directors C M Brangwin I A Thorpe Total 2005 Salary/ fees £’000 151 142 81 90 72 26 28 590 2005 2005 2005 2004 Bonus £’000 Benefits £’000 Total £’000 Total £’000 48 48 37 55 16 — — 204 14 14 11 11 10 3 2 65 213 204 129 156 98 29 30 859 162 153 116 147 98 28 30 734 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 10 Benefits consist mainly of the provision of cars and fuel, or cash equivalent, and health insurance. The bonus for D A Dimeloe includes a contribution of £27,000 to the pension scheme. Directors’ Remuneration Report Directors’ pension arrangements A B Thorpe, P D Mason and I A Thorpe participate in the defined benefit section of the F W Thorpe Retirement Benefits Scheme. M Allcock, D A Dimeloe and D M Lippold are members of the defined contribution section of the scheme. M Allcock has a final salary guarantee as he was previously a member of the defined benefit section. C M Brangwin is a retired member of the defined benefit section. The F W Thorpe Retirement Benefits Scheme is a funded, Inland Revenue approved occupational pension scheme. The scheme is divided into two sections — a defined benefit scheme and a defined contribution scheme. The defined benefit section was closed to new members on 1 October 1995. The defined benefit section aims to provide a maximum pension of two-thirds of pensionable salary at normal retirement date. Pensionable salary for P D Mason, A B Thorpe and I A Thorpe includes profit bonus and benefits calculated on the average of the previous three years. M Allcock’s pensionable salary includes an average of the previous three years’ profit bonus. These definitions do not comply with the Code; however, the committee believes that they are appropriate when looking at the remuneration package as a whole. Defined contribution members contribute up to 5% of basic salary and the Company contributes up to 14%. All the executive Directors are covered by life assurance benefit of 4 times pensionable salary. In addition, the defined benefit scheme members are entitled to a spouse’s pension on death. The following Directors had accrued entitlements under the defined benefit section of the pension scheme. Additional Pension Transfer value of Change earned additional in value in excess pension Increase in transfer Value of of accrued of inflation (net of Transfer Transfer value over Accrued Director’s pension over inflation) value of value of the year Pensions at contributions since the year less pension at pension at net of Normal 30 June during 30 June ended Director’s 30 June 30 June Director’s Age at pension year end 55 56 37 59 age 60 60 65 60 2005 £pa 75,654 63,570 16,878 36,933 the year £ 6,690 6,740 4,455 — 2004 £pa 4,716 5,851 3,102 — A B Thorpe P D Mason M Allcock I A Thorpe 2005 2,517 4,062 2,675 — 30 June contributions 2005 £ 2004 contributions £ £ £ 30,164 1,127,414 934,180 186,544 55,556 993,977 794,785 192,452 7,176 — 845,622 708,011 137,611 42,298 30,667 1,945 F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 11 Directors’ Remuneration Report The following table shows the contributions paid by the Company in respect of those Directors participating in the defined contribution section of the pension scheme. D A Dimeloe D M Lippold 2005 £ 12,238 5,600 2004 £ 11,480 5,304 Directors’ shareholdings The Directors listed below were in office throughout the whole of the year. Directors’ interests in the share capital of the Company at 30 June 2005 and 1 July 2004 were as follows: A B Thorpe P D Mason M Allcock D A Dimeloe D M Lippold C M Brangwin I A Thorpe Ordinary shares of 10p Beneficial 2005 2004 2,785,009 171,978 12,700 11,189 16,400 773,155 2,504,712 2,785,009 171,978 7,900 7,189 1,400 773,155 2,504,712 In addition, C M Brangwin has a joint non-beneficial interest in 170,000 shares. D M Lippold sold 4,500 shares on 20 September 2005, M Allcock sold 5,000 shares on 21 September 2005 and D Dimeloe sold 3,000 shares on 23 September 2005. Directors’ share options Details of the share options at 30 June 2005 are as follows: 30 June 2004 Exercised during year Lapsed during year At 30 June 2005 Option price Date Exercisable from Date Exercisable to 30,000 4,359 20,000 30,000 30,000 — — 8,800 7,500 20,000 — — — — — 30,000 4,359 11,200 22,500 10,000 117p 7 May 2002 6 May 2009 117p 7 May 2002 6 May 2009 117p 7 May 2002 6 May 2009 117p 7 May 2002 6 May 2009 117p 7 May 2002 6 May 2009 A B Thorpe P D Mason M Allcock D A Dimeloe D M Lippold The performance criteria for the exercise of the executive share options require that the growth in the annualised earnings per share, adjusted to a pre-tax basis must exceed RPI by more than 3% when measured against a basis year. These criteria have been met. 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 12 Directors’ Remuneration Report On 21 September 2004 share options were exercised by the Directors as follows: Director D A Dimeloe D M Lippold M Allcock The following share options were exercised during September 2005: Director D A Dimeloe M Allcock Option price (pence per share) Market price (pence per share) 117p 117p 117p 285p 285p 285p Option price (pence per share) Date of exercise 117p 117p 20 Sept 05 23 Sept 05 Number of shares 7,500 20,000 8,800 Number of shares 7,500 11,200 Gain (£) 12,600 33,600 14,784 Market price (pence per share) 346p 387.5p The market price of the Company’s shares at the beginning and end of the financial year was 235p and 315p respectively and the range of market prices during the year was from 225p to 421p. There have been no other changes in the interests of the Directors in the share capital of any company in the Group during the period 1 July 2005 to 13 October 2005. Approved by the Board and signed on its behalf by: P D Mason Company Secretary 13 October 2005 F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 13 Statement of Directors’ Responsibilities Company law requires the Directors to prepare accounts for each financial year which give a true and fair view of The Directors confirm that they have complied with the above requirements in preparing the financial statements. the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing those accounts, the Directors are required to: select suitable accounting policies and then apply them consistently; (cid:2) make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the accounts comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business: P D Mason Company Secretary 13 October 2005 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 14 (cid:2) (cid:2) (cid:2) Independent Auditor’s Report We have audited the financial statements which comprise the profit and loss account, the balance sheet, the cash flow statement, and the related notes. We have also audited the disclosures required by Part 3 of Schedule 7A to the Companies Act 1985 contained in the Directors’ remuneration report (“the auditable part”). Respective responsibilities of Directors and auditors The Directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable United Kingdom law and accounting standards are set out in the statement of Directors’ responsibilities. The Directors are also responsible for preparing the Directors’ remuneration report. Our responsibility is to audit the financial statements and the auditable part of the Directors’ remuneration report in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards issued by the Auditing Practices Board. This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the auditable part of the Directors’ remuneration report have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and transactions is not disclosed. We read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Directors’ report, the unaudited part of the Directors’ remuneration report, the chairman’s statement and the corporate governance statement. we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Company’s or the Group’s corporate governance procedures or its risk and control procedures. Basis of audit opinion We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the auditable part of the Directors’ remuneration report. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the auditable part of the Directors’ remuneration report are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: the financial statements give a true and fair view of the state of the state of affairs of the Company and the Group at 30 June 2005 and of the profit and cash flows of the Group for the year then ended; the financial statements have been properly prepared in accordance with the Companies Act 1985; and those parts of the Directors’ remuneration report required by Part 3 of Schedule 7A to the Companies Act 1985 have been properly prepared in accordance with the Companies Act 1985. We review whether the corporate governance statement reflects the Company’s compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Birmingham 13 October 2005 F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 15 (cid:2) (cid:2) (cid:2) Consolidated Profit and Loss Account for the year ended 30 June 2005 Turnover Cost of sales Gross profit Net operating expenses Operating profit before exceptional items Exceptional items — Sugg Operating profit Interest receivable and similar income Profit before tax Taxation on profit on ordinary activities Profit for the year Dividends Retained profit for the year Earnings per ordinary share — ordinary — diluted Notes 2 3 3 7 4 8 9 9 20 10 10 2005 £’000 41,572 (25,067) 16,505 (11,105) 5,822 (422) 5,400 440 5,840 (1,479) 4,361 (1,187) 3,174 2004 £’000 37,258 (22,878) 14,380 (9,360) 5,020 — 5,020 342 5,362 (1,479) 3,883 (1,014) 2,869 36.9p 36.5p 33.1p 32.5p All of the above results were from continuing operations. There is no difference between the result as disclosed in the profit and loss account and the result on a historical cost basis. There are no recognised gains or losses other than the results for the period as stated above. The notes on pages 19 to 32 form part of these accounts. The report of the auditors is on page 15. 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 16 Consolidated and Company Balance Sheets as at 30 June 2005 Fixed assets Tangible assets Investments Current assets Stocks Debtors Investments Cash at bank and in hand Note 12 13 14 15 16 Creditors: amounts falling due within one year 17 Net current assets Total assets less current liabilities Provisions for liabilities and charges Onerous lease obligation Deferred taxation Net assets Capital and reserves Called up share capital Capital Redemption Reserve Share premium account Profit and loss account Equity shareholders’ funds 18(a) 18(b) 19 20 20 20 26 Group Company 2005 £000 9,335 258 9,593 7,267 10,622 70 8,414 26,373 (7,056) 19,317 28,910 (200) (711) 2004 £000 9,343 281 9,624 6,599 8,355 70 7,554 22,578 (7,053) 15,525 25,149 — (403) 2005 £000 8,007 861 8,868 5,189 8,769 70 8,504 22,532 (4,999) 17,533 26,401 — (782) 2004 £000 8,086 884 8,970 4,529 6,827 70 7,542 18,968 (4,552) 14,416 23,386 — (439) 27,999 24,746 25,619 22,947 1,184 135 545 26,135 27,999 1,177 135 473 22,961 24,746 1,184 135 545 23,755 25,619 1,177 135 473 21,162 22,947 These accounts were approved by the Board on 13 October 2005. A B Thorpe P D Mason } Directors The notes on pages 19 to 32 form part of these accounts. The report of the auditors is on page 15. F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 17 Consolidated Cash Flow Statement for the year ended 30 June 2005 Net cash inflow from operating activities Returns on investments and servicing of finance Interest received Other investment income Taxation UK corporation tax paid Capital expenditure and financial investment Purchase of tangible fixed assets Sale of tangible fixed assets Sale/(Purchase) of fixed asset investments Net cash outflow for capital expenditure and financial investments Equity dividends paid Cash inflow before financing Financing Issue of shares Repayment of hire purchase and finance leases Cash inflow from financing Increase in cash in the period Notes 21(a) 21(b) 2005 £’000 4,239 371 69 2004 £’000 4,379 281 61 (1,758) (1,230) (1,170) 56 28 (1,086) (1,054) 781 79 — 79 860 (1,958) 66 (37) (1,929) (811) 751 68 (7) 61 812 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 18 Notes to the Accounts for the year ended 30 June 2005 Accounting policies 1 Basis of accounting These consolidated financial statements have been prepared under the historical cost convention, as modified by the valuation of investment properties. The accounting policies are set out below and are in accordance with applicable UK accounting standards. Basis of consolidation The consolidated accounts include the accounts of the Company and its subsidiaries, which are prepared to 30 June. The results of the entities acquired are included in the consolidated profit and loss account from the date of acquisition. Property, plant and equipment Land and buildings, plant, equipment, furniture and fittings are stated at historical cost less depreciation. Depreciation is calculated on the straight-line method to write off the cost of each asset to its residual value over its estimated useful life as follows: Freehold land Freehold buildings Plant, equipment, fixtures and fittings Nil 25–50 years 2–15 years Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Investment property Investment properties are stated at open market value. Depreciation is not provided on investment properties. The requirement of the Companies Act 1985 is to depreciate all fixed assets, but this conflicts with the generally accepted principle set out in SSAP 19. These properties are held for investment rather than consumption and the Directors consider that systematic depreciation would be inappropriate. The accounting policy adopted is therefore necessary for the accounts to give a true and fair view. Other investments Shares in subsidiaries and listed investments are stated at cost less any provision necessary for any permanent diminution in value. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary undertaking at the date of acquisition. In accordance with Financial Reporting Standard 10 (FRS 10), goodwill arising from acquisitions after 1 July 1998 is amortised over its useful economic life, up to a maximum of 20 years. Where an indication of impairment exists, the carrying amount of any goodwill is assessed and written down immediately to its recoverable amount. To the extent that any further impairment is required, provision is made for any onerous leases. F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 19 Notes to the Accounts for the year ended 30 June 2005 Accounting policies (continued) 1 Stocks Stocks are stated at the lower of cost and net realisable value. Cost is determined by the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads, based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. Provision is made against the cost of slow-moving stock lines based on the estimated recoverable amounts. Debtors Trade debtors are carried at original invoice amount less an estimate made for doubtful debts based on a review of all outstanding amounts at the year end. Bad debts are written off when identified. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, term deposits and deposits held at call with banks. Deferred taxes Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred income tax. Balances are not discounted. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on past history of the level of repairs and replacements. Revenue recognition Sales are recognised upon delivery of products. Sales are shown net of value added tax and discounts, and after eliminating sales within the Group. Interest receivable and similar income Interest income is recognised when earned. Investment income is only recognised when the funds have been received by the Group. Pension obligations In accordance with the provisions of SSAP 24, the cost of providing pensions is charged to the income statement so as to spread the regular cost over the service lives of employees in accordance with the advice of the actuaries. The Group’s contributions to defined contribution pension plans are charged to the profit and loss account in the period to which the contributions relate. Additional disclosures relating to the pension fund deficit are given in note 24 in accordance with the requirements of FRS17. Foreign currency translation Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions; gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Research and development Research and development expenditure is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Policy on derivatives and financial instruments The Group does not hold any derivatives other than exchange swaps. Where these exist at the year end they are not valued in the balance sheet as they are used to hedge currency movements. If foreign currency debtors and creditors exist at the year end which have been hedged in this way the contracts and swap values are considered in valuing these items. Financial instruments are valued at historical cost. 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 20 Analysis of turnover 2 The turnover attributable to each of the Group’s geographical markets is: United Kingdom Other European Countries Africa North and South America Middle East India, Australia and Far East 2005 £’000 36,501 3,485 35 146 811 594 41,572 2004 £’000 32,928 2,679 49 243 766 593 37,258 All turnover, profit before taxation and net assets originate in the United Kingdom. The business of the parent Company and its subsidiaries all relate to one business segment, being designers, manufacturers and suppliers of professional lighting systems. 3 Net operating expenses Distribution costs Administrative expenses Exceptional items — Sugg 2005 £’000 2,597 8,086 422 11,105 2004 £’000 2,389 6,971 — 9,360 Exceptional items — Sugg Due to the trading difficulties in the year experienced at Sugg Lighting Ltd (“Sugg”), management has undertaken a review of the Sugg business. This has resulted in an exceptional stock provision of £195,000 and an impairment of £227,000. In calculating the impairment the Directors applied the value in use method to the projected cash flows after allowance for appropriate contingencies and a discount rate of 6.5% which represents a risk free post-tax interest rate. The analysis indicates that the total impairment provision required is £227,000 of which £200,000 is treated as an onerous lease provision and the remaining impairment of £27,000 relates to fixed assets. Profit on ordinary activities before taxation 4 Profit on ordinary activities before taxation is stated after charging/(crediting): Depreciation of tangible assets — owned assets Impairment of Sugg fixed assets Auditors’ remuneration (Company £27,000; 2004: £26,000) Leasehold land and buildings — operating leases Hire of plant and machinery Research and development Profit on sale of fixed assets Profit on sale of fixed asset investments Rental income from investment property 2005 £’000 1,121 27 49 176 46 1,030 (26) (5) (5) 2004 £’000 1,126 42 47 176 39 1,134 (18) — (3) Remuneration of the Group’s auditors for provision of non-audit services to the Company and its subsidiaries was: Accountancy services Tax compliance Other services 2005 £’000 2004 £’000 5 6 3 14 5 9 4 18 F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 21 Notes to the Accounts for the year ended 30 June 2005 5 Directors’ emoluments Aggregate emoluments Contributions to Money Purchase pension scheme 2005 Total £’000 859 18 877 2004 Total £’000 734 17 751 Any gains by Directors on the exercise of share options in the year, and the number of Directors to whom benefits are are accruing under defined benefit and defined contribution schemes are included in the Directors’ Remuneration Report on pages 9 to 13. 6 Employee information The average number of employees employed by the Group (including executive Directors) during the year is analysed below: Production Selling and distribution Administration Employment costs of all employees (including executive Directors): Aggregate gross wages and salaries Employers’ national insurance contributions Employers’ pension and related charges Total direct costs of employment 7 Interest receivable and similar income Interest from cash and bank balances Income from fixed asset investments Income from investments includes £7,000 (2004: £4,000) from listed investments. 2005 Number 2004 Number 304 84 131 519 2005 £’000 10,939 1,038 907 12,884 2005 £’000 371 69 440 283 82 125 490 2004 £’000 9,152 886 746 10,784 2004 £’000 281 61 342 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 22 8 Taxation on profit on ordinary activities Current tax: UK corporation tax on profits for the period Adjustment in respect of previous periods Total current tax Deferred tax: Origination and reversal of timing differences Adjustment in respect of previous periods Total deferred tax Taxation on profit on ordinary activities 2005 £’000 1,485 (314) 1,171 321 (13) 308 2004 £’000 1,644 (140) 1,504 (25) — (25) 1,479 1,479 The tax assessed for the year is lower than the standard rate of Corporation Tax in the UK (30%). The differences are explained below: Profit on ordinary activities Profit on ordinary activities multiplied by the standard rate in the UK 30% (2004: 30%) Effects of: Expenses not deductible for tax purposes Accelerated tax allowances and other timing differences Profits taxed at small companies rate Adjustments to tax charge in respect to previous period Current tax charge 9 Profit for the year and dividends Profit for the year 2005 £’000 5,840 2004 £’000 5,362 1,752 1,609 (69) (194) (4) (314) 12 30 (7) (140) 1,171 1,504 As permitted by Section 230 of the Companies Act 1985, the holding Company has not published a separate profit and loss account. The Group profit for the year of £4,361,000 (2004: £3,883,000) includes a profit of £3,780,000 (2004: £3,757,000) in respect of the holding Company. Dividends Interim paid of 2.5p per share (2004: 2.2p per share) Final proposed of 7.5p per share (2004: 6.4p per share) 2005 £’000 299 888 2004 £’000 260 754 1,187 1,014 10 Earnings per share Ordinary earnings per share is calculated by dividing the net profit attributable to shareholders of £4,361,000 (2004: £3,883,000) by the weighted average number of ordinary shares in issue during the year of 11,825,715 (2004: 11,743,094). For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The weighted average number of ordinary shares is calculated at 11,943,559 (2004: 11,943,559). F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 23 Notes to the Accounts for the year ended 30 June 2005 11 Intangible fixed assets Group Cost At 1 July 2004 and 30 June 2005 Aggregate amortisation At 1 July 2004 and 30 June 2005 Net book value at 1 July 2004 and 30 June 2005 Goodwill £’000 600 600 — The goodwill arising on the acquisition of Sugg Lighting Limited was impaired in 2002. Goodwill of £577,000 arising on the acquisition of subsidiaries before 1 July 1999 had been written off to reserves in prior years. 12 Tangible fixed assets Freehold land and buildings £’000 Group Plant and equipment £’000 Cost At 1 July 2004 Additions Group transfer Disposals At 30 June 2005 Accumulated depreciation At 1 July 2004 Charge for the year Impairment at Sugg (note 3) Disposals At 30 June 2005 Net book value At 30 June 2005 At 30 June 2004 7,024 42 — — 7,066 1,160 122 — — 1,282 5,784 5,864 Freehold land and buildings £’000 Company Plant and equipment £’000 6,876 42 — — 6,918 1,038 113 — — 1,151 5,767 5,838 7,668 552 1 (221) 8,000 5,420 543 — (203) 5,760 2,240 2,248 Total £’000 14,544 594 1 (221) 14,918 6,458 656 — (203) 6,911 8,007 8,086 Total £’000 18,290 1,170 — (372) 11,266 1,128 — (372) 12,022 19,088 7,787 999 27 (342) 8,471 3,551 3,479 8,947 1,121 27 (342) 9,753 9,335 9,343 Depreciation has not been charged on freehold land that is stated at its cost of £1,218,000 (2004: £1,218,000). 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 24 13 Fixed asset investments Group Listed on the Stock Exchange £’000 Investment property £’000 At 1 July 2004 Disposals At 30 June 2005 Provisions for diminution in value At 1 July 2004 and 30 June 2005 Net book value At 30 June 2005 At 30 June 2004 219 — 219 — 219 219 62 (23) 39 — 39 62 Total £’000 281 (23) 258 — 258 281 Company Investment property £’000 Listed on the Stock Exchange £’000 Investments in subsidiaries £’000 219 — 219 — 219 219 62 (23) 39 — 39 62 Total £’000 2,454 (23) 2,431 2,173 — 2,173 1,570 1,570 603 603 861 884 Investment property open market value has been determined by the directors. There is no material difference between original cost and open market value. The aggregate market value of the investments listed on the London Stock Exchange as at 30 June 2005 was £87,000 (2004: £108,000). Details of the investments in subsidiaries are set out in note 25. 14 Stocks Raw materials, components and consumables Work in progress Finished goods 15 Debtors Trade debtors Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income 16 Current asset investments Group Company 2005 £’000 3,049 1,316 2,902 7,267 2004 £’000 2,957 1,409 2,233 6,599 2005 £’000 1,813 1,070 2,306 5,189 Group Company 2005 £’000 9,613 — 40 969 10,622 2004 £’000 7,522 — 74 759 8,355 2005 £’000 6,690 1,265 40 774 8,769 2004 £’000 1,795 971 1,763 4,529 2004 £’000 4,728 1,457 53 589 6,827 Units in cash fund — aggregate market value £333,000 (2004: £320,000) Group and Company 2004 Cost £’000 2005 Cost £’000 70 70 70 70 F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 25 Notes to the Accounts for the year ended 30 June 2005 17 Creditors: amounts falling due within one year Trade creditors Corporation tax Other taxation and social security Other creditors Accruals Dividends payable 18(a) Onerous lease provision Onerous lease provision in respect of Sugg Lighting Ltd Group Company 2005 £’000 3,357 464 1,205 734 408 888 7,056 2004 £’000 3,208 1,051 935 624 481 754 7,053 2005 £’000 1,833 493 919 711 155 888 4,999 Group Company 2005 £’000 200 2004 £’000 — 2005 £’000 — 18(b) Deferred taxation Deferred taxation provided in the financial statements is as follows: Tax effect of timing differences Capital allowances Other Group Company 2005 £’000 492 219 711 2004 £’000 432 (29) 403 2005 £’000 525 257 782 2004 £’000 1,579 822 662 550 185 754 4,552 2004 £’000 — 2004 £’000 451 (12) 439 There is no difference between the full potential liability for deferred taxation and the provision made in the financial statements. Movement in the provision At 1 July 2004 (Decrease)/Increase in provision At 30 June 2005 19 Share capital Ordinary shares of 10p per share Authorised (15,000,000 shares) Allotted and fully paid At 1 July 2004 Shares issued At 30 June 2005 11,838,876 shares (2004: 11,772,000 shares) Group Company 2005 £’000 403 308 711 2004 £’000 428 (25) 403 2005 £’000 439 343 782 2004 £’000 437 2 439 Group and Company 2004 £’000 2005 £’000 1,500 1,500 1,177 7 1,184 1,171 6 1,177 During the year options were exercised for 66,876 ordinary shares with a nominal value of 10 pence per share and a consideration of 117 pence per share. Options that have been granted for 10p ordinary shares remaining outstanding at 30 June 2005 are as follows: Number of shares Subscription price per share Period of option 104,683 117p 7 May 2002 to 6 May 2009 Details of the Directors’ share options are given in the Directors’ Report. Since the year end, options for 39,200 shares have been exercised. 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 26 20 Reserves At 1 July 2004 Shares issued Profit for the year At 30 June 2005 Group Share Capital premium Redemption Reserve account £’000 £’000 473 72 — 545 135 — — 135 Profit and Loss £’000 22,961 — 3,174 26,135 Company Share Capital premium Redemption Reserve account £’000 £’000 473 72 — 545 135 — — 135 21 Notes to the cash flow statement (a) Reconciliation of operating profit to net cash inflow from operating activities Operating profit Depreciation and impairment Profit on sale of fixed assets and fixed asset investments (Increase) in stocks (Increase) in debtors Increase in creditors Net cash inflow from operating activities (b) Reconciliation of movement in net funds Cash at bank and in hand Liquid resources Net funds (c) Reconciliation of net cash flow to movement in net funds Net funds at 1 July 2004 Increase in net cash Movement in borrowings Net funds at 30 June 2005 2005 £’000 5,400 1,148 (31) (668) (2,267) 657 4,239 1 July 2004 £’000 Cash flow £’000 7,554 70 7,624 860 — 860 2005 £’000 7,624 860 — 8,484 Profit and Loss £’000 21,162 — 2,593 23,755 2004 £’000 5,020 1,168 (18) (403) (2,052) 664 4,379 30 June 2005 £’000 8,414 70 8,484 2004 £’000 6,805 812 7 7,624 22 Capital commitments Commitments for future capital expenditure at 30 June 2005 were as follows: Authorised and contracted for Group Company 2005 £’000 59 2004 £’000 132 2005 £’000 37 2004 £’000 86 F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 27 Notes to the Accounts for the year ended 30 June 2005 23 Operating leases Annual commitments on operating leases, which all relate to land and buildings, expire: In two to five years Over five years Group Company 2005 £’000 173 — 173 2004 £’000 25 148 173 2005 £’000 — — — 2004 £’000 — — — 24 Pension scheme The Group operates a funded combined Defined Benefits/Defined Contribution scheme for employees in the UK. Entrants who joined after 1 October 1995 join a Defined Contribution section. The scheme is approved by the Inland Revenue under Chapter 1 Part XIV of the Income and Corporation Taxes Act 1988. Membership is contracted-in to the second state pension. The assets of the Scheme are held separately from the assets of the Company, being invested in Managed Funds. Contributions by the Company to the Scheme during the year ended 30 June 2005 amounted to £1,132,000 (2004: £1,095,000) which included a lump sum payment of £500,000, (2004: £500,000) of which £677,000 (2004: £435,000) was included in prepayments at the end of the year. Contributions are determined by an independent qualified actuary on the basis of triennial valuations using the Projected Unit Method. The Company is committed to making future payments to the scheme and has agreed a future schedule of contributions with the trustees. The date of the most recent actuarial valuation was 1 July 2004, and the value of the fund at this date was £7,805,000. This was sufficient to cover 75% of the value of the benefits accrued to members after allowing for future increases in earnings. In arriving at the actuarial valuation, the following assumptions were adopted. Price inflation Salary increases Discount rate Revaluation for deferred pensioners Pension increases in payment of 5% pa or RPI if less 3.00% 4.78% 5.70% 3.00% 2.80% The figures at 1 July 2004 have been updated in order to assess the additional disclosures required under FRS17 as at 30 June 2005 by an independent qualified actuary using the following major assumptions: Price inflation Salary increases Discount rate Revaluation for deferred pensioners Pension increases in payment of 5% pa or RPI if less Pension increases in payment of 2.5% pa or RPI if less 30 June 2005 30 June 2004 30 June 2003 2.70% 4.57% 5.00% 2.70% 2.70% 2.00% 3.00% 4.78% 5.70% 3.00% 2.80% n/a 2.50% 4.28% 5.25% 2.50% 2.50% n/a 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 28 24 Pension scheme (continued) On this basis, the illustrative balance sheet figures required under FRS17 are as follows: 30 June 2005 30 June 2004 30 June 2003 Expected long- term rate of return Expected long- term rate of return Value £’000 8.00% 5.00% 7.50% 4.50% Equities Bonds Property Other 7.25% 4.60% 7.00% 4.50% Total market value of assets Present value of scheme liabilities Deficit in the scheme Related tax asset Net pension deficit Movement in deficit during the year 6,451 1,917 5 1,770 10,143 14,852 (4,709) 1,413 (3,296) Expected long- term rate of return 8.00% 5.00% 7.50% 3.75% Value £’000 5,290 1,553 2 941 7,786 11,057 (3,271) 981 (2,290) Value £’000 4,281 1,395 239 164 6,079 (10,190) (4,111) 1,233 (2,878) Deficit in scheme at beginning of the year Current service cost Contributions Other finance income Actuarial gain/(loss) on pension scheme Deficit in scheme at end of year Related tax asset Net pension deficit 30 June 2005 £’000 30 June 2004 £’000 (3,271) (517) 1,132 (62) (1,991) (4,709) 1,413 (3,296) (4,111) (488) 1,095 (89) 322 (3,271) 981 (2,878) Analysis of amount that would be charged to operating profit in respect of defined benefit scheme Current service cost 30 June 2005 £’000 517 517 30 June 2004 £’000 488 488 The current service cost for final salary guarantee members is expected to rise from year to year as the final salary section is closed to new entrants. Analysis of amount that would be credited to other financial income Expected return on pension scheme assets Interest on pension scheme liabilities Net return 30 June 2005 £’000 30 June 2004 £’000 582 (644) (62) 460 (549) (89) F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 29 Notes to the Accounts for the year ended 30 June 2005 24 Pension scheme (continued) Analysis of amount that would be recognised in the Statement of Total Recognised Gains and Losses (STRGL) Actual return less expected return on pension scheme assets Experience gains and losses arising on the scheme liabilities Changes in assumptions underlying the resent value on the scheme liabilities Actuarial loss which would have been recognised in the STRGL 30 June 2005 £’000 680 (1,070) (1,601) (1,991) 30 June 2004 £’000 65 495 (238) 322 History of experience gains and losses that would have been recognised in the Statement of Total Recognised Gains and Losses (STRGL) 30 June 2005 £’000 Percentage 30 June 2004 £’000 Percentage Difference between the expected and actual return on scheme assets Percentage of scheme assets Experience gain/(loss) on scheme liabilities Percentage of the present value of scheme liabilities Changes in assumptions underlying the present value of the scheme liabilities Percentage of the present value of scheme liabilities Total amount which would have been recognised in STRGL Percentage of the present value of the scheme liabilities 680 (1,070) (1,601) (1,991) 7% 7% 11% 13% 65 495 (238) 322 1% 4% 2% 3% Changes to net assets and profit and loss reserve If the amounts had been recognised in the financial statements, the Group’s net assets and profit and loss reserve at 30 June 2005 would have been as follows: Net assets excluding pension deficit Pension prepayment (net) Pension deficit Net assets including pension deficit Profit and loss account excluding pension deficit Pension prepayment (net) Pension deficit Profit and loss account including pension deficit 2005 £’000 27,999 (474) (3,296) 2004 £’000 24,746 (305) (2,290) 24,229 22,151 26,135 (474) (3,296) 22,961 (305) (2,290) 22,365 20,366 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 30 Proportion of nominal value of issued shares held by Group and Company 100% 100% 100% 100% 100% 25 Interests in Group undertakings Name of undertaking Country of incorporation Description of shares held Mackwell Electronics Limited Compact Lighting Limited Philip Payne Limited Sugg Lighting Limited Axis Lighting Limited England England England England England Ordinary £1 shares Ordinary £1 shares Ordinary £1 shares Ordinary £1 shares Ordinary £1 shares All of the above companies operated in their country of incorporation and registration. The principal activities of these subsidiaries are: Mackwell Electronics Limited — design and manufacture of lighting components Compact Lighting Limited — design and manufacture of low energy lighting equipment Philip Payne Limited Sugg Lighting Limited Axis Lighting Limited — design and manufacture of illuminated signs — design and manufacture of traditional architectural lighting. — non-trading 26 Reconciliation of movements in equity shareholders’ funds Profit for the year Dividends Net increase in equity shareholders’ funds Issue of shares Opening equity shareholders’ funds Closing equity shareholders’ funds Group Company Year ended 30 June 2005 £’000 Year ended Year ended 30 June 2005 £’000 30 June 2004 £’000 Year ended 30 June 2004 £’000 4,361 (1,187) 3,174 79 24,746 27,999 3,883 (1,014) 2,869 68 21,809 24,746 3,780 (1,187) 2,593 79 22,947 25,619 3,757 (1,014) 2,743 68 20,136 22,947 27 Related party transactions and balances The Company has taken advantage of the exemption allowed by FRS8 not to disclose transactions and balances with related Company undertakings, 90% or more of whose voting rights are controlled within the Group. During the year, M Allcock purchased a computer under the Home Computing Initiative Scheme for £699 at terms available to other members of staff. At the end of the year an amount of £408 was outstanding. F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 31 Notes to the Accounts for the year ended 30 June 2005 28 Financial instruments The Group has a policy of maintaining cash resources arising from its operations by balancing the day-to-day cash requirements with those resources and by not undertaking any long-term borrowings. This policy enables the Group to fund its future operations. To assist with this the Group has a system of overall Group treasury management, coupled with individual banking arrangements held by each of the Group’s subsidiaries. The Group also has a small overdraft facility on its current account to ensure that cash is available in the current account in the event that an unforeseen requirement arises. The Group has a policy not to trade derivatives, and this has been observed throughout the period. The Group’s financial instruments comprise cash and liquid resources, small amounts of listed investments, and various other items such as trade debtors, trade creditors that arise directly from its operations. The main purpose of these financial instruments is to manage the cash available for the Group’s operations. The Group has occasionally used forward foreign exchange contracts in order to hedge currency movements when customers pay in or suppliers require foreign currency. The value of these contracts has not been significant. The Group treasury function reviews the cash holding of the Group as a whole on a daily basis and considers the future cash requirements in both £ sterling and foreign currency. Based on this assessment, cash will be placed on short-term deposit or kept available to meet day-to-day requirements throughout the Group. The policies for managing foreign currency risk are highlighted above. At 30 June 2005, after taking account of the effects of foreign exchange contracts held, the Group had no significant currency exposures. In the financial instruments disclosures made in the accounts, the Group has taken advantage of the exemption conferred by FRS13 to exclude short term debtors and creditors. Financial assets The Group has no financial assets, other than cash at bank and in hand unitised cash funds and an immaterial amount of listed investments. Financial liabilities The Group does not use finance leases to manage risk and the majority of these have been acquired as part of business acquisitions. The Group holds currency bank accounts, which are used for receipts from customers and payments to suppliers. The Group occasionally uses forward currency swap arrangements to manage obligations on a short-term basis. The Group had no forward currency swap arrangements at the year end because the currency available in those bank accounts broadly matched currency obligations at that time (2004: £nil). The related average data has not been produced because there were no contracts in place at the time. Other than as disclosed in note 16, there is no material difference between the book value and fair values of financial assets and financial liabilities. 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 32 Notice of Meeting Notice is hereby given that the sixty-ninth Annual General Meeting of F W Thorpe Plc will be held at Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH on 10 November 2005 at 3.15 pm to transact the following business: Ordinary business 1. To receive and adopt the Directors’ Report and Accounts for the year ended 30 June 2005. 2. To declare a dividend. 3. To re-elect I A Thorpe as a Director. 4. To re-elect P D Mason as a Director. 5. To re-appoint PricewaterhouseCoopers LLP as auditors of the Company, to hold office until the conclusion of the next General Meeting at which accounts are laid before the Company and to authorise the Directors to fix the auditors’ remuneration. Special business To consider and, if thought fit, to pass the following resolutions which will be proposed, in the case of 6 and 7 as ordinary resolutions, and in the case of 8 and 9 as special resolutions. 6. 7. That the Directors’ remuneration report (as set out on pages 9 to 13 of the Annual Report and Accounts) for the year ended 30 June 2005 be approved. That the authority to allot relevant securities (within the meaning of Section 80 of the Companies Act 1985) conferred on the Directors by Article 15 of the Articles of Association of the Company be and hereby is renewed for the period ending at the conclusion of the Annual General Meeting of the Company to be held in 2006 and that for such period the Section 80 Amount (as defined in said Article 15) shall be £312,192. 8. That the power to allot equity securities (within the meaning of Section 94 of the Companies Act 1985) conferred on the Directors by Article 15 of the Articles of Association of the Company be and hereby is renewed for the period ending at the earlier of the conclusion of the Annual General Meeting of the Company to be held in 2006 and the expiry of the period of 15 months following the passing of this resolution and that for such period the Section 89 Amount (as defined in the said Article 15) shall be £59,390. 9. That the Company be generally and unconditionally authorised to make market purchases (within the meaning of Section 163(3) of the Companies Act 1985) of ordinary shares of 10p each of the Company provided that: a) b) c) d) e) The maximum number of ordinary shares hereby authorised to be acquired is 1,187,808. The minimum price which may be paid for any such share is 10p. The maximum price which may be paid for any such share is an amount equal to 105% of the average of the middle market quotations for an ordinary share in the Company as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which such share is contracted to be purchased. The authority hereby conferred shall expire on the date of the Annual General Meeting of the Company in 2006. The Company may make a contract to purchase its ordinary shares under the authority hereby conferred prior to the expiry of such authority, which contract will or may be executed wholly or partly after the expiry of such authority, and may purchase its ordinary shares in pursuance of any such contract. F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 33 Notice of Meeting Notes a) A member entitled to attend and vote at the meeting may appoint one or more proxies, whether a member of the Company or not, to attend and, on a poll, vote on the members behalf. A form of proxy accompanies this notice. b) The register of Directors’ share interests pursuant to Section 325 of the Companies Act 1985 and copies of the Directors’ service contracts will be available for inspection at the Annual General Meeting. By order of the Board P D Mason Company Secretary Merse Road North Moons Moat Redditch Worcestershire B98 9HH 13 October 2005 5 0 0 2 s t n u o c c A d n a t r o p e R l a u n n A l c P e p r o h T W F 34 Form of Proxy (for shareholders use only) I/We . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Block letters please) of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . being a member of F W Thorpe Plc, hereby appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . or failing him the Chairman of the meeting, as my/our proxy to vote for me/us and on my/our behalf at the annual General Meeting of the Company to be held at the Registered Office of the Company on 10 November 2005 and at every adjournment thereof. Please indicate with a cross in the appropriate space how you wish your vote to be cast. If no specific direction as to voting is given your proxy will vote or abstain at his/her discretion. FOR AGAINST ORDINARY BUSINESS 1 To adopt the Directors’ Report and Accounts 2 To declare a final dividend 3 To re-elect I A Thorpe as a Director 4 To re-elect P D Mason as a Director 5 To re-appoint PricewaterhouseCoopers LLP as Auditors of the Company SPECIAL BUSINESS 6 To approve the Directors’ remuneration report 7 To give the Directors authority to allot relevant securities (Section 80 C.A. 1985) 8 To give the Directors authority to allot equity securities (Section 94 C.A. 1985) 9 To give the Company authority to make market purchases of its ordinary shares Dated this . . . . . . . . . . . . . . . . . . . .day of . . . . . . . . . . . . . . . . .2005 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes: This proxy must reach the Company’s registered office not less than forty-eight hours before the time appointed for the meeting. Any alteration made to this form of proxy should be initialled. If you wish to appoint a proxy other than the Chairman of the meeting please insert the name and address of your proxy (who need not be a member of the Company). In the case of joint holders the signature of one holder will be accepted. In the case of joint holders, the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of votes of the other joint holders and for this purpose seniority will be determined by the order in which the names stand in the register of members in respect of the joint holding. In the case of a corporation this proxy should be under its common seal or under the hand of an officer or attorney or other person duly authorised. Completion of the proxy form will not prevent a shareholder attending and voting in person. F W T h o r p e P c l A n n u a l R e p o r t a n d A c c o u n t s 2 0 0 5 35 ✄ Second fold BUSINESS REPLY SERVICE Licence No. SEA 10846 11 Lloyds TSB Registrars The Causeway Worthing West Sussex BN99 6ZL l d o f t s r i F Third fold and tuck in flap opposite Five Year Record 2001 £’000 2002 £’000 2003 £’000 2004 £’000 2005 £’000 Turnover 33,054 29,452 32,677 37,258 41,572 Operating profit Interest receivable and similar income Profit before taxation Taxation Profit after taxation Dividends Net assets Earnings per share — ordinary Dividends per share Net assets per share 3,077 153 3,230 (899) 2,331 700 1,046 196 1,242 (513) 729 701 3,487 245 3,732 (1,110) 2,622 773 5,020 342 5,362 (1,479) 3,883 1,014 5,400 440 5,840 (1,479) 4,361 1,187 19,876 19,904 21,809 24,746 27,999 19.8p 6.0p 170p 6.3p 6.0p 171p 22.4p 6.6p 186p 33.1p 8.6p 210p 36.9p 10.0p 236p Financial Calendar 2005 17 October 10 November 17 November 2006 March May September Posting of Report and Accounts Annual General Meeting Payment of final dividend Announcement of half year results Payment of interim dividend Announcement of results for the year Designed and Printed by Jones & Palmer Limited, Birmingham. tel: (0121) 236 9007 F W Thorpe Plc - Thorlux Lighting - Compact Lighting - Sugg Lighting - Mackwell Electronics - Philip Payne Merse Road North Moons Moat Redditch Worcestershire B98 9HH INDUSTRIAL (cid:2) COMMERCIAL (cid:2) ARCHITECTURAL (cid:2) ILLUMINATED SIGNS (cid:2) EMERGENCY (cid:2) LOW ENERGY (cid:2) HERITAGE (cid:2) ENERGY CONSERVING SYSTEMS
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