London Security plc
Annual Report 2017

Plain-text annual report

Annual Report and Accounts 2017 A leader in Europe’s fire security industry. London Security plc L O N D O N S E C U R I T Y 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 1 7 London Security plc is a leader in Europe’s fire security industry. Each year we provide fire protection for over 222,000 customers through our local presence in the United Kingdom, Belgium, the Netherlands, Austria, France, Germany and Luxembourg. Customer focus.  We continually strive to offer the highest quality of service and products to our valued customers. We employ the best trained and qualified engineers with quality products that have achieved the highest performance ratings to blue chip companies, governments or private individuals. Our services and products are commercialised through long-established brands. Nu-Swift, Ansul, Total, Premier and Master: the unique styling of our products makes them immediately recognisable to both the industry and customers alike. We aim to achieve the highest levels of service and product quality. Our employees are trained to the most stringent servicing standards and we develop the highest performance-rated fire products. These activities are performed whilst considering the preservation of the environment. 01 Financial highlights 01 Our European group brands 02 Chairman’s statement 03 Financial review 05 Strategic report 06 Directors and Company advisers 08 Report of the Directors 11 Directors’ remuneration report 12 Independent auditors’ report 18 Consolidated statement of changes in equity 19 Consolidated statement of financial position 20 Consolidated statement of cash flow 21 Notes to the financial statements 46 Independent auditors’ report 49 Parent Company balance sheet 50 Statement of changes in equity 51 Notes to the Parent Company financial statements 55 Notice of Annual General Meeting 16 Consolidated income statement 58 Group companies 17 Consolidated statement of comprehensive income Financial highlights Earnings per share 116.7p Operating profit £21.7m Revenue £125.9m 17 16 15 14 13 116.7p 112.4p 100.1p 103.4p 111.8p 17 16 15 14 13 £21.7m £20.9m £18.5m £19.7m £20.0m 17 16 15 14 13 £125.9m £114.8m £101.2m £100.9m £101.4m Our European group brands London Security plc continues to deliver industry-leading profit margins since acquiring the Ansul and Nu-Swift businesses. The challenges for the future are to continue to grow through acquisition and organically and to build upon our competitive advantage of being a complete fire protection solution provider. ® 01 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Chairman’s statement J.G. Murray, Chairman Financial highlights Financial highlights of the audited results for the year ended 31 December 2017 compared with the year ended 31 December 2016 are as follows: • revenue of £125.9 million (2016: £114.8 million); • EBITDA of £27.9 million (2016: £26.3 million); • operating profit of £21.7 million (2016: £20.9 million); • profit for the year of £14.3 million (2016: £13.8 million); and • a dividend per share of £0.80 (2016: £0.80). Trading review The financial highlights illustrate that the Group’s revenue increased by £11.1 million (9.7%) to £125.9 million. However, these results are impacted by the movement in the Euro to Sterling average exchange rate, which has decreased from 1.23 to 1.14. This movement in exchange rate had a favourable effect of £7.3 million on reported revenue. If the 2017 results had been translated at 2016 rates, revenue would have been £118.6 million instead of £125.9 million (increase of 3.3% on the prior year). Operating profit increased by £0.8 million (3.8%) to £21.7 million. Adjusting for the change in the exchange rate on the same basis as above, operating profit would have been £20.2 million instead of £21.7 million (decrease of 3.3%). A more detailed review of this year’s performance is given in the Financial Review and the Strategic Report. Acquisitions It remains a principal aim of the Group to grow through acquisition. Acquisitions are being sought throughout Europe and the Group will invest at prices where an adequate return is envisaged by the Board. In the year under review the Group has consolidated its presence in the Netherlands, Germany and the UK with the acquisitions of service contracts from nine smaller well-established businesses for integration into the Group’s existing subsidiaries. In addition, the Group has taken a 75% interest in a further business in the United Kingdom which will allow us to bring in house a partner with which we have previously subcontracted. Management and staff 2017 was a year in which the staff performed well and, on behalf of the shareholders, I would like to express thanks and appreciation for their contribution. The Group recognises that we can only achieve our aims with talented and dedicated colleagues who provide outstanding customer service in every area of the business. Michael Gailer Following a short illness Michael Gailer sadly passed away on 5 March 2018. Michael had provided wise counsel to the Company for over 19 years. Michael will be deeply missed by his fellow Directors and our thoughts and condolences are with his family at this difficult time. Dividends A final dividend in respect of 2016 of £0.40 per ordinary share was paid to shareholders on 5 July 2017. An interim dividend in respect of 2017 of £0.40 per ordinary share was paid to shareholders on 7 December 2017. The Board is recommending the payment of a final dividend in respect of 2017 of £0.40 per ordinary share to be paid on 5 July 2018 to shareholders on the register on 8 June 2018. The shares will be marked ex-dividend on 7 June 2018. Future prospects The Group will continue to grow and consolidate the fire protection industry with the finest customer care. Annual General Meeting The Annual General Meeting will be held at 2 Eaton Gate, London SW1W 9BJ, on 20 June 2018 at 2 pm. You will find enclosed a form of proxy for use at that Meeting, which you are requested to complete and return in accordance with the instructions on the form. Your Directors look forward to meeting you at that time. J.G. Murray Chairman 3 May 2018 02 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Financial review In summary: • Results have been impacted by the movement in the Euro to Sterling average exchange rate • The fire security market is experiencing increased competition and downward pressure on prices • We will continue to concentrate on the highest levels of customer service to mitigate this Consolidated Income Statement The Group’s revenue increased by £11.1 million (9.7%) to £125.9 million. Operating profit increased by £0.5 million (2.4%) to £21.4 million. However, these results reflect the movement in the Euro to Sterling average exchange rate, which has decreased from 1.23 to 1.14. If the 2017 results from the European subsidiaries had been translated at 2016 rates, revenue would have been £118.6 million instead of £125.9 million, which would represent an increase of 3.3% on the prior year. On the same basis, operating profit would have been £20.2 million instead of £21.7 million, a decrease of 3.3% compared to 2016. Adjusting for the effect of exchange rates the increase in revenue was £3.8 million. £1.3 million was generated by the Group’s new subsidiaries as disclosed in note 26. A further £2.5 million was generated through smaller acquisitions and organic growth in our existing businesses. The market for fire protection is mature and highly competitive; as a result there is a downward pressure on prices which is eroding our margins. We will continue to concentrate on the highest levels of customer service to mitigate this. As an acquisitive Group the effect of past business acquisitions can be seen in our amortisation charge. This charge represents the declining value over time of customer contracts we have acquired over the last few years. Overall depreciation and amortisation charged in deriving operating profit has increased by £0.7 million in 2017 compared to 2016. This increase is largely attributable to the increase in the amortisation of service contracts. It is a factor of the price we pay for service contracts and the length of time we expect to retain those customers within the Group. Net finance costs have declined by £0.1 million. This charge includes the revaluation of our derivative financial instruments. These financial instruments are the interest rate agreements the Group entered into to mitigate its interest rate risk on its bank borrowings. Their revaluation at each year end has introduced volatility into our net finance costs in prior years. In 2017 there was a marginal increase in their value. The Group’s effective income tax rate of 33.3% of operating profit is expected to remain constant despite a reduction in corporation tax rates in the UK as most of the expense is incurred in overseas jurisdictions which are not affected by this reduction. Consolidated Statement of Financial Position The Group continues to demonstrate consistently profitable performance and strong cash conversion. This is illustrated by a well-capitalised balance sheet with no net debt, a strong asset base and cash balances. The Group’s borrowings disclosed in these financial statements were refinanced in May 2013 with the Group’s existing bankers, Lloyds Bank plc, resulting in a new £19.7 million facility expiring in May 2018. Half of this loan was repaid evenly over five years with the balance at maturity. The multi-currency loan was denominated £6 million in Sterling and €16 million in Euros. The Group incurred £0.5 million in fees in arranging these loans, which was amortised over the life of the loans. The bank loans in the financial statements are stated net of these finance arrangement fees. The Group’s borrowings were refinanced in May 2018 with Lloyds Bank plc with a new multi-currency term loan denominated as £3 million in Sterling and €8 million in Euros. The facility will be repaid evenly over five years. Treasury management and policy The Board considers foreign currency translation exposure and interest rates to be the main potential treasury risks. Treasury policies and guidelines are authorised and reviewed by the Board. To fully address the foreign currency translation exposure the Group’s borrowings, which were refinanced in May 2018, are split between Euro and Sterling according to the forecast income streams. This policy acts as a natural hedge as the effect of an adverse exchange movement on translation of foreign currency loans would be offset by a positive effect of translating income streams from Europe and vice versa. 03 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Financial review continued Treasury management and policy continued Regarding the interest risk, the Group intends to enter into interest rate agreements capping or fixing LIBOR and EURIBOR to take advantage of low market interest rates. Segmental reporting The Directors have considered the requirements of IFRS 8 “Operating segments”. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (“CODM”). The CODM for the London Security Group has been identified as the Board as ultimately this function is responsible for the allocation of resources and assessing the performance of the Group’s business units. The management information on which the CODM makes its decisions has been reviewed to identify any reportable segments as defined by IFRS 8. The Directors have concluded that there is a single operating segment for which financial information is regularly reviewed by the CODM. The Group’s companies in different European countries operate under similar economic and political conditions with no different significant risks associated with any particular area and no exchange control risks. The Group’s operations are managed on a pan-European basis and there are close operational relationships between subsidiary companies. In addition, the nature of products, services, production and distribution is consistent across the region. Accordingly, the Directors have concluded that under IFRS 8 the Group operates in a single geographical and market segment. Key risks and uncertainties The Group’s key risks and uncertainties are discussed in the Strategic Report. 04 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Strategic report Principal activities London Security plc is an investment holding company and its Board co-ordinates the Group’s activities. The principal activities of the Group are the manufacture, sale and rental of fire protection equipment and the provision of associated maintenance services. Business model The Group is a leader in Europe’s fire security industry. We provide fire protection through our local presence in the United Kingdom, Belgium, the Netherlands, Austria, France, Germany and Luxembourg. The Group’s services and products are commercialised through well and long-established brands such as Nu-Swift, Ansul, Premier and Master. The unique styling of our products makes them immediately recognisable to both the industry and customers alike. The Group aims to achieve the highest levels of service and product quality through continuing training of our employees to the most stringent servicing standards and the development of the highest performance-rated fire products. These activities are performed whilst considering the preservation of the environment. The Group continues to build on its reputation for service excellence and quality to develop a “safety solutions” business with a well-diversified and loyal customer base. Business review and results The Consolidated Income Statement shows a profit attributable to equity shareholders of the Parent Company for the year ended 31 December 2017 of £14.3 million (2016: £13.8 million). The Group’s results are discussed in detail in the Financial Review. The Group paid dividends in the year of £9.8 million comprising a final dividend in respect of the year ended 31 December 2016 of £0.40 per ordinary share and an interim dividend of £0.40 per ordinary share in respect of the year ended 31 December 2017. The Board is recommending the payment of a final dividend in respect of the year ended 31 December 2017 of £0.40 per ordinary share. The Group ended the year with net assets of £103.4 million (2016: £96.6 million). Key performance indicators Given the straightforward nature of the business, the Company’s Directors are of the opinion that analysis of revenue, EBITDA, operating profit and earnings per share are the appropriate KPIs for an understanding of the development, performance and position of the business. The analysis of these KPIs is included in the Chairman’s Statement and the Financial Review. Principal risks and uncertainties Increased competition, the current economic climate and industry changes are regarded as the main strategic risks. These are mitigated by providing service levels recognised as being the best in the industry, together with a diverse base of operations throughout Europe. Growth through acquisition is an important strategy of the Group. A potential risk is not identifying unsuitable acquisitions that fail to meet the investment case and would be disruptive to integrate into the Group. This risk is mitigated by formal review by the investment committee prior to an offer being made. Following acquisition the integration team implements the integration plan and monitors performance against that plan. The UK vote to leave the EU has had little impact on the Group’s performance. There is no significant trade between the Group’s Sterling and Eurozone subsidiaries which would be subject to uncertainty surrounding access to each other’s markets. Foreign currency and interest rate risk are discussed in the Financial Review. Future developments We expect competition to intensify in our core market. Despite this our successful business model means we are well placed to deal with the challenges that may arise in 2018 and beyond. At the same time the Group continues to carefully control its cost base to ensure satisfactory levels of profit can be achieved. Signed on behalf of the Board J.G. Murray Chairman 3 May 2018 05 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Directors and Company advisers Executive Directors Independent Non-Executive Directors Jacques Gaston Murray 98 Chairman Mr. Murray’s involvement in the fire industry began in 1961 with his investment in a business which became General Incendie S.A., one of France’s largest fire extinguisher companies. He invested in Nu-Swift and became Chairman in 1982 and the majority shareholder in 1984 when Nu-Swift acquired Associated Fire Protection Limited, which owned General Incendie S.A. He has a business interest in, and is Chairman of, Andrews Sykes Group plc (“Andrews Sykes”), a separately AIM-quoted UK company. Henry Shouler 80 Senior Independent Non-Executive Director Henry Shouler is a Director of PKL Holdings plc. He also has a number of other directorships in private companies. Non-Executive Directors Jean-Pierre Murray 49 Non-Executive Director Jean-Pierre Murray is the son of Jacques Gaston Murray. He is a Non-Executive Director of Andrews Sykes and a number of private companies. Jean-Jacques Murray 51 Vice Chairman Jean-Jacques Murray is the son of Jacques Gaston Murray. His responsibility is the control and strategic direction of the Group. He is a Non-Executive Vice Chairman of Andrews Sykes. Marie-Claire Leon 54 Non-Executive Director Marie-Claire Leon has been responsible for managing various projects around the world with Jacques Gaston Murray. She is a Non-Executive Director of Andrews Sykes. Xavier Mignolet 53 Managing Director Xavier Mignolet joined the Group in 1995. He is a Non-Executive Director of Andrews Sykes. Emmanuel Sebag 49 Executive Director Emmanuel Sebag has responsibility for the review and supervision of Group operations. He is a Non-Executive Director of Andrews Sykes. 06 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Company information Company advisers Company Secretary and registered office Richard Pollard Premier House 2 Jubilee Way Elland West Yorkshire HX5 9DY Registered number 53417 Chartered accountants and statutory independent auditor PricewaterhouseCoopers LLP Central Square 29 Wellington Street Leeds LS1 4DL Registrars Link Asset Services Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0LA Stockbrokers and nominated advisers WH Ireland Limited 24 Martin Lane London EC4R 0DR 07 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Report of the Directors The Directors present their report and the audited Group and Parent Company financial statements for the year ended 31 December 2017. Future developments in the business and dividends paid and proposed are discussed in the Strategic Report. The Group’s financial risk management policy is discussed in the Financial Review. Directors The Directors of the Parent Company who served during the whole of the year ended 31 December 2017, and up to the date of signing the Group and Parent Company financial statements, were: Executive Directors J.G. Murray, J-J. Murray, X. Mignolet and E. Sebag were Directors throughout the whole of the year ended 31 December 2017. Non-Executive Directors M. Gailer (deceased 5 March 2018), M-C. Leon, H. Shouler and J-P. Murray were Directors throughout the whole of the year ended 31 December 2017. J.G. Murray, J-P. Murray and E. Sebag retire by rotation and, being eligible, offer themselves for re-election at the Annual General Meeting. None of the Directors have a service contract with the Parent Company. Brief biographical details of the Directors are set out on page 6. Directors’ interests No Director in office at 31 December 2017 had any disclosable interest in the share capital of the Parent Company or any subsidiary undertaking. Directors’ liability insurance The Parent Company has maintained a Directors’ qualifying third party indemnity policy throughout the financial year and up to the date of signing the financial statements. Neither the Company’s indemnity nor insurance cover in the event that a Director is proved to have acted fraudulently or dishonestly. No claims have been made under either the indemnity or insurance policy. Substantial shareholdings At 3 May 2018, the Parent Company had been notified of the following interests of 3% or more in its share capital: EOI Fire SARL Tristar Fire Corp. Number of shares 9,861,954 2,256,033 Percentage of share capital 80.43% 18.40% Insofar as it is aware, the Parent Company has no institutional shareholders. J.G. Murray is a Director of London Security plc as well as EOI Fire SARL. J.G. Murray, J-J. Murray, J-P. Murray, X. Mignolet and M-C. Leon are Directors of London Security plc as well as Tristar Fire Corp. Health, safety and the environment The maintenance and improvement of working standards to safeguard the health and wellbeing of staff and customers alike is a continuing priority. Health and Safety Officers are appointed at each Group location and they receive periodic training to keep abreast of both legislative requirements and technological advances. It is Group policy to operate in a reasonable manner with regard to the environment. Employment of disabled persons The Group is committed to employment policies that follow best practice based on equal opportunities for all employees and offer appropriate training and career development for disabled staff. If members of staff become disabled the Group continues employment wherever possible and arranges retraining. 08 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Employee involvement The Group recognises the need to ensure effective communications with employees to encourage involvement in the Group’s performance and achieve a common awareness of factors affecting that performance. Policies and procedures have been developed to suit the needs of each subsidiary undertaking, which take into account factors such as numbers employed and location, and include newsletters and communication meetings. Payment to suppliers The Parent Company and Group agree payment terms with all suppliers when they enter into binding purchase contracts. The Group seeks to abide by the payment terms agreed with suppliers whenever it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not follow any standard or external code which deals specifically with the payment of suppliers. At 31 December 2017 Group average creditor days were 56 days (2016: 56 days). The Parent Company had no trade creditors at either year end. Donations The Parent Company and the Group made no political donations during the year (2016: £Nil) and made charitable donations of £Nil (2016: £3,750). Purchase of own shares and authorities to issue shares As at 3 May 2018 there remained outstanding general authority for the Directors to purchase a further 500,000 ordinary shares. Resolution 9 is to be proposed at the Annual General Meeting to extend this authority until the 2018 Annual General Meeting. The special business to be proposed at the 2018 Annual General Meeting also includes, at resolution 8, a special resolution to authorise the Directors to issue shares for cash, other than pro rata to existing shareholdings, in connection with any offer by way of rights not strictly in accordance with statutory pre-emption rights or otherwise, up to a maximum nominal value of £6,130, being 5% of the Parent Company’s issued ordinary share capital. This authority will expire on the earlier of the date of next year’s Annual General Meeting or 15 months after the passing of the resolution. The passing of that resolution is subject to resolution 5, an ordinary resolution, being approved to authorise the Directors to have the power to issue ordinary shares. Statement of disclosure of information to auditor The Directors of the Parent Company at the date of this report confirm that: • so far as each Director is aware, there is no relevant audit information of which the Parent Company’s auditor is unaware; and • each Director has taken all steps he or she ought to have taken as a Director in order to make himself or herself aware of any audit information and to establish that the Parent Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418(2) of the Companies Act 2006. 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. 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 Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law). 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 Parent Company and of the profit or loss of the Group and Parent 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 United Kingdom Accounting Standards, comprising FRS 102, have been followed for the Parent Company financial statements, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business. 09 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Report of the Directors continued Statement of Directors’ responsibilities in respect of the financial statements continued The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The Directors are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Parent Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Parent Company’s performance, business model and strategy. Each of the Directors, whose names and functions are listed in the Annual Report and Accounts, confirm that, to the best of their knowledge: • the Parent Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Parent Company; • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and • the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Parent Company, together with a description of the principal risks and uncertainties that it faces. 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 Parent Company’s auditor is 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 Parent Company’s auditor is aware of that information. Independent auditor A resolution is to be proposed at the Annual General Meeting in accordance with Section 489 of the Companies Act 2006 for the re-appointment of PricewaterhouseCoopers LLP as independent auditor of the Parent Company and authorising the Directors to set its remuneration. Annual General Meeting The Notice of the Annual General Meeting is set out on pages 55 to 56 and all shareholders are invited to attend in person if they wish or by proxy if they are unable to attend. A form of proxy is enclosed for you to complete according to the instructions printed on it and send to the Parent Company’s registrar. All proxies must be received by the registrar by 11 am on 18 June 2018. Appointment of a proxy will not prevent you from attending and voting at the Meeting if you subsequently find that you are able to do so. By order of the Board R. Pollard Company Secretary 3 May 2018 10 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Directors’ remuneration report The Parent Company has followed the provisions in Schedule B of the Combined Code with respect to Directors’ remuneration except that, due to the small size of the Board, the remuneration committee does not consist exclusively of Independent Non-Executive Directors. As the Parent Company is quoted on AIM, it is not required to make disclosures specified by the Remuneration Report Regulations 2002. Remuneration committee (unaudited) The remuneration committee comprises H. Shouler and J-J. Murray. The committee is chaired by H. Shouler who is an independent Non-Executive Director. The remuneration of Non-Executive Directors is set by a committee of the other Directors. No Director is involved in deciding his or her own remuneration. Policy on Executive Directors’ remuneration (unaudited) It is the Parent Company’s policy to provide the packages needed to attract, retain and motivate Directors of the quality required, bearing in mind the size and resources of the Parent Company and its position relative to other companies. Directors’ remuneration (audited) Directors’ emoluments totalled £453,375 (2016: £425,018). This includes an amount paid to the highest paid Director of £247,726 (2016: £224,000). In compliance with the amendment to AIM Rule 19 the following disclosure in respect of Directors’ remuneration is made: Emoluments and compensation including any cash or non-cash benefits received 2017 2016 J.G. Murray J-J. Murray X. Mignolet E. Sebag J-P. Murray M-C. Leon H. Shouler M. Gailer £Nil £Nil £118,156 £118,018 £247,726 £224,000 £Nil £20,000 £20,000 £22,000 £21,000 £Nil £21,827 £20,000 £23,333 £22,333 None of the Directors participate in Group pension arrangements. The Company paid no contributions to any private pension schemes. The costs relating to the Head Office and other expenses of the Executive Directors are limited under a Services Agreement dated 10 December 1999 and reviewed annually. The total costs amounted to £951,000 (2016: £1,297,000) for the year ended 31 December 2017 as per the Services Agreement. On behalf of the Board H. Shouler Chairman of the remuneration committee 3 May 2018 11 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Independent auditors’ report to the members of London Security plc Report on the audit of the Group financial statements Opinion In our opinion, London Security plc’s Group financial statements (the “financial statements”): • give a true and fair view of the state of the Group’s affairs as at 31 December 2017 and of its profit and cash flows for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the Consolidated statement of financial position as at 31 December 2017; the Consolidated income statement and Consolidated statement of comprehensive income, the Consolidated statement of cash flow, and the Consolidated 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: £1,075,000 (2016: £1,000,000), based on 5% of profit before tax. Materiality • We, as the Group engagement team, performed full scope audits of five UK entities and limited procedures over two further entities, covering 18.3% of the Group’s external revenues and 6.7% of the Group’s profit before tax. • For the two largest non-UK components of the Group, which are audited by PwC component auditors, we were heavily involved at all stages of their audits by virtue of numerous communications throughout the process, including the issuance of detailed audit instructions, and review and discussion of audit findings, in particular over our areas of focus. • As a result of this scoping we obtained coverage over 79.7% of the Group’s external revenues and 71.2% of the Group’s profit before tax. • Goodwill impairment assessment. Audit scope Key audit matters 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. 12 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Report on the audit of the Group financial statements continued 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 Goodwill impairment assessment The Group holds goodwill with a carrying value of £49.7 million, which is required to be tested for impairment on an annual basis. We focused on this area because of the magnitude of the balance and due to the judgements made by management when assessing for the possibility of impairment. These judgements include the nature, timing and extent of the projected cash flows within the discounted cash flow model prepared to assess impairment and associated inputs to the model such as discount rate. We obtained management’s discounted cash flow model and assessed its appropriateness in accordance with the requirements of IFRS. We evaluated the process by which the Directors prepared their cash flow forecasts and compared them against the latest Board-approved forecasts and found them to be consistent. We evaluated the historical accuracy of forecasts by comparing the forecasts used in the prior year cash flow model to the actual performance in the current year. These procedures enabled us to determine the accuracy of the Directors’ forecasting process. We found no issues and were satisfied with the evidence obtained in this regard. We evaluated the assumptions used in the profit and cash flow forecasts included in the Directors’ cash flow model. We compared forecast growth rates with historical performance as well as gaining an understanding of key factors and judgements applied in determining the future growth rates. We performed sensitivity analysis over the principal assumptions used in the cash flow model. We found no issues and were satisfied with the evidence obtained in this regard. We assessed the appropriateness of the Directors’ discount rates by comparing the rate used to our own independently determined range of what we would consider to be acceptable. We found no issues and were satisfied with the evidence obtained in this regard. 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, the accounting processes and controls, and the industry in which it operates. 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 Group materiality £1,075,000 (2016: £1,000,000). How we determined it 5% of profit before tax. Rationale for benchmark applied 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. 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 £32,000 and £850,000. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We agreed with the audit committee that we would report to them misstatements identified during our audit above £53,750 (2016: £50,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. 13 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Independent auditors’ report continued to the members of London Security plc Report on the audit of the Group financial statements continued 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 when: • 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 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 ability to continue as a going concern. 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 Report of the Directors, 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 Report of the Directors In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of the Directors for the year ended 31 December 2017 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 its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Report of the Directors. 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 in respect of the financial statements set out on pages 9 and 10, 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 ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 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. 14 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Report on the audit of the Group financial statements continued Responsibilities for the financial statements and the audit continued Use of this report This report, including the opinions, has been prepared for and only for the Parent 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. 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 • certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Other matter We have reported separately on the Parent Company financial statements of London Security plc for the year ended 31 December 2017. Ian Morrison (Senior Statutory Auditor) For and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Leeds 3 May 2018 15 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Consolidated income statement for the year ended 31 December 2017 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit EBITDA* Depreciation and amortisation Operating profit Finance income Finance costs Finance costs – net Profit before income tax Income tax expense Profit for the year Profit is attributable to: Equity shareholders of the Company Non-controlling interest Earnings per share Basic and diluted * Earnings before interest, tax, depreciation and amortisation. The notes on pages 21 to 45 are an integral part of these consolidated financial statements. The above results are all as a result of continuing operations. Note 2017 £’000 2016 £’000 125,873 (26,626) 114,845 (23,638) 99,247 (47,751) (29,757) 91,207 (42,191) (28,154) 23 21,739 20,862 6 7 8 27,934 (6,195) 26,321 (5,459) 21,739 20,862 237 (392) (155) 176 (433) (257) 21,584 (7,239) 20,605 (6,822) 14,345 13,783 14,310 35 13,783 — 14,345 13,783 9 116.7p 112.4p 16 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Consolidated statement of comprehensive income for the year ended 31 December 2017 Profit for the financial year Other comprehensive income/(expense): Items that may be reclassified subsequently to profit or loss: – currency translation differences on foreign currency net investments Items that will not be reclassified subsequently to profit or loss: – actuarial gain recognised in the Nu-Swift pension scheme – movement on deferred tax relating to Nu-Swift pension scheme surplus – actuarial gain/(loss) recognised in the Ansul pension scheme – movement on deferred tax relating to Ansul pension scheme deficit Other comprehensive income for the year, net of tax Total comprehensive income for the year The notes on pages 21 to 45 are an integral part of these consolidated financial statements. Note 2017 £’000 2016 £’000 14,345 13,783 20 18 20 18 1,439 4,441 734 (257) 721 (313) 263 (92) (200) 61 2,324 4,473 16,669 18,256 17 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Consolidated statement of changes in equity for the year ended 31 December 2017 Share capital £’000 123 Share premium account £’000 344 Capital redemption reserve £’000 Merger reserve £’000 Other reserve £’000 Retained Non-controlling interest earnings £’000 £’000 Total equity £’000 1 2,033 2,590 82,932 — 88,023 At 1 January 2016 Total comprehensive income for the year Profit for the financial year Other comprehensive income/(expense): – exchange adjustments – actuarial gain on pension schemes – net movement on deferred tax relating to pension asset Total comprehensive income for the year Contributions by and distributions to owners of the Company: – dividends – release of accrual for unclaimed dividends Total contributions by and distributions to owners of the Company — — — — — — — — — — — — — — — — At 31 December 2016 and 1 January 2017 123 344 Total comprehensive income for the year Profit for the financial year Other comprehensive income/(expense): – exchange adjustments – actuarial gain on pension schemes – net movement on deferred tax relating to pension asset Total comprehensive income for the year Contributions by and distributions to owners of the Company: – dividends Contribution from non-controlling interest on business combination — — — — — — — — — — — — — — At 31 December 2017 123 344 — — — — — — — — 1 — — — — — — — 1 — — — — — — — — — 13,783 — 13,783 4,441 — — 63 — (31) — — — 4,441 63 (31) 4,441 13,815 — 18,256 — — — (9,808) 82 (9,726) — — — (9,808) 82 (9,726) 2,033 7,031 87,021 — 96,553 — — — — — — — — 14,310 35 14,345 1,439 — — 1,455 — (570) 1,439 15,195 — — — 35 1,439 1,455 (570) 16,669 — — (9,808) — (9,808) — 154 154 2,033 8,470 92,408 189 103,568 The merger reserve is not a distributable reserve. The other reserve relates entirely to the effects of changes in foreign currency exchange rates. The notes on pages 21 to 45 are an integral part of these consolidated financial statements. 18 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Consolidated statement of financial position as at 31 December 2017 Assets Non-current assets Property, plant and equipment Intangible assets Deferred tax asset Retirement benefit surplus Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Liabilities Current liabilities Trade and other payables Income tax liabilities Borrowings Derivative financial instruments Provision for liabilities and charges Non-current liabilities Trade and other payables Borrowings Derivative financial instruments Deferred tax liabilities Retirement benefit obligations Provision for liabilities and charges Total liabilities Net assets Shareholders’ equity Ordinary shares Share premium Capital redemption reserve Merger reserve Other reserves Retained earnings Equity attributable to owners of the Parent Company Non-controlling interest Total equity Note 2017 £’000 2016 £’000 11 12 18 20 14 15 16 17 19 13 21 17 19 13 18 20 21 22 22 22 11,589 61,724 589 4,397 10,937 62,749 919 3,574 78,299 78,179 11,749 26,063 24,652 11,095 23,138 22,602 62,464 56,835 140,763 135,014 (19,576) (1,699) (11,125) (54) — (19,344) (1,180) (1,870) — (35) (32,454) (22,429) (1,003) (957) — (10,789) (172) — (1,705) (1,830) (2,279) (1,721) (130) (187) (4,741) (16,032) (37,195) (38,461) 103,568 96,553 123 344 1 2,033 8,470 92,408 123 344 1 2,033 7,031 87,021 103,379 96,553 22 189 — 103,568 96,553 The notes on pages 21 to 45 are an integral part of these consolidated financial statements. The financial statements on pages 16 to 45 were approved by the Board of Directors on 3 May 2018 and were signed on its behalf by: J.G. Murray Chairman 3 May 2018 19 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Consolidated statement of cash flow for the year ended 31 December 2017 Cash flows from operating activities Cash generated from operations Interest paid Income tax paid Net cash generated from operating activities Cash flows from investing activities Acquisition of subsidiary undertakings (net of cash acquired) Purchases of property, plant and equipment Proceeds from the sale of property, plant and equipment Purchases of intangible assets Interest received Net cash used in investing activities Cash flows from financing activities Repayments of borrowings Dividends paid to Company’s shareholders Contribution from non-controlling interest Net cash used in financing activities Effects of exchange rates on cash and cash equivalents Net increase in cash in the year Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The notes on pages 21 to 45 are an integral part of these consolidated financial statements. Notes 23 26 12 2017 £’000 2016 £’000 25,182 (368) (7,249) 26,059 (408) (7,213) 17,565 18,438 (1,220) (3,384) 349 (600) 30 (2,222) (2,774) 323 (1,662) 43 (4,825) (6,292) (1,809) (9,808) 154 (1,819) (9,726) — (11,463) (11,545) 773 2,265 2,050 22,602 2,866 19,736 16 24,652 22,602 20 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements for the year ended 31 December 2017 1 General information London Security plc (the “Parent Company”) is a leader in the European fire security industry, providing fire protection for our customers through a local presence in the UK, Belgium, the Netherlands, Austria, France, Germany and Luxembourg. The Parent Company is a public limited liability company incorporated and domiciled in the United Kingdom. The registered office is Premier House, 2 Jubilee Way, Elland, West Yorkshire HX5 9DY. The Parent Company has its primary listing on AIM, part of the London Stock Exchange. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these Group financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation These Group financial statements have been prepared in accordance with IFRS as adopted by the EU, IFRSIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. These Group financial statements have been prepared under the historical cost convention, as modified by accounting for derivative financial instruments at fair value through profit or loss. The Directors have prepared these financial statements on the fundamental assumption that the Group is a going concern and will continue to trade for at least 12 months following the date of approval of the financial statements. In determining whether the Group’s accounts should be prepared on a going concern basis the Directors have considered the factors likely to affect the future performance. The Directors have reviewed trading and cash flow forecasts as part of the going concern assessment and based on this have the expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accounting developments A number of new standards, amendments to standards and interpretations are effective for the year ended 31 December 2017. These are considered either not relevant or to have no material impact on the Group. The following standards in issue but not yet effective have been considered in more detail: (a) IFRS 9 “Financial Instruments” incorporating the impairment classification and measurement requirements and is scheduled to replace IAS 39 “Financial Instruments: Recognition and Measurement” from 1 January 2018. The Group has reviewed the composition of its trade receivables and concluded that as the expected term of the receivables is less than one year the receivables do not have a significant financing component. Therefore the Group will measure these assets at their transaction price under IFRS 15 and the new standard is not expected to have an impact on the Group. (b) IFRS 15 “Revenue from Contracts with Customers” will be applicable from 1 January 2018. The Group has conducted an assessment of the impact of the standard and concluded that our current revenue recognition policies comply and the standard is not expected to have a material impact on the Group. (c) IFRS 16 “Leases” was issued in January 2016 with an effective date of 1 January 2019. The standard specifies how leases are recognised, presented, measured and disclosed. We expect that the majority of the Group’s lease commitments will be brought onto the balance sheet together with corresponding right of use assets. As at the reporting date, the Group had non-cancellable operating lease commitments of £3.7 million (note 25). Some existing operating lease commitments are expected to be covered by the exception for short-term and low-value leases. In the Income Statement, the existing operating lease charge, which is recognised within operating profit, will be replaced by a depreciation charge in respect of the right of use asset. In addition there will be an interest cost in relation to the lease liability which will be recognised within finance costs. This is likely to impact on the timing of the recognition of lease costs within the Income Statement although it will not affect the Group’s cash flows. The Group has not yet completed its assessment of the impact of the standard on the Group’s results and financial position. The Group does not intend to early adopt IFRS 16. A detailed impact assessment of the standard will be made closer to transition, as the composition of the Group’s lease commitments is likely to change over time and the discount rates applied are required to be updated to reflect the prevailing economic environment. The Group does not intend to restate prior year figures when the new standard is adopted, with lease asset values being set equal to lease liabilities at the date of transition in line with the simplified approach under IFRS 16. 21 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 20172 Summary of significant accounting policies continued Consolidation Subsidiaries are entities which the Group has power over, exposure or rights to variable returns and an ability to use its power to affect those returns. All subsidiaries share the same reporting date, being 31 December, and the same accounting policies as London Security plc. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The costs directly attributable to the acquisition are expensed, with the exception of those relating to the costs to issue debt or equity securities, which are recognised in accordance with IAS 32 and IAS 39. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. On transition to IFRS, the Directors fixed the value of consolidated goodwill on the European subsidiaries at the rate in effect at the date of transition, as permitted under IFRS 1. Hence, the consolidated goodwill is presented at cost less any provision for diminution in value. Segment reporting An operating segment is a group of assets and operations for which discrete financial information is available that is regularly reviewed by the CODM. The Directors have concluded that there is a single operating segment as defined by IFRS 8, being the provision and maintenance of fire protection equipment in Europe. Consequently, the results for the year and assets and liabilities relate to the one operating segment and one geographical area. Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Group financial statements are presented in Sterling, which is the Parent Company’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. (c) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that Statement of Financial Position; (ii) income and expenses for each Income Statement are translated at average exchange rates; and (iii) all resulting exchange differences are recognised as a separate component of equity and are reported within the Statement of Comprehensive Income. In accordance with IFRS 1, the translation reserve has been set at £Nil at the date of transition to IFRS. On consolidation, exchange differences arising from the translation of the net investment in foreign operations and of borrowings and other currency instruments designated as hedges of such investments are taken to other comprehensive income. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the Income Statement as part of the gain or loss on sale. 22 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 20172 Summary of significant accounting policies continued Property, plant and equipment Property is carried at deemed cost at the date of transition to IFRS based on the previous UK GAAP valuations. Plant and equipment held at the date of transition and subsequent additions to property, plant and equipment are stated at purchase cost including directly attributable costs, less accumulated depreciation. Freehold land is not depreciated. Depreciation on all other assets is calculated using the straight line method to allocate their cost less residual value over their estimated useful lives, as follows: Freehold buildings 2%–6% Plant, machinery and extinguisher rental units 10%–33% Motor vehicles and share in aircraft Fixtures, fittings and equipment 5%–33% 10% The assets’ residual values and useful lives are reviewed annually and adjusted if appropriate at each Statement of Financial Position date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the Income Statement. Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets acquired. Goodwill on acquisition of subsidiaries is included in “intangible assets”. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. (b) Approval costs Approval costs are the expenses incurred in meeting the regulatory requirements measuring the fire rating of our products. Approval costs are shown at historical cost, have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate their cost over their estimated useful lives (ten to twenty years). (c) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years) using the straight line method. (d) Service contracts Acquired service contracts are capitalised on the basis of the costs incurred to acquire. Amortisation is calculated using the straight line method to allocate the cost of the contracts over their estimated useful lives (five to ten years) based on information available to the Directors on average attrition rates. 23 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017 2 Summary of significant accounting policies continued Derivative financial instruments Derivative financial instruments are initially measured at cost at the date the contract is entered into and are remeasured at fair value at the Statement of Financial Position date with any valuation adjustment being reflected in the Income Statement. The fair value at the balance sheet date is calculated based on observable interest rates. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provision is made for obsolete, slow-moving or defective items where appropriate. Trade receivables Trade receivables are recognised initially at fair value and subsequently adjusted for any provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the estimated future cash flows. The amount of the provision is recognised in the Income Statement within administrative expenses. Cash and cash equivalents Cash and cash equivalents are included in the Statement of Financial Position at cost. Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term, highly liquid investments with original maturities of three months or less, less bank overdrafts where there is a legal right of offset and an intention to settle. Bank overdrafts are shown within borrowings in current liabilities on the Statement of Financial Position. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where the Parent Company purchases its own shares, the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Parent Company’s equity holders until the shares are cancelled. Trade payables Trade payables are initially recognised at fair value. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the Statement of Financial Position date. Current and deferred income tax 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 net assets approach, 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 substantively 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. 24 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 20172 Summary of significant accounting policies continued Employee benefits Pension obligations Group companies operate various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability and 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 actuarial gains or losses and past service costs. The defined benefit obligation is calculated triennially by independent actuaries using the projected unit credit method. 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. The interest cost and the expected return on the assets are shown within finance cost and finance income respectively within the Consolidated Income Statement. Actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income. Net defined benefit pension scheme deficit and surplus are presented separately on the Statement of Financial Position within non-current liabilities and non-current assets respectively before tax relief. The attributable deferred tax asset and liability is included within deferred tax and is subject to the recognition criteria as set out in the accounting policy on deferred taxation. For defined contribution plans, 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 an employee benefit expense when they are due. Provisions Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, estimated returns, rebates and discounts and after eliminated sales within the Group. Revenue is recognised as follows: (a) Outright sale of equipment Revenue from the outright sale of equipment is recognised upon delivery to the customer. (b) Service Revenue from the servicing of equipment is recognised when the service has been performed. (c) Maintenance Revenue from the provision of maintenance services is recognised over the term of the maintenance contract on a pro rata basis with the unexpired portion held in deferred income. 25 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 20172 Summary of significant accounting policies continued Revenue recognition continued (d) Equipment leases Revenue from the equipment leased to customers under an operating lease is recognised over the term of the lease, typically five years, on a pro rata basis. All contracts are cancellable. (e) Long-term installation Revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments. As soon as the outcome of the contract can be estimated reliably, contract revenue is recognised in the Income Statement in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognised immediately in the Income Statement. Cost of sales Cost of sales includes direct material costs. Other direct costs, largely direct labour, of £47.8 million (2016: £41.4 million) are included within distribution costs. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on a straight line basis over the period of the lease. Dividend distribution Dividend distribution to the Parent Company’s shareholders is recognised as a liability in the Group’s financial statements when paid in the case of interim dividends or in the period in which the dividends are approved by the Parent Company’s shareholders in the case of final dividends. 3 Financial risk management Financial risk factors The Board considers the Group has exposure to the following risks: foreign exchange risk, interest rate risk and capital risk. Risk management is carried out under treasury policies and guidelines authorised and reviewed by the Board of Directors. This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk and the Group’s management of capital. The Board has also considered the Group’s exposure to credit risk and liquidity risk. The Group’s trade receivables consist of a large number of customers spread across diverse industries and geographical locations. The Group does not have any significant credit risk exposure to any single customer. As a result the Board has concluded that the carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk. In view of the significant level of cash reserves held by the Group, the Board has concluded that it has minimal exposure to liquidity risk. 26 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 20173 Financial risk management continued Financial risk factors continued (a) Foreign exchange risk The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. The Group’s exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial instruments except derivatives when it is based on notional amounts: 31 December 2017 Cash and cash equivalents Trade and other receivables Bank loans Trade and other payables Income tax liabilities Balance sheet exposure 31 December 2016 Cash and cash equivalents Trade and other receivables Bank loans Trade and other payables Income tax liabilities Balance sheet exposure Sterling £’000 5,924 5,999 (3,292) (4,768) (402) Euro £’000 Total £’000 18,728 20,064 (7,833) (14,808) (1,297) 24,652 26,063 (11,125) (19,576) (1,699) 3,461 14,854 18,315 Sterling £’000 5,401 4,467 (3,866) (4,281) (174) Euro £’000 Total £’000 17,201 18,671 (8,793) (15,555) (1,006) 22,602 23,138 (12,659) (19,836) (1,180) 1,547 10,518 12,065 A 5% weakening of the Euro against Sterling at 31 December 2017 would have decreased equity and profit or loss by £755,000 (2016: decrease of £521,000). This calculation assumes that the change occurred at the Statement of Financial Position date and had been applied to risk exposures existing at that date. A 5% strengthening of the Euro against Sterling at 31 December 2017 would have had the equal but opposite effect, on the basis that all other variables remain constant. (b) Interest rate risk The Group’s interest rate risk arises from long-term borrowings. These borrowings were issued at variable rates based on EURIBOR and LIBOR and did expose the Group to cash flow interest rate risk. The Group manages its cash flow interest rate risk by entering into fixed interest rate agreements. The effect of these agreements is to fix the Group’s exposure to EURIBOR to 0.84% and LIBOR to 1.05%. The agreements took effect from May 2013 and provide interest rate cover until the loans are repaid in May 2018. (c) Capital risk The Group’s objective in managing capital is to maintain a strong capital base to support current operations and planned growth and to provide for an appropriate level of dividend payment to shareholders. The Group is not subject to external regulatory capital requirements. Total capital Total borrowings Less: cash and cash equivalents Net funds Total equity Total capital 2017 £’000 2016 £’000 11,125 (24,652) 12,659 (22,602) (13,527) 103,568 (9,943) 96,553 90,041 86,610 27 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 20174 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial year are discussed below. (a) Carrying value of goodwill and intangible assets The Group tests annually whether the carrying value of goodwill has suffered any impairment, in accordance with its accounting policy. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. The value-in-use calculations have used pre-tax cash flow projections based on the budget for the year ending 31 December 2018 and are extrapolated using an estimated growth rate of 1% reflecting the mature nature of the market in which the Group operates. The cash flows are then discounted. The value-in-use calculations did not indicate impairment in any goodwill. If the discount rate had been 5% higher there would still have been no impairment in any goodwill. (b) Pension scheme assumptions and mortality tables The carrying value of the defined benefit pension scheme is valued using actuarial valuations. These valuations are based on assumptions including the selection of the most appropriate mortality table for the profile of the members in the scheme and the financial assumptions concerning discount rates and inflation. All these are estimates of future events and are therefore uncertain. The choices are based on advice received from the scheme’s actuaries which is checked from time to time with benchmark surveys. The effect of varying these assumptions is discussed in the relevant pension note. (c) Useful economic lives of intangible assets Amortisation of intangible assets is charged to the Income Statement on a straight line basis over the estimated useful economic life of each asset, which in some cases is in excess of the contracted life. The Directors have made judgements based on the evidence in the market and historical evidence on attrition rates when determining the useful economic lives of intangible assets and based on the legal rights on the contracts being renewable. (d) Provisions for doubtful debtors Trade receivables are stated in the Statement of Financial Position at their nominal value less any appropriate provisions for irrecoverable amounts. In determining the need for a provision, judgement is required in estimating the likely levels of recovery. In exercising this judgement, consideration is given to the overall economic environment as well as specific indicators that the recovery of the balance may be in doubt. (e) Carrying value of inventory Subsequent to initial recognition as disclosed in the significant accounting policies, inventory is annually reviewed and, where necessary, provision is made for obsolete, slow-moving and defective stocks. 5 Employee benefit expense Wages and salaries Social security costs Other pensions costs (note 20) Number of employees 2017 £’000 41,637 9,096 1,676 2016 £’000 38,612 8,050 1,487 52,409 48,149 1,141 1,085 Directors’ remuneration is reported within audited sections of the Directors’ Remuneration Report on page 11 under the heading “Directors’ remuneration (audited)”. The average monthly number of persons employed by the Group (including Directors) during the year was as follows: Production Administration and management Total 28 2017 Number 46 1,095 1,141 2016 Number 46 1,039 1,085 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 20176 Finance income and costs Finance income Bank interest receivable Expected return on pension scheme assets (note 20) Fair value of derivative financial instruments Total finance income Finance costs Bank loans, overdrafts and other loans repayable within five years Amortisation of loan arrangement fees Fair value of derivative financial instruments Interest on pension scheme liabilities (note 20) Total finance costs Net finance costs 7 Profit before income tax Profit before income tax is stated after charging/(crediting): Depreciation of property, plant and equipment Amortisation of intangible fixed assets Profit on disposal of plant and equipment Hire charges under operating leases: – land and buildings – other 2017 £’000 2016 £’000 (19) (89) (129) (237) 271 97 — 24 392 155 (28) (115) (33) (176) 285 97 26 25 433 257 2017 £’000 2,814 3,381 (78) 1,247 873 2016 £’000 2,409 3,050 (88) 1,242 879 Services provided by the Group’s external auditor and network firms During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor as detailed below: Audit services Fees payable to the Parent Company’s auditor for the audit of the Group’s annual accounts Fees payable to the Parent Company’s auditor and its network firms for other services: – the audit of the Parent Company’s subsidiaries pursuant to legislation Other services relating to: – advisory services 2017 £’000 18 200 6 224 2016 £’000 18 198 — 216 29 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 20178 Income tax expense United Kingdom Corporation tax Adjustment in respect of prior periods Foreign tax Corporation taxes Total current tax Deferred tax Original and reversal of timing differences representing: – United Kingdom tax – foreign tax Total deferred tax (note 18) Total tax charge 2017 £’000 407 — 407 2016 £’000 327 (1) 326 6,942 7,349 6,752 7,078 44 (154) (110) 58 (314) (256) 7,239 6,822 The tax for the year is higher (2016: higher) than the standard rate of corporation tax in the United Kingdom of 19.25% (2016: 20.00%). The differences are explained below: Profit on ordinary activities before taxation Profit on ordinary activities multiplied by the standard rate of corporation tax in the United Kingdom of 19.25% (2016: 20.00%) Effects of: – expenses not deductible for tax purposes – overseas tax in excess of UK standard – adjustment in respect of prior periods Total tax charge 2017 £’000 2016 £’000 21,584 20,605 4,155 4,121 420 2,664 — 7,239 254 2,448 (1) 6,822 The Group’s effective income tax rate of 33.3% of operating profit is expected to remain constant despite a reduction in the UK’s main rate of corporation tax from 20% to 17% (effective from 1 April 2020), which was substantively enacted on 6 September 2016. This is because most of the expense is incurred in overseas jurisdictions which are not affected by these reductions. 9 Earnings per share The calculation of basic earnings per ordinary share (“EPS”) is based on the profit on ordinary activities after taxation of £14,310,000 (2016: £13,783,000) and on 12,261,477 (2016: 12,261,477) ordinary shares, being the weighted average number of ordinary shares in issue during the year. For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. There was no difference in the weighted average number of shares used for the calculation of basic and diluted earnings per share as there are no potentially dilutive shares outstanding. Profit on ordinary activities after taxation 2017 2016 £’000 Pence £’000 Pence 14,310 116.7 13,783 112.4 30 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 201710 Dividends per share Equity – ordinary shares Final paid £0.40 (2016: £0.40) per share Interim paid £0.40 (2016: £0.40) per share 2017 £’000 2016 £’000 4,904 4,904 9,808 4,904 4,904 9,808 The Board is recommending the payment of a final dividend in respect of the year ended 31 December 2017 of £0.40 per ordinary share (2016: £0.40). 11 Property, plant and equipment Cost At 1 January 2016 Additions On acquisitions of subsidiary undertakings Disposals Exchange adjustment At 1 January 2017 Additions On acquisitions of subsidiary undertakings Disposals Exchange adjustment At 31 December 2017 Accumulated depreciation At 1 January 2016 Disposals Charge for the year Exchange adjustment At 1 January 2017 Disposals Charge for the year Exchange adjustment At 31 December 2017 Net book amount At 31 December 2017 At 31 December 2016 At 31 December 2015 Freehold land and buildings £’000 8,859 86 8 (3) 831 9,781 102 — — 261 Plant and machinery £’000 Extinguisher rental units £’000 3,192 159 — (20) 440 3,771 204 2 (6) 146 9,210 238 — (65) 1,478 10,861 369 — (65) 483 Motor vehicles and share in aircraft £’000 8,558 2,006 44 (1,189) 1,259 10,678 2,391 47 (1,402) 426 Fixtures, fittings and equipment £’000 4,171 285 3 (76) 557 4,940 318 4 (269) 183 Total £’000 33,990 2,774 55 (1,353) 4,565 40,031 3,384 53 (1,742) 1,499 10,144 4,117 11,648 12,140 5,176 43,225 4,980 — 138 702 5,820 — 145 225 6,190 3,954 3,961 3,879 2,562 (18) 138 376 3,058 (4) 168 125 8,683 (47) 247 1,403 10,286 (58) 275 458 4,569 (981) 1,529 662 5,779 (1,146) 1,810 233 3,407 (72) 357 459 4,151 (263) 416 158 24,201 (1,118) 2,409 3,602 29,094 (1,471) 2,814 1,199 3,347 10,961 6,676 4,462 31,636 770 713 630 687 575 527 5,464 4,899 3,989 714 789 764 11,589 10,937 9,789 Depreciation and profit/loss on disposal have been charged to the Income Statement through administrative expenses. Freehold land is not depreciated. 31 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 201712 Intangible assets Cost At 1 January 2016 Additions On acquisitions of subsidiary undertakings Exchange differences At 1 January 2017 Additions On acquisitions of subsidiary undertakings Exchange differences At 31 December 2017 Accumulated amortisation At 1 January 2016 Charge for the year Exchange differences At 1 January 2017 Charge for the year Exchange differences At 31 December 2017 Net book amount At 31 December 2017 At 31 December 2016 At 31 December 2015 Goodwill £’000 Service contracts £’000 62,347 — 205 3,114 65,666 — 104 1,062 21,789 1,555 1,952 1,970 27,266 464 1,157 692 66,832 29,579 13,419 — 2,809 16,228 — 898 10,978 2,707 1,013 14,698 3,029 369 Software £’000 1,119 69 — 176 1,364 71 — 59 1,494 661 198 110 969 196 44 Approval costs £’000 1,747 38 — 286 2,071 65 — 73 Total £’000 87,002 1,662 2,157 5,546 96,367 600 1,261 1,886 2,209 100,114 1,350 145 228 1,723 156 80 26,408 3,050 4,160 33,618 3,381 1,391 17,126 18,096 1,209 1,959 38,390 49,706 11,483 49,438 12,568 48,928 10,811 285 395 458 250 348 397 61,724 62,749 60,594 Amortisation has been charged to the Income Statement through administrative expenses. Additions are discussed in further detail in note 26. Impairment tests for goodwill and service contracts The recoverable amount of goodwill and service contracts is determined based on value-in-use calculations for each cash-generating unit (“CGU”). The value-in-use calculations have used pre-tax cash flow projections based on the budget for the year ending 31 December 2018. Subsequent cash flows are extrapolated using an estimated growth rate of 1% (2016: 1%) reflecting the mature nature of the market in which the Group operates. The cash flows have then been discounted using a pre-tax rate of 10% (2016: 10%). The value-in-use calculations did not indicate impairment in any goodwill or service contract. If the discount rate had been 5% higher there would still have been no impairment in any goodwill. The value of goodwill is split into five CGUs to assess indicators of impairment. Of the total goodwill £39,081,000 (2016: £38,923,000) relates to Ansul Group companies, £9,802,000 (2016: £9,698,000) relates to the integrated UK companies and the balance relates to the remaining CGUs which are individually considered insignificant. 13 Derivative financial instruments Interest rate agreements 2017 2016 Assets £’000 — Liabilities £’000 54 Assets £’000 — Liabilities £’000 172 The Group has entered into interest rate agreements fixing LIBOR to 1.05% and EURIBOR to 0.84%. The agreements took effect from May 2013 and remain in effect until the loans are repaid in 2018. The liability represents the forecast increase in interest payable as a result of these agreements over the remaining life of the loans at the year end. The fair value at the year end is calculated based on observable interest rates. 32 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 201714 Inventories Raw materials and consumables Work in progress Finished goods 2017 £’000 5,189 488 6,072 2016 £’000 4,787 744 5,564 11,749 11,095 The cost of inventories recognised as an expense and included in cost of sales amounted to £25,664,000 (2016: £22,648,000). No (2016: £Nil) previous inventory write downs have been reversed. No adjustment to impairment of inventories was recognised as an expense in the year. 15 Trade and other receivables Amounts falling due within one year Trade receivables Less: provision for impairment of receivables Trade receivables – net Amounts owed by related undertakings Other receivables Prepayments and accrued income Taxation recoverable 2017 £’000 2016 £’000 24,681 (1,776) 22,154 (1,599) 22,905 31 950 1,593 584 20,555 35 812 1,505 231 26,063 23,138 Amounts owed by related undertakings do not attract interest, no security is held in respect of these balances and are repayable on demand. As of 31 December 2017, trade receivables of £15,409,542 (2016: £12,893,576) were fully performing. As of 31 December 2017, trade receivables of £5,341,276 (2016: £5,519,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: Up to three months Three to six months 2017 £’000 4,620 721 5,341 2016 £’000 5,158 361 5,519 As of 31 December 2017, trade receivables of £3,930,372 (2016: £3,659,000) were impaired and provided for. The amount of the provision was £1,776,000 (2016: £1,599,000). It was assessed that a portion of the receivables is expected to be recovered. The ageing of these receivables is as follows: Up to three months Three to six months Six months or greater 2017 £’000 1,031 1,480 1,419 3,930 2016 £’000 1,147 992 1,520 3,659 33 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 201715 Trade and other receivables continued The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies: Sterling Euro Total These are detailed as Sterling equivalent. Movements in the Group provision for impaired trade receivables are as follows: At 1 January Provision for receivables’ impairment Receivables written off in the year as uncollectable Unused amounts reversed At 31 December 2017 £’000 2016 £’000 5,999 20,064 4,467 18,671 26,063 23,138 2017 £’000 1,599 619 (261) (181) 2016 £’000 1,487 596 (268) (216) 1,776 1,599 The creation and release of the provision for impaired receivables has been included in administrative expenses in the Income Statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The other classes 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 carrying value of trade and other receivables approximates to fair value. The Group does not hold any collateral as security. 16 Cash and cash equivalents Cash at bank and in hand The carrying value of cash at bank and in hand represents its fair value due to its short maturity. 17 Trade and other payables Current Trade payables Other payables Other taxation and social security Accruals Deferred income Non-current Other payables 34 2017 £’000 2016 £’000 24,652 22,602 2017 £’000 2016 £’000 3,171 2,347 10,064 1,306 2,688 3,599 2,790 9,053 1,148 2,754 19,576 19,344 2017 £’000 2016 £’000 1,003 957 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 201718 Deferred income tax Deferred tax asset Pension deficit Decelerated capital allowances Unrecoverable losses Deferred tax liabilities Pension surplus Short-term timing differences Amount (provided)/recognised Amount (unprovided)/unrecognised 2017 £’000 432 157 — 589 2016 £’000 775 144 — 919 (1,539) (291) (1,251) (454) (1,830) (1,705) 2017 £’000 — — 971 971 — — — 2016 £’000 — — 971 971 — — — 971 £’000 (786) 5 110 (570) (1,241) Net deferred tax (liability)/asset (1,241) (786) 971 At 1 January 2017 Exchange differences Amount credited to the Consolidated Income Statement (note 8) Amount charged to the Consolidated Statement of Comprehensive Income At 31 December 2017 Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences will reverse, based on tax rates and laws substantively enacted at the Statement of Financial Position date applicable to the jurisdiction in which the asset/liability is recognised. It is not anticipated that any of the deferred tax asset or liability in respect of the pension deficit or surplus will reverse in the 12 months following the Statement of Financial Position date. Whilst it is anticipated that an element of the remaining deferred tax assets and liabilities will reverse during the 12 months following the Statement of Financial Position date, at present it is not possible to accurately quantify the value of all these reversals. 19 Borrowings Non-current (more than one year but less than five years) Bank borrowings: – in one to two years – between two and five years Current (one year or less or on demand) Bank borrowings Total borrowings The carrying value of borrowings approximates to its fair value. 2017 £’000 2016 £’000 — 10,789 — — — 10,789 11,125 1,870 11,125 12,659 Interest rates (including the bank’s margin) on the bank loans in existence during the year averaged 2.3% (2016: 2.9%) per annum. Bank loans are stated net of unamortised finance arrangement costs of £32,000 (2016: £130,000), of which £Nil (2016: £32,000) is to be amortised after more than one year. 35 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 201719 Borrowings continued The table below analyses the Group’s financial liabilities including interest which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows which have been calculated using spot rates at the relevant balance sheet date. Financial maturity analysis Bank borrowings: – within one year – in one to two years – between two and five years 2017 £’000 2016 £’000 11,272 2,221 — 10,932 — — 11,272 13,153 The estimated fair value of the interest rate agreement has been included in the Statement of Financial Position as disclosed in note 13. The borrowings are secured by fixed and floating charges on all the assets of the Group. The carrying amounts of the Group’s borrowings, all of which are floating rate financial liabilities, are denominated in the following currencies: Currency Sterling Euro Weighted average interest rate 2017 Total 2017 £’000 Total 2016 £’000 3,292 7,833 2.9% 2.1% 3,866 8,793 11,125 2.3% 12,659 Weighted average interest rate 2016 2.8% 3.0% 2.9% Borrowing facilities These borrowings are disclosed as current liabilities as they were due for repayment in May 2018. In May 2018 the Group entered into a new facility until May 2023. The multi-currency loan was denominated £3 million in Sterling and €8 million in Euros. The refinancing of these loans is discussed in the Financial Review. 20 Retirement benefit obligations The Group operates a number of pension schemes. Details of the major schemes are set out below. Nu-Swift International Pension Scheme Nu-Swift International Limited operates a funded defined benefit pension scheme, which was closed to new entrants with effect from 1 December 2002 and to further accrual on 30 June 2007, providing benefits based on final pensionable earnings. The assets of the scheme are held separately from those of the Group, being invested with Legal and General Investment Management. The total pension cost of the Group is determined by an independent qualified actuary on the basis of triennial valuations using the projected unit method. The most recent actuarial valuation as at 31 December 2014 showed that the market value of the scheme’s assets was £15,061,000 and that the actuarial value of those assets represented 107% of the benefits that had accrued to members. The results of this valuation have been projected to 31 December 2017 and then recalculated using the assumptions set out below which result in a net surplus position of £4,397,000 (2016: £3,574,000). The scheme’s assets are stated at their market value at 31 December 2017. At 31 December 2017 the scheme had a net defined benefit surplus calculated in accordance with IAS 19 using the assumptions set out of £4,397,000 (2016: net defined benefit surplus of £3,574,000). The surplus is recognised as it is confirmed that the Group does have an unconditional right to a refund of surplus contributions once all pensions have been applied and the scheme winds up. On this basis no liability for minimum funding requirements has been recognised. The Group paid no contributions to the scheme (2016: £Nil) over the year. No further contributions were payable with effect from 1 May 2015. These payments had been in respect of the recovery plan put in place following the completion of the 2011 valuation. 36 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 201720 Retirement benefit obligations continued Nu-Swift International Pension Scheme continued The financial assumptions used to calculate the liabilities of the scheme under IAS 19 are: Discount rate Inflation rate Salary increase rate Increases for pensions in payment Revaluation of deferred pensions 2017 2016 2015 2.40% 2.40–3.40% n/a 3.30% 2.40% 2.50% 2.50–3.50% n/a 3.40% 2.50% 3.60% 2.00–3.00% n/a 2.90% 2.00% Assumptions regarding future mortality experience are set based on advice, published statistics and experience in each territory. The average life expectancy in years of a pensioner retiring at age 65 at the Statement of Financial Position date is as follows: Male Female 2017 21.9 23.8 The average life expectancy in years of a pensioner retiring at age 65, 20 years after the Statement of Financial Position date, is as follows: 2016 22.0 24.0 2016 23.3 25.5 2017 23.1 25.0 Male Female The assets in the scheme were: Equities Bonds (Overdraft)/cash Present value of the scheme’s liabilities Surplus in the Nu-Swift Scheme recognised in the Statement of Financial Position Related deferred tax liability Analysis of the amount recognised in the Income Statement Interest credit Total operating credit Movement in the defined benefit obligation over the year Start of the year Interest cost Actuarial loss arising from changes in financial assumptions Actuarial gain arising from changes in demographic assumptions Benefits paid End of the year Percentage of scheme assets 2016 29.7% 70.1% 0.2% Value at 31 December 2017 £’000 Percentage of scheme assets 2017 Value at 31 December 2016 £’000 5,707 12,213 (46) 17,874 (13,477) 4,397 (1,539) 5,111 31.9% 68.3% 12,057 34 (0.2%) 17,202 (13,628) 3,574 (1,251) 2017 £’000 (89) (89) 2016 £’000 (115) (115) 2017 £’000 2016 £’000 (13,628) (334) (137) 95 527 (11,657) (411) (2,109) 41 508 (13,477) (13,628) 37 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 201720 Retirement benefit obligations continued Movement in the fair value of the plan assets over the year Start of the year Interest income Return on assets (excluding amount included in net interest expense) Employer contributions Benefits paid End of the year Analysis of the amount recognised in the Consolidated Statement of Comprehensive Income Actuarial loss on defined benefit obligation Actual return less expected return on pension scheme assets Gain recognised in the Consolidated Statement of Comprehensive Income 2017 £’000 2016 £’000 17,202 423 776 — (527) 14,853 526 2,331 — (508) 17,874 17,202 2017 £’000 (42) 776 734 2016 £’000 (2,068) 2,331 263 Sensitivity of the liability value to changes in the principal assumptions Prior to the effect of deferred tax, the impact of a 0.1% decrease in the inflation rate would be to increase the pension surplus by £44,000 (2016: £52,000); an increase of 0.1% in the inflation rate would decrease the surplus by £49,000 (2016: £48,000). The impact of a 0.1% increase in the discount rate would be to increase the pension surplus by £180,000 (2016: £190,000); a decrease of 0.1% in the discount rate would decrease the surplus by £183,000 (2016: £194,000). Ansul Pension Scheme Ansul S.A. operates a number of funded pension schemes, the majority of which are prescribed by the Belgian state. Included within these is a funded pension scheme for which the majority of the Belgian employees are eligible, providing benefits based on final pensionable earnings. The assets of the scheme are held separately from those of the Ansul Group, being invested with Delta Lloyd Life. The total pension cost of the Ansul Group scheme is determined by an independent qualified actuary. The most recent valuation was at 31 December 2017. The scheme’s assets are stated at their market value at 31 December 2017. The Group paid contributions to the scheme amounting to £180,000 (2016: £136,000) over the year. There are no minimum contribution requirements for this scheme. The financial assumptions used to calculate liabilities of the schemes under IAS 19 are: Discount rate Inflation rate Salary increase rate 2017 2016 2015 1.58% 1.60% 1.00% 1.60% 2.00% 1.00% 2.25% 2.00% 1.00% Assumptions regarding future mortality experience are set based on advice, published statistics and experience in each territory. The average life expectancy in years of a pensioner retiring at age 65 at the Statement of Financial Position date is as follows: Male Female 2017 21.9 25.3 The average life expectancy in years of a pensioner retiring at age 65, 20 years after the Statement of Financial Position date, is as follows: Male Female 38 2017 22.0 25.4 2016 21.9 25.3 2016 22.0 25.4 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 201720 Retirement benefit obligations continued Ansul Pension Scheme continued The assets in the scheme were: Value at 31 December 2017 £’000 Percentage of scheme assets 2017 Value at 31 December 2016 £’000 Assets with guaranteed interest with insurer Present value of the schemes’ liabilities Deficit in the Ansul Scheme recognised in the Statement of Financial Position Related deferred tax asset Analysis of the amount recognised in the Income Statement 100% 2,152 (3,873) (1,721) 432 Current service charge Interest charge Total operating charge Movement in the defined benefit obligation over the year Start of the year Current service cost Interest cost Actuarial loss arising from changes in financial assumptions Actuarial gain arising from a change in staff turnover assumptions Benefits paid Exchange movement End of the year Movement in the fair value of the plan assets over the year Start of the year Return on assets Actuarial gain Employer contributions Benefits paid Exchange movements End of the year Analysis of the amount recognised in the Consolidated Statement of Comprehensive Income Actual return less expected return on pension scheme assets Actuarial gain/(loss) recognised in the Consolidated Statement of Comprehensive Income Percentage of scheme assets 2016 100% 2016 £’000 79 25 104 2016 £’000 (2,929) (215) (57) (287) — 139 (499) 1,569 (3,848) (2,279) 775 2017 £’000 37 24 61 2017 £’000 (3,848) (216) (51) (41) 318 145 (180) (3,873) (3,848) 2017 £’000 1,569 27 383 180 (84) 77 2016 £’000 1,245 32 15 136 (67) 208 2,152 1,569 2017 £’000 721 721 2016 £’000 (200) (200) 39 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 201720 Retirement benefit obligations continued Sensitivity of the liability value to changes in the principal assumptions Prior to the effect of deferred tax, the impact of a 0.1% increase in the inflation rate would be to increase the pension deficit by £22,000 (2016: £38,000); a decrease of 0.1% in the inflation rate would decrease the deficit by £20,000 (2016: £34,000). The impact of a 0.1% increase in the discount rate would be to decrease the pension deficit by £60,000 (2016: £47,000); a decrease of 0.1% in the discount rate would increase the deficit by £68,000 (2016: £53,000). UK stakeholder scheme The contributions paid by the Group to the defined contribution stakeholder pension schemes in operation within the UK amounted to £281,000 in the year ended 31 December 2017 (2016: £269,000). Total pension costs charged to the Income Statement for all schemes in which the Group participates amounted to £1,676,000 for the year ended 31 December 2017 (2016: £1,487,000) and were wholly recognised in administrative expenses. 21 Provisions for liabilities and charges At 1 January 2017 Movement in the year Amount provided in the year Provision at 31 December 2017 Current Environmental provision £’000 Non-current Rectification provision £’000 Environmental provision £’000 35 (35) — — 4 — — 4 126 35 22 183 Total £’000 130 35 22 187 The rectification provision relates to after sales costs. The environmental provision relates to costs associated with soil contamination. The cost of the decontamination is expected to be spread over a number of years and the provision is based on quotes received from contractors. The impact of discounting is considered immaterial to the amounts provided. 22 Called up share capital Authorised Ordinary shares of 1p each Allotted, called up and fully paid Ordinary shares of 1p each 2017 Number 2017 £’000 2016 Number 2016 £’000 67,539,188 675 67,539,188 675 12,261,477 123 12,261,477 123 There are no outstanding options at 31 December 2017. The mid-market price of the Company’s shares at 31 December 2017 was £21.00 and the range during the year was £16.25 to £22.25. Share premium account At 1 January 2017 and 31 December 2017 Capital redemption reserve At 1 January 2017 and 31 December 2017 The capital redemption reserve has arisen following the purchase of own shares. £’000 344 £’000 1 40 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 201722 Called up share capital continued Non-controlling interest At 1 January 2017 On business combination Profit in the year attributable to non-controlling interest At 31 December 2017 £’000 — 154 35 189 The non-controlling interest has arisen following the acquisition of 75% of the share capital of Fire Industry Specialists Limited. 23 Reconciliation of operating profit to cash generated from operations Operating profit Depreciation of property, plant and equipment Amortisation of intangible assets Profit on disposal of property, plant and equipment Exchange differences Difference between pension charge and cash contributions Increase in trade and other receivables (Decrease)/increase in trade and other payables Increase/(decrease) in provisions Increase in inventories Cash generated from operations Disposal of assets Net book value Profit on disposal of property, plant and equipment Proceeds 24 Reconciliation of movement in net funds Cash in hand and at bank Debt due within one year Debt due after one year Total 2017 £’000 2016 £’000 21,739 2,814 3,381 (78) 249 97 (1,843) (614) 22 (585) 20,862 2,409 3,050 (88) 1,500 79 (2,461) 2,034 (71) (1,255) 25,182 26,059 2017 £’000 271 78 349 2016 £’000 235 88 323 At 1 January 2017 £’000 22,602 (1,870) (10,789) Cash flow £’000 Non-cash items £’000 At 31 December 2017 £’000 1,277 1,809 773 (11,064) — 10,789 24,652 (11,125) — 9,943 3,086 498 13,527 41 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 201724 Reconciliation of movement in net funds continued Reconciliation of increase in cash to movement in net funds Increase in cash Decrease in debt Change in net debt from cash flows Non-cash changes Net funds at 1 January Net funds at 31 December 2017 £’000 1,277 1,809 3,086 498 9,943 13,527 2016 £’000 601 1,819 2,420 883 6,640 9,943 Non-cash changes relate to foreign exchange movements, amortisation of finance arrangement costs and the movement between current and non-current debt in the year. 25 Commitments and contingent liabilities The Group leases various properties and vehicles under non-cancellable operating lease agreements. The lease agreements are between one and five years and the majority of lease agreements are renewable at the end of the lease period at market rates. The lease expenditure charged to the Income Statement during the year is disclosed in note 7. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Within one year Between two and five years inclusive Property Plant, machinery and equipment 2017 £’000 1,021 932 1,953 2016 £’000 791 570 2017 £’000 771 987 1,361 1,758 2016 £’000 814 1,260 2,074 The Group had no contingent liabilities, no other financial commitments and no capital commitments at 31 December 2017 (2016: £Nil). 26 Acquisitions On 1 April 2017 the Group purchased the entire share capital of Beta Fire Protection Limited, a company incorporated in, and which operates in, the United Kingdom. On 1 May 2017 the Group purchased the entire issued share capital of Feuerschutz Hollmann G.m.b.H., a company incorporated in, and which operates in, Germany. On 31 October 2017 the Group purchased 75% of the share capital of Fire Industry Specialists Limited, a company incorporated in, and which operates in, the United Kingdom. As these acquisitions are individually considered immaterial to the Group the disclosure of the book and provisional fair values of net assets acquired is given in aggregate as follows: Property, plant and equipment Service contracts Inventories Receivables Cash and cash equivalents Payables Fair value of net assets acquired Goodwill Total consideration Cash and cash equivalents acquired Net consideration 42 Book and provisional fair values £’000 53 1,157 69 729 395 (506) 1,897 104 2,001 (395) 1,606 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 201726 Acquisitions continued Satisfied by: Cash Deferred consideration Cash Provisional consideration £’000 1,220 386 1,606 The goodwill is attributable mainly to the skills and technical talent of the acquired companies’ work forces. The final consideration payable is determined based on the performance of the acquired companies in their first year under Group ownership. The criteria to measure performance are agreed with the vendors prior to acquisition. Based on the results of this comparison a deferred payment is made. The disclosure above is based on the Group’s best estimate of the level of deferred consideration payable. The revenue and net profit of Beta Fire Protection Limited since the acquisition date included in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2017 were £545,000 and £146,000 respectively. On a pro rata basis the revenue and profit would have been expected to be £727,000 and £195,000 had the acquisition taken place on 1 January 2017. The revenue and net loss of Feuerschutz Hollmann G.m.b.H. since the acquisition date included in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2017 were £137,000 and £Nil respectively. On a pro rata basis the revenue and loss would have been expected to be £206,000 and £Nil had the acquisition taken place on 1 January 2017. The revenue and net profit of Fire Industry Specialists Limited since the acquisition date included in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2017 were £628,000 and £141,000 respectively. On a pro rata basis the revenue and profit would have been expected to be £3,768,000 and £846,000 had the acquisition taken place on 1 January 2017. In addition, the Group acquired contracts from a number of companies and businesses for a total consideration of £464,000. The Directors considered that the consideration equated to the fair value of the contracts acquired and have recognised an intangible asset accordingly. The Group monitors contract retention rates for any indication of impairment. Due to the integration of these companies and businesses acquired during the year into the existing businesses and operations, the Directors are unable to determine the contribution of the acquisitions to the revenue and net profit of the Group for the year ended 31 December 2017 nor are they able to determine what the impact on revenues and profit of the Group for the year ended 31 December 2017 would have been had the acquisitions taken place on 1 January 2017. 43 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 201727 Group undertakings The Group wholly owns the entire issued and voting ordinary share capital of all the subsidiaries listed with the exception of Fire Industry Specialists Limited, which is 75% owned by LS UK Fire Group Limited. Activity Country of registration or incorporation and operation Alarm Masters S.A. All-Protec N.V. A.L.P.I. sarl Ansul B.V. Ansul Solutions B.V. Ansul S.A. Ansul Belgium S.A. APS Sprl ASCO Extinguishers Company Limited Barkat B.V.B.A. Braco B.V.B.A. Beta Fire Protection Limited Blesberger G.m.b.H. Boensma B.V. Braho Brandpreventie B.V. DC Security B.V.B.A. Dimex Technics S.A. Feuerschutz Hollmann G.m.b.H. Fire Industry Specialists Limited Fire Protection Holdings Limited GC Fire Protection Limited GFA Premier Limited Hoyles Limited Hoyles Fire & Safety Limited Importex S.A. Le Chimiste Sprl Ludwig Brandschutztechnik G.m.b.H. Luke & Rutland Limited L. W. Safety Limited Modern Fire Extinguisher Services Limited NL Brandbeveiliging B.V. Noris Feuerschutzgerate G.m.b.H. Nu-Swift (Engineering) Limited Nu-Swift Brandbeveiliging B.V. Nu-Swift International Limited LS UK Fire Group Limited One Protect Sarl PMP Manus G.m.b.H. Prevent Brandbeveiliging B.V. Pyrotec Fire Protection Limited Record Brandbeveiliging B.V. Security Alarm Service Company Sprl Somati FIE N.V. Total Fire-Stop G.m.b.H. Tunbridge Wells Fire Protection Limited TVF (UK) Limited 44 Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Intruder alarms Fire protection Fire protection Fire protection Sub-holding Fire protection Fire protection Sub-holding Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Sub-holding Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Fire protection Belgium Belgium Luxembourg The Netherlands The Netherlands Belgium Belgium England Scotland and England Belgium Belgium England Austria The Netherlands The Netherlands Belgium Belgium Germany England England England England England England Belgium Belgium Germany England England England The Netherlands Austria England The Netherlands England England France Austria The Netherlands England The Netherlands Belgium Belgium Austria England England LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the financial statements continuedfor the year ended 31 December 201727 Group undertakings continued The following subsidiaries have taken advantage of exemption from audit under Section 479a of the Companies Act 2006: ASCO Extinguishers Company Limited, Beta Fire Protection Limited, Fire Protection Holdings Limited, GC Fire Protection Limited, GFA Premier Limited, Hoyles Limited, Luke & Rutland Limited, LS UK Fire Group Limited, Modern Fire Extinguisher Services Limited, Pyrotec Fire Protection Limited, Tunbridge Wells Fire Protection Limited and TVF (UK) Limited. With the exception of the Parent Company’s 100% interest in Fire Protection Holdings Limited, the shares in the remaining Group undertakings are held by subsidiary undertakings. Addresses and contact details for these subsidiaries are given inside the back cover. LS UK Fire Group Limited’s and Fire Protection Holdings Limited’s registered address is: Premier House, Jubilee Way, Elland HX5 9DY. In order to comply with the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 the Group is no longer able to take advantage of Section 410 of the Companies Act 2006 to disclose only its principal subsidiaries in the financial statements. Additional wholly owned subsidiaries, all of which are dormant, are: C & T Fire Limited, FDSA Fire Protection Limited, LS Fire Group Limited, Phoenix Fire & Safety Limited, Professional Fire Protection Limited, Cowley Fire Limited, BWH Manufacturing Limited, Fire Reliant Limited, General Fire Appliance Co. Limited, Green Cross Limited, L & P Fire Safety Equipment Limited, LS UK Fire Group Limited, Premier Fire Limited, Pyrotec Fire Detection Limited, Nu-Swift Limited, Triangle Fire Limited, United Fire Alarms Limited and Wilts Fire Limited all share the registered address: Premier House, Jubilee Way, Elland HX5 9DY. Assured Fire Protection & Safety Limited, 1st Quote Fire Limited and Swift-N-Sure (Fire Appliances) Limited all share the registered address: Unit 1.1, Festival Court, Brand Place, Glasgow G51 1DR. MK Fire Limited, Thames Valley Fire Protection Limited, TVF Alarms Limited, TVF Systems Services Limited and Ulysses Fire Services Limited all share the registered address: 56/69 Queen’s Road, High Wycombe HP13 6AH. Pyrotec Fire Detection Limited is registered at Caburn Enterprise Park, Ringmer BN8 5NP. Firestop Services Limited is registered at Unit 3, Holmes Way, Boston Road Industrial Estate, Horncastle, Lincolnshire LN9 6JR. All of these entities have been included within the consolidation. 28 Ultimate parent undertaking and controlling party The Parent Company regards EOI Fire SARL, a company registered in Luxembourg, as its ultimate parent undertaking through its 80% interest in London Security plc. The Directors regard the Eden and Ariane Trusts as the ultimate controlling parties through their controlling interest in EOI Fire SARL and Tristar Fire Corp. 29 Related party transactions During the year the Group incurred costs amounting to £951,000 (2016: £1,297,000) in respect of the Executive Directors including the Head Office and other expenses under the Services Agreement referred to in the Directors’ Remuneration Report. The Group recharged and was reimbursed £82,000 (2016: £210,000) in relation to the Service Agreement by Andrews Sykes. The balance disclosed in note 15 as being due from related undertakings is with EFS Property Holdings Ltd., a company controlled by J.G. Murray. The amount outstanding at the year end relates entirely to transactions in the year. The Group made sales to Andrews Sykes in relation to fire protection in the year of £10,528 (2016: £9,990). The Group made sales to fire companies in Switzerland controlled by J.G. Murray in the year of £339,006 (2016: £365,720). The Group incurred £253,000 (2016: £296,000) of expenditure on behalf of J.G. Murray during the year. This was reimbursed in the year. The Group incurred £52,000 (2016: £Nil) of expenditure on behalf of J-J. Murray during the year. This was reimbursed in the year. 30 Post balance sheet events Subsequent to the year end the Group has not completed the acquisition of further service contracts (2016: £823,000). Subsequent to the year end the Group entered into a new facility to refinance its borrowings (note 19) which matured 2 May 2018. The multi-currency loan was denominated £3 million in Sterling and €8 million in Euros. The refinancing of these loans is discussed in the Financial Review. 45 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Independent auditors’ report to the members of London Security plc Report on the audit of the Parent Company financial statements Opinion In our opinion, London Security plc’s Parent Company financial statements (the “financial statements”): • give a true and fair view of the state of the Parent Company’s affairs as at 31 December 2017; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard Applicable in the UK and Republic of Ireland”, and applicable law); 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 Parent Company balance sheet as at 31 December 2017; the 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 materiality: £530,000 (2016: £550,000), based on 1% of total assets. • We performed full scope audit procedures over London Security plc (the Parent Company Materiality of the Group). • We have no key audit matters to report. Audit scope Key audit matters 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. 46 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Report on the audit of the Parent Company financial statements continued 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. We determined that there were no key audit matters applicable to the Parent Company to communicate in our report. 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 Parent Company, the accounting processes and controls, and the industry in which it operates. 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 £530,000 (2016: £550,000). 1% of total assets. We believe that total assets is the primary measure used by the shareholders in assessing the position of the entity, and is a generally accepted auditing benchmark. We agreed with the audit committee that we would report to them misstatements identified during our audit above £26,750 (2016: £27,500) as well as misstatements below that amount 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 when: • 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 Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the 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 Parent Company’s ability to continue as a going concern. 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 Report of the Directors, 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. 47 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Independent auditors’ report continued to the members of London Security plc Report on the audit of the Parent Company financial statements continued Reporting on other information continued Strategic Report and Report of the Directors In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of the Directors for the year ended 31 December 2017 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 Parent Company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Report of the Directors. 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 in respect of the financial statements set out on pages 9 and 10, 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 Parent Company’s ability to continue as a going concern disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Parent 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 Parent 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. 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 Parent 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 financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Other matter We have reported separately on the Group financial statements of London Security plc for the year ended 31 December 2017. Ian Morrison (Senior Statutory Auditor) For and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Leeds 3 May 2018 48 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Parent Company balance sheet as at 31 December 2017 Fixed assets Tangible assets Investments Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Borrowings Creditors Derivative financial instruments Net current (liabilities)/assets Total assets less current liabilities Creditors: amounts falling due after more than one year Borrowings Derivative financial instruments Net assets Capital and reserves Called up share capital Share premium account Capital redemption reserve fund Profit and loss account before profit for the year Loss for the year Total shareholders’ funds The registered number of the Company is 53417. Note 2017 £’000 2016 £’000 2 3 4 5 6 8 5 8 9 204 49,804 255 49,804 50,008 50,059 2,644 977 3,621 3,456 1,629 5,085 (3,292) (1,442) (9) (575) (1,620) — (4,743) (2,195) (1,122) 2,890 48,886 52,949 — — — (3,291) (33) (3,324) 48,886 49,625 123 344 1 49,157 (739) 123 344 1 50,132 (975) 48,886 49,625 The notes on pages 51 to 54 are an integral part of these financial statements. The financial statements on pages 49 to 54 were approved by the Board of Directors on 3 May 2018 and were signed on its behalf by: J.G. Murray Chairman 3 May 2018 49 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Statement of changes in equity for the year ended 31 December 2017 At 1 January 2016 Total comprehensive income for the year Profit for the financial year Contributions by and distributions to owners of the Company: – dividends – release of accrual for unclaimed dividends At 1 January 2017 Total comprehensive income for the year Profit for the financial year Contributions by and distributions to owners of the Company: – dividends At 31 December 2017 The notes on pages 51 to 54 are an integral part of these financial statements. Called up share capital £’000 123 Share premium reserve £’000 344 Capital redemption reserve £’000 Profit and loss account £’000 Shareholders’ funds £’000 1 50,132 50,600 — — — — — — 123 344 — — — — 123 344 — — — 1 — — 1 8,751 8,751 (9,808) 82 (9,808) 82 49,157 49,625 9,069 9,069 (9,808) (9,808) 48,418 48,886 50 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the Parent Company financial statements for the year ended 31 December 2017 1 Principal accounting policies Basis of accounting London Security plc is a public company limited by shares and incorporated and domiciled in the United Kingdom. These financial statements were prepared in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland (“FRS 102”). The functional and presentation currency of these financial statements is Sterling. In these financial statements, the Company is considered to be a qualifying entity (for the purposes of this FRS) and has applied the exemptions available under FRS 102 in respect of the following disclosures: • reconciliation of the number of shares outstanding from the beginning to the end of the year; • Statement of Cash Flow and related notes; and • key management personnel compensation. As the consolidated financial statements of London Security plc include the equivalent disclosures, the Company has also taken the exemptions under FRS 102 available in respect of the following disclosures: • presenting a Parent Company profit and loss account under Section 408 of the Companies Act 2006; and • the disclosures required by FRS 102.11 “Basic financial instruments” and FRS 102.12 “Other financial instrument issues” in respect of financial instruments not falling within the fair value accounting rules of Paragraph 36(4) of Schedule 1. These Parent Company financial statements have been prepared on the going concern basis, under the historical cost convention as modified by revaluation of financial liabilities held at fair value through profit and loss in accordance with the Companies Act 2006 and applicable accounting standards in the UK. The Directors have prepared these financial statements on the fundamental assumption that the Company is a going concern and will continue to trade for at least 12 months following the date of approval of the financial statements. In determining whether the Company’s financial statements should be prepared on a going concern basis, the Directors have considered the factors likely to affect the future performance. The Directors have reviewed trading and cash flow forecasts as part of the going concern assessment and based on this have the expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. A summary of the more important accounting policies, which have been consistently applied, is set out below. Tangible fixed assets The cost of tangible fixed assets is their purchase cost or internal production costs, together with any incidental costs of acquisition. Depreciation is provided for on all tangible fixed assets on the straight line method at rates calculated to write off the cost or valuation less estimated residual values over the estimated lives of the assets. The annual rates are as follows: Share in aircraft 5% Fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Any impairment in value is charged to the profit and loss account. Investments Investments in subsidiary undertakings are included at cost unless, in the opinion of the Directors, an impairment has occurred, in which case the deficiency is provided for in and charged to the Parent Company’s profit and loss account. Deferred tax Deferred tax is provided on timing differences which arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is not recognised on permanent differences arising because certain types of income or expense are non-taxable or are disallowable for tax, or because certain tax charges or allowances are greater or smaller than the corresponding income or expense. Deferred tax is provided in respect of the additional tax that will be paid or avoided on differences between the amount at which an asset (other than goodwill) or liability is recognised in a business combination and the corresponding amount that can be deducted or assessed for tax. Goodwill is adjusted by the amount of such deferred tax. Deferred tax is measured at the tax rate that is expected to apply to the reversal of the related difference, using tax rates enacted or substantively enacted at the balance sheet date. Unrelieved tax losses and other deferred tax assets are recognised only to the extent that is it probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. 51 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the Parent Company financial statements continued for the year ended 31 December 2017 1 Principal accounting policies continued Finance arrangement costs and interest rate caps Costs of arranging bank loans and interest rate caps are treated as a deduction from the loan liability and are amortised over the lives of the relevant loans. Derivative financial instruments Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. Dividend distribution Dividend distribution to the Parent Company’s shareholders is recognised as a liability in the financial statements when paid, in the case of interim dividends, or in the period in which the dividends are approved by the Parent Company’s shareholders, in the case of final dividends. 2 Tangible assets Cost At 1 January and 31 December 2017 Accumulated depreciation At 1 January 2017 Charge for the year At 31 December 2017 Net book amount At 31 December 2017 At 31 December 2016 3 Investments Cost At 1 January and 31 December 2017 The Directors believe that the carrying value of the investments is supported by their underlying net assets. A full list of subsidiary undertakings is provided in note 27 of the Group accounts. 4 Debtors Amounts falling due within one year Amounts owed by Group undertakings Other debtors Taxation recoverable Share in aircraft £’000 1,019 764 51 815 204 255 Shares in subsidiary undertakings £’000 49,804 2017 £’000 2016 £’000 2,228 — 416 2,644 2,992 60 404 3,456 Amounts owed by Group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand. 52 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017 5 Borrowings Non-current (amounts falling due in more than one year) Bank borrowings: – in one to two years – between two and five years Current (amounts falling due within one year or on demand) Bank borrowings Total borrowings 2017 £’000 2016 £’000 — — — 3,292 3,292 3,291 — 3,291 575 3,866 Interest rates (including the bank’s margin) on the bank loans in existence during the year averaged 2.85% (2016: 2.80%) per annum. Bank loans are stated net of unamortised finance arrangement costs of £8,000 (2016: £34,000), of which £Nil (2016: £8,000) is to be amortised after more than one year. The Directors consider that the fair values of the bank loans are not materially different from their book values. The carrying amounts of the Company’s borrowings, all of which are floating rate financial liabilities, are denominated in the following currencies: Currency Sterling 6 Creditors Amounts owed to Group undertakings Other creditors Accruals and deferred income Weighted average interest rate 2017 Total 2017 £’000 Weighted average interest rate 2016 Total 2016 £’000 3,292 2.85% 3,866 2.80% 3,292 2.85% 3,866 2.80% 2017 £’000 1,295 — 147 1,442 2016 £’000 1,479 8 133 1,620 Amounts due to Group undertakings are unsecured, interest free and repayable on demand. 7 Deferred tax The deferred tax asset comprises: Losses Deferred tax asset Amount recognised Amount unrecognised 2017 £’000 — — 2016 £’000 — — 2017 £’000 (971) (971) 2016 £’000 (971) (971) Deferred tax is measured on a non-discounted basis at the tax rate that is expected to apply in the periods in which timing differences will reverse, based on tax rates and laws substantively enacted at the balance sheet date, being a rate of 17%. 53 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notes to the Parent Company financial statements continued for the year ended 31 December 2017 8 Derivative financial instruments Interest rate agreements 2017 2016 Assets £’000 — Liabilities £’000 9 Assets £’000 — Liabilities £’000 33 The Company has entered into an interest rate agreement which fixes LIBOR at 1.05%. The agreement took effect from May 2013 and remains in effect until the loan is repaid in 2018. The liability represents the forecast increase in interest payable as a result of this agreement over the remaining life of the loan at the year end. The fair value at the year end is calculated based on observable interest rates. 9 Called up share capital Authorised Ordinary shares of 1p each Allotted, called up and fully paid Ordinary shares of 1p each 2017 Number 2017 £’000 2016 Number 2016 £’000 67,539,188 675 67,539,188 675 12,261,477 123 12,261,477 123 There were no outstanding options at 31 December 2017. The mid-market price of the Company’s shares at 31 December 2017 was £21.00 and the range during the year was £16.25 to £22.25. The Parent Company had no employees during the year (2016: Nil). The remuneration paid to the Parent Company auditor in respect of the audit of the Group and Parent Company financial statements for the year ended 31 December 2017 is set out in note 7 to the Group financial statements. The Board is recommending the payment of a final dividend in respect of the year ended 31 December 2017 of £0.40 per ordinary share (2016: £0.40). 10 Commitments and contingent liabilities The Parent Company had no financial or other commitments at 31 December 2017 (2016: £Nil). The Parent Company was party to a cross guarantee under which it guaranteed the borrowings of certain of its subsidiary undertakings. At 31 December 2017 this guarantee amounted to £7,857,000 (2016: £8,889,000). No loss is expected to arise from this guarantee. 11 Ultimate parent undertaking and controlling party The Parent Company regards EOI Fire SARL, a company registered in Luxembourg, as its ultimate parent undertaking through its 80% interest in London Security plc. The Directors regard the Eden and Ariane Trusts as the ultimate controlling parties through their controlling interest in EOI Fire SARL and Tristar Fire Corp. 12 Related party transactions During the year the Company incurred costs amounting to £759,000 (2016: £858,000) in respect of the Executive Directors, including the Head Office and other expenses under the Services Agreement referred to in the Directors’ Remuneration Report. The Company recharged and was reimbursed £82,000 (2016: £210,000) in relation to the Service Agreement by Andrews Sykes. The Company incurred £253,000 (2016: £296,000) of expenditure on behalf of J.G. Murray during the year. This amount was reimbursed in the year. The Company incurred £52,000 (2016: £Nil) of expenditure on behalf of J-J. Murray during the year. This amount was reimbursed in the year. The Company has taken advantage of the exemption available under FRS 102 “Related party disclosures” from disclosing transactions between related parties within the London Security plc group of companies. 54 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Notice of Annual General Meeting NOTICE IS GIVEN THAT the Annual General Meeting of London Security plc (the “Company”) will be held at 2 Eaton Gate, London SW1W 9BJ, on 20 June 2018 at 2 pm for the following purposes: You will be asked to consider the following resolutions as ordinary resolutions: 1. To receive the financial statements for the year ended 31 December 2017 and the Reports of the Directors and auditor and the Directors’ Remuneration Report for that year. 2. To re-elect J.G. Murray as a Director, who retires by rotation under article 23.2 of the Company’s articles of association. 3. To re-elect J-P. Murray as a Director, who retires by rotation under article 23.2 of the Company’s articles of association. 4. To re-elect E. Sebag as a Director, who retires by rotation under article 23.2 of the Company’s articles of association. 5. To declare a final dividend in respect of 2017 of £0.40 per ordinary share. 6. That PwC LLP be re-appointed as auditor of the Company to hold office from the conclusion of this Meeting until the conclusion of the next Annual General Meeting at which accounts are laid before the Company and that its remuneration be fixed by the Directors. 7. That the Directors be generally and unconditionally authorised in accordance with Section 549 of the Companies Act 2006 (the “Act”) to exercise all the powers of the Company to allot relevant securities (as defined in Section 550 of the Act) up to an aggregate nominal value equal to the whole of the authorised but unissued share capital of the Company immediately following the passing of this resolution provided that such authority shall (unless and to the extent previously revoked, varied or renewed by the Company in general meeting) expire at the conclusion of five years from the date this resolution is passed provided that such authority shall allow the Company to make an offer or enter into an agreement which would or might require relevant securities to be allotted after the expiry of such authority and the Directors may allot relevant securities in pursuance of any such offer or agreement as if the authority conferred by this resolution had not expired. You will be asked to consider the following resolutions as special resolutions: 8. That, subject to the passing of resolution 7 above, the Directors be and are empowered pursuant to Section 570 of the Act to allot equity securities (within the meaning of Section 564 of the Act) of the Company for cash pursuant to the authority conferred by resolution 7 above as if Section 561 of the Act did not apply to such allotment, provided that this power shall be limited to: (i) the allotment of equity securities in connection with or pursuant to an offer by way of rights to the holders of ordinary shares and other persons entitled to participate in such offer in proportion (as nearly as may be) to their respective holdings of ordinary shares, subject only to such exclusions or other arrangements as the Directors may consider necessary or expedient to deal with fractional entitlements or legal or practical problems under the laws of any territory or the regulations or requirements of any regulatory body or any stock exchange in any territory; and (ii) the allotment (other than pursuant to (i) above) of equity securities up to an aggregate nominal amount of £6,131 and such power shall expire on the date of the next Annual General Meeting of the Company or 15 months after the date of the passing of this resolution (whichever is the earlier) but so that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities pursuant to such an offer or agreement as if the power conferred by this resolution had not expired. 9. That the Company be and is generally and unconditionally authorised for the purposes of Section 701 of the Act to make one or more market purchases (as defined in Section 701(2) of the Act) on the London Stock Exchange of ordinary shares of 1 pence each in the capital of the Company (“ordinary shares”) provided that: (i) the maximum aggregate number of ordinary shares authorised to be purchased is 500,000 shares; (ii) the minimum price which may be paid for such shares is 1 pence per share; (iii) the maximum price (exclusive of expenses) which may be paid for such shares is not more than 5% above the average of the middle market quotations for the Company’s ordinary shares derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the purchase of the ordinary shares is contracted to take place; (iv) the authority conferred shall expire at the conclusion of the next Annual General Meeting of the Company or 15 months after the passing of this resolution (whichever is the earlier); and 55 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017 Notice of Annual General Meeting continued 9. continued (v) the Company may make a contract to purchase its own shares under the authority conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of its own shares in pursuance of any such contract. By order of the Board R. Pollard Company Secretary 3 May 2018 Registered office Premier House 2 Jubilee Way Elland West Yorkshire HX5 9DY Notes 1. If you are a member of the Company you are entitled to appoint one or more proxies to attend, speak and vote at the Meeting and you should have received a form of proxy with the Notice of Meeting. You can appoint a proxy using the procedures set out in these notes and the notes in the form of proxy. 2. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Details of how to appoint the Chairman of the Meeting or another person as your proxy using the form of proxy are set out in the notes to the form of proxy. 3. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, fill out a copy of the accompanying form of proxy for each proxy. Multiple proxy appointments should be returned in the same envelope. 4. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting. Appointment of proxy using hard copy proxy form 5. The notes to the form of proxy explain how to direct your proxy on how to vote on each resolution or withhold their vote. To appoint a proxy using the form of proxy, the form must be: (a) completed and signed; (b) sent or delivered to Link Asset Services, Proxy Department, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU; and (c) received by Link Asset Services no later than 48 hours before the time of the Meeting. In the case of a member which is a company, the form of proxy must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the form of proxy is signed (or a duly certified copy of such power or authority) must be included with the form of proxy. Appointment of proxy by joint members 6. In the case of appointment of a proxy by joint shareholders, the signature of any one of them will suffice, but if a holder other than the first-named holder signs, it will help the registrars if the name of the first-named holder is given. Changing proxy instructions 7. To change your proxy instructions, simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also applies in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. 56 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017 Notes continued Termination of proxy appointments 8. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to Link Asset Services, Proxy Department, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by Link Asset Services no later than 48 hours before the Meeting. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated. Issued shares and total voting rights 9. As at 11 am on 3 May 2018, the Company’s issued share capital comprised 12,261,477 shares of 1 pence each. Each ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 11 am on 3 May 2018 was 12,261,477. Documents on display 10. The register of Directors’ interests will be available for inspection at the registered office of the Company from 4 May 2018 until the time of the Meeting and for at least 15 minutes prior to the Meeting and during the Meeting. Communication 11. Except as provided above, members who have general queries about the Meeting should use the following method of communication (no other methods of communication will be accepted): • calling 01422 372852. You may not use any electronic address provided either: (a) in this Notice of Annual General Meeting; or (b) any related documents (including the form of proxy), to communicate with the Company. 57 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017 Group companies The United Kingdom Asco Extinguishers Company Limited Unit 1.1 Festival Court Brand Place Glasgow G51 1DR Tel: Email: Website: 0141 427 1144 customer.service@asco.uk.com www.asco.uk.com Beta Fire Protection Limited Unit 18 Western Road Industrial Estate Stratford-upon-Avon Warwickshire CV37 0AH Tel: Email: Website: 01789 292 050 info@betafire.co.uk www.betafireprotection.com Firestop Services Limited Unit 3 Holmes Way Boston Road Industrial Estate Horncastle Lincolnshire LN9 6JR L. W. Safety Limited 56/69 Queens Road High Wycombe Buckinghamshire HP13 6AH Tel: Email: Website: 01422 314 350 customer.service@lwsafety.co.uk www.lwsafety.co.uk MK Fire Limited 56/69 Queens Road High Wycombe Buckinghamshire HP13 6AH Tel: Email: Website: 01494 769 744 customer.service@mkfire.co.uk www.mkfire.co.uk Modern Fire Extinguisher Services Limited 6 Claremont Buildings Claremont Bank Shrewsbury SY1 1RJ Nu-Swift International Limited Premier House Jubilee Way Elland West Yorkshire HX5 9DY Tel: Email: Website: 01507 723 322 enquiries@fire-stop.co.uk www.firestopservices.co.uk Tel: Email: Website: 01422 372 852 customer.service@nu-swift.co.uk www.nu-swift.co.uk Pyrotec Fire Protection Limited Caburn Enterprise Park Ringmer East Sussex BN8 5NP Tel: Email: Website: 0800 634 9953 sales@pyrotec.co.uk www.pyrotec.co.uk Tunbridge Wells Fire Protection Limited Caburn Enterprise Park Ringmer East Sussex BN8 5NP Tel: Email: Website: 01825 767 600 customer.service@twfpltd.co.uk www.twfpltd.co.uk TVF (UK) Limited 56/69 Queens Road High Wycombe Buckinghamshire HP13 6AH Tel: Email: Website: 01494 450 641 customer.service@tvfltd.co.uk www.tvfltd.co.uk Fire Industry Specialists Limited Unit 3 Holmes Way Boston Road Industrial Estate Horncastle Lincolnshire LN9 6JR GC Fire Protection Limited Premier House Jubilee Way Elland West Yorkshire HX5 9DY Tel: Email: Website: 0208 391 7310 customer.service@gcfireprotection.co.uk www.gcfireprotection.co.uk GFA Premier Limited Premier House Jubilee Way Elland West Yorkshire HX5 9DY Tel: Email: 01422 377 521 customer.service@gfapremier.co.uk Hoyles Fire & Safety Limited Premier House Jubilee Way Elland West Yorkshire HX5 9DY Tel: Email: Website: 01422 314 351 customer.service@hoyles.co.uk www.hoyles.co.uk 58 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Belgium Alarm Masters S.A. 50, Z.I. Research Park B-1731 Zellik Tel: Email: Website: All-Protec N.V. Bogaertstraat 16 9910 Knesslare Tel: Email: Ansul S.A. Ansul Belgium S.A. Industrialaan 35 B-1702 Groot-Bijgaarden 00 32 5237 3409 info@alarmmasters.be www.alarmmasters.be 00 32 9375 2044 info@all-protec.be Tel: Email: Website: 00 32 2467 7211 mail@ansul.be www.ansul.be Assurance Protection Service Sprl Avenue Mercator 1 1300 Wavre Tel: Email: Website: 00 32 7187 7504 info@apsprotectionincendie.be www.apsprotectionincendie.be Barkat B.V.B.A. Ottergemsesteenweg 166 9000 Gent Tel: Website: 00 32 9221 3838 www.barkat.be Dimex Technics S.A. 42 Rue de l’Eglise 4710 Lontzen Herbesthal Tel: Email: 00 32 8789 0401 info@dimex-technics.be Importex S.A. 42 Rue de l’Eglise 4710 Lontzen Herbesthal Tel: Email: 00 32 8788 0242 info@importex.be Security Alarm Service Company Sprl 42 Rue de l’Eglise 4710 Lontzen Herbesthal Tel: Email: Website: Somati FIE N.V. Industrielaan 19a 9320 Erembodegem Tel: Email: Website: 00 32 8645 6789 info@securityalarmservice.be www.securityalarmservice.be 00 32 5385 2222 info@somatifie.be www.somatifie.be Le Chimiste Sprl Avenue Mercator 1 1300 Wavre Tel: Email: Braco B.V.B.A. Affligemdreef12 9300 Aalst Tel: Email: DC Security B.V.B.A. Vaarstraat 10 2235 Hulshout Tel: Email: Website: Luxembourg A.L.P.I. sarl 10 Rue Robert Krieps 4702 Petange 00 32 1086 8419 info@lechimiste.be 00 32 5321 4570 info@bracofireprotection.be 00 32 1522 5570 info@dcsecurity.be www.dcsecurity.be Tel: Email: Website: 00 352 2631 3013 alpi@pt.lu www.alpi.lu The Netherlands Ansul B.V. Ansul Solutions B.V. Platinastraat 15 8211 AR Lelystad Tel: Email: Website: 00 31 320 240864 info@ansul.nl www.ansul.nl Boensma Brandbeveiliging B.V. Zutphenstraat 6 7575 EJ Oldenzaal Tel: Website: 00 31 541 588030 www.boensmabrandbeveiliging.nl Nu-Swift Brandbeveiliging B.V. Ringoven 45 6826 TP Arnhem Tel: Email: Website: 00 31 263 630330 info@nu-swift.nl www.nu-swift.nl Incorporating Couwenberg Noodverlichting Ringoven 45 6826 TP Arnhem Tel: Email: Website: 00 31 402 220933 couwenberg.noodverlichting@hetnet.nl www.couwenbergnoodverlichting.nl NL Brandbeveiliging B.V. Petunialaan 1D 5582 HA Waalre Tel: Email: Website: 00 40 248 2196 info@nlbrandbeveiliging.nl www.nlbrandbeveiliging.nl 59 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017Group companies continued France One Protect sarl Z.I. Sainte Agathe Rue Lavoisier 57192 Florange Tel: Email: Website: 00 33 382 59 32 40 contact@oneprotectsarl.com www.oneprotectsarl.com Germany LUDWIG Brandschutztechnik GmbH Gewerbestrasse 2 D-24392 Suederbrarup Tel: Email: 00 49 4641 8242 info@brandschutztechnik-ludwig.de IFH Feuerschutz Hollmann GmbH Ihmerter Strasse 211 58675 Hemer Tel: Email: Website: 00 49 2372 81066 info@feuerschutz-hollmann.de www.feuerschutz-hollmann.de The Netherlands continued Prevent Brandbeveiliging B.V. Maasdijkseweg 107 2291 PJ Wateringen Tel: Email: Website: 00 31 174 526700 info@prevent.brandbeveiliging.nl www.preventbrandbeveiliging.nl Record Brandbeveiliging B.V. Oostergracht 24 3763 LZ Soest Tel: Email: Website: 00 31 356 027966 info@recordbrandbeveiliging.nl www.recordbrandbeveiliging.nl Braho Brandpreventie B.V. Maasdijkseweg 107 2291 PJ Wateringen Tel: Email: Website: 00 31 793 410708 info@braho.nl www.braho.nl Austria Total Fire-Stop Brandschutztechnik GmbH Tillmanngasse 5 1220 Wien Tel: Email: Website: 00 431 259 36310 info@total.at www.total.at Blesberger Ges.m.b.H. Hasnerstrasse 12 A-4020 Linz Tel: Website: 0043 732 73 32 34 www.blesberger.at Noris Feuerschutzgeraete GmbH Baumkircherstrasse 2 8020 Graz Tel: Email: Website: 00 43 316 71 18 21 zentrale@noris.at www.noris.at P.M.P. Feuerlöschgeräte Produktions- und Vertriebsges.m.b.H Waltendorfer Hauptstrasse 5 8010 Graz Tel: Email: Website: 00 43 316 46 15 66 office@pyrus-pmp.at www.pyrus-pmp.at 60 LONDON SECURITY PLC ANNUAL REPORT AND ACCOUNTS 2017L O N D O N S E C U R I T Y 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 1 7 London Security plc Premier House 2 Jubilee Way Elland West Yorkshire HX5 9DY www.londonsecurity.org 

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