F W T h o r p e P l c 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 2 0 Annual Report and Accounts 2020 27581-FW Thorpe-AR2020 Strategic.indd 5 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:06 Welcome to the 2020 Annual Report Who We Are We specialise in designing and manufacturing professional lighting systems. We currently employ over 650 people and although each company works autonomously, our skills and markets are complementary. Investment case 01 A well-positioned portfolio of companies across seven different countries Read more on pages 28 to 36 Our Purpose Provide technically advanced lighting solutions that deliver long-term lowest cost of ownership. Our Vision Maintain a consistently respected and profitable organisation with an environmental conscience. 02 Innovative products with market-leading technology Read more on pages 18 to 21 Our Values 03 Strong profit margins and robust balance sheet Read more on pages 78 to 83 Integrity Honesty Longevity Visit us online at: www.fwthorpe.co.uk Front cover picture: The Silverstone Experience 27581-FW Thorpe-AR2020 Strategic.indd 3 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:08 Annual Report and Accounts for the year ended 30 June 2020 Highlights Financial Highlights Revenue (£m) +2.4% 2020 2019 2018 2017 2016 Operating profit (£m) −7.5% 113.3 110.6 109.6 105.4 88.9 2020 2019 2018 2017 2016 16.3 17.6* 19.5 18.4 16.2 * 2019 excludes the profit on disposal of property of £1.9m Basic earnings per share (pence) −17.7% Diluted earnings per share (pence) −17.6% 2020 2019 2018 2017 2016 11.45 13.91 13.91 12.54 11.24 2020 2019 2018 2017 2016 11.40 13.83 13.81 12.47 11.21 Dividend per Share (pence) Operational Highlights +2.4% 2020 2019 2018 2017 2016 5.66 5.53 5.40 4.90 4.05 1. Revenue surpassed last year’s high, supported by SmartScan sales, Famostar and Services 2. Results dampened by impact of COVID-19 in last quarter of the financial year and the lower margins for Services 3. Operating cash generated remained strong at £19.4m 4. Solid recovery at the start of 2020/21, operating performance in line with the start of 2019/20 Contents Business Overview Highlights FW Thorpe at a Glance Strategic Report Chairman’s Statement Marketplace Business Model Strategy Strategy in Action: SmartScan – New Features Key Performance Indicators Strategy in Action: 01 02 08 11 14 16 18 22 Opening of the Light Quality Experience Multi-million pound investment in new machinery 26 28 24 Operational Performance Strategy in Action: 38 Lightronics opens European Application Centre Portland Lighting Moves 40 to New Premises Financial Performance 42 Principal Risks and Uncertainties 44 50 s172 statement 52 Sustainability 56 58 Our Governance Board of Directors Directors’ Report Statement of Directors’ Responsibilities Directors’ Remuneration Report Independent Auditors’ Report to the Members of FW Thorpe Plc 69 64 65 79 Our Financials Consolidated Income Statement 78 Consolidated Statement of Comprehensive Income Consolidated and Company Statements of Financial Position 80 Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated and Company Statements of Cash Flows Notes to the Financial Statements Notice of Meeting Financial Calendar 84 128 131 83 82 81 27581-FW Thorpe-AR2020 Strategic.indd 1 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:09 01 Stock Code: TFW www. fwthorpe.co.ukBusiness OverviewStrategic ReportOur GovernanceOur Financials FW Thorpe at a Glance The complete service offering we provide... Design & Development £1.3m Group spend on capitalised R&D (2019: £1.8m) Manufacturing Services £3.0m Revenue from Services (2019: £2.4m) £1.1m Acquisition of facilities for Portland £2.3m Acquisition of facilities for Famostar Read about our service offering on pages 14 and 15 Our Strategic pillars... SmartScan technology Focus on high quality products and good leadership in technology Continue to grow the customer base for Group companies • • Focus on manufacturing excellence Continue to develop high quality people A sophisticated lighting management system for indoor and outdoor applications based on reliable wireless communications offering fully programmable control combined with energy and status reporting. Key features: • Indoor and outdoor lighting management for energy conservation, flexibility and well-being. Fully automatic emergency lighting testing and reporting. Building management functions such as room occupancy profiling and air quality sensing. • • • • Fully programmable control. Sensor technology integral to the luminaire avoiding additional installation costs. Wireless communication protocol for simple installation. Web-based information display and reporting. Read about our strategic pillars on pages 16 and 17 Read about SmartScan on page 18 FW Thorpe timeline 1936 1940-1960 1965 1989 1990-1996 2005 2009 2011 Established by Frederick William Thorpe and his son Ernest Thorpe. Spinning circular reflectors Moved to larger premises twice to cope with the expansion into linear fluorescent luminaires, and to enter the exterior and hazardous markets 02 Floated on the London Stock Exchange Moved to our Redditch headquarters Transferred to AIM Acquired Solite Europe Lighting for clean rooms Acquisition of Portland Lighting Mackwell Electronics disposal First acquisition – Mackwell Electronics Start-up in retail and display lighting Acquired Philip Payne emergency exit signs 27581-FW Thorpe-AR2020 Strategic.indd 2 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:10 Annual Report and Accounts for the year ended 30 June 2020 Our Global footprint We focus on long-term growth and stability, achieved by delivering market-leading products, backed by excellent customer service. Revenue by region (£m) 3 1 7 2 4 5 1 United Kingdom Thorlux Lighting, Philip Payne, Solite Europe, Portland Lighting, TRT Lighting 2 Netherlands Lightronics, Famostar 3 Ireland Thorlux Lighting 4 Germany Thorlux Lighting 5 United Arab Emirates Thorlux Lighting 6 Australia Thorlux Lighting Australasia 7 Spain Luxintec 2.7 12.2 28.7 2020 2.5 11.2 6 28.2 2019 UK Netherlands Rest of Europe Rest of the World 69.7 68.7 Read about our marketplace on pages 11 and 12 Read about our performance on page 28 2013 2014 2015 2016 2017 2018 2019 2020 Start-up company TRT Lighting Entered the street lighting market Creation of an in- house LED printed circuit board production line Ability to place 400,000 components per day Acquisition of Lightronics – Netherlands Develop European market Sugg Lighting disposal Investment in Luxintec – Spain Target Spanish market and acquire lens specialism Acquired remaining share capital in Thorlux Australasia Target Australian market, improve performance Acquired Famostar – Netherlands Improved emergency lighting product offering Compact Lighting business successfully merged with Thorlux Lighting Portsmouth facility sold All operating businesses housed in Group-owned property Maintained operations during COVID-19 pandemic 03 27581-FW Thorpe-AR2020 Strategic.indd 3 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:11 Stock Code: TFW www. fwthorpe.co.ukBusiness OverviewStrategic ReportOur GovernanceOur Financials FW Thorpe at a Glance continued Description The Thorlux range of luminaires is designed, manufactured and distributed by Thorlux Lighting, a division of FW Thorpe Plc. Thorlux luminaires have been manufactured continuously since 1936, the year Frederick William Thorpe founded the company. The company now operates from the Group’s modern 16,882m2 self-contained factory in Redditch, Worcestershire, central England. Thorlux is well known throughout the world and provides a comprehensive range of professional lighting and control systems for a wide variety of applications. Key products • Recessed, surface and suspended luminaires Emergency lighting systems • • Hazardous area lighting • High and low bay luminaires Lighting controls Exterior lighting • • Market sectors • Commercial Industrial • Education • • Healthcare • Manufacturing Retail, Display • and Hospitality Description Philip Payne recognises that most trade emergency exit signage products are generally designed with the functional in mind. Philip Payne offers a backbone range of quality standard products but more importantly encourages direct dialogue with architects and designers to ensure, via product variation or bespoke work, aesthetic aspirations and requirements are fully met. Key products Emergency • exit signage Emergency lighting systems • Market sectors • Commercial • Hospitality • Healthcare Description TRT (Thorlux Road and Tunnel) Key products • Road and Description Based in Waalwijk, Netherlands, Lighting is an independent specialist tunnel lighting Lightronics specialises in the company which has evolved from • Amenity Thorlux Lighting. lighting Building on years of lighting experience, TRT is dedicated to the design, manufacture and supply of LED road and tunnel luminaires. TRT produces quality, efficient, stylish, high performance LED products that are manufactured in the UK. Market sectors • • Infrastructure Facilities – car parking Key products • Road lighting • Amenity lighting • Outdoor wall and ceiling luminaires controls Market sectors • • Infrastructure Facilities – car parking • Housing ceiling luminaires as well as control • Lighting development, manufacture and supply of external and impact resistant lighting, which includes street lighting, outdoor wall and systems. The majority of its revenue is derived from the Netherlands but there is also an export presence in other European locations. Lightronics was originally established in 1946 and has a strong tradition of solid, reliable products as well as being known for its innovation. Products are environmentally friendly in terms of energy use as well as in the prevention of light pollution. Read more on page 29 Read more on page 31 Read more on page 34 Read more on page 35 Description Solite Europe is a leading manufacturer and supplier of clean room lighting equipment and luminaires within the UK and Europe. Solite provide luminaires for laboratories, pharmaceutical and semi-conductor manufacturing areas including hospitals, kitchens and food preparation applications. Key products • Clean room luminaires Market sectors Pharmaceutical • • Healthcare Education/ • Research Key products Lighting for • signs Market sectors Retail • • Hospitality • Advertising Description Portland Lighting designs, manufactures and supplies innovative lighting products to the advertising, brewery, retail and sign lighting industries. The company operates from a modern 1,394m2 facility in Walsall, which was purposely designed to enable the fast turnaround of customer orders. Established in 1994, the product range has continually evolved to ensure that Portland remains one of the leading companies in its sector. Description Our investment in Luxintec, based in Valladolid, in north-west Spain, specialises in the design, development and manufacture of innovative and high performance LED luminaires and lighting systems. Alongside its range of luminaires for a variety of market sectors, Luxintec designs and produces custom LED lighting solutions for emergency vehicles, general automotive and other customer applications. Key products • • LED industrial luminaires LED retail and display luminaires • Customised LED solutions • LED optics Market sectors • Architectural • • Retail Industrial • Automotive Description Based in Velp, Netherlands, Famostar specialises in the development, manufacture and supply of emergency lighting products. Revenue is derived from the Netherlands, where it is considered one of the foremost brands in the market. Famostar was originally established in 1947, with each product being designed and manufactured at its own production facility. Famostar has a reputation for designing and manufacturing reliable luminaires offering solutions for sectors including commercial, industrial, education and retail applications. Emergency lighting knowledge and expertise is key to the success of the business. Famostar offers both the correct technical solution and unique proposals to complement the needs of the customer. Key products Emergency exit signage Emergency lighting systems Market sectors • Commercial Industrial Education Retail and Hospitality • • • • • Read more on page 32 Read more on page 33 Read more on page 36 04 27581-FW Thorpe-AR2020 Strategic.indd 4 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:17 Annual Report and Accounts for the year ended 30 June 2020 Key products Description • Recessed, surface Philip Payne recognises that most and suspended trade emergency exit signage Key products • • Emergency exit signage Emergency lighting systems Market sectors • Commercial • Hospitality • Healthcare products are generally designed with the functional in mind. Philip Payne offers a backbone range of quality standard products but more importantly encourages direct dialogue with architects and designers to ensure, via product variation or bespoke work, aesthetic aspirations and requirements are fully met. Description The Thorlux range of luminaires is designed, manufactured and distributed by Thorlux Lighting, a division of FW Thorpe Plc. Thorlux luminaires have been manufactured continuously since 1936, the year Frederick William Thorpe founded the company. The company now operates from the Group’s modern 16,882m2 self-contained factory in Redditch, Worcestershire, central England. Thorlux is well known throughout the world and provides a comprehensive range of professional lighting and control systems for a wide variety of applications. luminaires • Emergency lighting systems • Hazardous area lighting • High and low bay luminaires Lighting controls Exterior lighting Market sectors • Commercial Industrial Education • Healthcare • Manufacturing • Retail, Display and Hospitality • • • • Description TRT (Thorlux Road and Tunnel) Lighting is an independent specialist company which has evolved from Thorlux Lighting. Building on years of lighting experience, TRT is dedicated to the design, manufacture and supply of LED road and tunnel luminaires. TRT produces quality, efficient, stylish, high performance LED products that are manufactured in the UK. Key products Road and • tunnel lighting • Amenity lighting Market sectors Infrastructure • Facilities – • car parking Key products • Road lighting • Amenity lighting • Outdoor wall and ceiling luminaires Lighting controls • Market sectors Infrastructure • Facilities – • car parking • Housing Description Based in Waalwijk, Netherlands, Lightronics specialises in the development, manufacture and supply of external and impact resistant lighting, which includes street lighting, outdoor wall and ceiling luminaires as well as control systems. The majority of its revenue is derived from the Netherlands but there is also an export presence in other European locations. Lightronics was originally established in 1946 and has a strong tradition of solid, reliable products as well as being known for its innovation. Products are environmentally friendly in terms of energy use as well as in the prevention of light pollution. Read more on page 29 Read more on page 31 Read more on page 34 Read more on page 35 Description Solite Europe is a leading Key products • Clean room Description Portland Lighting designs, Key products • Lighting for manufacturer and supplier of clean luminaires manufactures and supplies innovative signs room lighting equipment and luminaires within the UK and Europe. Solite provide luminaires for laboratories, pharmaceutical and semi-conductor manufacturing areas including hospitals, kitchens and food preparation applications. Market sectors Pharmaceutical • Healthcare • • Education/ Research Market sectors • Retail • Hospitality • Advertising lighting products to the advertising, brewery, retail and sign lighting industries. The company operates from a modern 1,394m2 facility in Walsall, which was purposely designed to enable the fast turnaround of customer orders. Established in 1994, the product range has continually evolved to ensure that Portland remains one of the leading companies in its sector. Description Our investment in Luxintec, based in Valladolid, in north-west Spain, specialises in the design, development and manufacture of innovative and high performance LED luminaires and lighting systems. Alongside its range of luminaires for a variety of market sectors, Luxintec designs and produces custom LED lighting solutions for emergency vehicles, general automotive and other customer applications. Key products LED industrial • luminaires • LED retail and display luminaires • Customised LED solutions • LED optics Market sectors • Architectural Retail • • Industrial • Automotive Description Based in Velp, Netherlands, Famostar specialises in the development, manufacture and supply of emergency lighting products. Revenue is derived from the Netherlands, where it is considered one of the foremost brands in the market. Famostar was originally established in 1947, with each product being designed and manufactured at its own production facility. Famostar has a reputation for designing and manufacturing reliable luminaires offering solutions for sectors including commercial, industrial, education and retail applications. Emergency lighting knowledge and expertise is key to the success of the business. Famostar offers both the correct technical solution and unique proposals to complement the needs of the customer. Key products Emergency • exit signage Emergency lighting systems • Market sectors • Commercial Industrial • • Education Retail and • Hospitality Read more on page 32 Read more on page 33 Read more on page 36 27581-FW Thorpe-AR2020 Strategic.indd 5 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:19 05 Stock Code: TFW www. fwthorpe.co.ukBusiness OverviewStrategic ReportOur GovernanceOur Financials Strategic Report Chairman’s Statement Marketplace Business Model Strategy Strategy in Action: SmartScan – New Features Key Performance Indicators Strategy in Action: Opening of the Light Quality Experience Multi-million pound investment in new machinery Operational Performance Strategy in Action: Lightronics opens European Application Centre Portland Lighting Moves to New Premises Financial Performance Principal Risks and Uncertainties s172 statement Sustainability 08 11 14 16 18 22 24 26 28 38 40 42 44 50 52 Gilks Garage Café 27581-FW Thorpe-AR2020 Strategic.indd 6 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:29 27581-FW Thorpe-AR2020 Strategic.indd 7 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:30 Chairman’s Statement Remarkably, the 2020/21 financial year has started reasonably well overall for the Group, all things considered, with orders and revenue similar to levels at the start of last year.” £44m Revenue from outside the UK (2019: £42m) Despite seriously challenging times for all of us, your Company remains very profitable and in a good, robust condition. The word “unprecedented” has been used prolifically during 2020, and again in the last few days the resilience of the business has been demonstrated, with Lightronics experiencing a fire at its facility in the Netherlands; I provide more details on this towards the end of my statement. Until the March lockdown, whilst there were the usual Group ups and downs, most companies were in a strong position, especially at the main division, Thorlux Lighting, where orders were at record numbers and good levels of profit were being achieved. During each of the worst months – in March, April and May – the Group still returned an operating profit. Inevitably, however, profit in those months was much reduced, dampening the year-end result, which, until the COVID pandemic, the Board had expected to be an improvement on the previous year’s. All factories within the Group presently operate with full capacity available, using COVID-secure methods. No factory staff have been on furlough since early June. Over 100 office staff are still working successfully from home, with excellent IT logistics providing the capabilities to work near normally in most cases. The Annual Report and Accounts contains a more detailed overview of the COVID situation and how it is being dealt with across the Group, together with a closer appraisal of the performance of each Group company. Group results Year-end revenue was higher than the previous year’s, culminating in an overall increase of 2.4%, at £113.3m. Most of the growth was attributed to Thorlux Lighting, with some of that revenue resulting from larger projects including survey, installation and project management activities. Group cumulative operating profit had been ahead of last year’s until lockdown occurred. During April and May in particular, lockdown resulted in significantly reduced revenue for the UK companies, wiping out the cumulative profit gain and losing positive momentum; revenue for this period was down on the previous year’s by 27%. Final operating profit for the year was down by 7.5% (before disposal of property last year), at £16.3m – a creditable result, all things considered. There were notable performances across the Group: at Thorlux, TRT Lighting and Famostar. Thorlux experienced excellent order levels throughout the year, especially for larger special projects in the rail and healthcare sectors, resulting in order income of £75m, up 4%, and an improved return on sales until the last quarter. TRT improved profitability again, albeit dampened by the restrictions in April and May, whilst Famostar managed an increase even in its final operating profit (before acquisition adjustments), of +41%, to €2.8m. In addition, throughout late spring and early summer, the Group’s Dutch companies did a tremendous job of safely operating their factories at near-normal levels and experienced only slightly reduced customer demand. 08 27581-FW Thorpe-AR2020 Strategic.indd 8 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:32 Annual Report and Accounts for the year ended 30 June 2020 The Silverstone Experience I am proud that both Thorlux and Philip Payne manufactured lights for the Birmingham Nightingale Hospital and continued to supply other healthcare projects throughout the critical period. Through prudent management of the business over many successful years, FW Thorpe has a strong balance sheet with significant reserves, and at the start of the COVID crisis Group companies were showing good levels of orders. The Board decided not to apply for any government support for furloughed employees during lockdown; this impacted operating costs by £0.6m, as the Group paid all employees normal salary whilst they were not working. This decision was duly considered and leaves the Group free of debt to external supporters, protects its reputation, and gives management ongoing freedom to make choices for the good of the business and its shareholders. The Group’s robust balance sheet and continued strong operating cash flow performance allow the Board to recommend a final dividend of 4.2p per share (2019: 4.1p) for the year to 30 June 2020, which gives a total of 5.66p (2019: 5.53p) and an increase of 2.4%. Outlook Remarkably, the 2020/21 financial year has started reasonably well overall for the Group, all things considered, with orders and revenue similar to levels at the start of last year. However, some of the Group’s smaller companies are suffering a reduction in orders – most notably Portland Lighting, which primarily serves the retail and hospitality sectors. Recent investments in new machinery, new factories and in (temporarily suspended) customer experience centres are now completed, putting the Group in good shape. No significant investment is planned in the first months of this new financial year, beyond the usual requirements for keeping products and technology up to date with market expectations. Such an extreme situation has reminded the Board that FW Thorpe is intentionally managed cautiously to serve many market sectors, both in the type of products manufactured and geographically. This wide focus reduces the Group’s exposure to changes in political situation and in technology, and during this year has given some degree of resilience in response to the pandemic. It seems inevitable, however, that there will be a global recession, and that the UK, against a backdrop of Brexit uncertainly and the intense lockdown enforced by the Government, could be affected worse than many countries. Whilst the Group’s present order book is healthy and daily orders are good, this is partly attributable to an amount of pre-COVID work carried forward and to pent-up demand in the market. Due to significantly reduced new-project sales visits and activity during lockdown, reduced usage of the Group’s extensive Application and Experience Centres, and the general state of the economy, it is difficult to predict anything other than a downturn in orders at the end of the 2020 calendar year. All Group companies are being closely managed and performance is being monitored. Where markets have been severely affected, the Board will focus its attention on finding new markets in more buoyant areas; however, transitioning businesses into these new areas takes time. There are a number of larger-scale project opportunities for Group companies to target, but these inevitably come with tighter margins and higher operating costs. 27581-FW Thorpe-AR2020 Strategic.indd 9 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:44 09 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Chairman’s Statement continued now in use in several other Group companies, which, like Thorlux, are finding the market very receptive to the latest wireless technology. the warehouse and offices. The Board would like to express its thanks to the local fire brigade for their efforts to limit the spread of the fire. Longer term, it is widely believed that UK and EU governments will invest to stimulate the economy. FW Thorpe is well positioned to be able to benefit from this as and when it occurs. The Group remains acquisitive and continues to carefully investigate complementary businesses; however, opportunities have taken a back seat whilst the Board focuses on day-to- day operations and waits for more stability in the Group’s markets in Europe and further afield. Personnel I would like to thank my whole team for their continued support and diligence through such challenging times. The Board is especially grateful to employees who so positively turned up to the Group’s factories to work right through this unprecedented situation, and to those who kept motivated and committed whilst working from home, often from their dining- room tables and with added family distractions. Everyone’s flexibility and conscientiousness throughout this period has kept the Group’s customers satisfied, with on-time deliveries and services, whilst the companies’ professionalism in managing risk has kept everyone in the Group safe. Lightronics As the Board puts the finishing touches to this year’s Annual Report and Accounts, I unfortunately have to report that Lightronics experienced a fire on 23 September at its facility in the Netherlands. Fortunately, no one was injured; however, damage to the assembly area and the European Application Centre is significant. The combination of the fire brigade’s actions and the fire protection invested in during the recent refurbishment was able to prevent the fire from spreading to With the support of the Group, Lightronics is working to restore operations to full capacity and has secured a temporary site. Whilst short-term disruption is inevitable, some servicing of customer requirements commenced within 24 hours of the fire. The limited impact on Lightronics’ inventories, its ability to source further supplies, as well as the rapid response in which Lightronics is resuming operations and servicing customer needs, should, together with insurance cover for any unavoidable financial loss, result in no significant impact on the Lightronics business this year. The Board wishes the team in the Netherlands well and thanks them for their efforts to limit the effects of the fire during these challenging times. Annual General Meeting 2020 Unfortunately, due to the current restrictions put in place by the UK Government with regard to public gatherings, the Group is unable to hold its annual general meeting in the same way as in previous years. The Board will, of course, endeavour to give shareholders the opportunity to ask questions in other ways; please see the Notice of Meeting for further details. I look forward to welcoming you all back next year. Best wishes to all the Group’s shareholders, stakeholders and employees during this difficult period. Mike Allcock Chairman and Joint Chief Executive 30 September 2020 +2.4% Dividend (2019: +2.4%) All Group companies have benefited from the market adoption of LED technology over the last decade. Sales of LED luminaires were relatively easy to achieve, primarily on the basis of significant energy savings and increased reliability. Projects that can benefit from LED technology remain firm targets, such as where projects are still lit with luminaires using fluorescent lamps. For example, recent healthcare projects that Thorlux delivered were funded by paybacks that the customer achieved with LED technology. Opportunities to replace non-LED lamps are, however, fewer now. Early LED installations are now eight to ten years old, so the replacement market will soon become a target again. Group companies need to offer features beyond energy saving and reliability alone. Options include improving the quality of the white light from LED luminaires, reducing glare, and improving the ecological impacts of our product designs. Thorlux will continue to invest in controls technology, to offer lighting units with intelligence and connectivity that can link into other areas of building control and information technology. Thorlux continues to successfully evolve the SmartScan system, which now controls and monitors devices beyond purely lighting technology. (You can read more about this in a specific feature later in the Annual Report and Accounts.) Such controls technology will give Group companies an advantage over competitors offering cheap low- quality luminaires. SmartScan is 10 27581-FW Thorpe-AR2020 Strategic.indd 10 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:44 Annual Report and Accounts for the year ended 30 June 2020 Marketplace Commercial Housing Industrial Facilities Education Infrastructure Healthcare Advertising Manufacturing Research & Development Retail Pharmaceutical Display Hospitality Geographic markets UK +1% Revenue Netherlands +2% Revenue • Increased business from heavy industry, healthcare and rail • • Fall in Lightronics revenue offset by Famostar growth Demand largely unaffected by COVID-19 • Services revenue increased albeit with minimal gross contribution Europe +10% Revenue Other countries +6% Revenue • Additional business in Germany and Ireland • Improved demand in Australia and the UAE 27581-FW Thorpe-AR2020 Strategic.indd 11 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:45 11 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Job Number 6 October 2020 1:05 pm Proof 11Marketplace continued How did you manage through the initial impact of COVID-19?Our priority was the health and well-being of our employees whilst balancing the requirements of essential customers during the first few weeks of restrictions. Decisive action was taken at an early stage to enable those employees who could work from home to do so and to ensure the safety of those employees who remained at our facilities. Detailed risk assessments, endorsed by an independent third party, were undertaken to enable us to continue operating at our manufacturing sites. See page 44. Which market sectors are growing? The main growth areas have been healthcare and rail. This continues to justify our investment in business development for these areas. The growth in these areas however was offset by reductions in general commercial and education spending. We will consider how we deploy our existing selling resource during 2020/21 in order to target specific sectors. Which sectors are you focusing on? Our product and solution portfolio continues to evolve and can cater for a variety of different sectors. We continue to focus on the healthcare, logistics and retail sectors but with some renewed endeavour on education. Do your competitors have an interest in each of these markets as well?We have both domestic and international competition across all of these markets, from listed multinationals to solid private businesses. We continue to differentiate ourselves with product and systems innovation, combined with excellent customer service through the life cycle of a project. Are you in each of these markets in all of the geographies you operate within?We tend to focus on particular product ranges in new territories. We focus on our industrial products with controls technology as this has driven export success in the past. That does not preclude us from offering solutions in other sectors and we have won orders in education and facilities as examples.University of WorcesterAnnual Report and Accounts for the year ended 30 June 20201227581-FW Thorpe-AR2020 Strategic.indd 1206/10/2020 17:05:06 Increase in demand for technology International economic conditions Globalisation What this means • Evolution of controls technology – wireless • Connectivity with the internet and other devices – the Internet of Things What this means • COVID-19 crisis has driven many global economies into recession • Certain sectors and businesses under pressure and facing several years to recover • Ability to offer customers • Pressure on global supply chains What this means • Responding to the demands of our traditional customers who are developing a global footprint • Harmonisation of technology from the adoption of LED brings the threat of increased competition from both Far Eastern and Western economies • Recent global pandemic highlights the need for resilience in the supply chain Opportunity it provides • Certain sectors will continue to invest or potentially increase investment – healthcare, logistics are examples • Government has indicated the intention to invest to support economy – more projects to be given the “green light” • Potential to acquire competitors who struggle to recover as economies restart Opportunity it provides • Chance to establish ourselves in new territories with established customers in the countries we currently supply into • New sourcing opportunities – pricing, quality, technology • Potential for customers to reconsider sourcing strategies and buy “local” additional functionality by adding different sensor technology and presenting data, e.g. air quality data, occupancy profiling The Group has seen a shift in LED sales, moving from 3% to 90% of total revenue in recent years • Opportunity it provides Improves ability to hold • specification business with our own controls offering • Potential to supply retrofit projects with wireless controls where wired controls were cost prohibitive • Offer solutions to provide additional data specific to the market sector, i.e. occupancy sensing for logistics and facilities management • Demand for retrofit installations replacing fluorescent lighting for LED – for example street lighting or education sector How we are responding • Well placed with introduction of • SmartScan in 2016 Further development of the SmartScan platform, bringing other non-lighting devices into the web portal How we are responding • Ensure our businesses are not reliant on any one sector in particular Target sectors where demand is stable or increasing i.e. logistics, healthcare • • Occupancy profiling, air quality • Redirect sales focus as appropriate sensing, and the ability to change colour temperature are all features • All new product developments are LED based • Continual review of LED technology offerings to take advantage of the latest advances and ensure we are offering the best solutions to our customers How we are responding • Working with global customers • Continual development of the supply chain • Potential to establish new offices in chosen locations to support both customer and supply chain development in the future 13 27581-FW Thorpe-AR2020 Strategic.indd 13 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:55 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Business Model Customers come to us for peace of mind. They want the correct technical solution, professional service, sustainability of products/services and the ability to support the customer during a product’s warrantable life and beyond. Our business model is focused on the needs of our customers and the marketplace, with a robust capital structure that underpins our ability to deliver sustainable growth, innovative products and excellent customer service. > > > The key resources we utilise... The service offering we provide... The key markets we serve... Design & Innovation Continuous product development – products, software/controls, lighting design Talented People Continual development Design & Development £1.3m Group spend on capitalised R&D (2019: £1.8m) Manufacturing Commercial Manufacturing Facilities UK – multiple sites, Europe – Netherlands, Spain Continual Investment Commercial Commercial Commercial £1.1m Acquisition of facilities for Portland Hospitality Hospitality £2.3m Acquisition of Education Industrial facilities for Famostar Education Industrial Commercial Industrial Education Healthcare Manufacturing Commercial Industrial Education Healthcare Manufacturing Retail Retail Display Display Hospitality Pharmaceutical Hospitality Pharmaceutical Research & Development Research & Development Advertising Infrastructure Facilities Advertising Infrastructure Facilities Housing Housing Industrial Industrial Education Education Healthcare Manufacturing Healthcare Manufacturing Retail Retail Display Display Pharmaceutical Pharmaceutical Research & Development Research & Development Advertising Infrastructure Advertising Infrastructure Facilities Facilities Housing Housing Healthcare Manufacturing Healthcare Manufacturing Retail Retail Display Display Commercial Financial & Environmental Sustainability Financial stability, Carbon Offset Scheme Industrial Education Services Healthcare Manufacturing Retail Advertising Infrastructure Advertising Infrastructure Display Facilities Facilities Housing Housing Hospitality Pharmaceutical Hospitality Research & Development Research & Development Pharmaceutical £3.0m Revenue from Services Manufacturing Advertising Healthcare Research & (2019: £2.4m) Development Commercial Industrial Hospitality Education Pharmaceutical Retail Infrastructure Display Facilities Housing 14 Hospitality Pharmaceutical Research & Development Advertising Infrastructure Facilities Housing 27581-FW Thorpe-AR2020 Strategic.indd 14 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:56 Annual Report and Accounts for the year ended 30 June 2020 > Solutions provided for our customers... The value generated... Target Customers Those responsible for the whole life cycle cost of the products/services we supply • Energy efficiency • Low maintenance • Rapid installation • Longevity of product • Low total cost of ownership Customers Short-term Replacement of ageing technology with improved lighting systems Long-term Innovative lighting that delivers cost savings and additional benefits, such as data capture and presentation Shareholders Short-term Opportunity to invest in a company that pays a progressive dividend and with a robust balance sheet Long-term Sustainable profit growth drives future shareholder returns Employees Short-term Opportunity to work with an innovative market leading company within the lighting industry Long-term Continual development with a variety of Group companies in a number of different territories Our revenue drivers Specification – renovations, new build, energy saving, compliance, technology adoption Diversified product portfolio gives the ability to supply a complete project – “boiler room to board room” Cross-selling opportunities with other Group companies to offer a complete solution to a wide variety of sectors 15 27581-FW Thorpe-AR2020 Strategic.indd 15 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:56 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Strategy Our products are sold throughout the world. The Group management team is passionate about developing the business for the benefit of the shareholders, employees and customers. With the energy and ability of our staff we look forward to the future with enthusiasm. Our aim is to create shareholder value through market leadership in the design, manufacture and supply of professional lighting systems. Our focus is for long-term growth and stability, achieved through the following priorities: Focus on high quality products and good leadership in technology Continue to grow the customer base for Group companies Customers continually require new and innovative ways in which to reduce the operating costs of their lighting installations. There is also the requirement to reduce their environmental impacts. Progress to date • Continued enhancement of features for the SmartScan wireless system – occupancy profiling, air quality, colour changing capability and further data capture Integration of lens and optical technology into certain ranges • Future opportunities • Further development of SmartScan • Continuous research and development • Targeted acquisition Associated risks C • • Product acceptance Initial product introduction Strategy in Action Case Study: SmartScan – New Features With the continued investment in the product portfolio and the broad range of sectors we can service, the focus will be on expanding our customer base in new markets and territories. Progress to date • Targeted approach in the Netherlands with Thorlux industrial product portfolio • Luxintec adoption of Smart and SmartScan technology in existing product portfolio Introduce Famostar product portfolio to territories where the Group has a presence Introduce selected Luxintec product to the UK via Thorlux • • Future opportunities • Consider further sales offices overseas • Potential business development • investment Investment in sales personnel in the UK and overseas • Targeted acquisition Associated risks A C D J • • Short-term cost increase without immediate return Prolonged time required to establish FW Thorpe brands in new territories Strategy in Action Case Study: Opening of the Light Quality Experience Centre Read more on page 18 Read more on page 24 Overview of strategy • Strategy was designed to build on the values that have been at the core of the company since its inception. FW Thorpe has been built on product innovation – design and product development is fundamental. • The Group is product led. This enables us to maintain competitive advantage with marketing leading products, utilising technology to retain and attract new customers. • Sustainable growth is key to our stakeholders – targeting new customers in existing or new territories, using our product portfolio to drive into new sectors. • Control of the manufacturing processes is of utmost importance – key processes are kept in-house with targeted investment in new machinery as required. • Family principles with our people fundamental to our success – internal development, training and experience. The Group prides itself on the development of people from within the organisation – maintaining our values. 16 27581-FW Thorpe-AR2020 Strategic.indd 16 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:56 Annual Report and Accounts for the year ended 30 June 2020 Focus on manufacturing excellence Continue to develop high quality people Our Values One of our main sources of competitive advantage, it is imperative we continually develop and retain talent within the business. Progress to date • Training and development • Apprentice scheme continues • Investment in management training Along with continued product development, the need to innovate the production process is essential. Progress to date • Acquired existing Famostar facility and adjacent land for potential future expansion • New punch/bend capacity brought online • Utilisation of former TRT facility to enable social distancing measures for Thorlux and TRT, store additional stock for Brexit/ COVID-19 protection Integrity Honesty Longevity Risks key A Adverse economic conditions B Changes in government legislation or policy C Competitive environment D Price changes E Business continuity Future opportunities • Continued investment in manufacturing facilities Future opportunities • Continued investment in training and personnel development F Credit risk G Movements in currency exchange H Cyber security I Exit from the European Union J Global pandemic Associated risks C E Associated risks C I • • Reduced productivity while changes are implemented Learning curve on introduction of new products and processes • • Ability to retain staff in competitive local job markets Potential loss of UK personnel from the EU due to Brexit uncertainty Strategy in Action Case Study: Multi-million pound investment in new machinery Read more on page 26 27581-FW Thorpe-AR2020 Strategic.indd 17 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:57 17 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Strategy in Action SmartScan – New Features Building designers and developers are under increasing environmental and legislative pressure to reduce their carbon footprint while providing high demand essential logistics space within increasingly challenging environments. Taking this into account, the highly successful SmartScan wireless lighting management system has been upgraded with the addition of new features, including air quality sensing and occupancy profiling. Utilising BEA, SmartScan has the ability to maximise: • Space efficiency • Operating cost savings • Staff well-being • Productivity • Carbon reduction Working closely with a particular client, Thorlux has taken this a step further and introduced the provision for Built Environment Analytics (BEA). Built Environment Analytics was created for building tenants, to give them a greater understanding of how their facility performs in operation. Supplying previously unreported metrics for trend analysis empowers a greater reduction in energy consumption, with essential environmental information based upon qualitative data. SmartScan Website The system is accessed using a web browser; there is no need for a specific app or piece of software. Energy performance data, emergency lighting testing records, occupancy profiles, air quality data, “as fitted” drawings, interactive drawings and commissioning certificates are stored remotely on the web server. All BEA metrics are graphically displayed, with customised automated CSV files generated for specified stakeholders. 18 27581-FW Thorpe-AR2020 Strategic.indd 18 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:58 Annual Report and Accounts for the year ended 30 June 2020 BEA Topology Occupancy Profiling Interactive Drawings Graphs (d/w/m/y) CSV File Output Website 1 Luminaires 2 Utilities Metering 3 Photovoltaic Panels 4 Electric Vehicle Charging Sub-Metering 5 Exterior Air Quality and Noise Sensors 6 Interior Air Quality Sensors 7 Dock-level Doors 8 Tenant APIs Energy Management Reduce Operational Energy Use The SmartScan portal displays full historical consumption reporting of all the main incoming supplies (gas, water, electricity), with dedicated APIs (application programming interfaces) for photovoltaic generation and electric vehicle charging consumption. Reduce Operational Energy Use Installing specialist sensors, dataloggers and volt-free contacts onto other assets or services that contain pre-written APIs enables SmartScan to include this data – for example, from photovoltaic panels on the roof and on electric vehicle charging bays – for analytics. This data can be aligned with the BEA metrics for occupancy and occurrence to fully understand electrical consumption within operational procedures. Carbon Offsetting SmartScan provides automated monthly reports with evidential data for all supplied services as well as the amount of carbon saved by the use of smart lighting controls, i.e. daylight dimming and presence detection. All embodied carbon can be offset using the FW Thorpe accredited tree- planting programme. 19 27581-FW Thorpe-AR2020 Strategic.indd 19 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:59 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Strategy in Action SmartScan – New Features continued Interactive Display of Information Navigation Each dataset is shown as a layer allowing the user to zoom in or out as needed. The user can look at data for the whole building, or focus attention on a single room or individual luminaire. Occupancy Profile The occupancy profile for each sensor is displayed by a range of colours from grey (no occupancy) through to red (occupied continuously throughout the selected hour). Information Table If a single luminaire is selected,an information table is displayed with the data for that luminaire. The user can select a date, then using the time slider can see how the usage pattern or performance changes through the day. Status If a luminaire requires attention the exact position is highlighted on the interactive drawing. The information table will show the status of electronic components within the luminaire. Energy Performance Daily energy savings for lighting are shown by a graduated indicator – the darker the green, the greater the energy saving that day. If a single luminaire is selected, the information table shows the energy performance for that luminaire. Air Quality Sensing Temperature, humidity and CO₂ levels are displayed with colour- coded shading. The information table displays the exact values for each sensor at any given time. 20 27581-FW Thorpe-AR2020 Strategic.indd 20 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:12 Annual Report and Accounts for the year ended 30 June 2020 Employee Well-being The modern workplace is fast becoming the extension of our homes, and employers are keen to retain and develop a more sustainable, cleaner and welcoming environment that stimulates both the body and mind. The Well Building Standard™ is at the forefront of standardising the modern workplace. SmartScan provides full internal and external air quality measurement to the IWBI Well Building Standard, including exterior noise level sensing. SmartScan Air Quality Sensor The SmartScan Air Quality Sensor monitors three key parameters: temperature, CO₂ and relative humidity. Coloured LED indicators within the sensor provide live status information for each parameter, enabling users to take remedial action if necessary. Summary air quality data is included in the daily status upload to the SmartScan web server. The Air Quality Sensor has three settings that can be selected, based on the usage of the space, as part of the commissioning process: inactive, semi-active or active. Temperature Temperature greatly influences an individual’s comfort level, affecting mood, performance and workplace productivity. Comfortable temperature ranges will depend upon the usage of the space. Humidity Humidity needs to be within a range of values for the environment to be comfortable and to promote good health. If the humidity levels are too low, individuals may experience dryness and irritation to the skin, eyes, throat and nasal passages. Conversely, high humidity levels promote the growth and accumulation of mould spores, bacteria and dust mites, potentially leading to allergies and respiratory inflammation. Humidity is also linked to temperature, so that at lower temperatures, higher humidity levels can be tolerated. Carbon dioxide CO₂ levels over 1,000ppm create a stuffy atmosphere, causing individuals to feel lethargic and sleepy, lowering concentration levels and reducing workplace performance. The cause of CO₂ build-up is often inadequate ventilation and/or air circulation within a space. Increasing the ventilation will bring in fresh air and dispel accumulations of CO₂. “ At Thorlux we are dedicated to continually developing and evolving the SmartScan platform, with the ultimate goal of providing all our users with unique data that will demonstrate building performance and provide foresight to lower operational costs and maximise efficiencies.” Philip Hill Senior Product Manager – Lighting Control Systems 21 27581-FW Thorpe-AR2020 Strategic.indd 21 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:29 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Key Performance Indicators The following key performance indicators are considered to be the most appropriate for measuring how successful the Group has been in meeting its strategic objectives. KPIs Revenue (£m) 2020 2019 2018 2017 2016 Operating profit (£m) +2.4% 113.3 110.6 109.6 105.4 88.9 2020 2019 2018 2017 2016 −7.5% 16.3 17.6* 19.5 18.4 16.2 Performance in 2020 • Maintained 2019 performance despite impact from COVID-19 Performance in 2020 • • Famostar, TRT improvements offset by Lightronics Impacted by Services sold in Thorlux • COVID-19 impact deferred revenue into 2020/21 – and other UK companies low number of orders cancelled • Commitment to full employee cost during a period • Revenue growth at Thorlux, TRT and Famostar – of lower sales due to COVID-19 dampened by Lightronics and other UK companies • Reduced level of capitalised R&D 0.5m * 2019 excludes the profit on disposal of property of £1.9m Basic earnings per share (pence) Operating cash (£m) 2020 2019 2018 2017 2016 −17.7% 11.45 13.91 13.91 12.54 11.24 2020 2019 2018 2017 2016 −10.1% 19.4 21.6 20.7 18.5 15.6 Performance in 2020 • • Corporation tax – stage payment timing advanced Impacted by reduced operating result Performance in 2020 • Driven by operating results • Increased number of shares due to exercise of executive share options CO2 offset (tonnes) 2020 2019 2018 2017 2016 +9.9% 2,810 2,558 2,687 3,287 2,984 Performance in 2020 • Reduced from 2017 peak, taking into account • organic and acquisition growth during this period Investment required in the future to create further carbon offset capacity 22 27581-FW Thorpe-AR2020 Strategic.indd 22 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:30 Annual Report and Accounts for the year ended 30 June 2020 The Silverstone Experience 23 27581-FW Thorpe-AR2020 Strategic.indd 23 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:41 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Strategy in Action Opening of the Light Quality Experience “ The new demonstration experience provides an excellent insight into our relationship with light and why getting it right is so important.” £0.1m Investment in Light Quality Experience Centre On 5 March 2020, the new Light Quality Experience Centre opened at the Redditch head office. The new attraction forms part of the Application Centre and demonstrates the science behind light and the influence of light on our mental and physical well-being. Mark Austin, Sales Director, comments: “The new demonstration experience provides an excellent insight into our relationship with light and why getting it right is so important. It is a great educational tool and perfectly demonstrates that Thorlux understands light and therefore has the knowledge to best guide our customers. It is unfortunate that just as we opened this facility, we had to close it due to COVID-19, but we look forward to inviting customers as soon as we are able to.” The 25-minute fully automated interactive experience combines audio and video content with live visual demonstrations. The viewer is taken on a journey of light: what it is and how we as humans respond to it. The experience covers important subjects such as the need for good quality white light so we can see colours correctly, the need for low glare from luminaires to ensure comfort, and for good lighting design to create environments that are stimulating and creative as well as functional. Live lighting scenes switch on and off in time with the audio voiceover and video content. The demonstrations include scenes such as the “disappearing roses”, where roses in a vase slowly change from bright red to grey and dull, all through manipulation of the light spectrum. 24 27581-FW Thorpe-AR2020 Strategic.indd 24 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:51 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Strategic.indd 25 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:28 25 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Strategy in Action Multi-million pound investment in new machinery the machines running overnight, unattended, by loading large jobs late in the day. However, the lack of capacity meant the old machines would complete the workload at say 2 in the morning and sit there idle for six hours waiting for the day shift to start, not producing work.” What are the advantages of the new machines over the old machines? “The new machines have many advantages, including: • • • • • “The new machines have multiple- material pallet-loading systems as opposed to single pallet-loading/ pallet unloading systems, which gives increased material-handling capacity. “The punches have servo-electric punch systems as opposed to the hydraulic systems of the old machines. “The new machines are significantly faster than the old ones. “Two of the new machines are combination machines, so they have a laser as well as a punch. “The new machines are much more reliable and are easier to maintain, with good support from Amada.” What has the reaction of the machine operators been? “The reaction has been good. The operators have found the new machines to be a major improvement on the old systems, with updated software packages making them easier to program.” Have the machine operators needed additional training? “As the machines have new technology, additional training has had to be given to the operators. Also, new Amada software is being used and trialled on the latest fibre laser machine, so our operators have had to be trained to use that.” What impact will the new machines have? “The multiple-material pallet-loading systems mean we can produce smaller batch sizes, working closer to the order book, hence fulfilling more orders in a shorter period of time. The faster speed also means that more parts can be produced in the same period of time. “Instead of machines finishing in the middle of the night, now, with the multiple-material pallet-loading systems, they have the capacity to run until the day shift comes in. With careful planning, it is possible to load enough work on a Friday morning to keep a machine running until Monday morning. This gives us maximum return on the investment, speeds up production and reduces delivery times. “The two combination machines enable us to design better products with features that improve the function of the luminaires without adding additional components. It also reduces the number of operations that need to be performed. For example, we used to produce a DOT luminaire body by first punching the blank as a square on the old machines, followed by a manual operation of cutting the blank into a circle ready for spinning. Now we punch and laser the circular blank in one operation on the same machine, so it can be spun straight away. “Thorlux can produce more work in-house that would normally have been outsourced and produced by subcontractors, hence reducing the cost to Thorlux and reducing the lead times. “Finally, another major advantage is that the new machines cost less to run, because they are far more energy efficient.” In 2019/20, Thorlux made a multi-million pound investment in four new metal-forming machines which have increased capacity and modernised the manufacturing process. Dave Dainter, Production Manager at Thorlux, explains why this investment was needed and what the benefits are to the business. What was wrong with the old machines? “The Amada machines that we replaced were over 25 years old, based on out-dated, inefficient technology. They kept breaking down, and we faced issues with getting parts for them. The old machines were sometimes down for weeks at a time when we needed to source a new part or, if a new part was not available, have the faulty part refurbished or repaired. “It reached the point where Amada struggled to find engineers capable of repairing the old machines. Many of their younger engineers had not even seen our machines before, so knew very little about them. On one occasion we had to wait for several days to get a particular job done, because the only Amada engineer who knew what to do was not available. “A major drawback was the lack of capacity on the old machines, which were based on single pallet- loading systems. Our policy is to keep 26 27581-FW Thorpe-AR2020 Strategic.indd 26 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:33 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Strategic.indd 27 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:05 27 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Operational Performance FW Thorpe: 2020 Group Company Overview FW Thorpe Plc encompasses individual companies that concentrate on particular market sectors and geographical locations. The companies provide the Group with diversity as well as risk mitigation, as they do not compete with one another and are complementary. The companies within the Group can be affected differently by trends and economic impacts within their respective markets. The continuing Summary of the COVID-19 situation • Last quarter results severely impacted in the UK; Netherlands’ company results relatively unaffected • UK companies’ revenue dropped 40% in April; some recovery in May, with June close to “normal” levels • Portland the most affected Group company; limited revenue in last quarter with some improvement in July • The Group supported essential customers and projects, including the NHS, by continuing to manufacture and deliver products during the peak of the pandemic in the UK • No government support accessed: support actively declined, and repaid in territories where it was automatically received development and market adoption of LED and lighting controls technology allows Group companies to share the benefits of their product and technical expertise, differentiating themselves from competitors. Group performance was hampered for the final 15 weeks of 2019/20 due to the COVID-19 pandemic; whilst the Group managed to maintain revenue, operating profit came in below that of last year. During the COVID-19 pandemic, it is important for the Group to protect and support its employees as well as consider the long-term impact of its actions on the Group’s customers, reputation and independence. Revenue was supported by some major projects and services, but these attracted lower margins than typically achievable, and services made little contribution, therefore dampening returns at an operating profit level. Continued new product introductions, investment in manufacturing facilities, and sales into new markets have, however, helped the Group deliver respectable results against the backdrop of uncertainty in the final quarter of 2019/20. Thankfully, the investment in additional stock for the Brexit transition served the Group well in the early days of the COVID-19 outbreak. The Group’s Dutch companies weathered the storm of the last quarter relatively unscathed. A slightly subdued performance from Lightronics, compared with the company’s successive years of growth under Group ownership, was offset by a fantastic performance from Famostar. The Group continues to be underpinned by the development of market-leading lighting equipment and the delivery of excellent customer service. The following is an overview of the year for each company. Group Total Revenue (£m) Excluding Intercompany Revenue by region (£m) Excluding Intercompany 16.4 2.7 12.2 2020 31.3 28.7 2020 65.6 69.7 • All employees were paid in full; £0.6m negative impact on results due to furlough monies not claimed Thorlux Netherlands companies Other companies UK Netherlands Rest of Europe Rest of the World 28 27581-FW Thorpe-AR2020 Strategic.indd 28 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:05 Annual Report and Accounts for the year ended 30 June 2020 £68.8m Revenue +4% (2019: −4%) “ The success of SmartScan continues, with revenues reaching £25.9m (2019: £22.0m).” Thorlux Lighting If it had not been for the COVID-19 pandemic, a comment you will see frequently through this year’s annual report, Thorlux would have achieved record revenues and improved operating profit in 2019/20. New orders appear to be holding up at present, with July close to 2019 levels and the total for 2019/20 ahead of last year’s. The revenue line is supported by growth in services, of which £1.5m has earned lower margins and had a dilutive impact. These services, including surveying, project management and installation, are provided as they enhance our ability to secure luminaire orders of significant value with more attractive margins. Operating profit growth has been more difficult to achieve in recent years; product and sector mix has contributed to this, as have operational efficiency challenges. Some good improvement in operating profit was achieved at the start of the second half, but this was severely hampered by COVID-19 issues in the last quarter. Of Group companies, Thorlux covers the largest variety of sectors with the most comprehensive portfolio of products. Thorlux’s approach of targeting selling activity in specific market sectors has paid off in the last few years. 2019/20 has been dominated by success in healthcare, backed up by significant orders in rail. At this time, it is difficult to ascertain the impact of the pandemic on the sectors that Thorlux sells to; however, given the breadth of its coverage and more targeted activity, Thorlux should be in a reasonable position to navigate the next few years of uncertainty. The success of SmartScan continues, with revenues reaching £25.9m (2019: £22.0m). This solution has been developed further this year, outside pure lighting controls technology, by integrating new sensor technology such as dock usage and vehicle activity monitoring. Some third party technologies have also been included to enable mains electricity usage monitoring and solar photovoltaic generation data, all reporting back to the end user via the SmartScan website. Development work was undertaken in-house, an investment that is justified in order to follow the Internet of Things revolution. Several orders utilising these Trinity Court 29 27581-FW Thorpe-AR2020 Strategic.indd 29 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:08 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Operational Performance continued Thorlux Lighting continued Rugby School developments have been secured in the warehousing sector for delivery in 2020 – a testimony to Thorlux’s evolving industry-recognised expertise in this area. adapted for customer requirements were designed, manufactured and shipped over a few days during the early critical stage of the pandemic, when many factories were closed. Read more on page 18 Innovation is a strategic pillar for the Group. As well as the enhancements to the SmartScan platform, several new products have been launched or are in the latter phases of development. Products include enhancements to existing successful ranges, specific developments for target sectors and developments to support insourcing of key technological components. Recent investments in manufacturing came to the fore during the year. The flexibility acquired with the new laser/punch machines supported some large-scale projects. For example, Thorlux was able to support one of the NHS Nightingale projects, where a significant number of fittings The performance of Thorlux overseas offices improved this year. All offices delivered greater levels of revenue, in particular the teams in Germany and Ireland. A new distribution partner in Germany delivered a number of sizeable energy-saving projects – an example for some Thorlux offices in other territories to aspire to. A new managing director, Peter Maxwell, has recently been appointed by the Group to lead Thorlux over the next few years, freeing some time for Mike Allcock to focus on product development, new technology and selling activities throughout the Group, as well as the drive into new territories. Peter will use his expertise and experience to focus on continuous improvement techniques to provide further revenue growth and operating profit gains whilst harnessing the full force of Thorlux’s tremendous deep-rooted lighting knowledge. The 2019/20 final result for Thorlux does not necessarily reflect the effort within the company, in particular over the last few months. As the company transitions into yet another difficult economic climate, where orders are expected to be hard-fought, the Group should take solace from Thorlux’s ability to surpass previous year’s order levels. The company starts the year with an increased order book and the capability to secure large-scale projects; both should at least underpin the months ahead. Continued targeted selling activities will be essential, ensuring the business identifies the many opportunities in sectors and territories where spending and investment will continue despite the economic downturn. 30 27581-FW Thorpe-AR2020 Strategic.indd 30 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:12 Annual Report and Accounts for the year ended 30 June 2020 Philip Payne “ For 2020/21, the target is to bounce back to 2018/19 levels of revenue. The investment in sales and marketing will need to come to the fore.” £2.7m Revenue −20% (2019: +2%) Before COVID-19, Philip Payne was on target to deliver yet another set of positive results in keeping with last year. The impact in the final quarter included low levels of activity in both March and April, with improved performance in June. Maintaining operations during this time was crucial and enabled the company to support a number of the NHS Nightingale projects. As Philip Payne moves into 2020/21, there have been early signs of a return to pre-COVID levels of business. Discerning customers who desire a well-engineered and architecturally appealing product remain at the core of this company. Prestigious projects continue to augment sales, with refurbishments at the Palace of Westminster and Royal College of Music, alongside success in the rail and sports sector, with products supplied for Bond Street and King’s Cross stations and the new Meadowbank Sports Centre. Overseas revenue remained at similar levels to last year. The sales office in the UAE offers the best opportunity to improve export revenue. There was no significant investment in manufacturing facilities during the year. Investment during 2020/21 will very much focus around sales and marketing activities for both existing products and the additional portfolio from Famostar. For 2020/21, the target is to bounce back to 2018/19 levels of revenue. The investment in sales and marketing will need to come to the fore, as well as planned activities with the introduction of Famostar products into the UK market. SpectoWeb, the wireless emergency lighting system that was developed in conjunction with the Thorlux SmartScan platform, offers customers the ability to easily comply with building safety regulations. Following investment in development over the last few years, success has been recorded in the healthcare, university and charity sectors, with total revenue for these sectors ending the year at £0.3m. Further collaboration with Group companies has continued this year, including working with Famostar: some of its products are being used to enhance the Philip Payne product portfolio manufactured in the UK. This initiative is in the early stages, and Philip Payne expects to see some positive impact in 2021. University of Edinburgh University of Edinburgh 31 27581-FW Thorpe-AR2020 Strategic.indd 31 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:23 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Operational Performance continued Solite St Mary’s Hospital, London – specialist green lighting The Solite business is driven by projects providing clean- room lighting solutions to the pharmaceutical and healthcare sectors. Clearly the downturn in the last quarter suppressed revenue, significantly impacting operating profit for the year. On the positive side, the reduced ability to dispatch products during the last quarter provides an increased order backlog to start the new financial year. Whilst Solite has a standard range of products, its ability to adapt them to satisfy particular customer requirements underpins the company’s competitive position. To support the flexibility required in the manufacturing process, some reorganisation of the facility has been completed; this allows increased storage for larger-scale projects and enables some additional component storage for supply chain protection during uncertain times. The collaboration between the Group’s sales operation in Ireland and Solite forms a significant part of the business. In all, 33% of revenue was derived from Ireland this year. The Ireland office gives both Thorlux and Solite the opportunity to cross- sell into the market to satisfy the requirements of a complete project, as well as the opportunity to follow some multinational customers into other territories. The targeting of the custodial sector has seen limited success this year, but will continue. Solite will also focus on improving its product portfolio to stay ahead of the competition. During the year, Solite has developed a product in conjunction with Thorlux to target a specific requirement for the retail sector, which has already yielded some initial success. Solite starts the new financial year with a solid order book; however, recent investments in sales and marketing need to start to deliver. It is too early to determine how the market will shape up in the next 12 months, but Solite will continue to focus on ensuring it has the product portfolio and customer penetration required to recover to levels seen in the past few years. 32 £2.7m Revenue −21% (2019: −5%) “ Clearly the downturn in the last quarter suppressed revenue, significantly impacting operating profit for the year.” St Mary’s Hospital, London – specialist green lighting 27581-FW Thorpe-AR2020 Strategic.indd 32 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:31 Annual Report and Accounts for the year ended 30 June 2020 Portland Lighting “ Portland has utilised its manufacturing expertise to support other areas of the Group that are enjoying stronger order books.” £2.4m Revenue −17% (2019: −10%) Of all Group companies, Portland was hardest hit by the fallout from the pandemic. The combination of Portland supplying customers that have fast-turnaround, easily delayed projects, as well as supplying the retail and hospitality sectors, resulted in weeks of minimal revenue. To mitigate the damage, Portland has utilised its manufacturing expertise to support other areas of the Group that are enjoying stronger order books, avoiding the need for those companies to employ temporary labour to meet demand. At the time of writing, in September 2020, the last two months have seen an improvement and a return to profitability. Toby Carvery, West Midlands The Longhorn, Walsall The Group recognises that Portland has been in steady decline for a number of years and must work harder at creating a wider product portfolio for sales into new sectors. The company has made renewed effort in this regard, with support from Thorlux; a number of new products are in development and expected to contribute to revenue in 2021. Product innovation is increasingly critical, and some projects this year are moving forward at pace. Portland has employed a specific full-time product designer to support these innovation targets. Portland will continue to focus on increasing sales of its core products outside the UK. As well working with its Benelux and French agents, Portland is working with an established Thorlux agent in Sweden. Over the next year, some recovery is expected in Portland’s core market, however, this is somewhat dependent on the retail and hospitality sector, meanwhile, the company will continue to support the Group, with additional manufacturing capacity, as required. 27581-FW Thorpe-AR2020 Strategic.indd 33 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:42 33 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Operational Performance continued TRT Lighting Despite COVID-19, TRT has managed to improve both revenue and operating profit this year. During the first couple of months of lockdown, customers were unable to take delivery of outstanding orders, and revenue was heavily impacted. TRT responded well in June, as customer demand returned and shipments recovered to normal levels. As well as its local authority street lighting business, TRT supported Thorlux on several large-scale projects in the rail and retail sectors. Some tunnel projects were also undertaken; these included the TRT retrofit LED solution tailored to existing TRT or competitor luminaire enclosures, and the introduction of the new X-range product. The pipeline of tunnel project opportunities remains healthy; TRT waits to see whether these are given the go-ahead in the current economic climate. Actions taken in previous years to support operational efficiency have supplemented the results for 2019/20, with a focus on improving material and labour costs. During 2019/20, investment in a new painting facility started to reap some benefit, making TRT self-sufficient and reducing the pressure on the Thorlux facility. As is the case for all Group companies, product development and enhancement are crucial to ongoing success. TRT has found some success with the Optio street lighting product, which has key features to support specification sales. Via, the lighting bollard solution, has seen good initial sales, and a similar version using some shared components has been added to the Thorlux product portfolio. Government spending could increase across the street and tunnel lighting sectors, assuming the government decides to spend its way out of recession. TRT starts the new financial year with a solid order book and a number of Group project opportunities supporting Thorlux in the rail and retail sectors as last year. Revenue and operating profit growth will be targets, as well as continuous improvement in operational efficiency. £9.8m Revenue +14% (2019: −1%) “ During 2019/20, investment in a new painting facility started to reap some benefit, making TRT self-sufficient and reducing the pressure on the Thorlux facility.” Dual Carriageway Traffic Routes, North Wales 34 27581-FW Thorpe-AR2020 Strategic.indd 34 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:44 Annual Report and Accounts for the year ended 30 June 2020 Lightronics Havep Texperience Centre, Netherlands Lightronics had another solid set of results, although revenue was lower than last year; however, this was its first slight step backwards since joining the Group in 2015. The company was largely unaffected by COVID-19, since operational measures were put in place in the early phases to enable Lightronics to continue to service its customers during the last quarter. In fact, June operating results were some of the strongest on record. In contrast to previous years, there were no major projects during the year. Much of the business was again driven by the street lighting sector in the Netherlands. Sales into Germany were marginally lower than last year, with those to France at similar levels to last year. Lightronics markets Thorlux industrial products, sales of which marginally increased from last year to £0.4m but were still not at the levels expected. Investment in this area continues, with a closer association to Thorlux in the UK. The Group still believes that the Netherlands is receptive to energy-saving high technology solutions. Lightronics needs to find the best route to market – a Group belief that has been reinforced by recent positive results generated by Thorlux in Germany from an additional sales channel this year. Lightronics continues to develop new products for its domestic market as well as working with the Group on shared developments, mainly with Thorlux and TRT. Progress has been made on introducing SmartScan technology into the range, and Lightronics expects to have introduced new Thorlux patented applied for sensor technology by the end of 2020. The European Application Centre was completed during this year. The team at Lightronics has created a wonderful space in which the Group £22.7m Revenue −3% (2019: +12%) (constant currency −3% (2019: +12%)) “ Progress has been made on introducing SmartScan technology into the range, and Lightronics expects to have introduced new Thorlux patented applied for sensor technology by the end of 2020.” can showcase products and systems to support European selling activities (see page 24). Whilst Lightronics was able to open the facility on time and in budget, the Group was, unfortunately, unable to utilise its full potential due to COVID restrictions. As mentioned every year, building on these results will be a challenge. Although it produced an excellent set of results, Lightronics fell short of improving its figures this year and now has a tougher economic climate to contend with. Economic and sector forecasts in the Netherlands are pessimistic; this will put some pressure on results in the next 12 months. Opportunities remain, working with other Group companies – Famostar and Thorlux in particular – to generate increased demand from new customers. 35 27581-FW Thorpe-AR2020 Strategic.indd 35 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:49 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report £8.8m Revenue +12% (2019: +13%) (constant currency +12% (2019: +13%)) “ An increase in domestic orders has been driven by targeted customer activity to increase market share” Operational Performance continued Famostar Robbers & van den Hoogen winery, Arnhem – Netherlands Part of the Group’s original strategy when acquiring Famostar was to integrate SmartScan technology into Famostar’s excellent product portfolio, which lacked wireless controls and reporting technology. This has been completed, and new products have been taken to market with some initial success; a few projects are secured for delivery in late 2020. The Group committed to acquiring the current Famostar building and the neighbouring land; this was completed in July 2019. Draft plans have been developed to expand the current facility to save costs on external storage and product handling, as well as to future-proof operations. Work on this project is not expected to commence until late 2021. Famostar has yet again exceeded expectations this year; however, as mentioned in the Lightronics report, the economic and sector forecasts in the Netherlands are pessimistic. The company does, however, have some targets to aim for: increased business from SmartScan sales and the introduction of the Famostar product into the UK market; both should present opportunities in 2020/21. Famostar has been the standout performer for the Group this year, following on from a strong performance last year. As at Lightronics, performance seemed unhampered by COVID-19 in the final quarter, actions having been taken in the initial stages of the outbreak to protect operations and ensure continued supply to customers. Compared with other Group companies, Famostar, a specialist emergency lighting company, has a different route to market; however, the process for creating demand for product is much the same. Demand is ultimately fulfilled by the wholesaler network domestically, but specific customers are targeted to generate that demand. Business, at present, is mainly derived from the Netherlands. Expansion into other territories will be led by Philip Payne in the UK, with Famostar taking advantage of Philip Payne’s local emergency lighting know-how. An increase in domestic orders has been driven by targeted customer activity to increase market share; the company will look to further supplement this, working alongside Lightronics to root out other opportunities. 36 27581-FW Thorpe-AR2020 Strategic.indd 36 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:53 Annual Report and Accounts for the year ended 30 June 2020 Kampen Skole, Norway 37 27581-FW Thorpe-AR2020 Strategic.indd 37 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:56 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Strategy in Action Lightronics opens European Application Centre A prison cell, a classroom, a hospital ward, a railway platform and a car park – you can find it all at the new experience centre at Lightronics in Waalwijk. Having completed the first phase of the refurbishment of its facilities early in 2019, Lightronics opened the second phase, the Group’s European Application Centre, in November. The Centre features 800 square metres of interactive, full-scale demonstrations showcasing the latest advancements in lighting control systems, LED technology and luminaire design. In many areas, light plays a role in well-being and safety and, according to scientific research, can have an impact on learning performance. The interactive classroom demonstrates how Lightronics luminaires provide the ideal lighting solution for modern learning environments. “When daylight decreases, you use your brain less intensively, and the Smart luminaires automatically anticipate this”, says project manager Dirk Brands. “The luminaires incorporate SmartScan controls and adjust independently according to the ambient light in the immediate surroundings. This provides good uniformity and maximises energy savings where the natural daylight ingress is varied across the area.” In the simulated hospital room, the patient’s well-being is of prime importance. From the bed, the patient does not look at sterile white fluorescent tubes, but rather at the blue sky and clouds of the FlexSystem. “A different, positive experience,” said Brands, “and one that benefits a person.” In the reconstructed prison cell, another aspect of lighting receives attention. The luminaires are designed to be ligature and 38 “ In many areas, light plays a role in well- being and safety and, according to scientific research, can have an impact on learning performance.” impact-resistant, limiting the risk of occupants self-harming. Added to this, high severity impact testing ensures that the luminaires will sustain no operational impairment during service. Car parks also require robust luminaires, so the simulated car park area is illuminated with products using UV-stabilised polycarbonate covers and cast aluminium bodies for rigidity and impact resistance. The Centre was officially opened on 13 November by Alderman John van den Hoven, Deputy Mayor of the Municipality of Waalwijk, in the presence of the Mayor of Loon op Zand, Hanne van Aart, and representatives of the European Commission, the Netherlands Ministry of Economic Affairs and the province of Noord-Brabant. The Centre is part of the IKARES project (Intelligent Low Carbon Energy Systems). Partners in IKARES, Lightronics and Global Innovator, aim to make lighting more intelligent and to interconnect it in a network with users and the environment. The objective of the project is to achieve a CO2 reduction of up to 60% with smart lighting systems. IKARES includes the European Application Centre in Waalwijk, a smart city scale model in Tilburg, and 22 pilot projects in the developed environment in the provinces of Noord-Brabant, Zeeland and Limburg, in the Netherlands. IKARES is co-financed by the European Union from the European Regional Development Fund. 27581-FW Thorpe-AR2020 Strategic.indd 38 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:36:11 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Strategic.indd 39 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:15 39 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Strategy in Action Portland Lighting Moves to New Premises £1.1m Investment 1,394 sqm Floor space After nearly 17 years at the old Walsall Enterprise Park site, Portland Lighting moved a short distance to brand new premises at Reedswood Park during November 2019. The lease on the old manufacturing site was coming to the end, so this presented an opportunity to seek new premises. The new development at Reedswood Park was an ideal fit, as it was just a short distance from the old site – allowing Portland to expand without leaving Walsall. Reedswood Park has excellent transport links, being close to the M6 motorway. The new custom- built factory was the first unit to be constructed on the new site. With the factory’s two stories of office accommodation, increased assembly and distribution space and parking for up to 45 vehicles, the investment future-proofs the company’s growth plans. “ The new development at Reedswood Park was an ideal fit, as it was just a short distance from the old site – allowing Portland to expand without leaving Walsall.” In addition to the increased manufacturing areas, the new premises also feature an impressive showroom facility demonstrating Portland’s latest highly innovative sign-lighting products. Within the factory area, a state-of- the-art powder-coating facility has been installed, capable of coating up to 6-metre-long luminaires, improving speed and efficiency and allowing Portland to react more quickly to client requirements, particularly for custom colours. 40 27581-FW Thorpe-AR2020 Strategic.indd 40 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:20 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Strategic.indd 41 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:39 41 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Financial Performance The events of 2020 highlighted the Group’s financial strength and robust balance sheet. We actively decided to support our employees and not to access government schemes whilst maintaining an increased dividend.” £19.4m Net cash generated from operating activities (2019: £21.6m) The directors have pleasure in submitting their annual report and the audited consolidated financial statements of the Group and the Company for the year ended 30 June 2020. Results and dividends Revenue increased by 2.4% to £113.3m with underlying operating profit (before profit on disposal 2019) decreasing by 7.5% to £16.3m. Operating profit last year included the profit on the disposal of the Thorlux Portsmouth building of £1.9m. Clearly the last quarter of 2020 was severely impacted by COVID-19, with our ability to deliver to customers of our UK businesses significantly hampered in April and May in particular. The operating result for Thorlux would have expected to improve given the increase in revenue; however, nearly a third of the increase related to services with little operating profit contribution. The result was also dampened by margins at lower levels for larger projects and reduced efficiency during the last quarter where we 42 committed to pay our employees in full as we initially scaled back operations to ensure they were COVID secure, whilst opting not to claim potential funding of £0.6m under the government furlough scheme. The impact is far greater if we consider the reduced contributions from the revenue typically created by these employees. The lower level results for the other UK companies, except for TRT, were partially offset by the operations in the Netherlands. The operating results were further suppressed by the provision of an additional £2.0m (2019: £2.2m) for the expected payouts on the Lightronics and Famostar earn-outs due to the continuing success of both businesses. Net finance cost of £0.4m this year against a marginal income in the previous year (2019: £0.0m). The net income has reduced from previous years due to the accounting treatment of the Lightronics and Famostar acquisitions and continued low interest rates on our cash deposits. The taxation charge represents an effective rate of 16.49% (2019: 17.52%). This is less than the rate in the previous year, with the rate lower than the headline corporation tax rate in the UK due to patent box relief driven by the Group’s product innovations. (2019: £4,763,000) and, if approved, will be paid on 26 November 2020. Total dividends paid during the year amounted to £6,468,000 in aggregate (2019: £6,299,000). The final dividend for 2019 was paid on 29 November 2019. The events of 2020 highlighted the Group’s financial strength and robust balance sheet. We actively decided to support our employees and not to access government schemes whilst maintaining an increased dividend. These decisions were not taken lightly, with all of our shareholders’ and stakeholders’ long-term interests in mind, ensuring we maintain our independence as well as our reputation, whilst operating the Group with good conscience. Cash and liquidity management The Group’s cash is managed in accordance with the treasury policy. Cash is managed centrally on a daily basis to ensure that the Group has sufficient funds available to meet its needs and the remainder is invested. The majority of cash is placed with approved counterparties either on overnight deposit or time deposit. There are a series of time deposits that are maturing on a rolling cycle in order to meet regular business payments, with a margin for larger regular and one-off payments as well as seasonal variation in cash requirements. On 21 April 2020, the Company paid an interim dividend of 1.46p per share (2019: 1.43p) amounting to £1,698,000 (2019: £1,660,000). A final dividend of 4.20p (2019: 4.10p) per ordinary share is proposed amounting to £4,886,000 The Group primarily trades in sterling. There is an exposure to foreign currency as the Group buys and sells in foreign currencies and maintains currency bank accounts in US dollars, Australian dollars, UAE dirhams and 27581-FW Thorpe-AR2020 Strategic.indd 42 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:40 Annual Report and Accounts for the year ended 30 June 2020 Group Total Revenue (£m) Excluding Intercompany +2.4% 2020 2019 2018 2017 2016 113.3 110.6 109.6 105.4 88.9 Group PBT (£m) Profit before tax −18.5% (-9.7% excluding 2019 profit on disposal) 2020 2019 2018 2017 2016 15.9 16.3 19.6* 19.6 18.4 * 2019 includes profit on the disposal of property of £1.9m £128.3m Net Assets (2019: £122.2m) euros. The activities of buying and selling in foreign currency are broadly matched with currencies bought and sold as required in order to minimise currency exposures. Larger exposures would be hedged in order to reduce the risk of adverse exchange rate movement. There were no currency hedging derivatives in place at 30 June 2020 or 30 June 2019. Pension scheme position and funding The latest triennial actuarial valuation was completed as at 30 June 2018. This valuation showed that the pension scheme position remains in surplus and a funding level for the future has been agreed between the trustees of the scheme and the directors of the Company. The directors consider it unlikely that any changes to the present funding levels will have any significant effect on the strength of the Company’s statement of financial position. Group research and development activities The Group is committed to research and development activities in order to maintain its market share in the sectors and territories we operate. These activities encompass constant development of both new and existing products to ensure that a leading position in the lighting market is maintained. During the year the Group spent £1,322,000 (2019: £1,791,000) on capitalised development costs, which includes internal labour. Property, plant and equipment The directors are of the opinion that the market value of the freehold land and buildings is in excess of their net book value. While it is considered that the market value is significantly greater than the net book value for many of the Group’s properties as a result of being acquired between one and over 20 years ago, management considers that undertaking formal valuation exercises would be costly for limited value and consequently no formal exercise has been undertaken. Investment this year included freehold property in Velp – Netherlands for Famostar, the completion of the European Application Centre at Lightronics, as well as the completion of improved sheet metal working capacity and the implementation of an automated spinning process at Thorlux Lighting. Creditor payment policy The Group’s policy concerning the payment of its trade creditors is to accept and follow the normal terms of payment among 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 year end trade payables is 33 (2019: 44). The Group continues to report on payment practices and performance as per UK legislation. Internal financial control 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 any non- compliance reported to the Group Board. Any 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 rolling forecasts and monthly financial reports comparing performance against plan as well as the previous year. 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. Craig Muncaster Joint Chief Executive, Group Financial Director and Company Secretary 30 September 2020 27581-FW Thorpe-AR2020 Strategic.indd 43 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:42 43 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Principal Risks and Uncertainties COVID-19 As the COVID-19 pandemic swept across the globe, FW Thorpe, like the majority of manufacturing organisations, faced significant operational challenges. The directors are proud that the Group reacted quickly to the possible pandemic, as early as February, restricting visitor entry into its factories and offices, cancelling some foreign travel and keeping a log of employee movements. The health and well-being of employees has been paramount throughout, and the focus on keeping employees safe will continue. As the crisis worsened and lockdown commenced, the management teams of all Group companies took actions as appropriate for their different operations, depending upon each company’s ability to handle precautionary measures such as social distancing, and to try to match capacity to the demands of customers, especially for ongoing critical healthcare and infrastructure projects. The Netherlands In the Netherlands, lockdown of manufacturing businesses was, in general, less intense compared with that in the UK; Lightronics and Famostar continued trading at near- normal revenue levels throughout. Their employee councils met and proved to be effective at planning to create flexibility during the early stages of the pandemic; through a series of measures such as split shifts and home working, production was maintained near capacity throughout. 44 The UK In the UK, lockdown was far more widespread than in the Netherlands and most other countries in which Group companies trade. Worst affected was Portland Lighting, where orders almost stopped overnight. Other companies, such as Thorlux, continued to receive a good level of orders, although demand for delivery on non-critical projects slowed significantly. During the early days of the pandemic, very little government guidance was available for businesses; however, it was critical to prioritise employee health and safety when implementing the Group’s decision to keep factories working to meet customer demand. Thorlux At Thorlux, for risk-mitigation reasons, the senior management team split: several directors worked from home whilst others remained full time at Thorlux in Redditch. Initially, Thorlux operated a skeleton production staff, with several hundred employees sent home; many, being factory based, were unable to work. Thorlux has invested appropriately in recent years to keep its IT infrastructure up to date, and it came to the fore in the early days of lockdown. Thorlux office employees were all able to connect into the office network securely from home, via VPN (virtual private network), and calls to their desk phones were seamlessly transferred to their home/mobile phones via VOIP (Voice over Internet Protocol) technology. All stakeholders were able to make effective contact with employees without knowing whether employees were at home or in the office. The Thorlux management team has met twice daily via video conferencing throughout the pandemic, and the Group’s senior team has met regularly too. To keep employees informed, a dedicated web portal was created on Thorlux.com, which initially was updated daily. In early April, Thorlux completed the primary reorganisation of its factory with one-way “streets” throughout, 2m separation markings (by painting the floor, as signs were not available at that time), appropriate signage and video information screens, sanitiser gels throughout, and PPE for certain operations. Risk assessments were created for all operations, broken down into subcategories pertinent to specific tasks. These actions were followed throughout the Group, with directors visiting all UK sites to tour the facilities and sign off the phased re-opening to increase factory numbers significantly beyond the skeleton staff levels. Risk assessments have been inspected by Thorlux’s insurers, and the company also paid for a third party audit of its “COVID secure” measures as verification of management’s actions. As demand has recovered, protective measures and controls have been further increased. Thorlux, like several other Group companies, has invested in automatic employee and visitor fever-scanning equipment which checks whether any people entering the building have a body temperature exceeding 37.5°C. To enable Thorlux to reach full capacity, an old TRT “mothballed” factory a few miles away from Thorlux in Redditch has been re- opened, releasing a further 10,000 square feet of space. A whole factory department (which produces small, easily transported sub-assemblies) has moved there for the time being. 27581-FW Thorpe-AR2020 Strategic.indd 44 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:42 Annual Report and Accounts for the year ended 30 June 2020 In mid-August, Thorlux still had 109 office staff working from home; however, gradually, more return each week. Internal communication is vitally important, including regular sharing of information regarding the company’s evolving knowledge of the crisis and how it is using that knowledge to protect employees and the organisation. The Group Protecting employees’ mental health has emerged as a high priority. The Group has therefore introduced a well-being policy for all employees, which includes regular contact with management, an online wellness questionnaire to complete, and a telephone call from the personnel department every few weeks. Managers have also been given access to additional training resources. All Group companies now have full capacity available in their factories, although some are still experiencing reduced order intake due to the pandemic. The capacity from such factories has been shared; for example, Portland Lighting has been making gear tray assemblies for TRT Lighting, which has seen a good increase in orders in recent months. Cooperation between Group companies has been excellent. Through prudent management of the business over many successful years, FW Thorpe has a strong balance sheet, with sufficient reserves. At the start of the crisis, Group companies were showing good levels of orders. The UK government introduced the Job Retention Scheme intending to save the jobs of people who, during the COVID-19 lockdown, would otherwise have been made redundant because of a company’s inability to stay afloat, thus keeping people and critical skills within a business. The directors believe that the scheme is not intended to support businesses that otherwise have sufficient resources to pay their employees and intend to bring their employees back to work after a reasonable period when the crisis ends. The directors therefore decided not to apply for compensation for furloughed employees during lockdown, and all employees received their normal pay whilst they were not working. This decision leaves the Group free of debt to external support and gives the directors ongoing freedom to make choices for the good of the business and its shareholders. It also enables the government to target its funds to those areas where they are required the most. The Group prides itself on being a responsible corporate employer, and during this time the directors think it important that Group companies contribute to supporting the national effort. This can be done by the Group continuing to provide goods and services where they are needed, such as to the NHS – for example by the Group supplying luminaires to the Birmingham Nightingale Hospital in April. The directors would like once again to sincerely thank all employees for their wonderful support and flexibility throughout this crisis. Special thanks must go to those who have continued to work at facilities around the Group. We are not, however, out of the woods yet, and must remain focussed on maintaining all the measures that have been put in place to protect employees and the company. Temperature screening at Thorlux Social distancing measures at Thorlux 45 27581-FW Thorpe-AR2020 Strategic.indd 45 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:57 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Principal Risks and Uncertainties continued Risk management process The Board is responsible for the identification and effective management of risks posed to the Group. Due to the impact certain risks could pose, the Board regularly reviews the likelihood of risks occurring and the potential impact they could have on the business. Detailed below is a list of the principal risks facing the business, and the corresponding actions the Board is currently taking in order to manage them. The Board Strategic risk assessment at Executive level Principal Risks Strategic Operational Financial Group Companies Risk assessment at an individual company level Type of risk Description of risk Mitigation of risk Possible impact on performance Strategic priorities impacted upon Change in period Deferred or reduced capital investment plans in market sectors, which our products are supplied into and are key sources of revenue for the Group Impact of COVID-19 on domestic and global economies Reduction in public sector expenditure and changing policy increases risk to our order book Uncertainty of free access to EU markets • Broad range of customers in High differing sectors • High quality, technically advanced products to differentiate the Group from competitors • Actively seek to identify new opportunities to ensure we maximise our potential of winning new business Medium • Continue to seek to diversify our customer portfolio to ensure we have an appropriate spread, mitigating the risk of any industry or specific sector spending issues • Develop sales in new markets 1 2 4 2 4 Area of risk A Adverse economic conditions Strategic B Changes in government legislation or policy Strategic 46 27581-FW Thorpe-AR2020 Strategic.indd 46 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:58 Annual Report and Accounts for the year ended 30 June 2020 Type of risk Description of risk Mitigation of risk Area of risk C Competitive environment Strategic Existing competitors, powerful new entrants and continued evolution of technologies in the lighting industry eroding our revenue and profitability D Price changes E Business continuity Erosion of revenue and profitability Operational Operational The majority of the Group’s revenues are from products manufactured in the Redditch facility F Credit risk Financial The Group offers credit terms which carry risk of slow payment and default G Movements in currency exchange Financial The Group is exposed to transaction and translation risks. With some natural hedging in EUR this risk is primarily with changes in the GBP:USD rates Strategic priorities impacted upon Change in period 1 2 3 4 1 2 2 3 2 2 Possible impact on performance Medium Medium • Offering innovative products and service solutions that are technologically advanced products to enable us to differentiate ourselves from our competitors • • Investing in research and development activities to produce new and evolving product ranges Investing in new production equipment to ensure we can keep costs low and maintain barriers to new market entrants • Management reviews prices, at least annually, to take into account fluctuations in costs, in order to minimise the risk of reduction in gross margin, or the loss of market share from a lack of competitiveness • High level of importance High attached to environmental management systems, health and safety and preventative maintenance Insurance cover is maintained to provide financial protection where appropriate Increased production flexibility with the ability to build products in more than one manufacturing facility • • • Credit policy includes an Low • • assessment of the bad debt risk and management of higher risk customers The Group maintains a credit insurance policy for a significant proportion of its debtors The Group has increased its sourcing of materials to maintain a natural hedge to offset its currency risk from EUR receivables, whilst at the same time buying EUR and USD when the exchange rate is favourable, compared to our operational rates, to minimise the risk Low 27581-FW Thorpe-AR2020 Strategic.indd 47 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:59 47 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Principal Risks and Uncertainties continued Area of risk Type of risk Description of risk Mitigation of risk Possible impact on performance Strategic priorities impacted upon Change in period 1 3 4 2 4 2 3 H Cyber security Operational I Exit from the European Union Strategic A breach of IT security could result in the inability to operate systems effectively and efficiently or the release of inappropriate information Significant uncertainty remains over how the economic landscape might be affected in the next few years • Continual review and Medium monitoring of potential risks • Computers encrypted where necessary to protect data • Cyber security awareness training currently being rolled out to employees • With the Group having a Medium manufacturing presence in two EU countries, the Netherlands and Spain, this leaves us ideally placed to react to any negative trade barriers that may be imposed on the UK • Continue to develop closer working relationship with these entities, sharing product development, market knowledge and operational expertise to ensure we have the flexibility to adapt to any changes in the future • As more details emerge we will assess the impact; in the short term the Group will review the implications based on potential outcomes J Global pandemic – COVID-19 Operational Potential disruption to operations from further outbreak of COVID-19 • Risk assessments, preventative measures including temperature screening, distancing and hygiene measures in place High • Additional component stock held to mitigate any supply chain disruption • Potential to utilise manufacturing facilities at other Group companies Strategic Priorities key Risks key Focus on high quality products and good leadership in technology Increase in risk Continue to grow the customer base for Group companies Focus on manufacturing excellence Continue to develop high quality people No change in risk Decrease in risk 1 2 3 4 48 27581-FW Thorpe-AR2020 Strategic.indd 48 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:37:59 Annual Report and Accounts for the year ended 30 June 2020 Tieltjes Precision Parts BV, Netherlands 49 27581-FW Thorpe-AR2020 Strategic.indd 49 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:38:10 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report s172 statement Stakeholder engagement The Group has the responsibility for managing the challenges that affect the business on a daily basis; this also includes our impact on our key stakeholders. Our ability to engage and work constructively with these stakeholders underpins the long-term success and sustainability of the Group. The directors are aware of their duty under Section 172(1) of the Companies Act 2006 to act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to: • The likely consequence of any decision in the long term • The interest of the Company’s employees • The need to foster the Company’s business relationships with suppliers, customers and others • The impact of the Company’s operations on the community and the environment • The desirability of the Company maintaining a reputation for high standards of business conduct • The need to act fairly between members of the Company. The Board considers its key stakeholders to be its employees, customers, shareholders, suppliers and the communities and environment we operate within. Key stakeholders and how we engage with them: Stakeholder group Why we engage How we engage Employees The right people, capabilities and engagement across the Group is the platform to drive our long-term success Customers Understanding the needs of our customer is fundamental. We aim to deliver the correct technical solution, professional service, sustainability of products/services and support the customer during a product’s warrantable life and beyond • Employee committees • Health & safety committees • Employee appraisals, training and development • Communication via web portal, notices and company newsletter • Group board meetings held periodically at different company sites • Meetings/maintaining close relationships via regional sales or business development teams • Providing Continuing Professional Development seminars and education opportunities • Company websites • Customer specific events, including trade shows • Order execution – from lighting design, through to delivery, installation and commissioning 50 27581-FW Thorpe-AR2020 Strategic.indd 50 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:38:10 Annual Report and Accounts for the year ended 30 June 2020 Stakeholder group Why we engage How we engage Shareholders Suppliers Trust from our shareholders is key to delivering our strategy and long-term success. We endeavour to provide fair, balanced and meaningful information to shareholders and potential investors to ensure they understand our performance and strategy We need to maintain reliable relationships with suppliers for mutual benefit and ensure they are meeting our standards, from value for money, quality, through to business ethics • Trading updates at appropriate times • Regulatory News Service • Investor meetings and presentations, including company visits • Dedicated Group website • Annual and Interim reports • Annual General Meetings • Meetings and negotiations with key suppliers • Site visits • Quality management reviews and audits • Attending supplier forums and trade shows Communities & Environment The Group is committed to be a responsible member of the community and considers the environmental impacts of the customer’s use of our products as well as our own operations • Support local and national charities • Engagement with local MPs and Chambers of Commerce • Members of appropriate trade and industry bodies • Carbon offset scheme in place since 2009, accredited under the Woodland Carbon Code • Recent investment in solar panels in the UK and Netherlands facilities • Products and systems support energy saving and carbon reduction – London Stock Exchange Green Economy mark in 2020 27581-FW Thorpe-AR2020 Strategic.indd 51 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:38:10 51 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Sustainability Environment Greenhouse gas emissions The table below shows the Group’s greenhouse gas emissions for the year ended 30 June 2020. Scope 1: Direct emissions from own operations Scope 2: Indirect emissions from purchased energy (mainly electricity) Total Scope 1 and Scope 2 emissions Intensity metric: tonnes of CO2 equivalent per £1m of sales Tonnes of CO2 equivalent 1,821 989 2,810 24.79 The methodology used to calculate our emissions uses current government published conversion factors. The Group is committed to minimising the environmental impact of both its manufacturing processes and its products. However, even with the most responsible approach some carbon dioxide (CO2) will be released into the atmosphere as an indirect result of factory and selling activities and customers’ use of luminaires. In 2009 an ambitious carbon-offsetting scheme was launched to help compensate for these emissions. The scheme is now accredited under the Woodland Carbon Code and now has 149,849 trees planted. The Group requires around 8,000 plantings per annum to offset the CO2 produced by our operations. Global Energy Use The table below shows the Group’s energy use for the year ended 30 June 2020. Electricity Gas Total UK GWh 2.884 5.041 7.925 Rest of World GWh 0.458 0.034 0.492 Total GWh 3.342 5.075 8.417 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. 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. Charitable Gifts During the year the Group gave £24,349 (2019: £27,733) for charitable purposes. This is made up of donations to UK charities for children’s welfare of £390, cancer care of £414, healthcare of £1,527, educational schemes of £2,695, emergency aid of £1,300, Oxfam £2,110 and local causes of £15,913. Modern Slavery Our Modern Slavery Act disclosure is published on our corporate website (www.fwthorpe.co.uk) in the company documents section. The Green Economy Mark (above) identifies London- listed companies and funds that generate between 50% and 100% of total annual revenues from products and services that contribute to the global green economy. 52 27581-FW Thorpe-AR2020 Strategic.indd 52 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:38:11 Annual Report and Accounts for the year ended 30 June 2020 FW Thorpe, making a meaningful difference: our contributions in 2020 Economic – we generate value Contribution to UK economy We are investing in the future We support the national wage bills £18.0m Tax paid, collected £1.3m Capitalised R&D expenditure £32.7m (2019: £17.9m) (2019: £1.8m) (2019: £31.5m) Community £24,349 Charitable donations 31 Number of charities (2019: £27,733) (2019: 26) Innovation 11 Patents 7 Granted 4 Pending 688 People employed (2019: 666) 16 Apprentice employment (2019: 15) Employee engagement Environment 149,849 Total trees planted 321,236 kWh of electricity per annum from solar panels 2,810 tonnes CO2 offset per annum 2019/20 (2019: 149,849) (2019: 224,470) (2019: 2,558) 27581-FW Thorpe-AR2020 Strategic.indd 53 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:38:11 53 Stock Code: TFW www. fwthorpe.co.ukOur GovernanceOur FinancialsBusiness OverviewStrategic Report Our Governance Board of Directors Directors’ Report Statement of Directors’ Responsibilities Directors’ Remuneration Report Independent Auditors’ Report to the Members of FW Thorpe Plc 56 58 64 65 69 Swansea University 27581-FW Thorpe-AR2020 Governance.indd 54 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:59 27581-FW Thorpe-AR2020 Governance.indd 55 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:02 Board of Directors Mike Allcock Chairman, Joint Group Chief Executive Craig Muncaster Joint Group Chief Executive, Group Financial Director and Company Secretary James Thorpe Business Development Director, Thorlux Lighting David Taylor Managing Director, Philip Payne Appointment/Background: Appointment/Background: Appointment/Background: Appointment/Background: Mike joined FW Thorpe Plc in 1984 as an apprentice working his way to Technical Director for Thorlux Lighting in 1998, taking responsibility for the Company’s design programme. He was appointed Group Technical Director in 2001 and became Managing Director of Thorlux Lighting in 2003. Mike is a Chartered Electrical Engineer and a Fellow of the Institution of Engineering and Technology. He is passionate about developing innovative, high technology, market leading products. He became Joint Group Chief Executive of FW Thorpe in 2010 and Chairman in July 2017. Key Areas of Expertise/ Responsibility: Lighting & Controls Technology, Product Design/ Management, Industry Knowledge, Marketing, Strategy Tenure 1 1 6 56 After graduating in Business Administration, Craig qualified as a Chartered Management Accountant in 2000. He has spent time in the manufacturing and engineering sectors, previously as UK Financial Director for Durr, which included a number of overseas ventures and projects for the wider Group. He joined FW Thorpe in 2010 and was appointed Joint Group Chief Executive in July 2017. Key Areas of Expertise/ Responsibility: Financial Management, Commercial/Legal Risk, Investor Relations, Mergers & Acquisitions, Company Secretarial James graduated from Swansea University with a BSc in 2000. He spent 13 years in the IT industry, involved in a variety of public and private sector contracts before joining FW Thorpe in 2013. During his time as Business Development Manager at Thorlux, he has been responsible for securing a number of high profile projects which have contributed to the growth of revenue derived from the healthcare sector. James is the great grandson of the Company founder and was appointed as a director in July 2017. Key Areas of Expertise/ Responsibility: Sales & Marketing, Business Development, Digital Marketing David joined FW Thorpe in 1978 and on completion of a commercial apprenticeship leading to an HNC in Business Studies he worked in various roles at Thorlux Lighting and elsewhere within the Group. In 1996, he became Managing Director of Philip Payne Limited. Key Areas of Expertise/ Responsibility: Manufacturing, Business Management, Financial Management, Industry Knowledge <5 years <10 years >10 years Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Governance.indd 56 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:31 Committee key R Remuneration Committee Andrew Thorpe Non-Executive Director Peter Mason Non-Executive Director Ian Thorpe Non-Executive Director Tony Cooper Non-Executive Director Appointment/Background: Appointment/Background: Appointment/Background: Appointment/Background: Andrew is the grandson of the Company founder, Frederick William Thorpe. After serving an apprenticeship with the Company, he has worked in various parts of the business, leading to the positions of Export Sales Director, Manufacturing Director and then Managing Director of Thorlux Lighting. In 2000, he became Joint Group Chief Executive and in 2003 Group Chairman, positions he held until July 2017. In July 2019 Andrew became a non-executive director and member of the remuneration committee. Key Areas of Expertise/ Responsibility: R Manufacturing, Product Design/Management, Sales & Marketing, Industry Knowledge, Strategy, Governance Independent Auditors PricewaterhouseCoopers LLP Donington Court Pegasus Business Park Castle Donington DE74 2UZ Bankers Lloyds Church Green East Redditch Worcestershire B98 8BZ After studying Electrical Engineering at Aberdeen University, Peter qualified as a Chartered Accountant with Price Waterhouse in 1976. He spent time with Planet Group and TI Group before joining FW Thorpe in 1987 as Finance Director. He became Joint Chief Executive in July 2000. In June 2010 he became a non-executive director and Chairman of the remuneration committee following the appointment of his successor. Key Areas of Expertise/ Responsibility: R Financial Management, Governance, Company Secretarial, Industry Knowledge Ian, grandson of the Company founder, was Manufacturing Director of Thorlux Lighting from 1978 until 1993 when he became Personnel Director. He became a non-executive director on 1 October 1997 and is a member of the remuneration committee. Key Areas of Expertise/ Responsibility: R Manufacturing, Human Resources, Governance, Industry Knowledge Tony graduated from Loughborough University with a B.Tech in Production Engineering and Management in 1984 and became a Chartered Engineer in 1988. He worked in various manufacturing industries, including Mars Electronics and Thomas & Betts, before joining Thorlux Lighting as Manufacturing Director in 1998. Tony became a non- executive director in April 2020. Key Areas of Expertise/ Responsibility: Manufacturing, Business Management, Industry Knowledge, Project Management Solicitors Keystone Law 48 Chancery Lane London WC2A 1JF Pinsent Masons LLP 19 Cornwall Street Birmingham B3 2FF Nominated Adviser N+1 Singer 12 Smithfield Street London EC1A 9BD Registrars Equiniti Aspect House Spencer Road Lancing BN99 6DA Registered Office Merse Road North Moons Moat Redditch Worcestershire B98 9HH Registered No FW Thorpe Plc is registered in England and Wales No. 317886 57 27581-FW Thorpe-AR2020 Governance.indd 57 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:59 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Directors’ Report The directors present their Directors’ report with the audited consolidated financial statements of the Group and the Company for the financial year ended 30 June 2020. Principal Activity The main activity of the Group continues to be the design, manufacture and supply of professional lighting equipment. Each company within the Group operates in a different market of the lighting sector. Business Review The trading results for the year are set out in the Consolidated Income Statement on page 78 and the Group’s financial position at the end of the year is set out in the Consolidated and Company Statements of Financial Position on page 80. A review of the performance of the business during the financial year and expected future developments are contained in the Chairman’s Statement, the Operational Performance section and the Financial Performance section which form part of the Strategic Report. Key Performance Indicators The directors consider the main financial key performance indicators (KPIs) to be those disclosed on page 22 (financial highlights). The two most important KPIs to the business are revenue and operating profit. The directors monitor non-financial areas of the business relating to energy saving and environmental responsibility, market and product development, customer service and product support on a regular basis. Objectives are set for each company within the Group incorporating financial and non-financial targets which have appropriate measurements that reflect their nature. These are monitored regularly at local and Group Board level. During the year a number of objectives were achieved, some impacted by COVID-19 in the final quarter of the year. Principal Risks and Uncertainties The table on pages 46 to 48 details what we consider to be the principal risks and uncertainties to the business, and how we seek to manage and mitigate these risks. The Group has financial risks and seeks to minimise and manage these by incorporating controls into key functions as part of the normal business operation. Details of other risk management procedures are included within the internal control section of this report and in the financial risk section within the accounting policies (note 1). 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. Internal Control The Board of directors has overall responsibility for the system of internal control and for reviewing its effectiveness throughout the Group. The internal control systems are designed to meet the Group’s particular 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. 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. Other Areas of Control During the year and continuing after the year end, the Board has operated a formal risk identification and evaluation process as part of a continuous review of the Group’s internal controls. This process 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 Proposed Dividend Details of the proposed dividend are disclosed in the Financial Performance section on pages 42 and 43. Directors The directors of the Company during the year and at the date of this report are set out on pages 56 and 57. The directors retiring by rotation are M Allcock, A B Thorpe, A M Cooper who, being eligible, offer themselves for re-election. M Allcock has a service contract terminable on 24 months’ notice. Directors’ Share Interests The details of the directors’ share interests are set out in the directors’ remuneration report on page 67. Directors’ Indemnities As permitted by the Articles of Association, the directors have the benefit of an indemnity which is a qualifying third party indemnity provision as defined by section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force. The Company also purchased and maintained throughout the financial year directors’ and officers’ liability insurance in respect of itself and its directors. 58 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Governance.indd 58 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:59 Board Constitution 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 audit and nomination committees 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: P D Mason Non-executive director and Chairman of the committee. A B Thorpe Non-executive director. 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 65 to 68. Where there is a requirement for a senior personnel or subsidiary board appointment a sub-committee is formed. Any appointment to the Group Board 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. Substantial Shareholdings At 30 September 2020, the Company had received notification of the following interests in 3% or more of the issued share capital, excluding holdings of directors: Liontrust Investment Partners LLP 6,228,630 (5.4%) C M Brangwin 7,231,550 (6.2%) Relations with Shareholders 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 where possible and, if appropriate, by meeting with major shareholders at other times during the year. See Notice of Meeting – AGM 2020. Directors’ Authority to Issue Shares In previous years, at the Annual General Meeting, shareholders have been asked to pass resolutions to authorise the directors to allot shares for cash or to grant rights to subscribe for, or to convert any security into, shares in the Company and to allow them to do so (and also to sell treasury shares) in certain circumstances without first offering the shares in question to existing shareholders. As the directors have no intention of exercising these authorities, there will be no resolution to grant these powers at the forthcoming Annual General Meeting. This will not, however, prevent shares from being allotted or treasury shares being sold to individuals who exercise options under any share option scheme of the Company. Purchase of Own Shares Resolution number 8 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 Alternative Investment Market 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 11,893,559 ordinary shares representing 10% of the Company’s issued ordinary share capital at 30 September 2020 and a nominal value of £118,936. The minimum price per ordinary share payable by the Company (exclusive of expenses) will be 1p. 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 Alternative Investment Market on the five business days immediately preceding the date of each purchase. The Company may either cancel any shares which it purchases under this authority or transfer them into treasury, and subsequently sell or transfer them out of treasury or cancel them. 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 2021. However, in order to maintain the Board’s flexibility of action it is envisaged that it will be renewed at future Annual General Meetings. 59 27581-FW Thorpe-AR2020 Governance.indd 59 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:59 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Directors’ Report continued Corporate Governance The Company’s shares are traded on the Alternative Investment Market (AIM) of the London Stock Exchange Plc. Previously the Company was not required to comply with the Principles of Good Governance and Code of Best Practice (“The UK Corporate Governance Code”, or the “Code”). Following a change to the AIM rules in 2018, from 28 September 2018, the Company has adopted the Quoted Companies Alliance’s “Corporate Governance Guidelines for Smaller Quoted Companies” (the QCA Code) which the Board believes is appropriate due to the size and complexity of the Company. There are ten principles of the QCA code and the following table sets out in broad terms how we comply at this point in time. Extent of current compliance Compliant Principle 1 Establish a strategy and business model which promote long-term value for shareholders Compliant 2 Seek to understand and meet shareholders’ needs and expectations Commentary Further disclosure Find out more in the Strategic Report on pages 08 to 53 Read about our Strategy on pages 16 and 17 Read about our Business Model on pages 14 and 15 Find out more in the Directors’ Report on page 58 The Group’s business strategy is detailed in our Annual Report & Accounts and focuses on delivering long-term growth and stability, achieved through four key strategic priorities: • Focus on high quality products and good leadership in technology • Continue to grow the customer base for Group companies • Focus on manufacturing excellence • Continue to develop high quality people Meetings are held with shareholders as required; this includes visits to our various company locations being organised and encouraged where possible. In addition, all announcements include contact details for shareholders to contact the Company if they so choose. The AGM is another forum for dialogue with our shareholders. The Notice of Meeting is sent to shareholders at least 21 days before the meeting. Any feedback during these meetings is encouraged and acted upon where appropriate. 3 Take into account wider stakeholder and social responsibilities and their implications for long-term success Compliant Feedback from employees, customers, suppliers and other stakeholders is actively encouraged. Our employees are an important stakeholder group and we actively encourage dialogue with the Company via various employee committees within our companies. Reports from these meetings are distributed to the Board. Find out more in the Strategic Report on pages 08 to 53 and in our Sustainability section on pages 52 and 53 60 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Governance.indd 60 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:59 Commentary Further disclosure Extent of current compliance Compliant Principle 4 Embed effective risk management, considering both opportunities and threats, throughout the organisation Partially Compliant Total of eight directors, four executive directors and four non-executive directors. 5 Maintain the Board as a well- functioning, balanced team led by the Chair The Board operates a continuous risk identification and evaluation process. The results are utilised by the Board to manage any significant risks. In addition, the executive directors regularly visit all operating sites and review financial and commercial issues with an executive director responsible for each individual company. The Board has overall responsibility for the system of internal control and for reviewing its effectiveness throughout the Group. Internal financial control is driven by Group finance who visit each company to assess compliance against key controls. This includes regular financial reporting that is compared against plan and previous year’s performance. The non-executives are not considered fully independent. The Board considers that the non-executive directors are appropriate as they bring significant experience and expertise in the sector. In addition, as the directors retire on a three-year rotation, shareholders have a regular opportunity to ensure that the composition of the Board is in line with their interests. There is a Remuneration Committee but no Audit Committee, with matters that would normally be tabled at an Audit Committee put to the full Board. The current composition of the Board provides the necessary skills, experience and capabilities for the size and context of the Group. The composition and succession of the Board are subject to review, considering the future needs of the Group. Compliant 6 Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities Find out more about our Principal Risk and Uncertainties on pages 44 to 48 and in the Directors’ Report on page 58 Find out more in Our Governance on pages 56 to 75 Read about our Board of Directors on pages 56 and 57 Read our Directors’ Report on pages 58 to 63 Find out more in Our Governance on pages 56 to 75 Read about our Board of Directors on pages 56 and 57 Read our Directors’ Report on pages 58 to 63 61 27581-FW Thorpe-AR2020 Governance.indd 61 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:59 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Directors’ Report continued Extent of current compliance Partially Compliant Commentary Further disclosure There is no formal evaluation process; however, the Chairman is responsible for Board performance and accordingly actively encourages feedback on the content and function of board meetings. The composition and succession of the Board are subject to constant review, considering the ever-changing needs of the Group. In addition, the directors retire by rotation every three years giving shareholders the opportunity to ensure that the Board is aligned with their interests. Compliant Our core aim is for long-term growth and stability. Principle 7 Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement 8 Promote a corporate culture that is based on ethical values and behaviours Find out more in the Strategic Report on pages 08 to 53 Read about our Strategy on pages 16 and 17 Find out more in the Directors’ Report on pages 58 to 63 Read about our Board of Directors on pages 56 and 57 Find out more online at: www.fwthorpe.co.uk The Group management team is passionate about developing the business for the benefit of the shareholders, employees and customers. With our focus on excellence, we ensure our Group’s culture is consistent with the aim of long term growth and stability. In order to achieve and maintain such a culture, we invest in training our employees, as mentioned in the Annual Report and Accounts. The Board as a whole is responsible for robust governance practices. The roles and responsibilities of each director are clear and responsibilities understood. The Board meets at least eight times each year, with additional meetings as required. The Company communicates through the Annual Report and Accounts, full-year and interim announcements, the AGM and one- to-one meetings with existing or potential shareholders. A range of corporate information is also available on the Company’s website. Meetings with shareholders, employee groups, management and other representative groups provide a platform for raising any concerns relating to corporate governance. Compliant Compliant 9 Maintain governance structures and processes that are fit for purpose and support good decision making by the Board 10 Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders 62 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Governance.indd 62 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:34:59 They have also produced an analysis that demonstrates that the Group could cover its cash commitments even if there were zero sales over the following year from approving these accounts. For this reason, they continue to adopt the going concern basis in preparing the accounts. Approval of Strategic and Directors’ Reports The directors confirm that the information contained within the Strategic Report on pages 08 to 53 and the Directors’ Report on pages 58 to 63 is an accurate representation of the Group’s strategy and performance. By order of the Board Craig Muncaster Joint Chief Executive, Group Financial Director and Company Secretary 30 September 2020 Registered Office: Merse Road North Moons Moat Redditch Worcestershire B98 9HH Company Registration Number: 317886 The Board considers that the Company applies the principles of best practice with the exception of the matters listed below: • There are no independent Board members. • The Board does not have an independent audit committee. • The Board does not have a nominations committee. • There is no formal evaluation process of Board performance. The Board believes 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. Statement on the Provision of Information to Independent Auditors 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. Independent Auditors The auditors, PricewaterhouseCoopers LLP, have expressed their willingness to continue in office and a resolution for their reappointment will be proposed at the next Annual General Meeting. Going Concern The directors confirm they are satisfied that the Group and Company have adequate resources, with £44.4m cash and £18.6m short term deposits, to continue in business for the foreseeable future factoring in the expected impact of Covid-19. 27581-FW Thorpe-AR2020 Governance.indd 63 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:03 63 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Statement of Directors’ Responsibilities in respect of the Financial Statements The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements Directors’ confirmations In the case of each director in office at the date the Directors’ Report is approved: • • so far as the director is aware, there is no relevant audit information of which the Group and Company’s auditors are unaware; and they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Company’s auditors are aware of that information. By order of the Board Craig Muncaster Joint Chief Executive, Group Financial Director and Company Secretary 30 September 2020 on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006. The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the directors are required to: • • select suitable accounting policies and then apply them consistently; state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted by the European Union have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements; 64 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Governance.indd 64 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:04 Directors’ Remuneration Report The Board has prepared this report to the shareholders, taking into account sections 420 to 422 of the Companies Act 2006 and AIM Rule 19. Performance Graph The graph below shows the comparative data for the FTSE AIM share index and the FTSE Fledgling share index, rebased to 100, as these are considered to be the most appropriate comparative indices for the Company’s business. 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 conditions of employment. Remuneration Committee The current members of the Remuneration Committee are the non-executive directors P D Mason (Chairman of the Committee), I A Thorpe, and A B 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 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. 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. Total shareholder return 250 200 150 100 50 30-06-2015 FW Thorpe AIM All Share FTSE Fledgling 30-06-2016 30-06-2017 30-06-2018 30-06-2019 30-06-2020 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. Long term incentive scheme. This scheme consists of the “Executive Share Ownership Plan” (ESOP) details of which are shown on page 68. Non-Executive Directors The Board as a 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. Their benefits in kind consist of the provision of health insurance. Directors’ Service Contracts M Allcock has a service contract terminable on two years’ notice. C Muncaster, D Taylor and J E Thorpe have service contracts terminable on one year’s notice. A B Thorpe, P D Mason, I A Thorpe and A M Cooper do not have formal service contracts with the Company. 27581-FW Thorpe-AR2020 Governance.indd 65 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:04 65 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Directors’ Remuneration Report continued Directors’ Emoluments (Audited) Executive directors M Allcock D Taylor C Muncaster J E Thorpe Non-executive directors A B Thorpe I A Thorpe P D Mason A M Cooper * 2020 Salary/ fees £’000 213 113 240 118 34 34 34 96 882 2020 Bonus £’000 138 71 147 90 2020 Benefits £’000 21 13 20 20 – – – 51 497 14 15 5 12 120 2020 Total £’000 372 197 407 228 48 49 39 159 1,499 2019 Total £’000 416 239 414 210 206 43 33 260 1,821 2020 Share options £’000 27 54 20 – 2019 Share options £’000 26 52 19 – – – – 7 108 50 – – 6 153 2020 Total £’000 399 251 427 228 48 49 39 166 1,607 2019 Total £’000 442 291 433 210 256 43 33 266 1,974 * A M Cooper relinquished his role as as an executive director, becoming a non-executive director on 2 April 2020. The directors’ emoluments exclude contributions to the pension scheme. Directors’ Pension Arrangements M Allcock is a deferred member and D Taylor a pensioner member of the defined contribution scheme of the FW Thorpe Retirement Benefits Scheme and they have a final salary guarantee as they were previously members of the defined benefit section. A M Cooper is a deferred member and J E Thorpe an active member of the defined contribution section of the FW Thorpe Retirement Benefits Scheme. A M Cooper has a personal pension plans to which the Company contributed. I A Thorpe, A B Thorpe and P D Mason are retired members of the defined benefit section. The FW Thorpe Retirement Benefits Scheme is a funded, HMRC 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. M Allcock’s and D Taylor’s pensionable salary includes an average of the previous three years’ profit bonus. Defined contribution members contribute up to 5% of basic salary and the Company contributes up to 17%. M Allcock, D Taylor and A M Cooper have ceased being active members of the FW Thorpe Retirement Benefits Scheme and C Muncaster has ceased being an active member of his personal pension scheme due to HMRC limits on lifetime allowances and annual contributions. Subsequently the Company has entered into pension compensation arrangements with these four directors and J E Thorpe to compensate them for the loss of these employer pension contributions. During the financial year the Company paid pension compensation to M Allcock of £167,942 (2019: £145,755), A M Cooper £7,414 (2019: £10,697), C Muncaster £40,724 (2019: £34,882), D Taylor £19,132 (2019: £9,393) and to J E Thorpe £9,290 (2019: £5,881). All the executive directors are covered by life assurance benefit of four times pensionable salary. In addition, the defined benefit scheme members are entitled to a spouse’s pension on death. 66 Annual Report and Accounts for the year ended 30 June 2020 27581-FW Thorpe-AR2020 Governance.indd 66 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:04 There are no directors, excluding those classified as pensioners, having accrued entitlements under the defined benefit section of the pension scheme. 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. J E Thorpe 2020 £’000 12 2019 £’000 10 A M Cooper has a personal pension which is not part of the Company scheme, and the following contributions have been made during the year. A M Cooper 2020 £’000 8 2019 £’000 10 CEO Pay Ratio FW Thorpe being a UK listed company with more than 250 employees is required to disclose annually the ratio of the CEO’S pay to the lower quartile, median and upper quartile pay of their UK employees. These details are shown in the table below. Year 2019-20 Method Option A 25th percentile pay ratio 24:1 Median pay ratio 15:1 75th percentile pay ratio 8:1 Option A was chosen as it represents the most accurate means of identifying the percentiles. The comparison is based on data for the year ended 30 June 2020. The table below sets out the salary and total pay and benefits for the three quartiles. Base salary Total remuneration 25th percentile pay 20,104 28,367 Median pay 29,833 45,272 75th percentile pay 46,818 87,374 Directors’ Shareholdings The directors listed below were in office during the year. Directors’ interests in the share capital of the Company at 30 June 2020 and 1 July 2019 were as follows: Executive directors M Allcock D Taylor C Muncaster J E Thorpe Non-executive directors A B Thorpe I A Thorpe P D Mason A M Cooper Ordinary shares of 1p Beneficial 2020 175,500 132,896 50,000 1,371,450 2019 159,500 116,413 35,000 1,371,450 27,682,700 25,840,352 1,626,370 112,224 27,682,700 25,840,352 1,626,370 112,224 The market price of the Company’s shares at the beginning and end of the financial year was 317p and 301p respectively, and the range of market prices during the year was from 225p to 363p. 27581-FW Thorpe-AR2020 Governance.indd 67 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:04 67 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Directors’ Remuneration Report continued Executive Share Ownership Plan (ESOP) Share options were granted during 2014, under the Company’s ESOP, to the Company’s executive directors and certain directors of subsidiary companies. The plan allows the vesting of options subject to the achievement of performance targets, being annual growth of pre-tax Earnings Per Shares in excess of RPI plus 3% over a five-year period. The options that were granted to the executive directors are detailed in the table below: Date Granted Share Options Exercise price (p) M Allcock A B Thorpe C Muncaster 24 October 2014 24 October 2014 24 October 2014 24 October 2014 24 October 2014 200,000 124 200,000 124 200,000 124 200,000 124 200,000 124 A M Cooper D Taylor During the year the third tranche of shares of this ESOP vested as the performance conditions were met in the financial year ended 30 June 2017, options vested and exercised in the year are shown in the table below. The fifth tranche of shares for this scheme relating to the year ended 30 June 2019 were forfeit as the performance conditions were not met. Number at 1 July 2019 Awarded Vested Exercised Forfeit Lapsed Number at 30 June 2020 A B Thorpe 120,000 – 40,000 – (40,000) – 80,000 M Allcock 140,000 – 40,000 (20,000) (40,000) – 80,000 D Taylor 120,000 – 40,000 (40,000) (40,000) – 40,000 A M Cooper 155,161 – 40,000 (4,839) (40,000) – 110,322 C Muncaster 165,000 – 40,000 (15,000) (40,000) – 110,000 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 2020 to 30 September 2020. Approved by the Board and signed on its behalf by: Craig Muncaster Joint Chief Executive, Group Financial Director and Company Secretary 30 September 2020 68 27581-FW Thorpe-AR2020 Governance.indd 68 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:05 Annual Report and Accounts for the year ended 30 June 2020 Independent Auditors’ Report to the Members of FW Thorpe Plc Report on the audit of the financial statements Opinion In our opinion, FW Thorpe Plc’s Group financial statements and Company financial statements (the “financial statements”): • give a true and fair view of the state of the Group’s and of the Company’s affairs as at 30 June 2020 and of the Group’s profit and the Group’s and the Company’s cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Company’s financial statements, as applied in accordance with the provisions of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the Consolidated and Company Statements of Financial Position as at 30 June 2020; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Cash Flows, the Consolidated Statement of Changes in Equity, and the Company Statement of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our audit approach Overview • Overall Group materiality: £860,000 (2019: £880,000), based on 5% of three year average profit before tax and before profit on disposal of property (2019: profit before tax and before profit on disposal of property). • Overall Company materiality: £729,000 (2019: £680,000), based on 5% of three year average profit before tax and before profit on disposal of property (2019: profit before tax and before profit on disposal of property). Materiality Audit scope Key audit matters • In establishing the overall approach to the Group audit, we identified three reporting units, which, in our view, required an audit of their complete financial information both due to their size and risk characteristics: Thorlux Lighting (the Company), Lightronics and Famostar. The Group engagement team audited Thorlux Lighting whilst Lightronics and Famostar were audited by a non-PwC component audit team located in the Netherlands. The work performed by the component auditor was subject to review by the Group engagement team and the work performed over areas considered to be of significant importance to the audit has fed into our key audit matters. Impairment consideration relating to COVID-19 (Group and Company); • • Valuation of the share appreciation rights repurchase obligation (Group and Company); • Valuation of warranty provision (Group and Company); and • Capitalisation of internal development costs (Group and Company). 69 27581-FW Thorpe-AR2020 Governance.indd 69 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:06 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Independent Auditors’ Report continued to the Members of FW Thorpe Plc The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Impairment consideration relating to COVID-19 In respect of trade receivables (excluding balances owed by Group undertakings): Refer to critical accounting estimates and judgements in note 1 to the financial statements and note 9 for Intangible assets, note 10 for Investment in subsidiaries and note 16 for Trade and other receivables. The ongoing economic uncertainty due to COVID-19 requires the directors and auditors to consider the impact on the valuation of various assets on the Group and Company financial statements. Group and Company • We have assessed the level of trade receivable balances which remain unpaid at the year end and have traced a sample of amounts received after the year end to bank statements; and • We have assessed management’s calculation of the expected credit loss provision for third party trade receivables by reviewing the credit insurance in place, track record of the business in receiving payment and assessing the probability that undue amounts will be paid in light of the current economic conditions of the customer base. In respect of balances owed by Group undertakings: • The expected credit loss model prepared by the client has considered a range of potential outcomes, which are then probability weighted depending on the future underlying performance of the entities. When considering these models we have applied sensitivity analysis to the key inputs, which include the probability of, and loss given, default. We have also considered management’s estimates through comparison to historical and future business performance in line with contractual terms and position of the business at the year end; and • We found that the valuation of balances owed from Group undertakings after making impairment provisions were consistent with the evidence obtained. In respect of Goodwill and Investment in subsidiaries: • We have reviewed the impairment assessments produced by management for the various cash generating units of the Group and subsidiaries of the Company and checked the technical and arithmentic accuracy to ensure compliance with IAS 36; and • We have performed sensitivity analysis on the key assumptions to assess the extent to which the assumptions would need to change to cause an impairment and assessed the likelihood of various scenarios. Based on the work undertaken we believe that, where required, an appropriate provision has been recognised. 70 27581-FW Thorpe-AR2020 Governance.indd 70 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:06 Annual Report and Accounts for the year ended 30 June 2020 Key audit matter How our audit addressed the key audit matter Valuation of share appreciation rights repurchase obligation (Group and Company) The valuation of the repurchase obligation involves assessing estimates with respect to the expected EBITDA at redemption and judgement in assessing the expected redemption date. Based on the historical performance of Lightronics and Famostar, the wider macro-economic conditions, our audit work over the forecast information and discussions with Lightronics’ and Famostar’s management, the assumptions on growth and the judgement on timing were considered reasonable. We ensured there were no changes in the split in the share appreciation rights percentage holdings between previous investors and management through enquiries with management, review of board minutes and recalculation of the shareholder appreciation liability. We considered the accounting for each tranche and ensured it was compliant with the requirements of IAS 39 – “Financial Instruments: Recognition and measurement” and IFRS 2 – “Share-based payment”. We found that the valuation of the share appreciation rights repurchase obligation was consistent with the evidence obtained. Refer to critical accounting estimates and judgements in note 1 to the financial statements and note 20 trade and other payables. As part of the acquisition of Lightronics in FY15 and Famostar in FY18, share appreciation rights equivalent to 35% of the acquired business were sold back to the previous investors and Lightronics management. The Group and Company are obliged to re-purchase these rights at an EBITDA (Earnings before interest, tax, depreciation and amortisation expense) multiple (based on an average of the previous two years) by FY21 with the option to exercise being held by the previous investors and management. Where the share appreciation rights are due to the previous investors, this is accounted for as contingent consideration. The share appreciation rights in relation to the previous management who remain employed is accounted for as a cash settled share based payment. Any re-valuation of the contingent consideration is recognised immediately, whilst any re-valuation of the total share based payment charge is spread across the remaining option period, with both elements charged to administrative expenses. The valuation of the repurchase obligation involves judgement and estimates with respect to the expected EBITDA at redemption and the redemption date. Group and Company 27581-FW Thorpe-AR2020 Governance.indd 71 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:06 71 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Independent Auditors’ Report continued to the Members of FW Thorpe Plc Key audit matter How our audit addressed the key audit matter We have audited the specific provisions held at year-end by inspecting correspondence to confirm rectification is required and recalculating the provision amount based on material cost and estimated labour and installation expenditure; We have enquired with management and reviewed board minutes to ensure that no specific rectification issues have been identified which were not provided for at year-end; We have corroborated the actual failure rates against the expected failure rate used to calculate the provision, where no known rectification issues have been identified; and We have reviewed and challenged the appropriateness of any other judgement used in the estimation of the provision. We found the valuation of the warranty provision was consistent with the evidence obtained. We have assessed the development activities performed by the Group against the criteria for capitalising internal development costs under IAS 38; We have performed testing over the amounts capitalised in the year by agreeing payroll amounts to payslips and assessing the percentage of payroll costs capitalised with respect to the employee and their role in the development of products; and We have assessed the amortisation period of three years across the Group with reference to the product launches and knowledge of the industry. We found that the accuracy of the capitalised development costs was consistent with the evidence obtained. Valuation of warranty provision (Group and Company) Refer to critical accounting estimates and judgements in note 1 to the financial statements and note 23 provisions. The Group and Company makes provisions for warranties where it is obliged to repair or replace faulty goods under the terms and conditions of sale. The typical warranty provision offered is for a period of five years although longer periods are offered by Lightronics and Famostar on certain product lines. Amounts have been provided based on known faults at the year-end date where rectification will be due and also based on expected failure rates as applied to sales made which are within the warranty period. The valuation of the warranty provision involves judgement with respect to the expected failure rate especially when applied to new products at the start of their warranty period. Group and Company Capitalisation of internal development costs (Group and Company) Refer to critical accounting estimates and judgements in note 1 to the financial statements and note 9 intangibles. The Group undertakes development activities on new products and such internal development costs are capitalised where allowable under IAS 38 – “Intangible Assets.” Judgement has been applied in considering whether the requirements for capitalising such internal development costs under IAS 38 have been met, the level and nature of costs which should be capitalised and also the period over which the capitalised costs should be amortised. Group and Company 72 27581-FW Thorpe-AR2020 Governance.indd 72 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:06 Annual Report and Accounts for the year ended 30 June 2020 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Group financial statements Company financial statements £860,000 (2019: £880,000). 5% of three year average profit before tax and before profit on disposal of property. Based on the benchmarks used in the annual report, profit before tax is the primary measure used by the shareholders in assessing the performance of the Group, and is a generally accepted auditing benchmark. A three year average has been used based on our judgement that the FY20 results were impacted by a short term downturn due to COVID-19 and not a permanent rebasing of profitability. £729,000 (2019: £680,000). 5% of three year average profit before tax and before profit on disposal of property. Based on the benchmarks used in the annual report, profit before tax is the primary measure used by the shareholders in assessing the performance of the Group, and is a generally accepted auditing benchmark. A three year average has been used based on our judgement that the FY20 results were impacted by a short term downturn due to COVID-19 and not a permanent rebasing of profitability. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £400,000 and £729,000. We agreed with the directors that we would report to them misstatements identified during our audit above £43,000 (Group audit) (2019: £50,000) and £36,000 (Company audit) (2019: £34,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you where: • • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s and Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability to continue as a going concern. 27581-FW Thorpe-AR2020 Governance.indd 73 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:06 73 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Independent Auditors’ Report continued to the Members of FW Thorpe Plc Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below. Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 30 June 2020 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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. 74 27581-FW Thorpe-AR2020 Governance.indd 74 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:06 Annual Report and Accounts for the year ended 30 June 2020 Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or certain disclosures of directors’ remuneration specified by law are not made; or the Company financial statements are not in agreement with the accounting records and returns. • • We have no exceptions to report arising from this responsibility. David Teager (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors East Midlands 30 September 2020 27581-FW Thorpe-AR2020 Governance.indd 75 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:35:06 75 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur FinancialsOur GovernanceBusiness Overview Our Financials 78 79 80 Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated and Company Statements of Financial Position Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated and Company Statements of Cash Flows 83 Notes to the Financial Statements 84 128 Notice of Meeting 131 Financial Calendar 82 81 FW Thorpe Carbon Offsetting Scheme, Devauden 27581-FW Thorpe-AR2020 Financials.indd 76 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:26 27581-FW Thorpe-AR2020 Financials.indd 77 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:30 Consolidated Income Statement For the year ended 30 June 2020 Continuing operations Revenue Cost of sales Gross profit Distribution costs Administrative expenses Other operating income Operating profit (before profit on disposal) Profit on disposal of property Operating profit Finance income Finance expense Profit before income tax Income tax expense Profit for the year Notes 2020 £’000 2019 £’000 2 3 5 5 6 113,342 (63,351) 49,991 (13,434) (20,489) 264 16,332 – 16,332 708 (1,097) 15,943 (2,629) 13,314 110,643 (60,264) 50,379 (13,182) (19,840) 292 17,649 1,917 19,566 1,049 (1,046) 19,569 (3,429) 16,140 Earnings per share from continuing operations attributable to the equity holders of the Company during the year (expressed in pence per share) Basic and diluted earnings per share – Basic – Diluted Notes 7 7 2020 pence 11.45 11.40 2019 pence 13.91 13.83 The notes on pages 84 to 127 form part of these financial statements. The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Company income statement. 78 27581-FW Thorpe-AR2020 Financials.indd 78 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:30 Annual Report and Accounts for the year ended 30 June 2020 Consolidated Statement of Comprehensive Income For the year ended 30 June 2020 Profit for the year: Other comprehensive income/(expenses) Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Items that will not be reclassified to profit or loss Revaluation of financial assets at fair value through other comprehensive income Actuarial loss on pension scheme Movement on unrecognised pension scheme surplus Taxation 22 22 Notes 2020 £’000 13,314 2019 £’000 16,140 229 229 (834) (2,039) 1,869 13 (991) 153 153 (142) (374) 191 24 (301) Other comprehensive expense for the year, net of tax (762) (148) Total comprehensive income for the year attributable to equity shareholders 12,552 15,992 The notes on pages 84 to 127 form part of these financial statements. 27581-FW Thorpe-AR2020 Financials.indd 79 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:30 79 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview Consolidated and Company Statements of Financial Position As at 30 June 2020 Assets Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Investment property Financial assets at amortised cost Equity accounted investments and joint arrangements Financial assets at fair value through other comprehensive income Total non-current assets Current assets Inventories Trade and other receivables Financial assets at amortised cost Other financial assets at fair value through profit or loss Short-term financial assets Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Current income tax liabilities Total current liabilities Net current assets Non-current liabilities Other payables Lease liabilities Provisions for liabilities and charges Deferred income tax liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium account Capital redemption reserve Foreign currency translation reserve Retained earnings At 1 July Profit for the year attributable to the owners Other changes in retained earnings Total equity Group Company Notes 2020 £’000 2019 £’000 2020 £’000 2019 £’000 8 9 10 11 12 13 14 15 16 12 17 18 19 20 21 20 21 23 24 25 26 26 26 30,574 21,032 – 1,987 1,800 – 3,772 59,165 25,296 21,256 625 – 18,580 44,422 110,179 169,344 (36,185) (220) (831) (37,236) 72,943 (67) (417) (2,721) (601) (3,806) (41,042) 128,302 1,189 1,526 137 2,764 25,353 21,687 – 2,006 3,567 936 3,683 57,232 25,506 21,502 – 387 26,483 30,807 104,685 161,917 (21,912) – (1,935) (23,847) 80,838 (12,804) – (2,404) (699) (15,907) (39,754) 122,163 1,189 1,266 137 2,535 11,980 4,074 14,581 10,130 12,338 – 3,772 56,875 16,914 22,133 625 – 18,580 37,218 95,470 152,345 (27,964) – – (27,964) 67,506 – – (795) (398) (1,193) (29,157) 123,188 1,189 1,526 137 – 117,036 13,314 (7,664) 122,686 128,302 107,527 16,140 (6,631) 117,036 122,163 114,398 13,326 (7,388) 120,336 123,188 11,185 4,192 14,581 9,131 12,115 936 3,683 55,823 18,354 20,594 – 387 26,483 24,771 90,589 146,412 (17,290) – (931) (18,221) 72,368 (10,242) – (466) (493) (11,201) (29,422) 116,990 1,189 1,266 137 – 105,582 16,063 (7,247) 114,398 116,990 The notes on pages 84 to 127 form part of these financial statements. The financial statements on pages 78 to 127 were approved by the Board on 30 September 2020 and signed on its behalf by Mike Allcock Craig Muncaster Company Registration Number: 317886 80 27581-FW Thorpe-AR2020 Financials.indd 80 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:34 Annual Report and Accounts for the year ended 30 June 2020 Consolidated Statement of Changes in Equity For the year ended 30 June 2020 Share capital £’000 1,189 Share premium account £’000 1,017 Capital redemption reserve £’000 137 Notes Foreign currency translation reserve £’000 2,382 – – – – – – – – – – – – – – – – – – – – – – – 153 Retained earnings £’000 Total equity £’000 107,527 112,252 16,140 (374) 16,140 (374) 191 191 (142) (142) 24 – 24 153 – – – 153 15,839 15,992 – – – – – 1,189 – 1,189 249 – – – 249 1,266 – 1,266 – – – – – – – – – – – – – – – – – – – 137 – 137 – – – – – – – – – – – – 2,535 – (117) (6,299) 86 (6,330) 249 (117) (6,299) 86 (6,081) 117,036 122,163 – 2,535 (265) (265) 116,771 121,898 – – – – – – 13,314 (2,039) 13,314 (2,039) 1,869 1,869 (834) (834) 81 (68) 81 (68) 229 – 229 – – – 229 12,323 12,552 – – – – 1,189 260 – – 260 1,526 – – – – 137 – – – – 2,764 – (6,468) 60 (6,408) 260 (6,468) 60 (6,148) 122,686 128,302 22 22 14 24 27 28 22 22 14 24 24 27 28 Balance at 1 July 2018 Comprehensive income Profit for the year to 30 June 2019 Actuarial loss on pension scheme Movement on unrecognised pension scheme surplus Revaluation of financial assets at fair value through other comprehensive income Movement on associated deferred tax Exchange differences on translation of foreign operations Total comprehensive income Transactions with owners Shares issued from exercised options Purchase of own shares Dividends paid to shareholders Share based payment charge Total transactions with owners Balance at 30 June 2019 Adjustments on first time adoption of IFRS16 (net of tax) * Restated balance at 1 July 2019 Comprehensive income Profit for the year to 30 June 2020 Actuarial loss on pension scheme Movement on unrecognised pension scheme surplus Revaluation of financial assets at fair value through other comprehensive income Movement on associated deferred tax Impact of deferred tax rate change Exchange differences on translation of foreign operations Total comprehensive income Transactions with owners Shares issued from exercised options Dividends paid to shareholders Share based payment charge Total transactions with owners Balance at 30 June 2020 The notes on pages 84 to 127 form part of these financial statements. * The impact of adopting IFRS 16 on 1 July 2019 is detailed in Note 1 of the Notes to the Financial Statements. 27581-FW Thorpe-AR2020 Financials.indd 81 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:34 81 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview Company Statement of Changes in Equity For the year ended 30 June 2020 Balance at 30 June 2018 Adjustment on first time adoption of IFRS 9 (net of tax) Restated balance at 1 July 2018 Comprehensive income Profit for the year to 30 June 2019 Actuarial loss on pension scheme Movement on unrecognised pension scheme surplus Revaluation of financial assets at fair value through other comprehensive income Movement on associated deferred tax Total comprehensive income Shares issued from exercised options Purchase of own shares Dividends paid to shareholders Share based payment charge Total transactions with owners Balance at 30 June 2019 Adjustment on first time adoption of IFRS16 (net of tax) * Restated balance at 1 July 2019 Comprehensive income Profit for the year to 30 June 2020 Actuarial loss on pension scheme Movement on unrecognised pension scheme surplus Revaluation of financial assets at fair value through other comprehensive income Movement on associated deferred tax Impact of deferred tax rate change Total comprehensive income Transactions with owners Shares issued from exercised options Dividends paid to shareholders Share based payment charge Total transactions with owners Balance at 30 June 2020 Notes 22 22 14 24 27 28 22 22 14 24 24 27 28 Share capital £’000 1,189 – 1,189 – – – – – – – – – – – 1,189 Share premium account £’000 1,017 Capital redemption reserve £’000 137 Retained earnings £’000 105,582 Total equity £’000 107,925 – 1,017 – 137 (616) 104,966 (616) 107,309 – – – – – – 249 – – – 249 1,266 – – – – – – – – – – – 137 – 16,063 (374) 16,063 (374) 191 191 (142) (142) 24 15,762 – (117) (6,299) 86 (6,330) 114,398 24 15,762 249 (117) (6,299) 86 (6,081) 116,990 1 1 – – 1,189 1,266 137 114,399 116,991 – – – – – – – – – – – – – – – – – – – – – 13,326 (2,039) 13,326 (2,039) 1,869 1,869 (834) (834) 81 (58) 12,345 81 (58) 12,345 – – – – 1,189 260 – – 260 1,526 – – – – 137 – (6,468) 60 (6,408) 120,336 260 (6,468) 60 (6,148) 123,188 The notes on pages 84 to 127 form part of these financial statements. * The impact of adopting IFRS 16 on 1 July 2019 is detailed in Note 1 of the Notes to the Financial Statements. 82 27581-FW Thorpe-AR2020 Financials.indd 82 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:34 Annual Report and Accounts for the year ended 30 June 2020 Consolidated and Company Statements of Cash Flows For the year ended 30 June 2020 Notes 29 Group 2020 £’000 Company 2019 £’000 2020 £’000 2019 £’000 23,231 (3,848) 19,383 25,038 (3,476) 21,562 12,958 (1,896) 11,062 15,460 (1,808) 13,652 Cash flows from operating activities Cash generated from operations Tax paid Net cash generated from operating activities Cash flows from investing activities Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of intangibles Purchase of investment property Disposal of investment property Purchase of available for sale investments Net sale of financial assets at fair value through other comprehensive income Proceeds from sale of other financial assets at fair value through Profit and Loss account Property rental and similar income Dividend income Net withdrawal/(deposit) of short-term financial assets Interest received Net receipt/(issue) of loan notes Net cash received from/(used) in investing activities Cash flows from financing activities Net proceeds from the issuance of ordinary shares Purchase of own shares Proceeds from loans Repayment of borrowings Settlement of lease liabilities Payment of lease liabilities Payment of lease interest Dividends paid to Company’s shareholders Net cash used in financing activities Effects of exchange rate changes on cash Net increase in cash in the year Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (6,988) 212 (1,719) – – (61) – 387 92 187 7,903 322 1,156 1,491 260 – 192 (203) (1,011) (265) (36) (6,468) (7,531) 272 13,615 30,807 44,422 (6,852) 3,796 (2,417) – 12 – 70 – 205 225 (11,193) 403 2,575 (13,176) 249 (117) – (197) – – – (6,299) (6,364) 117 2,139 28,668 30,807 (2,641) 182 (1,472) (1,237) – (61) – 387 386 4,368 7,903 492 (837) 7,470 260 – – – – (3) – (6,468) (6,211) 126 12,447 24,771 37,218 27 The notes on pages 84 to 127 form part of these financial statements. (2,726) 306 (2,071) (1,708) 3,479 – 70 – 394 4,204 (11,193) 797 1,356 (7,092) 249 (117) – – – – – (6,299) (6,167) 45 438 24,333 24,771 83 27581-FW Thorpe-AR2020 Financials.indd 83 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:34 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview Notes to the Financial Statements For the year ended 30 June 2020 1 Accounting Policies The principal accounting policies applied in the preparation of these consolidated financial statements and company financial statements (the “financial statements”) are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. FW Thorpe Plc is incorporated in England and Wales. The Company is domiciled in the UK. The Company is a public limited company, limited by shares, which is listed on the Alternative Investment Market (AIM) of the London Stock Exchange. The address of its registered office is Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH, United Kingdom. Basis of preparation The consolidated and company financial statements of FW Thorpe Plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with the Companies Act 2006. The financial statements have been prepared on a going concern basis, under the historical cost convention except for the financial instruments measured at fair value either through other comprehensive income or profit and loss per the provisions of IFRS9. The Group adopted for the first time IFRS 16 “Leases” for the year ended 30 June 2020. There are no other standards that are not yet effective that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. The consolidated financial statements are presented in Pounds Sterling, which is the Company’s functional and presentation currency, rounded to the nearest thousand. The preparation of financial information in conformity with the basis of preparation described above requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s and Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial information, are disclosed in the critical accounting estimates and judgements section. The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the Company income statement. Going concern The directors confirm they are satisfied that the Group and Company have adequate resources, with £44.4m cash and £18.6m short term deposits, to continue in business for the foreseeable future factoring in the expected impact of Covid-19. They have also produced an analysis that demonstrates that the Group could cover its cash commitments even if there were zero sales over the following year from approving these accounts. For this reason, they continue to adopt the going concern basis in preparing the accounts. Basis of consolidation The financial statements for FW Thorpe Plc incorporate the financial statements of the Company and its subsidiary undertakings. A subsidiary is a company controlled directly by the Group and all the subsidiaries are wholly owned by the Group. The Group achieves control over the subsidiaries by being able to influence financial and operating policies so as to obtain benefits from their activities. Intra-group transactions, balances, income and expenses are eliminated in preparing consolidated financial statements. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration agreement. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed on a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. 84 27581-FW Thorpe-AR2020 Financials.indd 84 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:34 Annual Report and Accounts for the year ended 30 June 2020 1 Accounting Policies continued Equity accounted investments and joint arrangements Under IFRS 11, ‘Joint Arrangements’, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. FW Thorpe Plc only has joint operations. Joint operations FW Thorpe Plc recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. Equity accounted investments Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. Where the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the group and its associates and joint ventures are eliminated to the extent of the group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. Revenue recognition The Group recognises revenue earned from contracts based on individual performance obligations using the five-step model. Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration the Group is entitled to in exchange for those goods or services, excluding VAT, trade discounts and rebates. The Group has generally concluded that it is the principal in its revenue arrangements. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. The normal credit terms are 30 to 90 days from delivery, or completion of the service provided. Revenue from external customers is derived from the supply of light fittings and services to support the sale of these light fittings. These services include surveying, project management, installation and commissioning. The transaction price for both the light fittings and the service agreements are at fair value as if each of those services are provided individually. Revenue Stream Light fittings Services Revenue Recognition Revenue is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the goods Revenue is recognised over time when the service is performed The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated (e.g. service agreements). In determining the transaction price for the sale of goods, the Group considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any). Interest income Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired the Group reduces the carrying amount to its recoverable amount, being the estimated cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest on impaired loans is recognised using the original effective interest rate. Dividend income Dividend income is recognised when the right to receive payment is established. 85 27581-FW Thorpe-AR2020 Financials.indd 85 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 1 Accounting Policies continued Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, is identified as the Group Board. The Group is organised into ten operating segments based on the products and customer base in the lighting market. The largest businesses, on an ongoing basis, are Thorlux and Lightronics Participaties B.V. (which includes the business of Famostar Emergency Lighting B.V.) . The seven remaining operating segments have been aggregated into the “other companies” reportable segment based upon their size, comprising the entities Philip Payne Limited, Solite Europe Limited, Portland Lighting Limited, TRT Lighting Limited, Thorlux Lighting L.L.C., Thorlux Australasia Pty Limited and Thorlux Lighting GmbH. Pension costs The Group operates a hybrid defined benefit and defined contribution pension scheme. The Group’s hybrid pension scheme provides benefits to members based upon the following: • Service before 1 October 1995, benefits provided are defined benefit in nature (the ”pure“ defined benefit element); • Service after 1 October 1995, has two elements: − For members joining pre-1 October 1995, benefits provided are the maximum of their defined contribution pension and their defined benefit pension (the ”defined benefit underpin“ element); − For members joining post-1 October 1995, benefits provided are defined contribution in nature (the “pure defined contribution” element). The contributions of all three elements are paid into one pension scheme, where the contributions and assets are segregated and ring-fenced from each other. The assets of the scheme are invested and managed independently of the finances of the Group. Pension costs are assessed in accordance with the advice of an independent qualified actuary. Costs include the regular cost of providing benefits, which it is intended should remain at a substantially level percentage of current and expected future earnings of the employees covered. Variations from the regular pensions cost are spread evenly through the income over the remaining service lives of current employees. Contributions made to the defined benefit scheme are charged to the income statement in the period in which they are made. The liability or surplus recognised in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the statement of financial position date less the fair value of plan assets, together with adjustments for unrecognised past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. In the defined benefit underpin element of the scheme the liabilities reflect the greater of the defined contribution or defined benefit liabilities. For the defined benefit underpin element of the scheme each member is tested to see whether the pension on a defined contribution or defined benefit basis is higher. The liabilities shown in the pensions note are based on the greater of the two liabilities for each member, which in almost all cases is the defined benefit liability. For the service cost, again tests are performed to see which is the higher for each member out of the Company’s share of the defined contribution payments or the Company’s share of accruing benefits on a defined benefit basis. The higher of these two figures for each member is then used to give the total service cost; again the defined benefit cost is the higher for the vast majority of members. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in the statement of comprehensive income in the period in which they arise. Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period. 86 27581-FW Thorpe-AR2020 Financials.indd 86 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 1 Accounting Policies continued For defined contribution plans and pure defined contribution elements, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense in the income statement as they fall due, or as an accrued or prepaid expense. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. A defined benefit surplus is only recognised if it meets the following criteria: if the Group has an unconditional right to a refund; or if the Group can realise it at some point during the life of the plan or when the plan liabilities are settled. If the criteria are not met then a defined benefit surplus is not recognised. Foreign currencies Transactions in foreign currency are converted to sterling using the exchange rate applicable to the date of the transaction. Foreign currency gains and losses resulting from the settlement of foreign currency transactions at a different time are recognised in the income statement. Currency exchange differences arising from holding monetary assets or liabilities in a foreign currency are fair valued at the statement of financial position date in accordance with prevailing exchange rates and resulting gains or losses are recognised in the income statement. Taxation The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income 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 consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Dividend distribution Final dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. Interim dividends are recognised as a liability in the Group’s financial statements when approved by the directors. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses where applicable. Cost includes the original purchase price together with the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated on a straight-line basis to write down the cost less estimated residual value of all plant and equipment assets by equal instalments over their expected useful life. The rates generally applicable are: Freehold land Buildings Plant and equipment Nil 2%–10% 10%–50% The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each statement of financial position date. Assets are reviewed for impairment where there is an indication that the carrying value may not be recoverable. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within administrative expenses in the income statement. 87 27581-FW Thorpe-AR2020 Financials.indd 87 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 1 Accounting Policies continued Leases IFRS 16 replaced IAS 17 ‘Leases’ and requires lessees to recognise right-of-use assets and lease liabilities for all leases apart from short-term and low value leases. The Group adopted IFRS 16 on 1 July 2019 using the simplified transition approach and has therefore not disclosed comparative amounts. On adoption of IFRS16, the Group recognised lease liabilities in relation to leases that had previously been classified as ‘operating leases’ under the principles of IAS17. The liabilities were measured at the present value of the remaining lease payments using an appropriate incremental borrowing rate. The weighted average lease rate used was 5.5%. Right-of-use assets have been measured on transition as if the new rules had always been applied with the difference to the lease liability value recognised as an adjustment to opening retained earnings at 1 July 2019. The majority of leases in the Group have arisen from acquisition of companies as the Group usually purchases assets. Consequently, the adoption of IFRS 16 does not have a significant impact on the financial statements. Financial Impact – Group As reported in the Financial Statements for the year ended 30 June 2019 the Group had future aggregate minimum lease payments due under non-cancellable operating leases as follows: Within one year Within two to five years Over five years Land and buildings £’000 311 1,061 293 1,665 30 June 2019 Total £’000 575 1,377 293 2,245 Other £’000 264 316 – 580 The reconciliation of operating lease commitments disclosed at 30 June 2019 to lease liabilities recognised at 1 July 2019 is as follows: Lease liabilities recognised on adoption Operating lease commitments disclosed as at 30 June 2019 Discounted using the borrowing rate Less: short-term and low value leases recognised on a straight-line basis as expense Lease liability recognised at 1 July 2019 Of which are: Current lease liabilities Non-current lease liabilities Right-of-use assets recognised at 1 July 2019 Properties Equipment Motor vehicles Total right-of-use assets Deferred Tax asset recognised at 1 July 2019 Lease modification in respect of terminated lease July 2019 NBV 1 July 2019 Lease creditor 1 July 2019 Overall adjustment to retained earnings as at 1 July 2019 88 £’000 (2,245) 483 52 (1,710) (373) (1,337) (1,710) 1 July 2019 £’000 929 32 397 1,358 5 (929) 1,011 82 (265) 27581-FW Thorpe-AR2020 Financials.indd 88 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 1 Accounting Policies continued On adoption of IFRS 16, the property right-of-use asset for Thorlux Australasia PTY Limited was assessed to have a carrying value of £nil, resulting in an impairment of £250,000. This impairment is included in the opening adjustment to retained earnings. For the year ended 30 June 2020 the impact on the Income Statement is as follows: Finance costs have increased by £36,000, depreciation by £228,000 and other operating costs reduced by £301,000 resulting in an overall increase in profit before tax of £37,000. Financial Impact – Company Within the company, adoption of IFRS 16 resulted in retained earnings brought forward increasing by £1,000 with no material impact on right-of-use asset and lease liabilities. Short term leases and low value assets For these leases, payments made under them, are charged to the income statement on a straight-line basis over the term of the lease. Intangible assets Development costs The Group undertakes development activities on an ongoing basis. Part of these costs relate to projects where the benefit is received in the short term (less than one year) and part relates to longer term projects where the benefit is expected to be received for several years to come. Costs associated with the shorter term activities are expensed as and when they are incurred. Costs associated with the longer term projects are capitalised as an intangible asset and amortised over the expected life of the benefit at 33.33% per annum commencing when the asset is available for use within the business. Development costs are recognised as intangible assets when the following criteria are met: It is technically feasible to complete the intangible asset so that it will be available for use; • • Management intends to complete the intangible asset and use or sell it; • There is an ability to use or sell the intangible asset; • • Adequate technical, financial and other resources to complete the development and to use or sell the intangible It can be demonstrated how the intangible asset will generate probable future economic benefits; asset are available; and • The expenditure attributable to the intangible asset during its development can be reliably measured. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. The economic success for development activities is uncertain and carrying amounts are reviewed at each statement of financial position date for impairment in accordance with IAS 36. Development assets are valued at cost less accumulated amortisation and any impairment losses. Fishing rights Fishing rights are stated at cost less accumulated impairment where applicable. The rights are not amortised, but assessed annually for impairment. Goodwill Goodwill is stated at cost less accumulated impairment where applicable. 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. Goodwill is reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate a potential impairment. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. 27581-FW Thorpe-AR2020 Financials.indd 89 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 89 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 1 Accounting Policies continued Software costs Software costs are stated at cost less accumulated amortisation and impairment where applicable. Amortisation is calculated on a straight-line basis to write down the cost less estimated residual value over its useful life. The amortisation rates are between 20% and 50% per annum. Patent costs Patents are stated at cost less accumulated amortisation. Amortisation is calculated on a straight-line basis to write down the cost less estimated residual value over its useful life. The amortisation rate is 20%. Other intangible assets An intangible asset acquired in a business combination is recognised at fair value to the extent it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. Intangible assets principally relate to brand names and technology which were valued discounting estimated future net cash flow from the asset. The cost of intangible assets is amortised through the income statement on a straight-line basis over their estimated economic life. The rates generally applicable are: Technology Brand name 14% 14%–20% Investment properties Investment properties are recognised at cost, and then subsequently cost less accumulated depreciation and (if applicable) any accumulated impairment losses. Freehold land is not depreciated. In the Company accounts land and buildings (and integral fixtures and fittings) not occupied by the Company are included within investment property. Investments in subsidiaries Investments in subsidiaries are held at cost less impairment. Cost includes directly attributable costs of investment. Financial Assets (i) Classification The Group classifies its financial assets in the following measurement categories: • • those to be measured subsequently at fair value (either through OCI or the income statement); and those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in the income statement or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). The Group reclassifies debt investments when and only when its business model for managing those assets changes. (ii) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. 90 27581-FW Thorpe-AR2020 Financials.indd 90 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 1 Accounting Policies continued (iii) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in the income statement. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments: • Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in the income statement together with foreign exchange gains and losses. Impairment losses are included in either administrative expenses, or finance costs in the income statement dependent on the type of asset impaired. • FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in the income statement. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in finance income or costs. Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in administrative expenses and impairment expenses are included in either administrative expenses, or finance costs in the income statement. • FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in the income statement in the period in which it arises. Equity instruments The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to the income statement following the derecognition of the investment. Dividends from such investments continue to be recognised in the income statement as finance income when the Group’s right to receive payments is established. Changes in the fair value of financial assets at FVPL are recognised in the income statement as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. (iv) Impairment The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables, see accounting policy for trade receivables for further details. 27581-FW Thorpe-AR2020 Financials.indd 91 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 91 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 1 Accounting Policies continued Inventories Inventories 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, obsolete and other stock lines based on the net realisable value. Trade receivables Trade receivables are recognised initially at fair value and the Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period 12 months up to the end of the relevant financial year, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables, as significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within “distribution costs”. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against “distribution costs” in the income statement. Non-current assets and disposal groups held for sale Non-current assets and disposal groups are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of their carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. Short-term financial assets Short-term financial assets are defined as cash term deposits with banks with an original term of three months and over. Cash and cash equivalents Cash and cash equivalents are defined as cash in hand, on demand deposits and short-term deposits with banks with an original term less than three months. Current asset investments Current asset investments are valued at fair value. Changes in fair value are recognised in the income statement. Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 92 27581-FW Thorpe-AR2020 Financials.indd 92 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 1 Accounting Policies continued Provisions Provisions are recognised in the statement of financial position when a Group company has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the statement of financial position date. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced to those affected by it. In accordance with the Group’s published environmental policy and applicable legal requirements, a provision for site restoration in respect of contaminated land is recognised when land is contaminated. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Warranty The Group provides for expected warranty costs covering both specific known warranty claims and calculating expected future warranty claims in order to estimate the expected costs that will arise in respect of products sold within the remaining warranty periods. The expected future warranty claims provision is calculated by assessing historical data, industry failure rates and the Group’s knowledge of products to determine the percentage of sales that should be provided for to cover future associated warranty costs. Critical accounting estimates and judgements The presentation of the annual financial statements in conformity with IFRS as adopted by the EU requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The key estimates and judgements used in the financial statements are as follows: 27581-FW Thorpe-AR2020 Financials.indd 93 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 93 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 1 Accounting Policies continued Estimates Goodwill/Investment in subsidiaries The Group and the Company undertake impairment reviews for cash generating units (CGU) at least annually to assess the carrying value of Goodwill/investment in subsidiaries and other intangible assets. These reviews apply either discounted cash flows forecast, including terminal values and growth factors if appropriate, or EBITDA multiples to the forecast financial performance of the CGU. Note 9 contains details of reviews that have been carried out. Warranty The Group provides for expected warranty costs covering both specific known warranty claims and calculating expected future warranty claims in order to estimate the expected costs that will arise in respect of products sold within the remaining warranty periods. The usual warranty period provided is 5 years. The expected future warranty claims provision is calculated by assessing historical data, industry failure rates and the Group’s knowledge of products to determine the percentage of sales that should be provided for to cover future associated warranty costs. Note 23 contains details of the warranty provision. If the failure rate assumption used in the provision calculation were to increase by 5%, then the resulting provision would be higher by £90,000. Lightronics share appreciation rights The Group has an obligation to purchase the share appreciation rights from the management and former shareholders of the Lightronics business. To calculate the expected share appreciation repurchase value the Group has considered the recent and budgeted future performance of the Lightronics business analysing forecasted EBITDA, revenue and costs upon which the obligation is based. This analysis is reviewed and updated each year and, if necessary, adjustments are made to ensure that the provision value reflects the best current estimate of settlement with movements recognised as a share based payment charge. If the forecast EBITDA assumption were to increase by 5%, the resulting deferred consideration would increase by £300,000. Notes 20 and 28 contain details of the share appreciation rights. Famostar share appreciation rights The Group has an obligation to purchase the share appreciation rights from the same rights holders as for the Lightronics business. To calculate the expected share appreciation repurchase value the Group has considered the recent and budgeted future performance of the Famostar business analysing forecasted EBITDA, revenue and costs upon which the obligation is based. This analysis is reviewed and updated each year and, if necessary, adjustments are made to ensure that the provision value reflects the best current estimate of settlement with movements recognised as a share based payment charge. If the forecast EBITDA assumption were to increase by 5%, the resulting deferred consideration would increase by £108,000. Notes 20 and 28 contain details of the share appreciation rights. Retirement benefit obligations The Group recognises its obligations to employee retirement benefits. The quantification of these obligations is subject to significant estimates and assumptions regarding life expectancy, discount and inflation rates and the rate of increase in pension payments. In making these assumptions the Group takes advice from an independent qualified actuary about which assumptions best reflect the nature of the Group’s obligations to employee retirement benefits. These assumptions are regularly reviewed by our actuaries Cartwright Benefit Consultants Ltd to ensure their appropriateness. Note 22 contains details of the retirement benefit obligations. Taxation The investments made by the Group in research and development have resulted in patents being granted for features that are incorporated in the products the Group sells. This enables the Group to benefit from the patent box tax relief provided by the Government reducing the corporation tax liability. Note 6 contains details of the benefit received from patent box tax relief. Inter-company loan impairment The Company provides for expected credit losses that may arise from under-performing loans to subsidiary companies. The expected credit loss is calculated by looking at historical performance and the Company’s knowledge of how the subsidiary is likely to perform in the future. Note 12 contains details of inter-company loan impairments based on an expected credit loss assumption of 45%. If the expected credit loss assumption was to increase to 55% there would be an extra charge of £267,000 to the Company. 94 27581-FW Thorpe-AR2020 Financials.indd 94 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 1 Accounting Policies continued Judgements Warranty The Group provides for expected warranty costs covering both specific known warranty claims and calculating expected future warranty claims. In determining this provision the Group uses its knowledge of its products in the application of failure rates for new products at the start of their warranty period. Development costs The Group undertakes development activities and the commercial viability of these activities is assessed on a continual basis; as such the Group assesses each new project to determine whether development costs incurred should be capitalised within intangible assets or recognised as an expense within administrative expenses. The Group determines this classification based on the future value of the work based on past experience of similar development projects and the feedback from the marketplace about future expectations for technological development. Lightronics share appreciation rights The Group has an obligation to purchase the share appreciation rights from the management and former shareholders of the Lightronics business over the period to 2021. In determining the expected purchase price the Group has assumed the repurchase will be made in 2021 thereby assessing the expected purchase price at this date. Famostar share appreciation rights The Group has an obligation to purchase the share appreciation rights from the management and former shareholders of the Lightronics business over the period to 2021. In determining the expected purchase price the Group has assumed the repurchase will be made in 2021 thereby assessing the expected purchase price at this date. Retirement benefit obligations The Group recognises its obligations to employee retirement benefits. Where the fair value of the pension plan assets exceeds the present value of the defined benefit obligation the Group consider the amount which can be recognised as an asset within the statement of financial position in line with the requirements of IAS 19. A defined benefit surplus is only recognised if it meets the following criteria: if the Group has an unconditional right to a refund; or if the Group can realise it at some point during the life of the plan or when the plan liabilities are settled. As these criteria are not met the Group has decided not to recognise a net retirement benefit asset. Inter-company loan impairment The Company recognises expected credit losses that may arise from under-performing loans to subsidiary companies based on its expectations of when these loans will be settled. 27581-FW Thorpe-AR2020 Financials.indd 95 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:35 95 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 1 Accounting Policies continued Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, commodity price risk and security price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group may use derivative financial instruments to hedge certain risk exposures. (a) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the euro, US dollar, Australian dollar and Arab Emirate dirham. Foreign exchange risk arises from future commercial transactions denominated in a currency that is not the entity’s functional currency as well as bank account balances, trade and other receivables as well as trade and other payables denominated in currencies other than sterling and net investments in foreign operations. The Group has carried out an exercise to evaluate the effect of a movement of 1% in each currency other than sterling, and the results are not significant. The risk is managed by maintaining relatively low currency balances and selling or buying currency when required. (ii) Price risk The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated statement of financial position either as financial assets at fair value through other comprehensive income or at fair value through profit or loss. The Group has investments in UK listed securities of other entities and these are publicly traded on the London Stock Exchange. The nature of the list of investments held means the investments can go up and down in value. The Group holds money market funds which are designated at short term investments and also a range of quoted securities which are designated as financial assets at fair value through other comprehensive income. Management has performed an analysis and do not believe there to be a material sensitivity to changes in underlying price indices arising from these holdings. (iii) Commodity price risk The Group has an exposure to the risk of commodity price changes, in particular, metals. The Group seeks to minimise the risk by agreeing prices with major suppliers in advance. (iv) Interest rate risk The Group is exposed to interest rate risk because it has cash investments and short-term financial assets which are mostly interest-bearing. The effect of a reduction in interest rates is to reduce financial income. The Group has no exposure to the risk of increased interest cost other than pension scheme interest cost. (b) Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum Fitch rating of F1 are accepted. If wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board. The utilisation of credit limits is regularly monitored. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the ability to close out market positions. Management monitors rolling forecasts of the Group’s liquidity reserve, which comprises cash and cash equivalents together with short-term financial assets (note 18) on the basis of expected cash flow. All external current liabilities are expected to mature within four months. 96 27581-FW Thorpe-AR2020 Financials.indd 96 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:36 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 1 Accounting Policies continued Capital risk management The Group’s policy has been to maintain a strong capital basis in order to maintain investor, customer, creditor and market confidence. This sustains future development of the business, safeguarding the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares. From time to time the Group purchases its own shares in the market; the timing of these purchases is dependent on market prices, to ensure such transactions are sufficiently beneficial for the Company, its earnings per share and returns to investors. The Group continues to seek to maintain the balance of these returns, while strengthening the reserves and equity position of the Company, via continued profitability and structured growth. The Group has a long-standing policy not to utilise debt within the business, providing a robust capital structure even within the toughest economic conditions. The Group’s significant cash resources allow such a position, but also require close management to ensure that sufficient returns are being generated from these resources. The Group’s policy with regard to the cash resources is to ensure they generate sufficient returns, whether by investment in business activities, such as plant and equipment, or assessing suitable opportunities to grow the business, or the physical investment of these funds to ensure appropriate returns to investors. The Group is able to maintain its current capital structure because there are no externally imposed capital requirements, and there were no changes in the Group’s approach to capital management during the year. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. Fair value estimation Financial instruments Financial instruments that are measured at fair value are disclosed in the consolidated financial statements in accordance with the following fair value measurement hierarchy: i. Quoted prices (unadjusted) in active markets for identical assets and liabilities (level 1) ii. Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices), or indirectly (that is, derived from prices) (level 2) iii. Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3) The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Other assets and liabilities The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Share capital Ordinary shares are classified as equity. Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from the equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders. 27581-FW Thorpe-AR2020 Financials.indd 97 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:36 97 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 1 Accounting Policies continued Share based payments Senior executives of the Group receive remuneration in the form of share based payments through the executive share ownership plan and other employees through a “SAYE” scheme. The fair value of the shares or share options granted is recognised over the vesting period to reflect the value of the employee services received. The charge relating to grants to employees of the Company is recognised as an expense in the profit and loss account. The fair value of options granted, excluding the impact of any non-market vesting conditions, is calculated using established option pricing models. The probability of meeting non-market vesting conditions, which include profitability targets, is used to estimate the number of share options which are likely to vest. Cash-settled share based payments The Group has cash-settled share based payments for holders of share appreciation rights holders. A liability is recognised equal to the calculated future fair value as at the date of the statement of financial position. 2 Segmental Analysis (a) Business segments The segmental analysis is presented on the same basis as that used for internal reporting purposes. For internal reporting FW Thorpe is organised into ten operating segments based on the products and customer base in the lighting market – the largest business is Thorlux, which manufactures professional lighting systems for industrial, commercial and controls markets. The businesses in the Netherlands, Lightronics and Famostar, are material subsidiaries and disclosed separately as Netherlands companies. The seven remaining operating segments have been aggregated into the “other companies” reportable segment based upon their size, comprising the entities Philip Payne Limited, Solite Europe Limited, Portland Lighting Limited, TRT Lighting Limited, Thorlux Lighting L.L.C., Thorlux Australasia Pty Limited, Thorlux Lighting GmbH. FW Thorpe’s chief operating decision-maker (CODM) is the Group Board. The Group Board reviews the Group’s internal reporting in order to monitor and assess performance of the operating segments for the purpose of making decisions about resources to be allocated. Performance is evaluated based on a combination of revenue and operating profit. Assets and liabilities have not been segmented, which is consistent with the Group’s internal reporting. Netherlands companies £’000 Other companies £’000 Inter- segment adjustments £’000 Total continuing operations £’000 31,340 234 31,574 4,125 16,387 4,021 20,408 1,412 – (7,419) (7,419) 645 Thorlux £’000 65,615 3,164 68,779 10,150 62,304 3,551 65,855 11,578 31,059 372 31,431 3,620 17,280 3,567 20,847 2,398 – (7,490) (7,490) 53 11,578 3,620 2,398 53 113,342 – 113,342 16,332 (389) 15,943 110,643 – 110,643 17,649 1,917 19,566 3 19,569 Year to 30 June 2020 Revenue to external customers Revenue to other group companies Total revenue Operating profit Net finance expense Profit before income tax Year to 30 June 2019 (restated) Revenue to external customers Revenue to other group companies Total revenue Operating profit (before disposal of property) Profit on disposal of property Operating profit Net finance income Profit before income tax 98 27581-FW Thorpe-AR2020 Financials.indd 98 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:36 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 2 Segmental Analysis continued Inter segment adjustments to operating profit consist of property rentals on premises owned by FW Thorpe Plc, adjustments to profit related to stocks held within the Group that were supplied by another segment and elimination of profit on transfer of assets between Group companies. The prior year segmental reporting has been restated to provide comparatives of the Netherlands companies together. (b)i Geographical analysis The Group’s business segments operate in four main areas, the UK, the Netherlands, the rest of Europe and the rest of the World. The home country of the company, which is also the main operating company, is the UK. UK Netherlands Rest of Europe Rest of the World 2020 £’000 69,657 28,748 12,265 2,672 113,342 2019 £’000 68,706 28,227 11,185 2,525 110,643 (b)ii Geographical analysis by product types The Group’s main business segments primary revenue stream is the sale of light fittings, with some ancillary services and commissioning supporting this revenue stream. 2020 (£'000) UK Netherlands Rest of Europe Rest of the World 2019 (£’000) UK Netherlands Rest of Europe Rest of the World Light Fittings 66,733 28,748 12,231 2,671 110,383 Light Fittings 66,359 28,224 11,150 2,521 108,254 Services 2,924 – 34 1 2,959 Services 2,347 3 35 4 2,389 Total 69,657 28,748 12,265 2,672 113,342 Total 68,706 28,227 11,185 2,525 110,643 27581-FW Thorpe-AR2020 Financials.indd 99 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:36 99 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 3 Operating Profit Profit on sale of Property, Plant & Equipment Depreciation of investment property Depreciation of Property, Plant & Equipment – owned property – right-of-use assets Operating lease rentals – property – other Amortisation of intangible assets Share appreciation rights (with associated share based payment charges) Cost of inventories recognised as an expense Research and development expenditure credit Government grants Currency gains in income statement Services provided by the Company’s auditors Fees payable to Company’s auditors for audit of financial statements Fees payable to the Company’s auditors and its associates for other services Audit of Company’s subsidiaries Other assurance services 2020 £’000 (118) 19 2,993 228 – – 2,577 1,978 45,110 (249) (192) (461) 2020 £’000 210 – – 210 2019 £’000 (2,116) 58 2,508 – 382 388 2,456 2,175 44,659 (292) – (69) 2019 £’000 131 42 6 179 It is the Group’s practice to employ PricewaterhouseCoopers LLP on assignments additional to their statutory audit duties where their expertise and experience with the Group are important. 4 Employee Information The average monthly number of employees employed by the Group (including executive directors) during the year is analysed below: Average headcount Production Sales and distribution Administration Total average headcount Employment costs of all employees (including executive directors) Wages & salaries Social security costs Other pension costs Group Company 2020 Number 293 184 211 688 2019 Number 273 177 216 666 2020 Number 178 107 145 430 2019 Number 170 100 149 419 Group Company 2020 £’000 27,957 3,262 1,504 32,723 2019 £’000 26,891 3,138 1,453 31,482 2020 £’000 17,803 1,965 969 20,737 2019 £’000 17,342 1,931 896 20,169 Included in wages and salaries are £1,821,000 (2019: £1,652,000) of temporary employees costs. Other pension costs include contributions to pension schemes and other employer’s pension related charges comprising life assurance of £80,000 (2019: £93,000), pension administration and professional charges of £119,000 (2019: £130,000) and private pension schemes amounting to £15,000 (2019: £15,000). 100 27581-FW Thorpe-AR2020 Financials.indd 100 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:36 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 4 Employee Information continued Contributions to the defined contribution section amounted to £258,000(2019: £251,000) and contributions to other schemes administered independently of the FW Thorpe pension schemes amounted to £849,000 (2019: £796,000). Directors’ Emoluments Aggregate emoluments Contributions to money purchase schemes Group Company 2020 £’000 1,607 19 1,626 2019 £’000 1,974 20 1,994 2020 £’000 1,356 19 1,375 2019 £’000 1,683 20 1,703 At 30 June 2020 no retirement benefits were accruing to any director (2019: N/A) under the defined benefit scheme and to J E Thorpe (2019: J E Thorpe) under the defined contribution scheme. Additionally compensation payments for the loss of pension contributions totalling £245,000 (2019: £207,000) were made to 5 (2019: 5) directors. Highest paid director Total of emoluments and amounts receivable Group Company 2020 £’000 427 2019 £’000 442 2020 £’000 427 2019 £’000 442 Compensation payments for the loss of pension contributions for the highest paid director were £41,000 (2019: £146,000). The key management personnel are the Group Board directors. Further details are provided in the directors’ remuneration report on pages 65 to 68. 5 Net Finance Income/Expense Finance income Current assets Interest receivable Non-current assets Fair value adjustments on loans Dividend income on financial assets at fair value through other comprehensive income Net rental income Loan interest Gain on disposal of financial assets Finance cost Current liabilities Interest payable Lease liability interest expense Share appreciation rights distribution Non-current assets Loss on settlement of loan notes Loan interest Net finance (expense)/ income 2020 £’000 2019 £’000 293 312 23 187 64 141 – 708 2 36 958 – 101 1,097 (389) – 225 224 213 75 1,049 1 – 922 9 114 1,046 3 The share appreciation rights distribution are the dividends from Lightronics Participaties B.V. and Famostar Emergency Lighting B.V. due to the former management of Lightronics Participaties B.V. 27581-FW Thorpe-AR2020 Financials.indd 101 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:36 101 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 6 Income Tax Expense Analysis of income tax expense in the year: Current tax Current tax on profits for the year Adjustments in respect of prior years Total current tax Deferred tax Origination and reversal of temporary differences Total deferred tax Income tax expense 2020 £’000 3,691 (981) 2,710 (81) (81) 2,629 2019 £’000 3,963 (609) 3,354 75 75 3,429 The tax assessed for the year is lower (2019: lower) than the standard rate of corporation tax in the UK of 19.00% (2019: 19.00%). The differences are explained below: Profit before income tax Profit on ordinary activities multiplied by the standard rate in the UK of 19.00% (2019: 19.00%) Effects of: Expenses not deductible for tax purposes Accelerated tax allowances and other timing differences Adjustments in respect of prior years Chargeable gains relief on disposal of property Patent box relief Foreign profit taxed at higher rate Tax charge 2020 £’000 15,943 3,029 854 17 (981) – (643) 353 2,629 2019 £’000 19,569 3,718 881 55 (609) (352) (597) 333 3,429 The effective tax rate was 16.49% (2019: 17.52%). Adjustments in respect of prior years relates to refunds received for prudent assumptions on additional investment allowances and patent box relief in the tax calculations. The UK corporation tax rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020, reversing the previously enacted reduction in the rate from 19% to 17%. 7 Earnings Per Share Basic and diluted earnings per share for profit attributable to equity holders of the Company Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares. Basic Weighted average number of ordinary shares in issue Profit attributable to equity holders of the Company (£’000) Basic earnings per share (pence per share) total 2020 116,272,709 13,314 11.45 2019 116,060,378 16,140 13.91 Diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares, plus the number of shares earnt for share options where performance conditions have been achieved. Diluted Weighted average number of ordinary shares in issue (diluted) Profit attributable to equity holders of the Company (£’000) Diluted earnings per share (pence per share) total 2020 116,805,366 13,314 11.40 2019 116,689,595 16,140 13.83 102 27581-FW Thorpe-AR2020 Financials.indd 102 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:36 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 8 Property, Plant and Equipment Group Freehold land and buildings £’000 Plant and equipment £’000 Right- of-use assets £’000 19,720 – 19,720 3,709 (31) (17) 171 23,552 3,712 – 3,712 662 (31) (2) 21 4,362 23,851 – 23,851 4,016 (1,005) 17 54 26,933 14,506 – 14,506 2,331 (911) 2 27 15,955 – 2,266 2,266 192 (1,628) – 26 856 – 908 908 228 (699) – 13 450 Total £’000 43,571 2,266 45,837 7,917 (2,664) – 251 51,341 18,218 908 19,126 3,221 (1,641) – 61 20,767 Company Freehold land and buildings £’000 Plant and equipment £’000 Right of use assets £’000 6,374 – 6,374 110 – – – 6,484 2,095 – 2,095 150 – – – 2,245 18,304 – 18,304 2,531 (479) – – 20,356 11,398 – 11,398 1,623 (406) – – 12,615 – 13 13 – (13) – – – – 9 9 4 (13) – – – Total £’000 24,678 13 24,691 2,641 (492) – – 26,840 13,493 9 13,502 1,777 (419) – – 14,860 19,190 10,978 406 30,574 4,239 7,741 – 11,980 Cost At 1 July 2019 Adoption of IFRS16 At 1 July (restated) Additions Disposals Transfers Currency translation At 30 June 2020 Accumulated depreciation At 1 July 2019 Adoption of IFRS16 At 1 July (restated) Charge for the year Disposals Transfers Currency translation At 30 June 2020 Net book amount At 30 June 2020 Freehold land and buildings £’000 Group Plant and equipment £’000 18,676 3,176 (2,199) 67 19,720 3,829 546 (673) 10 3,712 21,328 3,616 (1,116) 23 23,851 13,496 1,962 (962) 10 14,506 Freehold land and buildings £’000 Company Plant and equipment £’000 6,260 114 – – 6,374 1,958 137 – – 2,095 16,286 2,553 (535) – 18,304 10,326 1,437 (365) – 11,398 Total £’000 40,004 6,792 (3,315) 90 43,571 17,325 2,508 (1,635) 20 18,218 Total £’000 22,546 2,667 (535) – 24,678 12,284 1,574 (365) – 13,493 16,008 9,345 25,353 4,279 6,906 11,185 Cost At 1 July 2018 Additions Disposals Currency translation At 30 June 2019 Accumulated depreciation At 1 July 2018 Charge for the year Disposals Currency translation At 30 June 2019 Net book amount At 30 June 2019 Freehold land which was not depreciated at 30 June 2020 amounted to £774,000 (2019: £769,000) (Group) and £500,000 (2019: £500,000) (Company). 103 27581-FW Thorpe-AR2020 Financials.indd 103 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:37 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 9 Intangible Assets Group 2020 Cost At 1 July 2019 Additions Write-offs and transfers Currency translation At 30 June 2020 Accumulated amortisation At 1 July 2019 Charge for the year Write-offs and transfers Currency translation At 30 June 2020 Net book amount At 30 June 2020 Goodwill £’000 Development costs £’000 Technology £’000 14,921 – – 195 15,116 246 – – 2 248 7,292 1,322 (1,275) 18 7,357 3,441 1,715 (1,275) 21 3,902 2,956 – – 44 3,000 1,504 371 – 33 1,908 Brand name £’000 1,304 – – 19 1,323 801 162 – 17 980 Software £’000 Patents £’000 Fishing rights £’000 Total £’000 2,202 397 (26) – 2,573 1,178 329 (26) – 1,481 150 – – – 150 150 – – – 150 182 29,007 1,719 (1,301) 276 182 29,701 – – – – – – – – 7,320 2,577 (1,301) 73 8,669 14,868 3,455 1,092 343 1,092 – 182 21,032 Write-offs relate to development assets where no further economic benefits will be obtained. Group 2019 Cost At 1 July 2018 Additions Write-offs and transfers Currency translation At 30 June 2019 Accumulated amortisation At 1 July 2018 Charge for the year Write-offs and transfers Currency translation At 30 June 2019 Net book amount At 30 June 2019 Goodwill £’000 Development costs £’000 Technology £’000 14,786 – – 135 14,921 249 – – (3) 246 6,779 1,791 (1,293) 15 7,292 3,062 1,662 (1,293) 10 3,441 2,924 – – 32 2,956 1,117 372 – 15 1,504 Brand name £’000 1,291 – – 13 1,304 599 193 – 9 801 Software £’000 Patents £’000 Fishing rights £’000 Total £’000 1,789 592 (178) (1) 2,202 1,128 229 (178) (1) 1,178 150 – – – 150 150 – – – 150 182 27,901 2,383 (1,471) 194 29,007 – – – 182 – – – – – 6,305 2,456 (1,471) 30 7,320 14,675 3,851 1,452 503 1,024 – 182 21,687 Amortisation and impairment of £2,577,000 (2019: £2,456,000) is included in the administrative expenses. Included in goodwill are amounts of £2,618,000 (2019: £2,618,000) arising from the acquisition of Portland Lighting Limited in 2011, €7,784,000 (£7,091,000) (2019: €7,784,000 (£6,976,000)) arising from the acquisition of Lightronics Participaties B.V. in 2015 and €5,057,000 (£4,607,000) (2019: €5,057,000 (£4,532,000)) arising from the acquisition of Famostar Emergency Lighting B.V. in December 2017. This goodwill is not amortised. The goodwill for Lightronics, Famostar and Thorlux Australasia is revalued annually to the closing exchange rate, as it is denominated in euros and Australian dollars respectively, with the movement recorded in exchange differences on translation of foreign operations in the Statement of Changes in Equity. 104 27581-FW Thorpe-AR2020 Financials.indd 104 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:37 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 9 Intangible Assets continued The Group tests intangible assets annually for impairment, or more frequently if there are indications of impairment, for each relevant cash generating unit (CGU). CGUs in the Group comprise the entities FW Thorpe Plc, Lightronics Participaties B.V., Lightronics B.V., Philip Payne Limited, Solite Europe Limited, Portland Lighting Limited, TRT Lighting Limited, Thorlux Lighting L.L.C., Thorlux Australasia Pty Limited, Thorlux Lighting GmbH and Famostar Emergency Lighting B.V. For Portland Lighting Limited the value in use has been determined using cashflow projections covering a five year period with a terminal value all discounted at a rate of 6.3%. For prudence, no growth has been assumed from 2023. For an impairment to be required, the discount rate would need to exceed 11.77% (Group) and 9.27% (Company: investments in subsidiaries). For the other CGUs an EBITDA analysis is computed to compare against the net carrying value of the goodwill and other intangible assets for each CGU as appropriate. A multiple based on a six times EBITDA, that we consider a reasonable multiple for the sector, is used in these computations, except for Famostar B.V. where an EBITDA multiple of five and a half has been used. Due to the timing of the acquisitions that gave rise to the majority of our goodwill held, our assessment also considers business performance and likely net realisable value, which must be assessed as part of settlement of related share appreciation rights. At expected levels of EBITDA we consider that our goodwill is fully recoverable with headroom on the Lightronics and Famostar CGUs of £16m in the Group and £7m in the Company (investments in subsidiaries, financial assets at amortised cost and amounts due from group companies). Company 2020 Cost At 1 July 2019 Additions Write-offs and transfers At 30 June 2020 Accumulated amortisation At 1 July 2019 Charge for the year Write-offs and transfers At 30 June 2020 Net book amount At 30 June 2020 Development costs £’000 Software £’000 Patents £’000 Fishing rights £’000 5,275 1,081 (1,275) 5,081 2,258 1,279 (1,275) 2,262 2,183 391 – 2,574 1,190 311 – 1,501 150 – – 150 150 – – 150 182 – – 182 – – – – Total £’000 7,790 1,472 (1,275) 7,987 3,598 1,590 (1,275) 3,913 2,819 1,073 – 182 4,074 Write-offs relate to development assets where no further economic benefits will be obtained. Company 2019 Cost At 1 July 2018 Additions Write-offs and transfers At 30 June 2019 Accumulated amortisation At 1 July 2018 Charge for the year Write-offs and transfers At 30 June 2019 Net book amount At 30 June 2019 Development costs £’000 Software £’000 Patents £’000 Fishing rights £’000 5,098 1,470 (1,293) 5,275 2,295 1,256 (1,293) 2,258 1,601 583 (1) 2,183 985 206 (1) 1,190 150 – – 150 150 – – 150 182 – – 182 – – – – Total £’000 7,031 2,053 (1,294) 7,790 3,430 1,462 (1,294) 3,598 3,017 993 – 182 4,192 105 27581-FW Thorpe-AR2020 Financials.indd 105 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:37 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 9 Intangible Assets continued For development costs, the Group capitalises employee costs and directly attributable material costs necessary to design, construct and test new and improved product ranges and technology. These costs are only capitalised where they meet all the criteria set out in IAS 38. Where development costs relate to products or technologies that are not expected to generate future economic benefits, do not meet the requirements of IAS 38 or relate to research, they are charged to the income statement. 10 Investments in Subsidiaries The cost of investment in subsidiaries is as follows: Investment in subsidiaries – cost The movement in the investment and provisions is as follows: At 1 July 2019 At 30 June 2020 Company 2020 £’000 14,581 2019 £’000 14,581 Costs £’000 14,581 14,581 Provision £’000 – – Impairment for investments in subsidiaries has been considered within the headroom shown in note 9. 11 Investment Property Cost At 1 July Additions Disposals At 30 June Accumulated depreciation At 1 July Charge for the year Disposals At 30 June Net book amount At 30 June Group Company 2020 £’000 2,259 – – 2,259 253 19 – 272 2019 £’000 2,271 – (12) 2,259 195 58 – 253 2020 £’000 10,211 1,237 – 11,448 1,080 238 – 1,318 2019 £’000 10,593 1,708 (2,090) 10,211 1,378 254 (552) 1,080 1,987 2,006 10,130 9,131 The following amounts have been recognised in the income statement: Rental income Direct operating expenses arising from investment properties that generate rental income Group Company 2020 £’000 142 2019 £’000 198 2020 £’000 408 2019 £’000 421 (98) (95) (316) (270) The investment property and land owned by the Group consists of property held for investment purposes, a property with land and fishing rights by the River Wye, and land designated for woodland in Monmouthshire. The associated fishing rights for the property by the River Wye are included in intangible assets. Investment property of £1,296,000 (2019: £1,296,000) is freehold land and therefore not depreciated; the property element includes accumulated depreciation of £272,000 (2019: £253,000) which relates to the property occupied by Mackwell Electronics Limited. This investment property has been independently valued and has a market value that is not materially higher than its cost. 106 27581-FW Thorpe-AR2020 Financials.indd 106 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:37 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 11 Investment Property continued An external fair value exercise of the land by the River Wye and the land in Monmouthshire was last undertaken in June 2019 resulting in a valuation of £1.57m, which is greater than the carrying value of those specific investment properties. The directors’ valuation of this investment property for the year ended 30 June 2020 shows no material change. The Company’s investment properties consist of land and buildings used by subsidiaries in their normal course of business. The Company receives rental income from the subsidiaries for the use of these premises and incurs amortisation costs. Each investment property generates rental income. 12 Financial Assets at Amortised Cost The Group classifies its financial assets at amortised cost only if both of the following criteria are met: • • the asset is held within a business model whose objective is to collect the contractual cash flows; and the contractual terms give rise to cash flows that are solely payments of principal and interest. Financial assets at amortised cost include the following debt investments. The Group applied the expected credit risk model to calculate the impairment provision. Mackwell Electronics Limited Following the disposal of Mackwell Electronics Limited on 2 December 2011, the Group acquired loan notes of £2,000,000 as part of the consideration. £Nil was repaid during the year (2019: £100,000), leaving a balance due at 1% over the Bank of England base rate of £377,000 (2019: £377,000). This debt investment is considered to be underperforming, and therefore the impairment provision is determined as lifetime expected credit losses. As at the date of these financial statements, the Group and Company have made a provision of £177,000 (2019: £200,000) for these loan notes. A payment of £20,000 was received on 30 July 2020 enabling a reduction in the provision of £23,000 (2019: £Nil). During 2018, £1,500,000 in new loans were provided to Mr N Brangwin, a director and main shareholder in Mackwell Electronics Limited, making a total of £1,800,000, with interest payable at 4% over the Bank of England base rate. This loan is secured against Mr Brangwin’s shareholding in FW Thorpe Plc. No repayment was received during the year. This debt investment is considered to have a minimal risk of default due to the collateral that is held as security, and therefore the impairment provision is determined as 12 months expected credit losses. As at the date of these financial statements, no provision was recorded. Therefore the total balance due from Mackwell and its directors is £2,000,000 (2019: £1,977,000) after provisions. Lightronics Participaties B.V. Part of the acquisition of Lightronics Participaties B.V. included partial funding of the 35% share appreciation rights held by existing shareholders and management. During the year €367,000 was repaid and at the date of the financial statements, the loan notes balance was €nil (2019: €367,000) equating to £nil (2019: £328,000) at the end of year exchange rate. 27581-FW Thorpe-AR2020 Financials.indd 107 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:37 107 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 12 Financial Assets at Amortised Cost continued Famostar Emergency Lighting B.V. Part of the acquisition of Famostar Emergency Lighting B.V. included partial funding of the 35% share appreciation rights held by the existing rights holders in Lightronics Participaties B.V. This was achieved by the issue of a loan of €1,640,000. During the year €941,000 was repaid and at the date of the financial statements, the loan notes balance was €467,000 (2019: €1,408,000) equating to £425,000 (2019: £1,262,000) at the end of year exchange rate. The loan notes are repayable on or before 30 June 2021 and attract an interest rate of 5%. This debt investment has shown no significant increase in credit risk since the inception of the loan, and therefore the impairment provision is determined as 12 months expected credit losses. As at the date of these financial statements, no provision was recorded. The Group’s maximum exposure to credit risk in respect of financial assets at amortised cost from Famostar and Lightronics is £425,000 which represents their carrying value at 30 June 2020. Of this balance, the Group exposure to credit risk on these receivables is £425,000. We assess the credit risk of our loan note receivables, based on the creditworthiness of the counterparty, history of repayment and security in place, and where required provisions are made. At 1 July Issued Repaid Fair value adjustment Exchange rate movement At 30 June Analysis of total financial assets at amortised cost Non-current loans and receivables Current loans and receivables Group Company 2020 £’000 3,567 – (1,136) 23 (29) 2,425 2019 £’000 6,139 – (2,583) – 11 3,567 2020 £’000 12,115 2,283 (1,484) (114) 163 12,963 Group Company 2020 £’000 1,800 625 2,425 2019 £’000 3,567 – 3,567 2020 £’000 12,338 625 12,963 2019 £’000 13,482 1,632 (2,988) (124) 113 12,115 2019 £’000 12,115 – 12,115 The £2,283,000 loan issued by the Company was to Lightronics Participaties B.V. for the purchase of the property occupied by Famostar Emergency Lighting B.V.. The debt investment to Lightronics Participaties B.V. of €10,626,000 (£9,680,000) has shown no significant increase in credit risk since the inception of the loan, and therefore the impairment provision is determined as 12 months expected credit losses. As at the date of these financial statements, no provision was recorded. The debt investment to Thorlux Lighting L.L.C. of £1,118,000 is considered to be underperforming and therefore the impairment provision is determined as lifetime expected credit losses. As at the date of these financial statements, the Company has made a provision of £261,000 (2019: £124,000) for these loan notes based on an expected credit loss of 45%. 108 27581-FW Thorpe-AR2020 Financials.indd 108 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:38 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 13 Equity Accounted Investments and Joint Arrangements The Group has a joint operation in the United Arab Emirates. Thorlux Lighting L.L.C. is registered in the United Arab Emirates and operates from a sales office in Abu Dhabi. The Group has applied the proportionate consolidation method of accounting to recognise this interest. Additions of £nil (2019: £nil) reflects the 49% of the share capital the Company owns of this joint operation. The Group invested €1,200,000 for 40% of the share capital of Luxintec S.L., a company based in Spain, in 2016. In the year, this has been reclassified to financial assets at fair value through other comprehensive income as the Group is not able to assert influence over the management of this investment. The Group assesses on a forward looking basis the associated expected credit losses and the impairment methodology applied depends on whether there has been a significant increase in credit risk, as allowed under IFRS 9. As at the date of these financial statements, no provision was recorded for the Group. Group Company At 1 July Reclassification to financial assets at fair value through other comprehensive income At 30 June 2020 £’000 936 (936) – 2019 £’000 936 – 936 14 Financial Assets at Fair Value through Other Comprehensive Income Group and Company Beginning of year Net additions Loss on disposal Reclassification from equity accounted investments and joint arrangements Reclassification to trade and other receivables Revaluation 2020 £’000 936 (936) – 30 June 2020 £’000 3,683 61 – 936 (74) (834) 3,772 2019 £’000 968 (32) 936 30 June 2019 £’000 3,820 75 (70) – – (142) 3,683 Regular purchases and sales of financial assets are recognised on the trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through other comprehensive income are subsequently carried at fair value. An impairment of £407,000 (2019: £nil) is included in the revaluation amount of £834,000 for the investment in Luxintec S.L. based on the fair value assessment of this investment. Financial assets at fair value through other comprehensive income comprise: i) Listed equity in the UK, and are denominated in UK pounds. None of these assets is either past due or impaired; and ii) The investment in Luxintec S.L. that has been reclassified from equity accounted investments in the year. The Group assesses at the end of each reporting year whether there is objective evidence that a financial asset or a group of financial assets is impaired. For equity investments classified as financial assets at fair value through other comprehensive income, a significant or prolonged decline in the fair value of the security below its cost is evidence that the assets are impaired. If any such evidence exists for financial assets at fair value through other comprehensive income, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the Consolidated Income Statement. Impairment losses recognised in the Consolidated Income Statement on equity instruments are not reversed through the Consolidated Income Statement. 109 27581-FW Thorpe-AR2020 Financials.indd 109 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:38 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 15 Inventories Raw materials Work in progress Finished goods Group Company 2020 £’000 16,257 2,964 6,075 25,296 2019 £’000 17,329 2,862 5,315 25,506 2020 £’000 8,654 2,379 5,881 16,914 2019 £’000 10,987 2,357 5,010 18,354 The value of the inventory provision is £3,308,000 (2019: £3,006,000) for the Group and £1,702,000 (2019: £1,494,000) for the Company. 16 Trade and Other Receivables Current Trade receivables Other receivables Prepayments and accrued income Amounts owed by subsidiaries Total Group Company 2020 £’000 18,945 941 1,370 – 21,256 2019 £’000 19,427 734 1,341 – 21,502 2020 £’000 12,064 833 986 8,250 22,133 2019 £’000 11,406 538 1,035 7,615 20,594 Amounts owed by subsidiaries, except cash balances, are unsecured, interest free and have no fixed date for repayment. Amounts owed in relation to cash balances generate interest in line with the Group’s deposit facilities. Trade receivables past due date not provided Group Company 2020 £’000 1,734 2019 £’000 1,303 2020 £’000 1,157 2019 £’000 548 A significant proportion of the amounts past due date were settled shortly after the end of the financial year, and taken together with the credit insurance policy and good credit history, the directors consider that there is no impairment and the trade receivables are therefore stated at their fair value, which equals their book value. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. A significant proportion of the trade receivables are insured. The policy covers 90% of the debt in the event of a claim for default, where the customer is in severe financial difficulty. No bad debt provision is made in respect of trade receivables from Government departments or agencies. There were no material changes to the value of expected credit losses on adoption of IFRS 9. At 30 June 2020 the bad debt provision for the Group amounted to £154,000 (2019: £54,000) and for the Company £27,000 (2019: £2,000). No provision is held against trade receivables that are not yet due, due to the good credit history and expected financial performance of customers and the overall exposure is considered low due to levels of credit insurance in place. Credit limits are reviewed at least every 6 months to assess and amend, where appropriate, the credit limit offered to customers. Included in amounts owed by subsidiaries are provisions for expected credit losses for Thorlux Lighting L.L.C. of £442,000 (2019: £359,000) and Thorlux Australasia PTY Limited of £497,000 (2019: £418,000), based on an expected credit loss of 45%. During the year the following amounts were written off (excluding amounts owed by subsidiaries): Bad debts written off Bad debts recovered Net bad debt expense 110 Group Company 2020 £’000 47 (41) 6 2019 £’000 26 (21) 5 2020 £’000 41 (40) 1 2019 £’000 16 (11) 5 27581-FW Thorpe-AR2020 Financials.indd 110 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:38 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 16 Trade and Other Receivables continued At 30 June 2020, trade receivables were due to the Group and Company in the following currency denominations: Due in £ sterling Due in € euro Due in UAE dirham Due in Australian dollars Due in $ United States dollars Group Company 2020 £’000 12,525 5,826 312 128 154 18,945 2019 £’000 12,917 5,615 433 370 92 19,427 2020 £’000 11,192 718 – – 154 12,064 2019 £’000 10,215 1,099 – – 92 11,406 The other assets within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security. 17 Other Financial Assets at Fair Value Through Profit and Loss The Group and Company had units in a sterling cash fund. At 30 June 2020 this amounted to £nil (2019: £387,000). Sterling cash fund 18 Short-term Financial Assets Group and Company Beginning of year Net (withdrawals)/ deposits 30 June 2020 £’000 – 30 June 2019 £’000 387 2020 £’000 26,483 (7,903) 18,580 2019 £’000 15,290 11,193 26,483 The short-term financial assets consist of term cash deposits in sterling with an original term in excess of three months. The banks where the deposits are held have a minimum rating of “A” by Fitch, with a specific rating of “F1” for short- term funds. 19 Cash and Cash Equivalents Cash at bank and in hand Group Company 2020 £’000 44,422 2019 £’000 30,807 2020 £’000 37,218 2019 £’000 24,771 The banks where the funds are held have a minimum rating of “A” by Fitch, with a specific rating of “F1” for short-term funds. 27581-FW Thorpe-AR2020 Financials.indd 111 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:38 111 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 20 Trade and Other Payables Current liabilities Trade payables Contract liabilities Other payables Social security and other taxes Accruals and deferred income Amounts owed to subsidiaries Non-current liabilities Other payables Group Company 2020 £’000 9,069 414 16,948 2,447 7,307 – 36,185 2019 £’000 11,547 – 1,630 2,275 6,460 – 21,912 2020 £’000 6,018 414 12,826 1,236 5,085 2,385 27,964 2019 £’000 8,296 – 347 664 4,603 3,380 17,290 67 67 12,804 12,804 – – 10,242 10,242 Amounts owed to subsidiaries, except cash balances, are unsecured, interest free and have no fixed date of repayment. Amounts owed in relation to cash balances generate interest in line with the Group’s deposit facilities. Included within other payables in current liabilities is a commitment to purchase the outstanding share appreciation rights (deferred consideration) in the subsidiaries Lightronics Participaties B.V. and Famostar Emergency Lighting B.V. of £15,550,000 (2019 non-current £12,757,000), including a loan of £1,971,000 (2019 non-current: £2,139,000) from Spuiweg Holding B.V. For the Company, the commitment to purchase the outstanding share appreciation rights (deferred consideration) is £12,429,000 (2019: £10,242,000). Non-current liabilities relates to post employment benefits at Thorlux Australasia Pty Limited and Thorlux Lighting L.L.C. 21 Lease liabilities Right-of-use assets As detailed in the accounting policies note the Group adopted IFRS 16 on 1 July 2019. At 1 July 2019 Additions* Depreciation charge for the year Lease termination Currency translation At 30 June 2020 * Additions comprise increases to right-of-use assets as a result of entering into new leases. At 1 July 2019 Depreciation charge for the year At 30 June 2020 Group Property £’000 929 – – (929) – – Plant and Equipment £’000 32 56 (23) – 2 67 Motor vehicles £’000 397 136 (205) – 11 339 Company Motor vehicles £’000 4 (4) – Total £’000 1,358 192 (228) (929) 13 406 Total £’000 4 (4) – Lease liabilities Lease liabilities recognised at 30 June 2020 total £637,000 of which £220,000 is due within one year and £417,000 due after more than one year. There are no options to either extend or terminate early lease agreements. 112 27581-FW Thorpe-AR2020 Financials.indd 112 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:38 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 21 Lease liabilities continued Maturity analysis The timing of the payments due over the remaining lease term for these liabilities is as follows: Within one year More than one but less than five years More than five years Total due including interest The total cash paid on these leases during the year was £301,000. Expense relating to short-term leases Expense relating to low value leases Total £’000 251 444 11 706 £’000 234 8 22 Pension Scheme The Group operates a funded hybrid pension scheme for employees in the UK. 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 basis of the Group’s hybrid pension scheme is to provide benefits to members based on the following: • For service prior to 1 October 1995, the benefits provided are defined benefit in nature. • For service from 1 October 1995, the benefits provided have two elements depending on the date that the member joined the pension scheme. • For members joining before 1 October 1995, benefits provided are the higher of their defined contribution pension and their defined benefit pension. • For members joining on or after 1 October 1995, benefits provided are defined contribution in nature. The contributions of the pure defined contribution, the defined benefit underpin and pure defined benefit elements are paid into one pension scheme, where the contributions and assets are segregated and ring-fenced from each other. For the defined benefit underpin element of the scheme, each member is tested to see whether the pension on a defined contribution or defined benefit basis is higher. The liabilities shown in the pensions note are based on the greater of the two liabilities for each member, which in almost all cases is the defined benefit liability. For the service cost, again, tests are performed to see which is the higher for each member out of the Company’s share of the defined contribution payments or the Company’s share of accruing benefits on a defined benefit basis. The higher of these two figures for each member is then used to give the total service cost; again the defined benefit cost is the higher for the vast majority of members. The assets of the scheme are held separately from the assets of the Group, being invested in Managed Funds. Contributions by the Group to the scheme during the year ended 30 June 2020 amounted to £616,000 (2019: £606,000). Contributions are determined by an independent qualified actuary on the basis of triennial valuations using the Project Unit Method. The date of the most recent actuarial valuation was 30 June 2018, and at that date the value of the fund was £39,556,000. This was sufficient to cover 102% 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 3.40% 5.05% 2.60% 2.60% 27581-FW Thorpe-AR2020 Financials.indd 113 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:38 113 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 22 Pension Scheme continued The figures at 30 June 2018 have been updated as at the Statement of Financial Position dates in order to assess the additional disclosures required under IAS 19 as at 30 June 2020 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 2.55% pa or RPI if less Life expectancy at age 65 – men Life expectancy at age 65 in 20 years – men Life expectancy at age 65 – women Life expectancy at age 65 in 20 years – women 2020 3.30% 3.30% 1.40% 2.30% 3.10% 2.10% 22.5 years 23.6 years 24.7 years 25.9 years 2019 3.50% 3.50% 2.10% 2.50% 3.30% 2.20% 2018 3.40% 3.40% 2.70% 2.40% 3.20% 2.10% 2017 3.50% 3.50% 2.60% 2.50% 3.30% 2.20% 2016 3.00% 3.00% 2.90% 2.00% 2.90% 2.00% 22.5 years 23.1 years 23.0 years 23.0 years 23.5 years 24.8 years 24.7 years 24.0 years 24.7 years 25.4 years 25.3 years 25.0 years 25.9 years 27.2 years 27.1 years 26.0 years The Statement of Financial Position figures required under IAS 19 are as follows: 30 June 2020 30 June 2019 30 June 2018 30 June 2017 30 June 2016 Expected long- term rate of return % Value £’000 1.4% 11,003 1.4% 29,549 1.4% 2,300 Expected long- term rate of return % Value £’000 2.70% 12,570 2.70% 26,618 2,387 2.70% Expected long- term rate of return % Value £’000 2.70% 13,154 2.70% 24,769 1,665 2.70% Expected long- term rate of return % Value £’000 2.60% 12,152 2.60% 25,859 413 2.60% Expected long- term rate of return % Value £’000 2.90% 14,968 2.90% 19,311 1,237 2.90% 42,852 41,575 39,588 38,424 35,516 (42,583) (39,437) (37,259) (37,710) (33,731) 269 2,138 2,329 714 1,785 Equities Bonds Other Total market value of assets Present value of scheme liabilities Surplus in the scheme Amounts recognised in Statement of Financial Position The amounts recognised in the Statement of Financial Position are determined as follows: Present value of funded obligations Fair value of plan assets Surplus in the scheme Less restriction of surplus recognised in the Statement of Financial Position Asset recognised in the Statement of Financial Position 2020 £’000 (42,583) 42,852 269 (269) – 2019 £’000 (39,437) 41,575 2,138 (2,138) – 114 27581-FW Thorpe-AR2020 Financials.indd 114 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:38 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 22 Pension Scheme continued Movement in defined benefit obligation The movement in the defined benefit obligation over the year is as follows: At 1 July Current service cost Interest cost Contributions by plan participants Actuarial loss Benefits paid At 30 June Movement in the fair value of the plan assets The movement in the fair value of the plan assets of the year is as follows: At 1 July Expected return in plan assets Actuarial gains Employer contributions Employee contributions Benefits paid At 30 June Amounts recognised in Income Statement The amounts recognised in the Income Statement are as follows: Current service cost Actuarial loss recognised in Statement of Comprehensive Income for the year Actual return less expected return on pension scheme assets Experience losses arising on the scheme liabilities Changes in assumptions underlying the present value on the scheme liabilities Net interest income Restriction of decrease in pension scheme surplus Actuarial loss recognised in the Statement of Comprehensive Income Cumulative actuarial loss recognised in the Statement of Comprehensive Income at 1 July Actuarial loss recognised in the Statement of Comprehensive Income for the year Cumulative actuarial loss recognised in the Statement of Comprehensive Income at 30 June 2020 £’000 (39,437) (446) (818) (328) (3,302) 1,748 (42,583) 2020 £’000 41,575 864 1,217 616 328 (1,748) 42,852 2020 £’000 446 2020 £’000 1,217 (171) (3,131) 46 1,869 (170) 2020 £’000 (4,447) (2,039) (6,486) 2019 £’000 (37,259) (423) (992) (298) (2,195) 1,730 (39,437) 2019 £’000 39,588 1,058 1,755 606 298 (1,730) 41,575 2019 £’000 423 2019 £’000 1,755 (294) (1,901) 66 191 (183) 2019 £’000 (4,073) (374) (4,447) 115 27581-FW Thorpe-AR2020 Financials.indd 115 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:39 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 22 Pension Scheme continued The restriction in the scheme surplus is excluded from the cumulative actuarial gain recognised in the Statement of Comprehensive Income. As a result of the most recent valuation, and in light of the non-recognition of the pension scheme surplus, the recovery plan liability of £189,000 (2019: £189,000) is included in Other Payables. The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the Statement of Financial Position date. Expected returns on equity and property investments reflect long- term real rates of return experienced in the respective markets. The actual return on plan assets over the year ended 30 June 2020 was £2,081,000 (2019: £2,813,000) or 3.1% (2019: 7.1%). The Group expects to pay £634,000 contributions (2019: £636,000) into the pension scheme during the forthcoming year. History of experience gains and losses recognised in the Statement of Comprehensive Income 2020 2019 2018 2017 2016 £’000 % £’000 % £’000 % £’000 % £’000 % 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 Movement in recovery plan liability Percentage of the present value of scheme liabilities Net interest income Percentage of the present value of scheme liabilities Amount which has been recognised in the SOCI 1,217 1,755 592 2,121 2,612 3% (171) (294) 0% 4% 1% 1.5% 6% 214 (1,129) (1,401) (0.6%) 3% (3,131) (1,901) 632 (2,254) (2,609) – 46 7% 0% 0% – 66 5% 0% 0% – 21 (1.7%) 0% 0% – 51 6% 0% 0% – 113 (2,039) (374) 1,459 (1,211) (1,285) 5% 1% 4% 3% 7% 4% 8% 0% 0% 4% Sensitivity analysis The impact on the defined benefit obligation of changes in the significant assumptions is shown approximately below: Assumption varied As at 30 June 2020 Discount rate 0.5% p.a. higher Increase in salaries 0.5% p.a. higher Pension Increase (in payment and in deferment) 0.5% p.a. higher Life expectancy one year longer Defined Benefit Obligation £m 42.6 40.7 42.8 43.6 43.7 The figures assume that each assumption is changed independently of the others. Therefore, the disclosures are only a guide because the effect of changing more than one assumption is not cumulative. 116 27581-FW Thorpe-AR2020 Financials.indd 116 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:39 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 23 Provisions for Liabilities and Charges At 1 July 2018 Additions Utilisation Currency translation At 1 July 2019 Additions Utilisation Surplus Currency translation At 30 June 2020 Analysis of total provisions Non-current Total WEEE provision £’000 102 – – – 102 – – – Group Warranty provision £’000 2,062 399 (176) 17 2,302 559 (200) (65) – 102 23 2,619 Total £’000 2,164 399 (176) 17 2,404 559 (200) (65) 23 2,721 WEEE provision £’000 102 – – – 102 – – – – 102 2019 £’000 2,404 2,404 Company Warranty provision £’000 334 40 (10) – 364 368 (39) – – 693 Company 2020 £’000 795 795 Total £’000 436 40 (10) – 466 368 (39) – – 795 2019 £’000 466 466 Group 2020 £’000 2,721 2,721 WEEE provision A potential liability exists for the future cost of disposal of products under the WEEE legislation for a transitional period between the adoption of the WEEE legislation in the European Union in August 2005 and the effective date in the UK of 1 July 2007. From 1 July 2007 the Group has followed Regulation 9 of the legislation and amended the terms of sale to its customers so that the customer is responsible for the actual costs of WEEE at the time of disposal. Although the timescale of the utilisation of this provision cannot be predicted with certainty, it is expected that it will not be utilised before 30 June 2021. Warranty provision The usual warranty period provided by Group companies is 5 years and the provision for warranty is based on expected claims over the remaining warranty period. This is calculated in accordance with the accounting policy estimates section included in note 1. 24 Deferred Income Tax Deferred income tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows: Deferred tax assets Deferred tax liabilities Net deferred tax liabilities Group Company 2020 £’000 – (601) (601) 2019 £’000 – (699) (699) 2020 £’000 – (398) (398) 2019 £’000 – (493) (493) 27581-FW Thorpe-AR2020 Financials.indd 117 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:39 117 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 24 Deferred Income Tax continued The net movement on the deferred income tax account is as follows: Beginning of year Adoption of IFRS 16 Income statement credit/(charge) Tax credited directly to equity Currency translation End of year Group Company 2020 £’000 (699) 5 81 13 (1) (601) 2019 £’000 (647) – (75) 24 (1) (699) 2020 £’000 (493) 1 71 23 – (398) 2019 £’000 (421) – (96) 24 – (493) The movement in Group deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Deferred tax asset At 1 July 2018 Charged to the income statement At 1 July 2019 Charged to the income statement At 30 June 2020 Deferred tax liabilities At 1 July 2018 Charged/(credited) to the income statement Credited directly to equity Currency translation At 1 July 2019 Adoption of IFRS 16 Charged/(credited) to the income statement Credited directly to equity Currency translation At 30 June 2020 Accelerated tax depreciation £’000 76 75 – (1) 150 – 107 13 – 270 Research & development £’000 654 12 – 2 668 – (100) 69 1 638 Accelerated tax depreciation £'000 8 (8) – – – Fair value & other timing differences £’000 (75) (20) (24) – (119) (5) (88) (95) – (307) Total £'000 8 (8) – – – Total £’000 655 67 (24) 1 699 (5) (81) (13) 1 601 118 27581-FW Thorpe-AR2020 Financials.indd 118 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:39 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 24 Deferred Income Tax continued The movement in the Company deferred income tax liabilities during the year is as follows: Deferred tax liabilities At 1 July 2018 Charged/(credited) to the income statement Credited directly to equity At 1 July 2019 Adoption of IFRS 16 Charged/(credited) to the income statement Credited directly to equity At 30 June 2020 Accelerated tax depreciation £’000 35 77 – 112 – 58 13 183 Research & development £’000 462 39 – 501 – (45) 59 515 Fair value & other timing differences £’000 (76) (20) (24) (120) (1) (84) (95) (300) The deferred income tax credited to equity during the year is as follows: Deferred tax credited to equity Tax on revaluation of financial assets at fair value through other comprehensive income 25 Share Capital Group Company 2020 £’000 13 13 2019 £’000 24 24 2020 £’000 23 23 Total £’000 421 96 (24) 493 (1) (71) (23) 398 2019 £’000 24 24 Authorised, allotted and fully paid 118,935,590 ordinary shares of 1p each (2019: 118,935,590 ordinary shares of 1p each) The ordinary shareholders each have one vote per share. Group and Company 2020 £’000 2019 £’000 1,189 1,189 Movements in treasury shares included in share capital At 1 July Shares issued from treasury Shares repurchased At 30 June Group and Company Group and Company 2020 £’000 28 (2) – 26 2020 No. of shares 2,814,932 (209,839) – 2,605,093 2019 £’000 30 (2) – 28 2019 No. of shares 2,969,546 (200,614) 46,000 2,814,932 There were no new shares issued during the year (2019: nil). 209,839 (2019: 200,614) shares were issued from treasury for the exercise of share options, of which the Company repurchased nil (2019: 46,000). There are 1,044,482 (2019: 1,606,711) share options outstanding at the year end. 27581-FW Thorpe-AR2020 Financials.indd 119 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:39 119 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 26 Other Reserves Share premium account Capital redemption reserves Foreign currency translation reserve 27 Dividends Dividends paid during the year are outlined in the tables below: Dividends paid (pence per share) Final dividend Interim dividend Total Group Company 2020 £’000 1,526 137 2,764 4,427 2019 £’000 1,266 137 2,535 3,938 2020 £’000 1,526 137 – 1,663 2020 4.10 1.46 5.56 2019 £’000 1,266 137 – 1,403 2019 4.00 1.43 5.43 A final dividend in respect of the year ended 30 June 2020 of 4.20p per share, amounting to £4,886,000 (2019: £4,763,000) is to be proposed at the Annual General Meeting on 19 November 2020 and, if approved, will be paid on 26 November 2020 to shareholders on the register on 30 October 2020. The ex-dividend date is 29 October 2020. These financial statements do not reflect this dividend payable. Dividends proposed (pence per share) Final dividend Dividends paid Final dividend Interim dividend Total Dividends proposed Final dividend 2020 4.20 2020 £’000 4,770 1,698 6,468 2020 £’000 4,886 2019 4.10 2019 £’000 4,639 1,660 6,299 2019 £’000 4,763 28 Share Based Payment Charge Equity settled scheme The Group operates a share based remuneration scheme, created to motivate and retain those employees responsible for the continued success of the Group. The Executive Share Ownership Plan (ESOP) allows for the vesting of options subject to the achievement of performance targets, being annual growth of pre-tax Earnings per Share in excess of RPI plus 3% over a five-year period. The Group also operates a Save As You Earn (SAYE) scheme for UK based employees that matures in October 2021. Rather than issue new shares, the Company will utilise shares that are already held in treasury to satisfy options. Under IFRS 2, an expense is recognised in the income statement for share based payments, calculated on the fair value at the grant date. The application of IFRS 2 gave rise to a charge of £60,000 (2019: £86,000) for the year. At 30 June 2020, there were 310,322 options exercisable (2019: 190,161) under the ESOP or SAYE schemes. 120 27581-FW Thorpe-AR2020 Financials.indd 120 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:39 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 28 Share Based Payment Charge continued a) Details of changes in the number of awards outstanding during the year are set out below: Outstanding at 1 July 2019 Exercised during the year Forfeited during the year Outstanding at 30 June 2020 ESOP Scheme SAYE Scheme Total Exercise price (p/s) 124 124 – 124 Options 426,550 – (22,390) 404,160 Exercise price (p/s) 209 – – 209 Options 1,606,711 (209,839) (352,390) 1,044,482 Options 1,180,161 (209,839) (330,000) 640,322 The weighted average contractual life of the share based payments outstanding at the end of the year is 4.3 years for the ESOP scheme and 1.8 years for the SAYE scheme. b) Fair value calculations The fair value of the share options granted during the year were calculated using the methods, principal assumptions and data set out below: Method used Date of grant Share price at date of grant (p/s) Exercise price (p/s) Expected option life (years) Vesting period (years) Expected volatility Expected dividend yield Risk free rate Fair value per share (p/s) ESOP Scheme Black–Scholes 24 October 2014 124 124 3 – 7 3 – 7 23% – 28% 3.02% 1.06% – 1.90% 18.61 – 21.07 SAYE Scheme Black–Scholes 15 July 2016 233 209 5 5 27% 1.90% 0.91% 54.84 Expected volatility was determined by calculating the annualised standard deviation over the daily changes in the share price, and measured against historical share price movements over the number of years vesting period prior to the grant of the options. Cash-settled share based payment charge Arising from the acquisition of Lightronics Participaties B.V. and Famostar Emergency Lighting B.V., the Group entered into a cash-settled share based payment arrangement with certain employees of Lightronics Participaties B.V. Under this arrangement, the Group is committed to purchase the 43% of the share appreciation rights held by these employees, between the third and sixth anniversaries of the acquisition, calculated by a pre-determined earnings multiple used to value the initial investment. Under IFRS 2, an expense is recognised in the income statement for share based payments, calculated on the fair value at the settlement date. The application of IFRS 2 gave rise to a charge of £1,151,000 (2019: £790,000) for the year. The total liability at 30 June 2020 was £2,752,000 (2019: £1,601,000). The fair value of the share based payment (being calculated by estimating the additional payment due to the relevant employees), was reviewed during the year based on current performance. This review resulted in an annual increase in the share based payment charge of £317,000 (2019: £343,000). 27581-FW Thorpe-AR2020 Financials.indd 121 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:39 121 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 29 Cash Generated from Operations Cash generated from continuing operations Profit before income tax Depreciation charge Depreciation of investment property Amortisation of intangibles Profit on disposal of property, plant and equipment Profit on disposal of investment property Net finance expense/(income) Retirement benefit contributions in excess of current and past service charge Impairment of equity accounted investments Share based payment charge Research and development expenditure credit Effects of exchange rate movements Changes in working capital – Inventories – Trade and other receivables – Payables and provisions Total cash generated from operations Group Company 2020 £’000 15,943 3,221 19 2,577 (118) – 389 (170) – 1,211 (249) (219) 238 571 (182) 23,231 2019 £’000 19,569 2,508 58 2,456 (2,116) – (3) (183) – 855 (292) (48) (4,025) 2,428 3,831 25,038 2020 £’000 14,117 1,777 238 1,590 (109) – (4,961) (170) – 1,211 (174) (81) 1,439 (1,358) (561) 12,958 2019 £’000 17,544 1,574 254 1,462 (137) (1,942) (5,650) (183) 32 855 (215) (30) (4,230) 1,426 4,700 15,460 30 Capital commitments Capital expenditure contracted for at the statement of financial position date but not yet incurred is as follows: Property, plant and equipment Group Company 2020 £’000 46 2019 £’000 918 2020 £’000 45 2019 £’000 635 122 27581-FW Thorpe-AR2020 Financials.indd 122 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:39 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 31 Financial Instruments by Category All financial instruments measured at fair value are categorised as level 2 in the fair value measurement hierarchy, whereby the fair value is determined by using valuation techniques, except for £3,243,000 (2019: £4,070,000) of fixed rate listed investments included in financial assets at fair value through other comprehensive income and other financial assets at fair value through profit or loss that are classified as level 1. The valuation techniques for level 2 instruments use observable market data where it is available, for example quoted market prices, and rely less on estimates. The accounting policies for financial instruments have been applied to the line items below: Group 30 June 2020 Assets as per statement of financial position Financial assets at amortised cost Financial assets at fair value through Other Comprehensive Income Trade and other receivables Short-term financial assets Cash and cash equivalents Total Group 30 June 2019 Assets as per statement of financial position Financial assets at amortised cost Financial assets at fair value through other comprehensive income Financial assets at fair value through the profit and loss Trade and other receivables Short-term financial assets Cash and cash equivalents Total Financial assets at amortised cost £’000 Financial assets at fair value through other comprehensive income £’000 Financial assets at fair value through the profit and loss £’000 2,425 – 19,886 18,580 44,422 85,313 – 3,772 – – – 3,772 – – – – – – Financial assets at amortised cost £’000 Financial assets at fair value through other comprehensive income £’000 Financial assets at fair value through the profit and loss £’000 3,567 – – 20,161 26,483 30,807 81,018 – 3,683 – – – – 3,683 – – 387 – – – 387 Total £’000 2,425 3,772 19,886 18,580 44,422 89,085 Total £’000 3,567 3,683 387 20,161 26,483 30,807 85,088 123 27581-FW Thorpe-AR2020 Financials.indd 123 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:40 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 31 Financial Instruments by Category continued Financial assets at amortised cost £’000 Financial assets at fair value through other comprehensive income £’000 Financial assets at fair value through the profit and loss £’000 12,963 – 21,147 18,580 37,218 89,908 – 3,772 – – – 3,772 – – – – – – Financial assets at amortised cost £’000 Financial assets at fair value through other comprehensive income £’000 Financial assets at fair value through the profit and loss £’000 12,115 – – 19,559 26,483 24,771 82,928 – 3,683 – – – – 3,683 – – 387 – – – 387 Total £’000 12,963 3,772 21,147 18,580 37,218 93,680 Total £’000 12,115 3,683 387 19,559 26,483 24,771 86,998 Company 30 June 2020 Assets as per statement of financial position Financial assets at amortised cost Financial assets at fair value through other comprehensive income Trade and other receivables Short-term financial assets Cash and cash equivalents Total Company 30 June 2019 Assets as per statement of financial position Financial assets at amortised cost Financial assets at fair value through other comprehensive income Financial assets at fair value through the profit and loss Trade and other receivables Short-term financial assets Cash and cash equivalents Total The above analysis excludes prepayments. Liabilities as per statement of financial position Trade and other payables (excluding statutory liabilities) Deferred consideration Post employment benefits Lease liabilities Group Company 30 June 2020 £’000 18,188 15,550 67 637 30 June 2019 £’000 19,634 12,757 47 – 30 June 2020 £’000 14,299 12,429 – – 30 June 2019 £’000 16,625 10,242 – – Financial liabilities are measured at amortised cost. Contractual cash flows relating to current financial liabilities are all due within one year, and are equal to their carrying value. Included in other payables (deferred consideration) is an interest bearing loan, of which the principal amount of €2.2m (£2.0m) is due for repayment within one year. Interest is contractually due to be paid annually until maturity, and is estimated at current rates to be €110,000 (£100,000) per year. Furthermore liabilities arising to repurchase share appreciation rights are non-interest bearing are all due within one year. The Group and Company did not have derivative financial instruments at 30 June 2020 or 30 June 2019. All assets and liabilities above are considered to be at fair value. 124 27581-FW Thorpe-AR2020 Financials.indd 124 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:40 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 32 Related Party Transactions The following amounts relate to transactions between the Company and its related undertakings: 2020 Philip Payne Limited Solite Europe Limited Portland Lighting Limited TRT Lighting Limited Thorlux Lighting L.L.C. Lightronics Participaties B.V. Thorlux Australasia PTY Limited Thorlux Lighting GmbH Famostar Emergency Lighting B.V. 2019 Philip Payne Limited Solite Europe Limited Portland Lighting Limited TRT Lighting Limited Thorlux Lighting L.L.C. Lightronics Participaties B.V. Thorlux Australasia PTY Limited Thorlux Lighting GmbH Famostar Emergency Lighting B.V. Purchases of goods £’000 648 537 – 2,028 – 125 – – – Purchases of goods £’000 790 722 1 1,271 – 183 – – – Sales of goods £’000 145 259 – 1,235 405 359 756 – 4 Sales of services £’000 86 178 67 223 – – – – – Purchase of services £’000 – – – – – – – 471 – Sales of goods £’000 177 394 – 1,342 654 466 519 – – Sales of services £’000 80 178 26 192 – – – – – Purchase of services £’000 – – – 10 – – – – – Dividends paid to Company £’000 600 600 650 – – 1,776 – – – Dividends paid to Company £’000 500 500 850 – – 2,330 – – – Balances due to and from the Company by related entities were as follows: Philip Payne Limited Solite Europe Limited Portland Lighting Limited TRT Lighting Limited Thorlux Lighting L.L.C. Lightronics Participaties B.V. Thorlux Australasia PTY Limited Thorlux Lighting GmbH Famostar Emergency Lighting B.V. Total Amounts due to related party at 30 June 2019 £’000 (1,021) (1,034) (902) (278) – (22) – (123) – (3,380) 2020 £’000 (639) (773) (400) (465) – (16) – (92) – (2,385) Amounts due from related party at 30 June 2019 £’000 39 78 8 1,474 305 4,191 1,480 – 40 7,615 2020 £’000 61 159 36 819 238 4,782 1,802 – 353 8,250 Trading balances arise from transactions of goods and services carried out under normal commercial terms. The Company has loan balances due from Lightronics Participaties B.V. of €10,626,000 (£9,680,000) (2019: €8,493,000 (£7,611,000) and Thorlux Lighting L.L.C. £1,118,000 (2019: £937,000). The Company has made provisions for receivables due from Thorlux Australasia PTY Limited of £497,000 and £703,000 due from Thorlux Lighting L.L.C. 125 27581-FW Thorpe-AR2020 Financials.indd 125 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:40 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview 32 Related Party Transactions continued Cash resources are managed centrally by the Company and result in balances owed to and from the Company when cash is transferred. The key management personnel are the Group Board directors; their interests are disclosed in the directors’ remuneration report on pages 65 to 68. There are 2 employees who are related parties (2019: 3). Total remuneration for the year was £93,000 (2019: £87,000). The Company owns 40% of the share capital of Luxintec S.L., a company registered in Spain. During the year the Company sold goods to Luxintec S.L. amounting to £7,000 (2019: £6,000), purchased goods and services amounting to £453,000 (2019: £288,000). At the year end there were trade balances due to Luxintec S.L. of £60,000 (2019: £69,000) and £nil due from Luxintec S.L. (2019: £190). 33 Group Companies The parent Company has the following investments as at 30 June 2020 and 30 June 2019: Proportion of nominal value of issued shares held by Group and Company Name of undertaking Compact Lighting Limited Philip Payne Limited Solite Europe Limited Portland Lighting Limited TRT Lighting Limited Lightronics Participaties B.V. Lightronics B.V. Thorlux Lighting GmbH Thorlux Australasia PTY Limited Thorlux Lighting L.L.C. Famostar Emergency Lighting B.V. (investment held by Lightronics Participaties B.V.) Luxintec S.L. Country of incorporation England England England England England Netherlands Netherlands Germany Australia Description of shares held Ordinary £1 shares Ordinary £1 shares Ordinary £1 shares Ordinary £1 shares Ordinary £1 shares Ordinary €0.01 shares Ordinary €454 shares Ordinary €1 shares Ordinary $1 shares United Arab Emirates Ordinary AED 1,000 shares 30 June 2020 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% Netherlands Ordinary €100 shares 100% Spain Ordinary €1 shares 40% 30 June 2019 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 100% 40% The registered office addresses of these Group companies are: Compact Lighting Limited Philip Payne Limited Solite Europe Limited Portland Lighting Limited TRT Lighting Limited Lightronics Participaties B.V. Lightronics B.V. Thorlux Lighting GmbH Thorlux Australasia PTY Limited Thorlux Lighting L.L.C. Famostar Emergency Lighting B.V. Luxintec S.L. Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH, England Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH, England Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH, England Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH, England Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH, England Spuiweg 19, 5145 NE Waalwijk, Netherlands Spuiweg 19, 5145 NE Waalwijk, Netherlands Bahnhofstrasse 72, 27404 Zeven, Germany 31 Cross Street, Brookvale, NSW 2100, Australia Office No. 2, Ghantoot International Building, Plot No: M.14-26, Musaffah Industrial Area, PO Box 108168, Abu Dhabi, United Arab Emirates Florijnweg 8 6883JP Velp, Netherlands Polígono Industrial La Encomienda, C/ Atlas 12-14, 47195 Arroyo de la Encomienda, Valladolid, Spain 126 27581-FW Thorpe-AR2020 Financials.indd 126 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:40 Notes to the Financial Statements continuedFor the year ended 30 June 2020Annual Report and Accounts for the year ended 30 June 2020 33 Group Companies continued The principal activities of these Group companies are: Compact Lighting Limited Philip Payne Limited Solite Europe Limited Portland Lighting Limited TRT Lighting Limited Lightronics Participaties B.V. Lightronics B.V. Thorlux Lighting GmbH Thorlux Australasia PTY Limited Thorlux Lighting L.L.C. Famostar Emergency Lighting B.V. Luxintec S.L. – non-trading entity – design and manufacture of illuminated signs – design and manufacture of clean room lighting equipment – design and manufacture of lighting for signs – design and manufacture of lighting for roads and tunnels – holding company – design and manufacture of external and impact resistant lighting – sales support function – sale of lighting equipment to industrial and commercial markets – sale of lighting equipment to industrial and commercial markets – design and manufacture of illuminated signs – design and manufacture of LED luminaires and lenses For the year ended 30 June 2020, Compact Lighting Limited, Philip Payne Limited, Solite Europe Limited, Portland Lighting Limited and TRT Lighting Limited are exempt from the requirements of the Companies Act 2006 relating to the audit of individual financial statements by virtue of section 479A. As a result, the Group guarantees all outstanding liabilities to which the subsidiary company is subject. The Company registration number for Compact Lighting Limited is 02649528, for Philip Payne Limited it is 01361523, for Solite Europe Limited it is 02295852, for Portland Lighting Limited it is 02826511 and for TRT Lighting Limited it is 08092266. 34 Events after the Statement of Financial Position date Subsequent to the date of the Statement of Financial Position and before the approval of these financial statements, the Group’s subsidiary company, Lightronics Participaties B.V., experienced a fire at its facility in the Netherlands. Details of this are included in the Chairman’s Statement on page 10. The Group’s insurance policies will cover the costs from the disruption due to this fire and therefore no significant impact is expected on the Group’s financial statements. 27581-FW Thorpe-AR2020 Financials.indd 127 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:40 127 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview Notice of Meeting Notice is hereby given that the Annual General Meeting of FW Thorpe Plc will be held at Merse Road, North Moons Moat, Redditch, Worcestershire, B98 9HH on 19 November 2020 at 3:15 pm to transact the business set out below. The 2020 Annual General Meeting will be a closed meeting, in light of the UK Government’s restrictions on public gatherings, which are in place at the time of issuing this notice. Shareholders will not be permitted entry to the meeting. To receive and adopt the Annual Report and Accounts for the year ended 30 June 2020. Ordinary business 1. 2. To declare a final dividend. 3. To re-elect Mr M Allcock as a director. 4. To re-elect Mr A B Thorpe as a director. 5. To re-elect Mr A M Cooper as a director. 6. 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 7 as an ordinary resolution and in the case of 8 as a special resolution. 7. That the directors’ remuneration report (as set out on pages 65 to 68 of the Annual Report and Accounts) for the year ended 30 June 2020 be approved. 8. That the Company be generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of ordinary shares of 1p each of the Company provided that: a. the maximum number of ordinary shares hereby authorised to be acquired is 11,893,559; b. the minimum price which may be paid for any such share is 1p; c. 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 Alternative Investment Market for the five business days immediately preceding the day on which such share is contracted to be purchased; d. the authority hereby conferred shall expire on the date of the Annual General Meeting of the Company in 2021; and e. 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. Notes 1. In light of the UK Government’s restrictions on public gatherings, it has been confirmed that attendance at a general meeting by shareholders is not “essential for work purposes” and, accordingly, the meeting will be run as a closed meeting and shareholders, their proxies and other attendees will not be permitted to attend and will be refused entry. Shareholders are kindly urged to vote by proxy, appointing the Chairman of the meeting as their proxy, rather than a named person who will not be permitted to attend the meeting. 2. Subject to the UK Government’s restrictions referred to above, copies of the directors’ service contracts will be available for inspection during usual business hours, at the registered office of the Company on any weekday (Saturdays and public holidays excepted) from the date of this notice until the date of the meeting and also at the meeting for at least 15 minutes prior to, and until the conclusion of, the meeting. If you wish to inspect these documents, please contact the Company at shareholders@fwthorpe.co.uk. 3. To be entitled to attend and vote at the meeting (and for the purposes of the determination by the Company of the votes they may cast), members must be registered in the Register of Members of the Company at 6.30 pm on 17 November 2020 (or, in the event of any adjournment, 6.30 pm on the date which is two days before the time of the adjourned meeting). Changes to the Register of Members of the Company after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting. 128 27581-FW Thorpe-AR2020 Financials.indd 128 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:40 Annual Report and Accounts for the year ended 30 June 2020 4. A member entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend, speak and vote on his or her behalf. A proxy need not also be a member but must attend the meeting to represent you and shareholders are urged to appoint the Chairman of the meeting as their proxy, rather than a named person who will not be permitted to attend the meeting owing to the UK Government’s restrictions. Details of how to appoint a proxy using the form of proxy are set out in the notes on the form of proxy. 5. To appoint more than one proxy, an additional proxy form(s) may be obtained by contacting the Company’s registrars, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, or you may photocopy the proxy form. Please indicate in the box next to the proxy holder’s name the number of shares in relation to which they are authorised to act as your proxy. Please also indicate by ticking the box provided if the proxy instruction is one of multiple instructions being given. As no other persons will be entitled to attend the meeting in person due to the UK Government’s restrictions, shareholders are urged not to appoint more than one proxy in relation to the meeting. 6. A reply paid form of proxy is enclosed with shareholders’ copies of this document. To be valid, it should be lodged with the Company’s registrars, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, so as to be received not later than 3.15 pm on 17 November 2020 or 48 hours before the time appointed for any adjourned meeting or, in the case of a poll taken subsequent to the date of the meeting or adjourned meeting, so as to be received no later than 24 hours before the time appointed for taking the poll. 7. CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the Annual General Meeting and any adjournment(s) thereof by utilising the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members (www.euroclear.com), and those CREST members who have appointed (a) voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 8. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the issuer’s agent ID RA19, by 3.15 pm on 17 November 2020 (or, in the case of an adjournment of the Annual General Meeting, not later than 48 hours before the time fixed for the holding of the adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. 9. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed (a) voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 10. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities 2001 (as amended). 11. As at 30 September 2020 (being the last practicable day prior to the publication of this notice), the Company’s issued share capital consists of ordinary shares of 1p each, carrying one vote each. Excluding 2,605,093 shares held in treasury, the total voting rights in the Company as at 30 September 2020 are 116,330,497. 27581-FW Thorpe-AR2020 Financials.indd 129 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:40 129 Stock Code: TFW www. fwthorpe.co.ukStrategic ReportOur GovernanceOur FinancialsBusiness Overview Notice of Meeting continued 12. Please note that, as shareholders will not be able to attend the meeting, the Company is proposing to allow shareholders the opportunity to raise any issues or concerns arising from the business proposed to be conducted at the meeting. Appropriate questions on the business of the meeting should be emailed to shareholders@fwthorpe. co.uk before 6.00pm on 18 November 2020 and responses will be posted on the Company’s website on the day after the meeting. The Company will answer any such question relating to the business being dealt with at the meeting, but no such answer need be given if: a. to do so would interfere unduly with the preparations for the meeting or involve the disclosure of confidential information; or b. the answer has already been given on a website in the form of an answer to a question; or c. it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. By order of the Board Craig Muncaster Joint Chief Executive, Group Financial Director and Company Secretary Registered Office: Merse Road North Moons Moat Redditch Worcestershire B98 9HH 30 September 2020 AGM 2020 In the light of the UK Government’s restrictions on public gatherings, which are in place at the time of issuing the notice convening the Company’s Annual General Meeting for 2020, the Company is adopting the following arrangements in order to ensure that the health and safety of our shareholders, directors, employees and other key stakeholders are protected: • The meeting will only address the formal matters contained in the notice convening the meeting. • In accordance with the Company’s articles of association, the quorum necessary to constitute the meeting is two members present in person or by proxy; therefore, two members will be in attendance to form the quorum and conduct the business. • Attendance by additional shareholders Is not considered as “essential for work purposes” and so would not be permitted under the current restrictions. Shareholders may not attend in person and will be refused entry to the meeting, given the current restrictions. • All shareholders are urged to appoint the Chairman of the meeting as their proxy, with voting instructions. Please refer to the notes to the notice of the meeting for more information regarding proxy voting. It is emphasised that any forms of proxy being returned via a postal service should be submitted as soon as possible, to allow for any delays to, or suspensions of, postal services in the UK as a result of measures being implemented by the UK Government. • Please note that, as shareholders will not be able to attend the meeting, the Company is proposing to allow • shareholders the opportunity to raise any issues or concerns arising from the business to be conducted at the meeting. Please refer to the notes to the notice of the meeting for more information. If the arrangements for the meeting change due to the UK Government changing the current restrictions or implementing further measures relating to the holding of general meetings prior to the meeting (including the arrangements outlined above), the Company will issue a further communication via the regulatory news service and on its website at www.fwthorpe.co.uk. 130 27581-FW Thorpe-AR2020 Financials.indd 130 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:41 Annual Report and Accounts for the year ended 30 June 2020 Financial Calendar 2020 12 October 19 November 26 November 2021 March April September Posting of the Annual Report and Accounts Annual General Meeting Payment of final dividend Announcement of interim results Payment of interim dividend Announcement of results for the year 27581-FW Thorpe-AR2020 Financials.indd 3 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:33:42 Stock Code: TFW www. fwthorpe.co.uk F W T h o r p e P l c 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 2 0 Merse Road North Moons Moat Redditch Worcestershire B98 9HH England Tel: + 44 (0)1527 583200 Fax: + 44 (0)1527 584177 www.fwthorpe.co.uk 27581-FW Thorpe-AR2020 Strategic.indd 3 Job Number 30 September 2020 11:56 am Proof 11 30/09/2020 12:32:04
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