ANNUAL REPORT 2022 DRIVING INNOVATION AND PERFORMANCE MINCON CONTENTS BUSINESS AND STRATEGY Corporate Profile Chairman’s Statement Chief Executive Officer’s Review Strategy of the Group – Business Model and Strategy Strategy of the Group – Principal Risks and Uncertainties Chief Financial Officer’s Review 2 6 10 14 16 20 GOVERNANCE Board of Directors Key Management Directors’ Report Directors’ Statement on Corporate Governance Audit Committee Report Nominations Committee Report Remuneration Committee Report Environment & Sustainability Report Statement of Directors’ Responsibilities Corporate Responsibility 32 35 36 42 48 51 54 57 58 60 FINANCIAL STATEMENTS Independent Auditor’s Report Consolidated Income Statement SEPARATE FINANCIAL STATEMENTS OF THE COMPANY Company Statement of Financial Position 66 75 Consolidated Statement of Comprehensive Income 76 Company Statement of Changes in Equity Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements 77 78 79 80 Notes to the Company Financial Statements 116 117 118 1 MINCON CORPORATE PROFILE Mincon Group Plc (“the Company” or “the Group”) is an Irish engineering Group with its shares trading on the AIM market of the London Stock Exchange and the Euronext Growth Market. The Company specialises in the design, manufacture, sale and servicing of rock drilling tools and associated products. The Company’s strategy is to increase its share of the global rock-drilling consumables market through organic growth and acquisitions. Its manufacturing facilities are located in Ireland, the UK, Finland, the USA, South Africa, Canada, Sweden and Australia. The Company also maintains a network of sales and distribution companies in a number of international markets to provide after sales support and service to customers. Directors: Hugh McCullough - Non Executive Chairman (Irish) John Doris – Senior Independent Non-Executive Director (Irish) Pirita Mikkanen – Independent Non-Executive Director (Finnish) Patrick Purcell – Non Executive Director (Irish) Paul Lynch – Non Executive Director (Irish) Joseph Purcell – Chief Executive Officer (Irish) Thomas Purcell – (Regional Executive – Americas) (USA) Company Secretary: Barry Vaughan (Irish) Registered Office: Smithstown Industrial Estate, Shannon, Co. Clare, Ireland Nominated Adviser, Euronext Growth Adviser and Broker: Davy, 49 Dawson Street, Dublin 2, Ireland Joint Broker: Shore Capital, Cassini House, 57 St James’s Street, London SW1A 1LD, United Kingdom Legal advisers to the Company: William Fry, 2 Grand Canal Square, Dublin 2, Ireland Auditor: Grant Thornton Chartered Accountants & Statutory Audit Firm, 13-18, City Quay Dublin Docklands, Dublin, Ireland Registrar: Computershare Investor Services (Ireland) Limited Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland Principal Bank: Allied Irish Banks plc, Shannon, Co. Clare, Ireland Company Website: www.mincon.com Ticker Symbols: Euronext Growth: MIO.IR AIM: MCON.L 2 2 3 3 MINCON GROUP FOUR GLOBAL REGIONS Americas Region Europe and Middle East Region Africa Region Australia Pacific Region These regions are being led by regional VPs – proven leaders with Mincon, each with a history of working effectively and collaborating within the Group. EME EUROPE & MIDDLE EAST REGION All European Countries Middle East Countries AMERICAS REGION North and South American Continents 4 5 AFRICA REGION African Continent APAC AUSTRALIA PACIFIC REGION Australia, Papua New Guinea, Indonesia CHAIRMAN’S STATEMENT I am pleased to present this report to our shareholders, reflecting on another year of growth and development. It has been a particularly turbulent period, reflecting the gradual emergence from Covid lockdowns, extraordinary increases in the cost of raw materials and energy, continuing supply chain disruptions, and negative commercial impacts arising from the war in Ukraine. I believe that the strength of Mincon’s technical offering, together with the professional competence of our service team in the field, has allowed us to continue to grow in adverse circumstances. Notwithstanding the difficult conditions, we increased our revenue by 18% to €170 million in 2022. Our EBITDA increased by 10% to €27.5 million and our profit after tax by 1% to €14.7 million. Whilst these results may be creditable in the context of the prevailing market conditions, we are conscious of the need to achieve a greater delivery to the bottom line in the form of improved earnings per share and return on capital employed, and we will concentrate on improving those metrics during 2023. Despite the current global commercial and financial uncertainties, exceptional companies will continue to thrive and grow, and I believe that Mincon is one of those companies. The Mincon Group is established as The Driller’s Choice because of our superior technical and innovative technology, coupled with our unsurpassed after sales service. We have experienced the difficulties arising from the major delays in sea freight schedules and the increased costs of freight. Some of the issues have abated somewhat, but material, energy and labour costs are still significantly higher than they were twelve months ago. Notwithstanding these headwinds, we have continued to grow our revenues and to expand our global footprint. In particular, our future expansion will be in our higher margin, technically innovative products, such as the Greenhammer system, large diameter piling solutions and our novel system for anchoring offshore wind turbines to the seabed. These are the products that will set us apart from our competitors. Despite the difficult conditions prevailing in the global markets right now, we don’t expect any significant changes in the mining sector. There will always be a need for the materials currently being mined, although the focus may change somewhat from time to time. Our drilling tools operate effectively and efficiently in virtually any mining environment and we will continue to provide the after sales service in the field that assists in the continuous improvement of our products. One of the biggest areas of opportunity arising today is the development of technology to facilitate the switch from fossil fuels to sustainable energy sources. To avail of the opportunities presented by the transition we are currently working on the development of a patented anchoring system for offshore wind turbines. We are developing this system in conjunction with our partners in Subsea Micropiles Limited. 6 7 CHAIRMAN’S STATEMENT CONTINUED The system will enable the effective anchoring of offshore platforms with reduced environmental and seabed disruption in water depths of up to 200 metres at a lower cost than the systems that are currently in use. In the context of the many uncertainties described above, we expect that some of our markets will experience turbulence from time to time. However, we believe that significant expenditure on infrastructural projects will continue for the foreseeable future in developed economies, especially in the United States. Our technically superior products to service this sector have led to our Group becoming established as a first port of call for those responsible for large-scale, complex geotechnical/construction projects. We are intensifying our focus on this market and we expect to see further growth and increased margins in this business. A guiding principle of our continuing technical innovation and development is the need to ensure that our new products are more energy efficient and sustainable than the products being replaced. This is a key element of our product development process, and it will transfer benefits in sustainability to our global client base. We have an active programme of carbon reduction and we have set ourselves a firm target of achieving net zero carbon emissions by 2040 and 50% reduction in manufacturing CO2 emissions by 2030. We will be reporting on our progress in meeting these targets in our next Sustainability Report which is expected to be released in August 2023. During the last year, we were fortunate to have been joined on the Board by Dr Pirita Mikkanen, our new independent non-executive director who hails from Finland, where we have a significant corporate presence. Pirita is currently a Vice President of Energy with the Metsä Group, a Finnish forest products group operating in international markets. She has accepted the position of chairperson of our newly - created Environment and Sustainability Subcommittee of the Board and I look forward to working closely with her on these and other matters. In conclusion, I would like to pay tribute to each and every one of our staff across the globe. Their high standards have ensured that we maintain our right to be described as “The Driller’s Choice”. Our hard-working management team continues to guide and direct our business into new areas as well as increasing our share of existing markets. I am also grateful for the support and input from my Board who have each demonstrated a wisdom and commitment which has been of great benefit to me and to the Company as a whole. Hugh McCullough Chairman 10 March 2023 8 9 CHIEF EXECUTIVE OFFICER’S REVIEW Despite what was another challenging year characterised by volatility and uncertainty in the global markets in which we operate, I am pleased to report that Mincon delivered further growth in revenue and profitability in 2022. Profitability 2022 was characterised by heavy cost inflation globally, with the biggest effect being felt in Europe, largely due to the war in Ukraine. We continued to navigate poor freight conditions which hampered our ability to provide the excellent service-levels our customers expect, as well as requiring working capital investment due to the higher levels of inventory required to manage extended shipping transit times. We introduced price increases in Q2 2022, and those were implemented in Q3 2022. These largely offset the cost increases in our manufacturing during the second half of 2022, however during that period we significantly increased our R&D spend through our Greenhammer and Subsea projects, as we continue to invest strategically in long-term growth projects. Western Australia in March 2022. This opening up has meant that we have been able to return to on-the-ground business development to rebuild our revenues in the region. Product Development A significant part of rebuilding our revenues in the Australian market will be through our Greenhammer project. As previously announced in September 2022, we were pleased to announce the signing of the first commercial contract for the Greenhammer system with a blue-chip mining contractor operating on a major gold mine in Western Australia, an important milestone after many years of development work and a step toward revenue generation from this project. We have been on site with the system drilling blastholes with our Mincon owned test rig. The Greenhammer system has performed to expectations when operating. However, it has been challenging to consistently deliver drilled metres due to reliability issues encountered with the drill rig. As a result, we had to carry out an extensive rebuild on the rig which we are confident will reliably support the system. While this delay has been frustrating in the short term, we remain confident in the long-term success of this project and believe that the system will be transformational for Mincon and the hard rock surface mining industry. Freight conditions did start to improve toward the end of the year, and this has encouraged us to look critically at our inventory levels across the group. This will be a strong focus for the year ahead and we have started a group wide project to unwind our working capital position by reducing our inventory to better match prevailing conditions. We believe that the successful roll out of this innovative drilling system will require that we closely collaborate with drilling manufacturers to ensure the system is properly supported on a reliable drill rig platform. With that in mind we have engaged in discussions with rig manufacturers with a view to developing mutually beneficial working relationships. As well as this we have largely succeeded in reducing our lead times from key factories such as Shannon which has given the breathing space to carefully plan our production based on forecasts and to reduce our reliance on more expensive air freight requirements which arose from time to time during 2022 to ensure product delivery to key customers. Our strong regional management structure continued to work well throughout the year as it had previously demonstrated during the COVID crisis. The last business area to open for travel was We have made significant progress on our subsea project with a number of significant milestones achieved on the road to completing our project objectives for the Disruptive Technology Innovation Funded (DTIF) collaboration. The objective of the project is to deliver a load tested anchor solution for the offshore wind turbine industry. We remain confident that we will achieve the project objectives and in so doing, we can commence the commercialisation of this exciting opportunity in collaboration with our project partner, Subsea Micropiles Limited. 10 11 CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED Product Development (continued) We have successfully drilled test holes with our full-size prototype water powered hammer system. This was test drilled in a quarry close to our manufacturing plant in Shannon using an excavator mounted drilling rig which was designed and manufactured in our plant in Benton. This drill rig is one of three units that will ultimately be assembled in our Shannon plant, to complete the subsea drilling rig. The assembly work will commence in the first half of 2023 with a view to being offshore for testing toward the end of this year. There is a significant interest in our solution from offshore developers and we have engaged with a top-class multifunctional team to develop the full commercial solution which will include expertise and delivery in areas such as large-scale fabrication, subsea electronics, grouting, mooring lines and vessel services including subsea remote operating vehicles. Our engineering focus continues to be on more efficient drilling systems, and we have made progress in 2022 on continuous improvement initiatives for some of our current products which will serve us well for the year ahead. We also finally got onsite in Malaysia, after COVID-19 restrictions were lifted, to see our large diameter drilling system drilling 1750 mm diameter holes. We were very happy with the performance of the system and believe that there is a great future for this concept within our product offering for the large diameter construction piling industry. Sustainability In August 2022 we published our first sustainability report which outlined our commitment to report on carbon emissions across the group as well as targets to reduce them. Within the report, we outlined the measures and initiatives to meet the company’s sustainability goals by 2040 and our intermediate goals by 2030. An Environment and Sustainability sub-committee of the Board, led by Dr. Pirita Mikkanen who joined the Board as a non-executive director in 2022, was formed to ensure that our sustainability goals are met, and appropriate new targets set. Key initial targets for Mincon include a 50% reduction in manufacturing CO2 emissions by 2030, to achieve net zero carbon emissions by 2040 and to have 100% of Mincon manufacturing sites using a mix of fossil-fuel free energy sources by 2040. We look forward to reporting on the progress we are making on meeting our targets during our ongoing sustainability journey. Our next sustainability report is due to be published in line with our interim results in August 2023. CONCLUDING COMMENTS It is pleasing to be able to report on a further year of revenue and profit growth for Mincon in 2022, during what proved to be a challenging environment and, I am particularly encouraged with the resilience displayed by the Company in meeting and overcoming the challenges presented by inflation, the global supply chain and residual market access restrictions due to COVID. Whilst these challenges delayed our ambitions to fully realise the opportunities and deliver on the growth platform we have created, we remain confident that we will deliver in the year ahead as well as make significant progress on our ambitious product development projects. These ambitious projects challenge us, but they are essential to underpin our future, maintain our competitive advantages and to drive our profitability and return on capital employed. It also ensures our sustainability as we develop and attract future engineering leaders within the Group. I am very pleased and appreciative of the efforts and perseverance of our global teams across engineering, manufacturing, and customer service, in delivering these results for last year. I would also like to acknowledge the continued support of our board and investors and look forward to the challenges and opportunities in the year ahead. Joseph Purcell Chief Executive Officer 10 March 2023 12 13 STRATEGY OF THE GROUP BUSINESS MODEL AND STRATEGY Mincon’s strategy is to develop long term sustainable competitive advantage through designing and manufacturing world class products, that will bring value for our shareholders and stakeholders. Our business development is focused on growth, creating new opportunities and continued improvement in all aspects of our business, and we can accomplish this through our strategic goals: • To market competitive products centred on an ethos of innovative engineering and service that is committed to adding value for our customers. The Group focus has been on manufacturing hammers and bits We continue to look for opportunities to increase our geographical Mincon manufactured hammers, bits (including rotary bits), for surface drilling for mining production, mining exploration, footprint and the vertical integration of supply lines where they pipes and mast attachments are used in a variety of drilling horizontal drilling, geotechnical projects, waterwell and add strategic value for the Group and add margin. However, in industries including production and exploration mining, geothermal applications. We continue to diversify our income the immediate years ahead the company will focus more closely waterwell, geothermal, construction, quarrying, and seismic streams by extending our addressable market into those on organic growth of existing products in the regions that we drilling. Mincon also provides a hard-rock HDD system to industries, while also examining opportunities in other industries. service, and on bringing new drilling technologies, currently in provide access for fibre optic cable laying and similar activities. We continue to extend the ranges of hammers and bits that we development, to the new markets. offer, not only to further our market reach, but also to complement In addition, Mincon, through its subsidiary Mincon Carbide Limited, manufactures tungsten carbide inserts, its core our complete range of surface drilling solutions. We continue to In executing the Group’s strategy and operational plans, markets being mining and the construction industry. develop the drill string components that support a full product management will typically confront a range of day-to-day range and service offering. Our strategic direction is to provide challenges associated with key risks and uncertainties, and DTH, RC & HDD products have distinct sales lines for market leading products, manufactured, supplied and serviced by through compliance, audit, risk management and policy setting, associated parts, namely hammers, spares, bits and pipes. the Group, to a diversified range of industries. The diversification we will aim to mitigate these risks and maximise the sustainable Bits and pipes can be sold separate from the hammer. of income streams into industries with differing business cycles is opportunity for success. designed to minimise volatility in earnings growth. We seek to market competitive products centred on an ethos of innovative engineering and service, and are committed to adding • To seek new opportunities in new markets and to diversify our value for our customers by partnering with them to find lower total income streams to increase our global footprint. drilling cost solutions. We supply markets and customers across • To manufacture our products in strategic locations that allows a better service for our customers and reduce the requirement for trans-ocean distribution of our products. the world. Our broad geographical spread enables us to obtain feedback from the use of our products in a wide range of drilling environments. This constant iteration from the end customer to engineering and back to the market drives our design and process • To meaningful contribute to the environment, through investing improvements. We continue to devote significant resources to in manufacturing that requires less energy, and to make positive contributions in the communities where we have businesses. The Group has a five-year rolling strategy, which is reviewed by the Executive and the Board each year, and as necessary. We examine and reflect on our decisions, continually review our processes and act to mitigate adverse outcomes. The Group’s strategy and business model and amendments thereto, are developed by the Chief Executive Officer and his Executive team, and approved by the Board. The senior management team, led by the Chief Executive Officer, is responsible for implementing the strategy and managing the business at an operational level. The Group’s overall strategic objective is to develop long term sustainable competitive advantage with our products and services for customers, for the benefit of our shareholders and all stakeholders. refining and improving current products. The Group manufactures and sells rock drilling consumable products, and the timely supply and service of these products is paramount to our business model. Since the markets that we serve across the world are geographically dispersed, and the lead times for delivery are set by customer requirements and competition to a large degree, we have built a wide network of customer service centres backed by manufacturing plants in key 2. Reverse circulation (RC) product markets. We continue to review our factory operations and from time to time we relocate the manufacture or part manufacture of some products from one factory to another, in some cases, to achieve better economies of scale, and in other cases, to manufacture products with long lead times closer to their markets so that we can adapt to changing customer needs in a more timely fashion and reduce our trans-ocean freight costs. These factory reviews are ongoing as part of the company’s rolling strategic plan. 3. Horizontal directional drilling (HDD) product 4. Rotary drilling product 5. Geotechnical product 6. Drill pipe product 7. Tungsten carbide product 8. Mast attachments for excavators We are committed to: • innovative engineering and industry leading quality • the creation of new drilling products and technologies and associated intellectual property, supported, inter alia, by patents • industry leading field service delivery, and • improving the skill sets of our teams The Group’s principal risks and uncertainties are outlined in this section. Mincon has adopted appropriate controls and recruited management with the necessary skills and experience to manage and mitigate these risks where possible and thus enable execution of the Group’s business strategy as outlined in this section. Our customer offering Mincon manufactured products can be broken down into eight distinct product lines: 1. Conventional down the hole (DTH) product Mincon manufactures a range of bits and pipes to an industry standard size which can be used in conjunction with hammers manufactured by competitors. Rotary bits are made to industry standard size and are used in the same mining applications as Mincon’s DTH hammers and bits. Ring bits, pilot bits, casing systems and forepoling systems are generally sold with DTH products but can be sold separately. Tungsten carbide high quality impact buttons are used on the face of DTH, RC, HDD & tricone drill bits and ring and pilot bits. The Mincon hammers, bits, casing systems, forepoling systems and pipes are considered consumable items in the drilling industry in contrast with capital items such as truck/track- mounted drilling rigs and large air compressors. As products of a consumable nature, Mincon products have a shorter life cycle than capital goods (such as rigs and compressors). 14 15 STRATEGY OF THE GROUP PRINCIPAL RISKS AND UNCERTAINTIES PRINCIPAL RISKS RELATING TO THE GROUP’S INDUSTRY The Group operates in countries with less developed legal systems technological advances, including also shifts in technology in the If the Group’s manufacturing and production facilities are The Group’s products are used in industries which are either cyclical or affected by general economic conditions The demand for the Group’s products and services is affected Some countries in which the Group operates may have less markets in which it operates, or to meet customer demands, this damaged, destroyed or closed for any reason, our ability to developed legal systems than countries with more established could have a material adverse effect on the Group’s business, distribute products will be significantly affected economies, which may result in risks such as: results and financial condition. The Group has nine manufacturing facilities located in Ireland, the UK, Sweden, Finland, Australia, South Africa, Canada and by changes in customers’ investment plans and activity levels. • effective legal redress in the courts of such jurisdictions, Customers’ investment plans can change depending on global, whether in respect of a breach of law or regulation or in an regional and national economic conditions or a widespread ownership dispute, being more difficult to obtain; financial crisis or economic downturn. The demand for the Group’s products is affected by the level of construction and mining activities as well as mineral prices. A financial crisis may also have an impact on customers’ ability to finance their investments. In addition, changes in the political situation in a region or country or political decisions affecting an industry or • a higher degree of discretion on the part of governmental authorities; • a lack of judicial or administrative guidance on interpreting applicable rules and regulations; The Group’s products may be duplicated by competitors or its the United States. Should any of these facilities be destroyed intellectual property may be misappropriated or closed for any reason, or the equipment in the facilities be The Groups proprietary products may be duplicated either directly significantly damaged, the Group is likely to face setbacks in or by misappropriation of intellectual property. The Group files our ability to manufacture and distribute products to customers. patents where appropriate and limits access to technical information Such circumstances, to the extent that it is not possible to on Research and Development. However some jurisdictions, find an alternative manufacturing and production facility, or in which the Group operates and in which our competitors transfer manufacturing to other Group facilities or repair the • an inability on the part of the Group to adequately protect its manufacture, may not have the same level of patent protection as damaged facilities or damaged equipment in a timely and cost- others and enforcement of patents may be a lengthy process. If efficient manner, could have a material adverse effect on the competitors duplicate the Group’s proprietary products, it could Group’s business, results and financial condition. In addition, have a material adverse effect on the Group’s revenues and results. the availability of manufacturing components is dependent on suppliers to the Group and, if they suffer interruptions or if they do not have sufficient capacity, this could have an adverse effect on the Group’s business and results. country can also materially impact on investments in consumable assets in these jurisdictions; equipment. Although the Group believes that its sales are well • inconsistencies or conflicts between and within various laws, diversified with customers located in disparate geographic regulations, decrees, orders and resolutions; or markets and industry segments, it is likely that the Group would be affected by an economic downturn in the markets in which it operates. The Group is exposed to risks associated with operations in emerging markets The Group’s international operations may be susceptible to political, social and economic instability and civil disturbances. Risks of the Group operating in such areas may include: • relative inexperience of the judiciary and courts in such matters In some jurisdictions, the commitment of local businesspeople, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to licences and agreements for business. These may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. There can be no assurance that joint ventures, licences • disruption to operations, including strikes, civil actions, or other legal arrangements will not be adversely affected by the international conflict or political interference; actions of government authorities or others and the effectiveness • changes to the fiscal regime including changes in the rates of of and enforcement of such arrangements in these jurisdictions income and corporation taxes; cannot be assured. • reversal of current policies encouraging foreign investment or foreign trade by the governments of certain countries in which the Group operates; • limited access to markets for periods of time; • increased inflation; and • expropriation or forced divestment of assets Any of the above factors could result in disruptions to the Group’s business, increased costs or reduced future growth opportunities. Potential losses caused by these disruptions may not be covered by insurance. If the Group fails to develop, launch and market new products, respond to technological development or compete effectively, its business and revenues may suffer The Group’s long-term growth and profitability is dependent on our ability to develop and successfully launch and market new products. The Group’s revenues and market share may suffer if it is unable to successfully introduce new products in a timely fashion or if any new or enhanced products or services are introduced by our competitors that customers find more advanced and/or better suited to their needs. While the Group continuously invests in research and development to develop products in line with customer demand and expectations, if it is not able to keep pace with product development and 16 17 STRATEGY OF THE GROUP PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED FINANCIAL CONDITION RISKS Sterling and the South African rand. Adverse currency exchange Risks related to COVID-19 pandemic Cyber Risk Future Revenues The Group relies on the ability to secure orders from new customers as well as maintaining relationships with existing customers to generate most of its revenue. Investors should not rely on period to period comparisons of revenue as an indicator of rate movements may increase the cost of important materials and The Group is exposed to risks of business interruption caused Cyber fraud is an increasing risk as the business relies more on services from vendors and suppliers, may affect the value of its by the global COVID-19 pandemic. These risks may relate to online systems, including our manufacturing software systems, level of indebtedness, and may have a significant adverse effect interruptions in raw materials supply, interruptions in end user customer service systems and banking systems. The security and on its revenues and overall financial results. In the past, the Group markets through work stoppages or shipping difficulties or processes around the Group’s IT and banking systems are subject has experienced gains and losses from exchange rate fluctuations, interruptions in manufacturing capacity caused by a potential to review by subsidiary management, regional management and future performance. Competition The markets for the Group’s products are highly competitive in terms of pricing, product design, service and quality, the timing and development and introduction of new products, customer services and terms of financing. The Group faces intense competition from significant competitors and to a lesser extent small regional companies. If we do not compete successfully in all of our business areas and do not anticipate and respond to changes in evolving market demands, including new products, including foreign exchange gains and losses from transaction outbreak of infection in the communities where one or more of our Group management. risks associated with assets and liabilities denominated in foreign plants is located, with a consequent material adverse effect on the currencies, including inter-company financings. Group’s revenue and results. Contractual Arrangements Climate Change Mincon has adopted the appropriate controls and procedures to mitigate the risks detailed above and has recruited experienced management with the necessary skills and experience to manage The Group derives some of its revenue from large transactions The Group is at risk from the effects of climate change. This and alleviate risk where possible. (which may be non-recurring in nature). Prospective sales are can occur in many ways such as pollution, access to resources subject to delays or cancellations over which the Group has little, which can affect supply chain, raw material prices, changes to The Group management reports to the Audit Committee annually or no control and these delays could adversely affect results, The local laws and regulations, increases in taxes and local tariffs. with a detailed risk report, including all possible risks to the Group focuses on securing new lines of business on a regular If the Group does not seek new methods of manufacturing to Group. This report reviews the level of acceptable risks to basis to address the non-recurring nature of some transactions. reduce its carbon footprint, or continue to source raw materials ensure that risk awareness is set at an appropriate level and the we will not be able to compete successfully in our markets, which could have a material adverse effect on the Group’s business, its Customer Concentration through appropriate supply chains, the Group risk arising from mitigating factors around these risks. This enables execution of climate change will increase. The ongoing projects that the the Group’s business strategy as outlined above while mitigating results and financial condition. During 2022, the Group’s top ten customers have accounted Group is directly involved in relation to climate change can be the Group’s overall risk exposure. for approximately 24% of its revenues. If, in the future, these viewed on our corporate website at corporate.mincon.com/esg/ customers fail to meet their contractual obligations, decide not environmental-governance/ The Group is subject to competition in the markets in which it operates and some of its competitors are significantly larger and have significantly greater resources than the Group. The Group’s principal competitors are Epiroc which is headquartered in Stockholm, Sweden, with a global reach spanning more than 150 countries and Sandvik, which is also headquartered in Stockholm, Sweden, with business activities in more than 160 countries. There can be no guarantee that the Group’s competitors or new market entrants will not introduce superior products or a superior service offering. Such competitors may have greater development, marketing, personnel and financial resources than the Group. Should these or other competitors decide to compete aggressively with the Group on price in the markets and industries in which it operates while offering comparable or superior quality products, this could have a material adverse effect on the Group’s financial position, trading performance and prospects. to purchase the Group’s products or decide to purchase fewer products, this could disrupt the Group’s business and require it to expend time and effort to develop relationships with new customers, which could have a material adverse effect on the Group’s business, results of operations and financial condition. There can be no assurance that, even if the Group could find alternate customers, the Group could receive the same price for its products. The Group is exposed to fluctuations in the price of raw materials The Group’s operations give rise to risks due to changes in the price of market-quoted raw materials, mainly steel and tungsten. The prices can vary significantly during a year. If the market conditions do not allow the passing on of increased raw material prices to customers, it may have a material adverse effect on the Group’s business, results and financial condition. The Group is exposed to the risk of currency fluctuation The Group’s financial condition and results of operations are reported in euro, but a large proportion of its revenues are denominated in currencies other than euro, including the US dollar, the Canadian dollar, the Australian dollar, the Swedish Krona, 18 19 CHIEF FINANCIAL OFFICER’S REVIEW Revenue growth was a mix of growth across our three industries, with construction, particularly in North America, being the standout performance. However, this growth did not increase our profits significantly as inflationary factors in manufacturing held our margin back, though we did introduce price increases to offset these effects. We also increased our intensity in R&D to better position the Group to take advantage of new and current markets for future expansion. Revenue Our revenue increased by 18% in 2022 (14% on a constant currency basis). The vast majority of our growth was organic, with our 2022 acquisition in the USA contributing 0.5% to our revenue growth for the year The average mining commodity prices during 2022 remained elevated and the industry as a whole continued with its strong performance, though not all regions had a similar experience. Our mining revenue grew by 6% in 2022, our revenue expansion in the industry was in the Americas and Africa regions, mostly through organic growth, though we did have some mining acquisition growth in the Americas region. We experienced setbacks in EME and APAC regions due to a change in customer mix. During the second half of 2022, some larger customers reduced their inventories, due to improved freight conditions. Our decision to suspend all trading with our Russian customers in Q1 2022 held back the Group’s mining revenue growth by 3% in the full year and this was a considerable impact to our revenue in the EME region. Our construction revenue grew by 45% in 2022. Our direct to market approach for mid to large construction projects had a positive result on our construction revenue, where our patented solutions are becoming more recognised as successful application in the industry. We also expanded our footprint through distribution into our APAC region with our solutions for foundation drilling. Our waterwell/geothermal revenue had growth of 7% in 2022. Our geothermal revenue in Europe was flat for the year. Our growth in waterwell/geothermal consumable supply was in North America, with the vast majority in waterwell drilling supply into smaller communities. We have gained this market share through a direct approach in Canada in key locations and through distribution in the USA as the opportunity there is more widespread with smaller drilling contractors. Gross Profit Our gross margin in the first half of 2022 was impacted due to increased inflation within our manufacturing costs, particularly at our European plants. In recent years we implemented our strategy to decentralise our manufacturing as the vast majority was located in Europe. We have been successful in pushing out manufacturing closer to where our end users are located for products that require less engineering and are more expensive to ship. This strategy required less investment in the manufacturing processes in those locations. However, two thirds of our internal supply is manufactured in Europe. This has operated successfully for the Group in recent years, as it allowed us to concentrate our product engineering at specific locations. Our Three Main Industries Are Mining, Construction And Waterwell/Geothermal 2022 SALES MIX 2021 SALES MIX Construction 36% Waterwell/ Geothermal 16% Mining 53% Construction 30% Waterwell/ Geothermal 17% Mining 48% 20 GROSS MARGIN INCREASE IN 2022 COMPARED TO 2021 GROUP REVENUE UP ON 2021 MINING REVENUE UP ON 2021 UP ON 2021 CONSTRUCTION REVENUE UP ON 2021 €5m 18% 6% 7% 45% WATERWELL/GEOTHERMAL REVENUE Gross Profit (continued) Our manufacturing centralised in Europe did leave us exposed to higher manufacturing inflation in the first half of 2022. The impact was mostly through increased energy costs, which was more acute in Europe. Increased energy costs have considerable impacts on the manufacture of steel products. Other high inflationary manufacturing elements were in raw material costs, employee, subcontracting and freight costs. We also experienced increased costs in the procurement of non- Mincon manufactured product. We did offset the majority of cost increases of Mincon manufactured product and purchased product through price increases in Q2 2022, however those were mostly implemented in H2 2022 due to the lead time on product manufacturing and ocean freight delivery. With increased revenue this has allowed us to spread our fixed overheads within our manufacturing plants. The total impact on our gross margin due to inflation was circa 118 basis points in 2022, this is inclusive of the offsetting through price increases. During 2022 we increased our R&D expenditure significantly compared to any other prior year. This included the Greenhammer project and the Subsea project. These projects added €930,000 to our R&D income statement costs in 2022, with the vast majority expensed in H2 2022. The Greenhammer was considered commercially ready at the beginning of Q2 2022. We therefore ceased capitalising R&D expenditure as an intangible and began expensing the Greenhammer costs through our income statement. In Q4 2022 our Greenhammer was commercialised, with the intention to prove out the system with a blue-chip customer in Western Australia. Though the system performed well, the Mincon – owned rig suffered from numerous reliability issues not related to the Greenhammer. We increased our development in our Subsea water hammer and delivery system during H2 2022. We designed our own system and manufactured the structural elements of the test rig in our USA facility. This tied up our capacity in our rig mast attachments facility for H2 2022 and we therefore did not receive any returns from our investment in that facility during that period. 21 CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED Operating Profit Our 2021 investment in additional locations and personnel in the Americas paid dividends in 2022, as we increased our revenues across our three industries in this region during the year. However, this additional revenue is accompanied by additional costs. The strong average USD dollar against the Euro in 2022 elevated our USD costs for the year. We removed older plant and equipment of €1 million from our factories to make way for more efficient equipment, and we recovered the remaining investment in those disposals during the process. We drew down a further €11.5 million in bank lending, with the majority of this put against our capital equipment projects during the year and the development of future factory upgrades. During 2022, we paid out a total of €3.6 million on acquisitions in the year, this included our 2022 acquisition for a drill pipe manufacturer in Colorado, USA and for historical acquisitions that have been well integrated into the business in previous years. This has brought our deferred liability, exclusively on acquisitions, to €1.7 million at the end of 2022. We also paid dividends of €4.5 million to our shareholders in 2022. CONCLUDING COMMENTS The mining consumables industry has become a more competitive marketplace in most of our regions due to inflationary impacts on manufacturing and on the users of mining consumable products. Our strategy is to challenge competitors with more efficient products and thereby bringing greater efficiencies to our customers’ operations. Our goal is to also diversify the business further into new industries through our advantage in engineering and manufacturing capability, though this process will require a considerable amount of investment. This will include partnering with others in our current industries and new industries, as we recognise that customer productivity goals, with sustainability KPI’s, cannot be achieved alone. Mark McNamara Chief Financial Officer 10 March 2023 Inflation also impacted our operating costs during the year, this is mostly seen within our employee costs, though the reversal of share option charges through our income statement reduced our overall employee costs for the year. The options could not vest since they failed to meet the attached vesting conditions due to the higher level of inflation. Travel resumed to normal in most locations early in 2022, and our sales personnel had been on site with customers in order for them to seize new opportunities and to build on existing relationships with customers. Balance Sheet Our largest investment in 2022 was in working capital and particularly in inventory. During 2022, we started an inventory reduction programme when there was evidence of improved freight conditions and raw material supply had begun to ease. The reduction of inventory levels will continue through 2023 and we would expect to see a decrease in inventory weeks held by the end of this year. We would also expect to see cash released into operations as raw material levels decrease in the first half of 2023. Our debtors decreased by €1.6 million in 2022 (on a constant currency basis). Our debtor days decreased from 63 days in 2021 to 51 days by the end of 2022. We invested €11.1 million in capital equipment during the year, included in this was the commissioning of €7.3 million of equipment into our factories and customer centres during 2022, with the majority in relation to factory buildings, factory capacity increases and factory machinery replacement. We also developed further capital equipment projects, including a new building and heat treatment in our Shannon plant with a further investment of €3.8 million, those will be commissioned during 2023 and are included in our plant and machinery prepaid and under commission. 22 23 EME (EUROPE & MIDDLE) EAST REGION AVERAGE STAFF NUMBERS COUNTRIES OFFICES IRELAND FINLAND SWEDEN UK FRANCE NUMBER OF CUSTOMER SERVICE CENTRES IN REGION FACTORIES 301 06 02 04 >> • Factory floor space: 19,426 SQM • Manufacturing: DTH Hammers, RC Hammers, DTH Bits, Large Diameter Hammers, Drill Pipes, Drilling Accessories, Tungsten Carbide Buttons MOST ACTIVE CUSTOMER MARKETS • Construction and Technical • HDD • Waterwell • Production Mining • Quarrying 24 24 2525 APAC (AUSTRALIA PACIFIC) REGION AVERAGE STAFF NUMBERS COUNTRIES WITH DIRECT REPRESENTATION AUSTRALIA PAPUA NEW GUINEA INDONESIA NUMBER OF CUSTOMER SERVICE CENTRES IN REGION FACTORIES • Factory floor space: 5,460 SQM • Manufacturing: DTH Drill Bits RC Drill Bits, RC Drill Pipes Drilling Accessories MOST ACTIVE CUSTOMER MARKETS • Production Mining • Exploration Mining • Quarrying • Construction and Geotechnical • Waterwell 67 03 02 01 >> 26 26 2727 AMERICAS REGION AVERAGE STAFF NUMBERS COUNTRIES WITH DIRECT REPRESENTATION CANADA USA PERU CHILE NUMBER OF CUSTOMER SERVICE CENTRES IN REGION FACTORIES 177 04 11 02 >> • Factory floor space: 9,529 SQM • Manufacturing: DTH Drill Bits Rotary Drill Bits, MRM, Drill Pipe MOST ACTIVE CUSTOMER MARKETS • Construction and Geotechnical • Waterwell • Geothermal • Production Mining • Exploration Mining • HDD • Quarrying 28 28 2929 AFRICA REGION AVERAGE STAFF NUMBERS OFFICES REGION HEADQUARTERS: LAS PALMAS COUTRIES OFFICES: SOUTH AFRICA NAMIBIA NUMBER OF CUSTOMER SERVICE CENTRES IN REGION FACTORIES • Factory floor space: 6,355 SQM • Manufacturing: Drill Pipes Drilling Accessories MOST ACTIVE CUSTOMER MARKETS • Production Mining • Exploration Mining • Waterwell 79 03 03 01 >> 30 30 3131 BOARD OF DIRECTORS At 31 December 2022, the Board of Mincon comprised of four non- executive directors and two executive directors. Details of the directors are set out below: NON‑EXECUTIVE DIRECTORS HUGH MCCULLOUGH Non-Executive Chairman Age 72 JOHN DORIS Senior Independent Non-Executive Director Age 76 PATRICK PURCELL Non-Executive Director Age 85 PAUL LYNCH Non-Executive Director Age 56 PIRITA MIKKANEN Non-Executive Director Age 57 Hugh has over 40 years’ experience in gold and base metal exploration, principally in Ireland, Ghana, Mali and Papua New Guinea. Having previously worked as a project geologist, in 1982 he became chief executive of Glencar Mining plc. Hugh was responsible for the management, financing and strategy of Glencar for over 27 years until it was acquired by Gold Fields Limited in September 2009. Hugh is a geologist and holds an honours degree in geology from University College Dublin and a degree of Barrister-at-Law from the King’s Inns, Dublin. John has broad experience across a number of sectors including manufacturing, lending and corporate finance. He has been an independent consultant and a non-executive director for over twenty years. Prior to becoming an independent consultant, he was a director of ABN Amro Corporate Finance (Ireland) Limited where he managed the successful Riada Business Expansion Funds. John graduated from University College Dublin with a B.Sc. in physics in 1969 and returned to University College Dublin to complete his M.B.A. in 1977. He qualified as an ACCA in 1974 and is a former president of ACCA Ireland. Patrick served an apprenticeship in the Irish Air Corps in the 1950s and later qualified as an accountant in Australia in 1961. When he returned to Ireland in 1967 he joined Shannon Diamond & Carbide Ltd, (later Boart Longyear) and worked in various capacities with their European Group Companies for the next 10 years. His roles with Shannon Diamond & Carbide included that of cost accountant, sales and marketing director and a period as a general manager of their manufacturing plant in Norway before becoming their director for European sales companies and product development. Patrick set up Mincon in 1977 and developed the Group, firstly in Ireland and then into overseas areas including USA, Canada, Australia, South Africa and Sweden. Patrick remained as executive chairman until 2012 but continued to work with the company as an adviser on new projects. Paul currently acts as strategic adviser for a number of companies having recently served as Chief Financial Officer of Applegreen plc, a quoted petrol forecourt retailer in the Republic of Ireland and the United Kingdom, between 2014 and 2017. Paul qualified as a chartered accountant with Arthur Andersen in 1990, after which followed a wide-ranging career in corporate finance and senior management across a number of industry sectors. He was a director of Heiton Group plc for seven years, from 2000 to 2007, initially as Head of Corporate Development and subsequently as Managing Director of its Retail Division. Paul served as chief executive of large-scale businesses in the retail, manufacturing, waste management and facility services sectors and he has led and concluded over 20 M&A transactions across diverse industries and jurisdictions. Pirita is currently a Vice President of Energy with the Metsä Group, a Finnish forest industry group operating in international markets, focused on the responsible processing of northern wood into first- class products. Her team at Metsa works to ensure reliable and cost-effective energy production and leads the sustainable development of Metsä utilities. Prior to joining Metsa, her experience included roles with TM Systems Oy, an industrial air systems company with a focus on reducing energy usage and emissions, and serving as CEO of Lifa Air Ltd Oy, a pioneer in the development of services, machines and equipment that enable cleaner and healthier indoor air. She has acted as a fund manager and board member of climate funds. Pirita holds a Ph.D in Applied Physics, focusing on cleantech on pollution prevention, from the Helsinki University of Technology. 32 33 BOARD OF DIRECTORS KEY MANAGEMENT Mincon has a highly experienced team of senior managers that has helped to drive the development of the Group across its global locations. Brief profiles of the Mincon senior management team are set out below: EXECUTIVE DIRECTORS COMPANY SECRETARY EXECUTIVE MANAGEMENT JOSEPH PURCELL Chief Executive Officer Age 56 THOMAS PURCELL Regional Executive - Americas Age 51 BARRY VAUGHAN Company Secretary Age 40 MARK MCNAMARA Chief Financial Officer Age 42 STEPHEN ATKINSON Regional Executive - Australasia Age 61 JUSSI RAUTIAINEN Regional Executive - EMEA Age 58 MARTIN VAN GEMERT Regional Executive - Africa Age 58 Joseph qualified as a mechanical engineer in Thomas Purcell had a background in Barry qualified as a Certified Public Mark began his finance career Stephen joined Mincon in Jussi joined Mincon Group in Martin joined Mincon in 2010, when 1988 at University College Galway, in Ireland accounting prior to immigrating to the USA Accountant in 2009 having commenced his in public practice in 2004 where 2016 after the acquisition of January 2017. He was chief he set up the Mincon West Africa and since then has worked with Mincon in to work with Mincon on a new joint venture finance career in public practice. He has he qualified as a Certified Public OZmine, where he was the executive officer of Robit business and started the Group’s various capacities. DTH hammer design opportunity in the country. He worked for held various management roles within both Accountant (“CPA”). He began CEO. He has over 35 years’ Rocktools Ltd. from 2005 to expansion into Africa. He has more has been his main area of specialisation the Mincon Group in the dimensional stone public practise and industry. This included working with Mincon as Financial experience in manufacturing January, 2016. Prior to that, he than three decades of experience although he has extensive experience in quarrying industry during which time he four years providing business partnering and Controller of Mincon International and servicing the oil, gas held international management in the construction, geotechnical, manufacturing methods, heat-treatment and was key in setting up operations in Virginia financial management support to executives Ltd. in March 2010. He moved and mining sectors. Stephen positions at Huhtamäki Oyj and exploration, and mining process development. His hammer design and North Carolina. In 1996, Mincon sold within an international telco company based into the position as Group has formed many successful UPM Kymmene Corporation. industries, in various operational work has included seven years in Perth, its investment in the quarrying entities to in Australia. Having joined Mincon in August Financial Controller in 2013 prior start-up businesses throughout Jussi holds a Bachelor of management capacities with Australia where he developed a successful Marlin Group of South Africa. He worked in 2017 as Financial Controller of Mincon to the IPO of Mincon where his career, one such business Economics degree and has also drilling contractors and drilling range of reverse circulation and conventional various positions with their USA subsidiary International Ltd, Barry is currently the Head he was the lead accountant. began in 1991, where Stephen an Executive Master of Business equipment manufacturers. In 2007 DTH hammers for local and export markets. from Purchasing and Safety Manager of four of Operational Finance across the regions. Preceding his finance career together with his business Administration degree. he established a country office for Joseph was appointed as chief technical quarrying companies, to CFO and Operations officer for the Mincon Group on his return Manager for their Atlanta based operation, from Australia in 1998. In May 2015, Joseph Stone Connection. He re-joined the Mincon was appointed Chief Executive Officer of Group in 1999 as President of Mincon, Inc. Mincon Group plc. 34 Mark worked in airline operations partner and 700 employees, and holds a bachelor’s degree in traded through their company Information Technology. Oilmin Tools, a company specialising in manufacturing drilling consumables and selling direct to the end user, Oilmin Tools had five manufacturing facilities across Australia, Indonesia and Singapore securing contracts with blue chip companies throughout those regions. Stephen completed his Boilermaker First Class Welding Apprenticeship In 1980. Sandvik in Mali and was appointed as the country manager for that business, where he managed a team of technicians and sales personnel, as well as the supply of capital mining equipment and consumables to three large gold mines. He has managed drilling and blasting operations at major construction projects and opencast gold mines across Southern Africa, where his operational experience includes operating drilling equipment, specialised geotechnical, ground stabilisation, controlled construction, and opencast mine blasting techniques. 35 DIRECTORS’ REPORT The Directors present the directors’ report and the consolidated financial statements of Mincon Group plc (“Mincon”) for the year ended 31 December 2022. Principal activities of the Group Mincon is an Irish engineering Group, specialising in the design, manufacture, sales and servicing of rock drilling tools and associated products. The Group’s manufacturing facilities are located in Shannon, Ireland, in Sheffield, in the UK, in Sunne, Sweden, in Tampere, Finland, in Perth, Australia, in Johannesburg, South Africa, in Benton, Illinois in the USA, and in North Bay, Ontario in Canada, and more recently in January 2022 in Fruita, Colorado in the USA through the acquisition of Spartan Drill Tools. Mincon has a clear vision and determined focus giving priority towards: • Highest design specifications • Best manufacturing methods and processes and; • Delivery of superior products to our customers Mincon also maintains a network of sales and distribution companies in a number of international markets to provide after- sales support and service to customers. Products, comprising both Mincon manufactured products and third party products that are complementary to Mincon’s own products, are sold directly to the end user or through distributors. Business review Dividend Commentaries on performance in the year ended 31 December In June 2022, Mincon Group plc paid a final dividend for 2021 of €0.0105 (1.05 cent) per ordinary share. In September 2022, Mincon 2022, including information on recent events and likely future Group plc paid an interim dividend for 2022 of €0.0105 (1.05 cent) per ordinary share. developments, as reviewed by the Board of Directors are contained in the Chairman’s Statement (page 6), Chief Executive The Directors recommend the payment of a final dividend of €0.0105 (1.05 cent) per share for the year ended 31 December 2022 (31 Officer’s Review (page 10) and Chief Financial Officer’s Review December 2021: 1.05 cent per share). (page 20). The performance of the business and its financial position is included in the Chief Financial Officer’s Review. Directors and Secretary The dates of appointments and resignations of the Company’s directors and secretary are set out in the table below: The Director’s review KPI’s for Operating Profit, Inventory and Debtors throughout the year. The principal risks faced by the Group are reflected in the risk DIRECTOR DATE OF APPOINTMENT review section. Patrick Purcell 16 August 2013 John Doris 16 February 2017 Hugh McCullough 13 December 2016 Joseph Purcell 23 September 2013 Thomas Purcell 23 September 2013 Paul Lynch 05 December 2019 Pirita Mikkanen 14 March 2022 COMPANY SECRETARY Barry Vaughan 13 March 2020 36 37 DIRECTORS’ REPORT CONTINUED Substantial shareholders Research and development The Group availed of the option to enter into overdraft facilities As at close of business on 09 March 2023, in so far as is known to the Company, the following persons are, directly or indirectly, The Group’s strategy around research and development is set and to draw down loans of €11.5 million during 2022. Mincon interested in 3% or more of the issued share capital of the Company: SHAREHOLDER Kingbell Company Setanta Asset Management FMR LLC Invest fur Langfristige Investoren ORDINARY SHARES AS AT THE DATE OF THIS DOCUMENT PERCENTAGE OF ISSUED ORDINARY SHARE CAPITAL 119,671,200 27,605,607 21,238,729 18,773,990 56.32% 12.99% 10% 8.84% None of the Group’s major shareholders, as listed above, have different voting rights attaching to ordinary shares held by them in the Group. The Purcell family vehicle, Kingbell Company, have certain Board nomination rights for so long as their respective shareholdings remain above certain thresholds. A breakdown of the Directors’ and Company Secretary’s interest in the issued share capital of the company is detailed in page 46. Financial risk management The Group’s operations expose it to financial risks including credit risk, interest rate risk and foreign currency risk. The Group manages risk in order to reduce the impact of these risks on the performance of the Group and it is the Group’s policy to manage these risks on a non-speculative manner. The Group does not utilise derivative financial instruments to hedge economic exposures. Details of the Group’s financial risk management objectives and policies are set out in note 22 to the financial statements. Compliance Statement The directors acknowledge that they are responsible for securing compliance by Mincon Group plc (the ‘Company’) with its relevant obligations as are defined in the Companies Act, 2014 (the ‘Relevant Obligations’). The directors further confirm the Company has put in place appropriate arrangements or structures that are, in the directors’ opinion, designed to secure material compliance with its relevant obligations including reliance on the advice of persons employed by the company and external legal and tax advisers as considered appropriate from time to time and that they have reviewed the effectiveness of these arrangements or structures during the financial year to which this report relates. Political contributions The Group and Company did not make any contributions during the year disclosable in accordance with the Electoral Act 1997. out in the Strategy section of this Annual Report. The Group Group has loans and borrowings totalling €41.9 million as at 31 invested €4.4 million on research and development in 2022 December 2022, of which €15 million is recognised as current, as (2021: €3.9 million), €285,000 of which has been capitalised detailed in note 18 to the financial statements. The low level of (2021: €1.1 million). RESEARCH DEVELOPMENT INVESTMENT €4.4M 2022 Corporate governance The Board of Mincon is committed to achieving high standards of corporate governance, integrity and business ethics for all activities as set out in the Directors’ Statement on Corporate Governance of this Annual Report. Accounting records The directors believe that they have complied with the requirement of Sections 281 to 285 of the Companies Act 2014 with regard to maintaining adequate accounting records by employing accounting personnel with appropriate expertise total debt as a percentage of total assets and the availability of funds if required gives the directors comfort that there are minimal Going Concern indicators as at 31 December 2022. The directors have also taken account of the financial outlook to 31 March 2024 which included reviewing the Group’s cash flow forecast. The directors separately considered the Fair Value less Cost to Sell (FVLCS) impairment assessment highlighted in note 12 of the financial statements which did not indicate an impairment issue. This compounded with the Groups cash forecast review indicates the appropriateness of the Director’s opinion on adopting the Going Concern basis of accounting. Mincon Group also has identified a number of other mitigating factors that can be implemented to preserve cash and other resources in the event of any decline in operations. The Directors believe that sufficient financial resources are available to enable the Group to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Disclosure of information to the auditor Each of the Directors individually confirm that: and by providing adequate resources to the financial function. • in so far as they are aware, there is no relevant audit The accounting records of the company are maintained at the information of which the Company’s statutory auditor is company’s offices at Smithstown Industrial Estate, Shannon, unaware; Co Clare. Significant events since year-end • and that 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 Company’s Details of significant events since year-end are set out in note 28 statutory auditor is aware of such information to the financial statements. Auditor Going Concern Grant Thornton, Chartered Accountants continue in office in The Directors, having made enquiries, have a reasonable accordance with Section 383(2) of the Companies Act 2014. expectation that the Group and the Company have adequate resources to continue in operational existence for the On behalf of the Board foreseeable future. Mincon Group continues to monitor the war in Ukraine and review the procedures that we have in place to mitigate the effects this is Chairman 10 March 2023 Chief Executive Officer Hugh McCullough Joseph Purcell having on our operations. 38 39 The Mincon Group is established as The Driller’s Choice because of our superior technical and innovative technology, coupled with our unsurpassed after sales service 40 41 STATEMENT OF DIRECTORS CORPORATE GOVERNANCE The Board of Mincon is committed to maintaining the highest standards of corporate governance. The Group is required to apply the principles of a recognised corporate governance code, and the Board acknowledges the importance of adhering to this code. The Board confirm that the Group complies with the principles and provisions of the QCA Corporate Governance Code, as issued by the Quoted Companies Alliance in April 2018. This includes a code of best practice for AIM companies, comprising principles intended as a minimum standard, and recommendations for reporting corporate governance matters. The directors recognise the importance of sound corporate governance and have taken account of the principles of the QCA Guidelines, wherever possible and as appropriate to the size, nature and resources of the Group. It is also our intention to be as open and transparent about our governance arrangements as possible and use the annual report to give details of changes and improvements made during the year. The Board The Company is controlled through its Board of Directors. The Board comprises five non-executive directors and two executive directors. Biographical details on the Board members are set out in the section entitled “Board of Directors”. The Board’s primary roles are to create value for shareholders, to provide leadership to the Group, to approve the Group’s strategic objectives and to ensure that the necessary financial and other resources are made available to the Group to enable them to meet those objectives. All of the directors are subject to election by shareholders at the first Annual General Meeting after their appointment to the Board and seek re-election at least once every three years. When a director retires or resigns the Board seat is filled through the nominations committee of the Board and the individual is also subject to regulatory approval by the Stock Exchange, and the support of our Nomad. The Board is responsible to the shareholders for the proper management of the Group and the directors hold Board meetings at least six times per annum and at other times as and when required to review the operational and financial performance of the business, and to be updated on strategic, commercial, product and service matters. All key capital investment decisions, and acquisitions, new activities and distribution points are subject to approval by the Board of Directors. The Board considers itself to be sufficiently independent. The QCA Code suggests that a board should have at least two independent non-executive Directors. One of the five non- executive directors, Mr. Patrick Purcell, is the company founder and majority shareholder through a trust. None of the rest of the Board is a significant shareholder, save through that trust for certain executive members. The Senior Independent Non- Executive director is Mr. John Doris, who is also the Chairman of the Audit Committee. Non-Executive Directors receive their fees only in the form of cash emoluments fully taxed in compliance with the income tax regime of the Irish residence of the Mincon Group plc. Certain receipted travel expenses are also paid to accommodate the attendance at Board meetings. The Board is responsible for formulating, reviewing and approving the Group’s strategy, budgets and corporate actions. The Board has delegated responsibility for the day to day management of the Group to the Group’s executive management. There are clear divisions of responsibilities between the roles of the Chairman and Chief Executive Officer. Managing and communicating risk and implementing internal control The Board is responsible for putting in place and communicating a sound system to manage risk and implementing internal control. The Board is responsible for reviewing the effectiveness of the systems of risk management and internal control. The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against material misstatement or loss. Through the activities of the Audit Committee, the effectiveness of these internal controls is reviewed annually, progress is reported on as systems and procedures are developed, and explanations are requested from management on such matters as may come or be brought to the attention of the committee. The Audit Committee meets with the auditors both separately and with invited executive management attendance, to consider such matters as may be reported on formally and regularly, but also to discuss the business compliance with, and the development of systems, risk mitigation and commercial procedures. Managing and communicating risk and implementing internal control (continued) The directors have outlined in the Principal Risks and Uncertainties section the key risks facing the Group and strategies to manage these risks. A comprehensive budgeting process is completed once a year for the coming year, and this sits within an updated rolling three- year plan. It is reviewed and approved by the Board. The Group’s results, compared with the budget and the prior year, together with any foreseen risk and other matters, are reported in detail to the Board on a monthly basis. The Group maintains appropriate insurance cover in respect of actions taken against the directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis. The compliance, audit, risk and policy matters are reported to the executive as they occur, are discussed among the executive and reported on to the Board and to the Chair together with the actions taken and proposed to respond appropriately to the matter flagged. Corporate communication and investor relations The Group recognises the importance of shareholder communications. The Group seeks to maintain a regular dialogue with both existing and potential new shareholders in order to communicate the Group’s strategy and progress and to understand the needs and expectations of shareholders. Beyond the Annual General Meeting, the Chief Executive Officer, Chief Financial Officer, and such other key executive members as may be relevant to the matter, meet regularly with investors and analysts to provide them with updates on the Group’s business and to obtain feedback regarding the market’s expectations of the Group. This follows on from the half year and full year announcements of the results for the Group when the Chief Executive Officer, Chief Financial Officer and certain other key executives travel to meet existing and prospective shareholders and analysts/commentators on an individual and collective basis. These meetings have on occasion been carried out by way of online video calls also since the COVID-19 pandemic. It also occurs during any particular year on an ad hoc basis with the announcements of key events around contracts, products, and corporate transactions. We have introduced a specific investor review document on our corporate website, to update both existing and prospective shareholders on the Groups business and performance. We provide further updates as required on acquisitions, performance of key elements, products and markets as may be necessary and which may be important to the understanding of the strategy, the market position, the business, the products and the team. In addition, though there is no regulatory requirement for it, the Group has decided to provide detailed quarterly updates over recent years to provide more timely insight for stakeholders, and to provide a platform for more informed decision making and questioning by stakeholders. Attention is drawn to these announcements on the corporate website. In addition to this, shareholders are actively encouraged to visit key sites, meet key people and discuss the business of the Group. The Company is also a regular presenter at invited investor events, providing an opportunity for investors to meet with representatives from the Group in a more informal setting. The contact numbers for the relevant executives are provided with company announcements. Necessary up-to-date experience, skills and capabilities The Board considers that all of the Non-Executive Directors are of sufficient competence and calibre to add strength and objectivity to its activities, and bring considerable experience in our industry, and in the general operational and financial development of our companies. This may be direct experience of corporate finance and investment and the mining industry in general from hands on experience. The Board regularly reviews the composition of the Board to ensure that it has the necessary breadth and depth of skills to support the ongoing development of the Group. The Chairman, in conjunction with the Company Secretary, ensures that the directors’ knowledge is kept up to date on key issues and developments pertaining to the Group, and on its operational environment and to the directors’ responsibilities as members of the Board. Board Evaluation The Board engaged an external party to conduct a performance review of the Board and its committees in 2021. The main recommendations arising from the review were prioritised and actioned during 2021/2022. The Board will have another independent review carried out in 2023. 42 43 STATEMENT OF DIRECTORS CORPORATE GOVERNANCE CONTINUED Directors’ independence The Board has determined that Hugh McCullough, John Doris, Paul Lynch and Pirita Mikkanen are independent within the meaning of the QCA Guidelines. Patrick Purcell is not considered independent within the requirements of the QCA Guidelines by virtue of his shareholding in the Company. The two executive directors on the Board are Joseph Purcell and Thomas Purcell. Governance structures and processes The Board has overall responsibility for promoting the success of the Group through the management team. The Executive Directors and the executive team have day-to-day responsibility for the operational management of the Group’s activities. The Non-Executive Directors are responsible for bringing independent and objective judgement to Board decisions. There is a clear separation of the roles of Chief Executive Officer and Non-Executive Chairman. The CEO is the chief engineer and is the principal designer of the current range of products. The Chairman is responsible for overseeing the running of the Board, ensuring that no individual or group dominates the Board’s decision-making and that the Non-Executive Directors are properly briefed on matters. The Chairman has overall responsibility for corporate governance matters in the Group. The Chief Executive Officer has the responsibility for implementing the strategy approved by the Board and managing the day-to-day business activities of the Group. In addition the CEO has primary responsibility for engagement with the shareholders and other stakeholder Groups. The Company Secretary is responsible for ensuring that Board procedures are followed and that the Group complies with applicable rules and regulations. The Board has established an Audit Committee, a Remuneration Committee, a Nominations Committee and an Environmental & Sustainability Committee with formally delegated duties and responsibilities. The Board deals with matters relating to health and safety and risk through the Board (as opposed to through a separate committee). The ultimate responsibility for reviewing and approving the annual financial statements and interim statements remains with the Board. The Audit Committee works with the executive team to obtain such explanations and information as it requires, and may, supported by the external auditors, ask that the executive amend, adjust or provide explanations to the Board, through the Board to the Stock Market, on our website, or in the annual or other reports as it may see fit. Communication on how the Group is governed The Group places a high priority on regular communications with its various stakeholder groups and aims to ensure that all communications concerning the Group’s activities are clear, fair and accurate. The Board communicates on such matters and on how the Group is governed through the annual report, and may also give updates through announcements and presentations to shareholders on an individual or Group basis. The Group’s website is regularly updated, and users can register to be alerted when announcements or details of presentations and events are posted onto the website. The Group’s financial reports and notices of General Meetings of the Company can be found on the website. The results of voting on all resolutions are posted to the RNS section of the Group’s website, including any actions to be taken as a result of resolutions for which votes against have been received. Audit committee Further details on the duties and activities of the Audit Committee can be found in the Audit Committee Report on page 48 to 50. Nomination Committee Further details on the duties and activities of the Nomination Committee can be found in the Nomination Committee Report on page 51 to 53. Remuneration Committee Further details on the duties and activities of the Remuneration Committee can be found in the Remuneration Committee Report on page 54 to 56. Environmental & Sustainability Committee Further details on the duties and activities of the Environmental and Sustainability Committee can be found in the Environmental and Sustainability Committee Report on page 57. Share Ownership and Dealing Mincon has adopted a share dealing policy that complies with Rule 21 of the AIM Rules and Rule 21 of the Euronext Growth Rules relating to directors’ dealings as applicable to AIM and Euronext Growth companies respectively. Mincon takes all reasonable steps to ensure compliance by applicable employees. 44 45 STATEMENT OF DIRECTORS CORPORATE GOVERNANCE CONTINUED Directors’ Remuneration Details of individual remuneration of directors are set out in the Remuneration Committee Report page 54 to 56. Directors’ And Company Secretary’s Share Interests The beneficial interests of the directors and Company Secretary (including those of their spouses and children) who held office at 31 December 2022 in the share capital of the Company was as follows: NAME ORDINARY SHARES HELD PERCENTAGE OF ISSUED ORDINARY SHARE CAPITAL Kingbell Company 119,671,200 Hugh McCullough Paul Lynch 46,763 35,000 56.32% 0.02% 0.02% Kingbell Company, is a company controlled by Patrick Purcell. No director or member of a director’s family has a related financial product referenced to the Company’s share capital. There are no outstanding loans as at 31 December 2022 (2021: €Nil) granted or guarantees provided by any company in the Group to or for the benefit of any of the directors other than amounts disclosed in note 27 to the financial statements. There have been no changes in the interests of the other directors and the Company Secretary in the period to 10 March 2023. Other transactions with the directors are set out in note 27 to the consolidated financial statements. Stakeholder’s and social responsibilities and their Mincon Group plc’s energy management policy aims to: implications for long-term success The Group understands that a number of different stakeholders have an interest and are impacted by the activities of the Group. Amongst those stakeholders are the direct owners and employees of the Group, investors and dependents, and our suppliers and customers. There are also the regulatory authorities in the jurisdictions in which we have activities, employees and customers, and legal and environmental frameworks with which our businesses are required to comply. The Group is aware of its corporate social responsibilities and the need to maintain effective working relationships across a range of stakeholder Groups. These include the Group’s employees, partners, suppliers, regulatory authorities and the customers involved in the Group’s activities. The Group’s operations and working methodologies take account of the need to balance the needs of all of these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Group for the benefit of its members as a whole. The Group endeavours to take account of feedback received from stakeholders, making amendments to working arrangements and operational plans where appropriate and where such amendments are consistent with the Group’s longer-term strategy. The Group takes seriously the well-being of its employees consistent with the guidelines in the various jurisdictions and industries within which it works. The Group takes due account of any impact that its activities may have on the environment and seeks to minimise this impact wherever possible, as detailed on page 60 to 63, and in our Environmental and Sustainability Committee report. Through the various procedures and systems, that it operates, the Group works to ensure full compliance with health and safety and environmental legislation relevant to its activities. The Group reviews its environmental footprint, across our manufacturing sites, with goals being set and targets to be achieved. The objectives are to reduce our footprint, to reduce the energy and waste costs of our business, and to achieve a higher rating for environmental considerations while also reducing the cost associated with our production. • avoid unnecessary energy costs • monitor overall electricity, gas, oil, process gases and lubricant oils usage on a regular basis • monitor electricity usage of the significant energy using equipment • report energy performance indicators (EnPIs) at monthly, quarterly and annual management review meetings • improve the cost effectiveness of producing a safe, comfortable working environment and • comply with current energy and environmental legislation and protect the environment by minimising CO2 emissions You can see further details regarding these planned objectives on pages 60 to 63 and in our Environmental and Sustainability Committee report. Corporate culture The Board seeks to maintain the highest standards of integrity and probity in the conduct of the Group’s operations. These values are preserved in the written policies and working practices adopted by all employees in the Group. An open culture is encouraged within the Group, with regular communications to staff regarding progress and staff feedback regularly sought. The Executive Committee regularly monitors the Group’s cultural environment and seeks to address any concerns that may arise, escalating these to Board level as necessary. The Group seeks to act with fairness towards its stakeholders, and its competitors, in the conduct of its business, and expects that this would be reciprocated. The Group is committed to providing a safe environment for its staff and all other parties for which the Group has a legal or moral responsibility in this area. The Executive operates a Health and Safety Committee in each of the manufacturing facilities which meets monthly to monitor, review and make decisions concerning health and safety matters. The Group’s health and safety policies and procedures are enshrined in the Group’s documented quality systems, which encompass all aspects of the Group’s day-to-day operations. The Board asks for a quarterly report on health and safety matters encompassing the compliance, audit, risk and policy development of the Group and the subsidiaries. There were no significant OHS incidents during the year. The Groups OHS policy can be viewed on our website at https://mincon.com/our-company/health-safety 46 47 AUDIT COMMITTEE REPORT As chairman of the Audit Committee, I am pleased to present the report of the Committee for the year ended 31 December 2022. This report details how the Audit Committee has met its responsibilities, as per the committee’s Terms of Reference, in the last twelve months. Role of the Audit Committee The role, responsibilities and authorities of the Audit Committee (‘the Committee’) are clearly communicated in our written Terms of Reference’ as displayed on our corporate website. The Committee is responsible for providing oversight and confidence to the Board regarding the following: • monitoring the integrity of the Group’s financial statements including reviewing significant financial reporting judgements/ estimates and changes in accounting policies • reviewing internal control and risk management systems • reviewing periodically the requirement for an Internal Audit function and the performance of Internal audit duties in the absence of such a specific function • making a recommendation to the Board in relation to the continued appointment of the External Auditor and the remuneration of the external auditor • assess the performance of the External Auditor, including their independence and objectivity Membership Members are appointed to the Committee by the Board, based on the recommendations of the Nomination Committee in consultation with the chairman of the Committee. The Audit Committee comprises John Doris (chair), Hugh McCullough, Paul Lynch and Patrick Purcell. The Board is satisfied that the members of the Committee bring a wide range of skills, expertise and experience in commercial, financial and audit matters arising from the senior positions they hold or held in other organisations. The Board is satisfied that the mix of business and financial experience enables the Committee to effectively fulfil its responsibilities. The company secretary or his nominee acts as the secretary to the Committee and the Committee may obtain, at the Group’s expense, outside legal or other professional advice needed to perform its duties. The Committee has unrestricted access to the Group’s Finance team. Meetings The Committee meets at least three times a year In line with the Committee’s Terms of Reference and otherwise as is required. During 2022, the Committee met on three occasions and all members were present at all these meetings. Meetings are generally scheduled around the financial reporting cycle to allow the Committee to carry out its duties in relation to the financial statements. Meetings are called by the Secretary at the request of any of the Committee members or at the request of the Group Auditor. Reports are circulated in advance of the meetings to allow the Committee access to information in a sufficiently timely manner. The Committee also regularly invites the Chief Financial Officer and other members from the finance function to attend the Committee meetings. The Auditor (Grant Thornton) is invited to attend some meetings of the Committee on a regular basis. In general, the Committee meets in advance of Board meetings and reports to the Board on the key outcomes from each meeting. The Committee has unrestricted access to the Group’s Auditor, with whom it meets at least three times a year. The Committee meets with the Group Auditor, without Executive Management being present on an annual basis in order to discuss any issues which may have arisen during the year. Going Concern The Committee considered the use of the going concern basis of accounting and reviewed the assessment prepared by management. The Committee was comfortable with the assessment and has a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. Financial Reporting and Significant Financial Issues The Audit Committee considers significant accounting policies, any changes to them and any significant estimates and judgements. The Committee also considers the methods used to account for significant or unusual transactions where the accounting treatment is open to different approaches. Pending the Group Auditor’s view, the Committee considered whether the Group, in its financial statements, has adopted appropriate accounting policies and, where necessary, made appropriate estimates and judgements. The Committee receives and reviews the Group’s risk register. As the Group continues to grow, there is particular focus on ensuring that any changes to the Group’s risk profile are matched by appropriate mitigating factors. The Group’s principal risks and uncertainties are outlined on pages 16 to 19. The Committee also engages regularly with both the Group Finance Team and the Group Auditor to ensure that appropriate measures are taken to address risks as they are identified or as their risk profile changes. The Committee continues to encourage the development of policies, procedures, management systems and internal controls that are designed to enhance the existing risk management framework. Internal Audit The Committee revisited the need for an internal audit function through engagement with the Group Finance Team and the Senior Management team. It reviewed a report on the findings of subsidiary compliance reviews carried since its last review. The Committee approved the continuation of these compliance reviews using the existing resources available to the Group Finance Team, by way of performing tests of control, tests on adherence to company policies and business risk reviews at subsidiary level. The Audit Committee also reviewed the transparency and integrity of disclosures in the financial statements. The Committee reviewed in detail the areas of significant judgement in respect of the financial statements for the year ended 31 December 2022. The Committee also had detailed discussions on these matters with senior management. In this regard the Committee considered a report from the Group Auditor on the work carried out and conclusions reached. A summary of this report is included in the Audit Report set out on pages 66 to 74. Goodwill Impairment Assessment The Committee considered the goodwill impairment assessment carried out by management, in accordance with the requirements of IAS 36 ‘Impairment of assets’ as set out in note 12 of the financial statements. In performing their impairment assessment management determined the recoverable amount of the Cash Generating Unit (‘’CGU”) and compared this to the carrying value at the date of testing. The recoverable amount of the CGU is determined based on fair value less cost to sell calculation. The Committee considered and discussed with management and Grant Thornton, the key assumptions to understand their impact on the CGU’s recoverable amount. The Committee was satisfied that the methodology used by management and the results of the assessment, together with the disclosures were appropriate. Risk Management and Internal Control The Board has a responsibility for maintaining effective systems in relation to risk management and internal control. On behalf of the Board, the Audit Committee has a role in the continued development of a risk awareness culture by driving the integration of risk and strategy, and behaviours and beliefs at all levels of the organisation. 48 49 AUDIT COMMITTEE REPORT CONTINUED External Auditors The Committee has an important role in supporting the Board discharge its duties by providing independent oversight over Group audit. Independence and Provision of Non-Audit Services The Committee is responsible for ensuring that the Group Auditor is objective and independent. KPMG had been the Group’s Auditor from 2013 to 2021. After putting the audit to tender to three Top Ten audit firms, including the resigning auditors KPMG, the committee made the decision to appoint Grant Thornton as Group Auditor in May 2022. As Group Auditor, Grant Thornton is prevented from engaging in certain non-audit services that would compromise its independence, violate any laws and regulations, and affect its appointment as Auditor. The Committee performed a review of the audit and non-audit services provided by the External Auditor and the fees charged for those services in respect of the year ending 31 December 2022. Following this review and the confirmation in writing received from the Group’s Auditor reaffirming its independence and objectivity, the Committee is satisfied as to KPMG’s independence and objectivity. Effectiveness The Committee assessed the Auditor’s performance at our December 2022 meeting when the audit plan for the year ended 31 December 2022 was presented. It discussed the significant audit risks and key audit matters, audit scope and materiality amongst other matters. and reviewed and appropriately challenged the Auditor before agreeing the proposed audit scope and approach. Grant Thornton presented an interim findings report in August 2022 and presented a final detailed report of their audit findings to the Committee at our meeting in March 2023. These findings were reviewed and appropriately challenged by the Committee. In determining the appropriateness of the Auditor, the Committee had full regard to the Auditor’s competence, the quality and efficiency of the audit, and whether the audit fee is appropriate in relation to size, complexity, and risk and control profile of the Group. On reviewing all of the above factors, the Committee continues to be satisfied with the performance of Grant Thornton and has informed the Board accordingly. On behalf of the Audit Committee John Doris Chairman of the Audit Committee 10 March 2023 NOMINATION COMMITTEE REPORT On behalf of the Nomination Committee and the Board, I am delighted to present the report of the Committee for the year ended 31 December 2022. This report details the Nomination Committee’s responsibilities and how the Committee discharged these duties in 2022. Role of the Nomination Committee The duties, responsibilities and authorities of the Nomination Committee are clearly communicated in our written Terms of Reference as displayed on our corporate website. These include, but are not limited to, the following: • reviewing the structure, size and composition of the Board compared to its current position and make recommendations to the Board with regard to any changes • identifying and nominating candidates for approval by the Board to fill Board vacancies, considering candidates on merit and against objective criteria and with due regard to the benefits of diversity on the Board, including gender, taking care that appointees have enough time available to devote to the position • considering succession planning for the directors and senior executives in the course of its work, accounting for the challenges and opportunities facing the Group, and the skills and expertise needed on the Board and by the Group in the future • evaluating the balance of skills, knowledge, experience, and diversity on the Board • carry out a biennial performance evaluation of the Board, its Committees, and individual directors Membership Members, including the Chairman, are appointed to the Committee by the Board. The Nomination Committee comprises Hugh McCullough (Chair), John Doris and Patrick Purcell. The Board is satisfied that the members of the Committee are Independent. The biographical details of each member are set out on pages 32 to 34. Only members of the Committee have the right to attend Committee meetings, however, the Chief Executive Officer and external advisers may be invited to attend, as and when appropriate. The Company Secretary or his nominee acts as the Secretary to the Committee. Meetings The Committee meets at least twice a year In line with the Committee’s Terms of Reference and otherwise as is required. During 2022, the Committee met on two occasions and all members were present at these meetings. The matters dealt with by the Committee during 2022 included the following: Appointment of new non-executive director The committee unanimously agreed to recommend to the Board that Pirita Mikkanen be co-opted to the Board as a non-executive director as soon as the usual due diligence could be completed. This approval was thereafter officially approved, and an announcement released to the market on March 14th 2022. Formation of Environment and Sustainability Committee The committee suggested the Board might consider creating a new subcommittee of the Board - the Environment and Sustainability Committee - and that Pirita Mikkanen would chair such a committee. The committee was officially set up and the committee terms of reference for this committee were adopted on 04th August 2022. Board and Executive Succession planning The Committee reviewed a report from the Executive on executive succession planning. It was found that executive succession planning was appropriate and dealt satisfactorily with the Company’s requirements. The Committee reviewed the composition of the Board in the context of the normal terms of service of the existing directors. It was agreed to explore the possibility of extending the terms of service of Patrick Purcell in view of his singular understanding of the Company’s business. It was noted that the normal terms of service of Hugh McCullough and John Doris expired at the end of this year and early next year respectively. It was agreed to keep the composition of the Board under review, especially in terms of diversity of experience and expertise, gender balance and geographic diversity. Board Performance Evaluation The Board engaged an external party to conduct a performance review of the Board and its committees in 2021. The Board will have another independent review carried out in H1 2023. 50 51 NOMINATION COMMITTEE REPORT CONTINUED Board Committees and duration of Tenure The appointment dates, of the Directors, on the three Board Committees as at 31 December 2022 can be seen below. NOMINATION COMMITTEE Hugh McCullough (Chair) Appointed 2018 Independent Patrick Purcell Appointed 2013 John Doris Appointed 2020 Independent AUDIT COMMITTEE John Doris (Chair) Appointed 2018 Independent Hugh McCullough Appointed 2016 Independent Paul Lynch Appointed 2019 Independent Patrick Purcell Appointed 2013 REMUNERATION COMMITTEE Paul Lynch (Chair) Appointed 2020 Independent Patrick Purcell Appointed 2013 John Doris Appointed 2017 Independent ENVIRONMENT AND SUSTAINABILITY COMMITTEE Pirita Mikkanen (Chair) Appointed 2022 Independent Patrick Purcell Appointed 2022 Hugh McCullough Appointed 2022 Independent Paul Lynch Appointed 2022 Independent On behalf of the Nomination Committee Hugh McCullough Chairman of the Nomination Committee 10 March 2023 52 53 Discussion on performance conditions attaching to awards under 2022 LTIP scheme The Committee reviewed a document prepared by our broker and Nomad Davy setting out performance conditions utilised by some listed Irish plcs as well as listed industry peers from different jurisdictions. Structure of NED remuneration It was put to the Remuneration Committee that it would be appropriate that chairpersons of all board sub committees should receive an additional €5,000 in remuneration to reflect the incremental commitment from those roles. The Committee and Board approved this proposal. Thereafter it was agreed that future awards would be conditional as to 50% on the achievement of EPS growth targets and 50% as to achievement on ROCE targets. The specific targets proposed and approved by the Remuneration Committee and Board are as follows: • EPS CAGR in excess of 7% for the three years prior to vesting • ROCE at or above 13% in the financial year prior to vesting Performance Outcome and remuneration for 2022 The Group’s performance for 2022 was good, particularly in light of the difficulties associated with the war in Europe and the after effects of the COVID-19 pandemic as it unwinds. More insight into the challenges faces is detailed in the Chief Financial Officers report on pages 20 to 23. REMUNERATION COMMITTEE REPORT On behalf of the Remuneration Committee and the Board, I am pleased to present the report of the Committee for the year ended 31 December 2022. This report details the Remuneration Committees responsibilities and how the Committee discharged these duties in 2022. Responsibilities of the Remuneration Committee The role, responsibilities and authorities of the Remuneration Committee are clearly communicated in the Committee’s Terms of Reference’ as displayed on our corporate website. The primary duties include the following: • ensuring that remuneration policy and practise is aligned to the Groups values and is clearly linked to the delivery of the Groups long term goals • in arriving at this policy ensuring all factors such as relevant legal and regulatory requirements are followed, these factors should include the suggestions and provisions in the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies • establish and agree with the Board the framework for the remuneration of the Chief Executive Officer and the Chief Financial Officer. The Committee can recommend and monitor the level and structure of remuneration for other senior executives as determined by the Board. The Committee Chairman, together with a Committee of the executive directors, shall make recommendations to the Board in relation to the remuneration of non-executive directors that will be within the limits set by shareholders • determine the total individual remuneration package of the Chief Executive Officer, the Chief Financial Officer, and other senior executives, including bonuses, incentive payments and share options or other share awards • direct and approve targets for performance related pay schemes to be implemented by the Group and approve the total annual payments under such schemes • direct and recommend for approval by the Board targets and quantum of awards issued under the long term incentive programme Membership Members, including the Chairman, are appointed to the Committee by the Board on the recommendation of the Nomination Committee. At least two members of the Committee shall be independent non-executive directors of the Group. The Remuneration Committee comprises Paul Lynch (chair), John Doris and Patrick Purcell. Only members of the Committee have the right to attend Committee meetings, however other individuals including external advisers may be invited to attend, as and when appropriate. The Company Secretary acts as the secretary to the Committee. Our Approach to Remuneration The Committee’s overall remuneration philosophy is to ensure Executive Directors and Senior Executives of the Group are incentivised to implement the Board’s strategy and that remuneration is aligned with the interests of shareholders and other stakeholders over the longer term. Meetings The Committee meets at least three times a year In line with the Committee’s Terms of Reference and otherwise as is required. During 2022, the Committee met on three occasions and had a quorum of members present for all these meetings. The matters dealt with by the Committee during 2022 included the following: Bonus scheme for senior management 2022 The Committee agreed a short-term incentive program for the 2022 financial year, through which the senior management team could earn up to 50% of their salary based on: • The achievement of budgeted profit after tax for the year (up to 40% of salary) • The delivery of targeted number of weeks’ inventory being carried at the end of the year (up to 7.5% of salary) • The delivery of a targeted number of debtors days (up to 2.5% of salary) Proposed Amendment for new LTIP plan to replace 2013 LTIP plan The Committee discussed the proposed amendments to the 2013 LTIP plan and agreed the final instructions to be given to William Fry for the preparation of the new 2022 LTIP plan to be put before the shareholders at the AGM. The finalised amendments as summarised on pages 11 to 13 of the AGM circular to our shareholders, per the below link, were approved at the AGM. https://corporate.mincon.com/wp-content/uploads/2022/04/5- April-2022_Mincon-Group-plc_AGM-Notice-and-Chairmans- Letter.pdf 54 55 55 REMUNERATION COMMITTEE REPORT CONTINUED Directors’ Remuneration Details of individual remuneration of directors are set out in the table below: 31 DECEMBER 2022 31 DECEMBER 2021 NAME SALARY BONUS FEES PENSION TOTAL SALARY BONUS FEES PENSION TOTAL €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 Non-Executive Chairman Hugh McCullough Non-Executive Director Patrick Purcell Non-Executive Director John Doris Non-Executive Director Paul Lynch Independent Non-Executive Director Pirita Mikkanen - - - - - - - - - - Chief Executive Officer Joseph Purcell 200 84 228 87 Regional Executive- Americas Thomas Purcell Total executive and non-executive remuneration 63 - 55 52 40 - - - - - - - 63 - 55 52 40 - - - - - - - - - - 29 313 200 64 30 345 194 64 60 55 55 50 - - - - - - - - 60 55 55 50 - 29 293 26 284 428 171 210 59 868 394 128 220 55 797 Evaluation of the Remuneration Committee The performance of the Committee is evaluated by the Nomination Committee as detailed in the terms of reference (7.1.11) of the Nomination Committee as displayed our corporate website. On behalf of the Remuneration Committee Paul Lynch Chairman of the Remuneration Committee 10 March 2023 ENVIRONMENT & SUSTAINABILITY COMMITTEE REPORT On behalf of the Environment & Sustainability Committee and the Board, I am pleased to present the report of the Committee for the year ended 31 December 2022. This report details the Environment & Sustainability Committees responsibilities and how the Committee discharged these duties in 2022. Responsibilities of the Environment & Sustainability Committee The role, responsibilities and authorities of the Environmental and Sustainability Committee are clearly communicated in the Committee’s Terms of Reference’ as displayed on our corporate website. The primary duties include the following: • Assess the effectiveness of the Group’s policies, programmes, practices and systems for: identifying, managing, and mitigating or eliminating Environmental and Sustainability risks in connection with the Group’s operations and corporate activity; and ensuring compliance with relevant legal and regulatory requirements and industry standards and guidelines applicable to Environmental and Sustainability matters; • monitor and review current and emerging Environmental and Sustainability trends, relevant international standards and legislative requirements and identify how these are likely to impact on the strategy, operations, and reputation of the Group; and determine whether and how these are incorporated into or reflected in the Group’s Environmental and Sustainability policies and objectives; • assess the performance of the Group with regard to the impact of decisions relating to Environmental and Sustainability matters, including any social or community projects undertaken, and related actions upon employees, communities and other third parties; • review the quality and integrity of internal and external reporting of Environmental and Sustainability matters and performance to ensure that the Company provides appropriate information, complies with reporting obligations and good industry practice; • support and provide guidance to management in developing and updating policies and procedures relating to employee health and safety, environment and social responsibility; and • make recommendations to the Board on any of the matters listed above that the Committee considers appropriate. Membership Members, including the Chairman, are appointed to the Committee by the Board. The Environment & Sustainability Committee comprises Pirita Mikkanen (chair), Hugh McCullough, Paul Lynch and Patrick Purcell. Only members of the Committee and the Committee Secretary have the right to attend Committee meetings. However, other individuals, including the Chairman of the Board (where not a member of the Committee), the Group Chief Executive Officer (where not a member of the Committee), and other Mincon executives from within individual business units of the Company and its subsidiaries (the “Group”) and external advisers may be invited by the Committee Chair to attend for all or part of any meeting when considered appropriate. The Company Secretary acts as the secretary to the Committee. Meetings The committee shall meet at least two times in each year, and at such other times as the Committee Chair may determine. The committee was officially set up and the committee terms of reference were adopted on 04th August 2022. A preliminary meeting to plan the Committee activities with the personnel responsible of ESG activities within the company was held on 7th December 2022. Performance Outcome and Environment & Sustainability for 2022 The very first Sustainability report of Mincon was published in August 2022. This report included the measures and initiatives to meet the company’s sustainability goals by 2040. In addition, the Board of Directors set the Net zero carbon emissions goal and formalised the Social Impact Programme. Mincon next sustainability report will be published in H2 2022. On behalf of the Environment & Sustainability Committee Pirita Mikkanen Chairman of the Environment & Sustainability Committee 10 March 2023 56 57 STATEMENT OF DIRECTORS’ RESPONSIBILITIES Company and the profit and loss of the Group and which enable them to ensure that the financial statements comply with the provision of the Companies Act 2014. The directors are also responsible for taking all reasonable steps to ensure such records are kept by its subsidiaries which enable them to ensure that the financial statements of the Group comply with the provisions of the Companies Act 2014. They are responsible for such internal controls as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have a general responsible for safeguarding the assets of the Company and the Group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for preparing a directors’ report that complies with the requirements of the Companies Act 2014. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board Hugh McCullough Joseph Purcell Director 10 March 2023 Director Statement of Directors’ Responsibilities in Respect of The Annual Report and The Financial Statements The directors are responsible for preparing the annual report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. As required by the AIM Rules, they are required to prepare the Group financial statements in accordance with IFRS as adopted by the EU. The directors have elected to prepare the Group financial statements in accordance with IFRS as adopted by the European Union (“EU”) and as applied in accordance with the Companies Act 2014. The Directors have elected to prepare the parent Company financial statements in accordance with FRS 101 Reduced Disclosure Framework as applied in accordance with the provisions of the Companies Act 2014. Under company law the directors must not approve the Group and Parent Company financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the Group and Parent Company and of the Group’s profit or loss for that year. In preparing each of the Group and Parent Company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; • assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or Parent Company or to cease operations, or have no realistic alternative but to do so The directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities, financial position of the Group and Parent 58 59 CORPORATE RESPONSIBILITY Part of Mincon’s strategic goals is to meaningfully contribute to the environment, to the communities in where we operate and for all our stakeholders. Environment & Sustainability Our objective is to take the necessary steps to reducing our carbon footprint through further investing in manufacturing that requires less energy and to develop more environmentally friendly products for our customers. The process of rock drilling is extremely energy-intensive and Mincon meets this challenge by designing and manufacturing highly efficient rock-drilling solutions to make the most of the planet’s limited natural resources. Mincon’s rock-drilling solutions offer ongoing savings for fuel and energy, rather than single, one-time savings. Additionally, Mincon’s solutions are increasingly being used for the installation of environmentally friendly geothermal energy systems. This emphasis on efficiency and sustainability will also give Mincon a business advantage as our customers start favouring suppliers that can help reduce their own carbon emissions. In our own business practices Mincon’s environmental policy comprises three pillars: energy management, waste management, and sustainable practices. Energy Management Mincon is committed to responsible energy management and the Group practices energy-efficient thinking throughout the enterprise. This includes the use of reliable sources of energy and water to sustain our activities, with the aim to procure and manage these supplies in the most cost-effective manner. Mincon’s energy management policy includes a Carbon Disclosure Project (CDP) – an EU initiative for businesses to declare their energy usage and associated carbon dioxide emissions. As part of this, Mincon has implemented solutions for measuring and monitoring all forms of energy usage. The The CDP will help identify trends and areas where investments Waste Management Human Rights Policy can be made to allow a more efficient use of energy. Successful Mincon’s factories actively reclaim and recycle waste material measures and technologies will be shared with other businesses generated during manufacturing. Recycled materials include, in the Group for implementation, where possible, to reach the but are not limited to scrap metal, swarf, offcuts, lubricating oils, Group-wide goal of reducing emissions and energy consumption. cutting fluids, and solid oily waste. Recycling and collection are done in conjunction with certified local recyclers and waste- Efficiency and sustainability is integral to our business growth management experts. strategy. We have manufacturing facilities in the same regions as customer operations in order to drastically reduce our reliance on Wood, cardboard, and office wastepaper are also recycled. Efforts carbon-intensive intercontinental logistics, while simultaneously have been made to reduce single-use packaging. In instances improving our customer service. The core focus of all Mincon’s engineering efforts is to improve where Mincon products are shipped in crates, the wood is recycled or provided to local communities to be repurposed. the energy efficiency of our products. As such, we’re also Electronic waste, including unused computers, printers, batteries, motivated to reduce the energy requirements – and related and consumables, are also recycled in conjunction with local emissions – associated with the manufacturing of our products. recyclers or council-provided facilities (in the case of jurisdictions Our engineering and environmental ethos ensures that there will where disposal fees are included in taxes or the purchase price). be ongoing savings once products are in our customers’ hands. As with Mincon’s product engineering, our energy consumption Mincon educates employees about the importance of the efforts will be subject to an ethos of continuous improvement, planet’s limited resources, to foster a culture of sustainability and with the eventual goal of achieving a carbon-neutral status. The environmentally friendly practices. Employees are encouraged value of these investments will be realised through ongoing, long- to be vigilant about the environment and are given opportunities term savings for the Group, and a reputation as a responsible to present improvements that can be made for the benefit of the business with a mindset for sustainability. business or local communities. Sustainable Practices Our goal is to achieve net zero emissions by 2040 – one decade The result of this is seen at Mincon offices around the world, ahead of the 2050 deadline for EU member states to achieve where consideration is given to using low-energy lighting and carbon neutrality. appliances; plants that require less water in arid climates; participation in recycling initiatives; the use of environmentally Our corporate environmental responsibility (CER) goal will be friendly alternatives; products that have less single-use plastics; achieved by implementing guidelines set out in the Greenhouse and consumption of food and/or drinks that result in compostable Gas (GHG) protocol – a groupwide effort that will span all areas of organic waste. our operations. Further information on the Group’s energy management can when it comes to sustainable practices, and this includes working be found within our 2022 sustainability report on the Group’s with low-carbon logistics providers. The Group strives to partner with suppliers that share our values website at: https://corporate.mincon.com/wp-content/ uploads/2022/08/19-August-2022_Mincon-Group-plc_2022- Mincon’s Board of Directors, and Senior Management are committed to ensuring all Mincon businesses respect human rights throughout their operations. Mincon’s human rights policy is modelled on the UN guiding principles for business and human rights. We provide all the basic needs to our employees as set out in these guidelines. Additionally, Mincon’s commitment to human rights extends to dealings with suppliers, who are critical to the success of the business. Mincon endeavours to ensure that products and services provided by suppliers are ethically sourced and do not breach human rights laws in the countries in which they originate. This will be achieved through intense scrutiny of the ethical and moral values of potential new suppliers. We are committed to operating our businesses in compliance with all applicable laws, to respect human rights and to conduct business in an honest, open, and ethical manner. We expect employees to comply with all relevant laws relating to human rights wherever we operate, and to abide by Mincon’s human rights policy. Trust and respect in all business dealings are core values that the Group upholds. Mincon’s regional and country managers have been entrusted to respect the local communities and to abide by the company’s values. Each manager will ensure that their business, and by extension, Mincon, is not in breach of local or national regulations and laws. Those employees found to be in breach of these regulations and laws will face disciplinary action, while corrective measures will be implemented. outcome of this is to reduce carbon dioxide emissions, comply Sustainability-Report.pdf with environmental legislation, and improve cost-effectiveness. 60 61 CORPORATE RESPONSIBILITY CONTINUED Employees We are committed to equality of opportunity for existing Corruption and bribery issues Corporate Social Responsibility Mincon has always been an active member of the communities in which we operate and this is reflected through our core social values: • Creating opportunities for those in need • Making a positive impact on society • Leaving a better world for the next generation In addition to the Group-funded CSR activities, all Mincon businesses participate in programmes that benefit their local communities. Our current programmes are updated through our website at: https://corporate.mincon.com Mincon realises the value of honest and trustworthy employees. Creating a safe and positive work environment for our employees is a high priority across the Mincon Group. Employees are treated with dignity and respect. The resulting employee morale and work ethic is evident in the important business metrics that we use to report on the success of the Group. We are committed to developing the skills of our employees. Many of our manufacturing facilities engage in co-operative learning programs with universities and colleges. Mincon invests time and finances in developing undergraduates and postgraduates, benefiting both the participants and the Group. Mincon is committed to complying with all labour laws in the countries that it operates. Policies have been developed to include: • Induction programs for new employees • Working conditions • Hours of work & overtime • Breaks and rest periods • Health and safety policies • Accident reporting & first aid • Use of personal protective equipment • Smoke-free workplace • Alcohol and drug free workplaces and potential employees and to creating a workplace which provides for: • Equal opportunities for all staff and potential staff and where their dignity is protected and respected at all times • All persons regardless of gender, civil status, family status, race, religious beliefs, sexual orientation, disability, age, or ethnic minorities will be provided with equality of access to employment. All persons will be encouraged and assisted to achieve their full potential. We will continue with a culture of equality right through our businesses We aim to ensure that no job applicant or employee receives less favourable treatment on any grounds which cannot be shown to be justified. This applies to recruitment and selection, training, promotion, pay and employee benefits, employee grievances, discipline procedures and all terms and conditions of employment. We place considerable emphasis on Health and Safety matters. We undertake our business in a manner that will ensure the safety, health, and welfare of all our employees, visitors, and the public. This commitment is in accordance with applicable Environmental Health and Safety legislation. We are committed to providing a safe and secure working environment that is free from all forms of harassment and bullying. We have set a standard for all members of staff to be treated with the utmost levels of dignity and respect. Mincon is committed to the implementation of all necessary measures required to protect the dignity of employees and to encourage respect in the workplace. We achieve this by implementing effective procedures to deal with any complaints of such conduct as it may arise. We are committed to continuously operating our business with integrity and being accountable for our actions. We maintain a strict stance against bribery and corruption across all our businesses. Our internal control structures are designed to mitigate reputational risk and to assist in preventing any potential corruption and bribery. We consistently review and assess the robustness of our internal controls to further strengthen our business. Corruption is dishonest and illegal behaviour by those in a position of trust in order to gain an undue advantage. The risks of corruption are not always obvious, therefore we inform our employees how corruption and bribery may occur through our corruption and bribery policy. Corruption and bribery issues are the responsibility of our Executive Management team. Once a claim is made, the Executive Management team will respond to the allegation within a reasonable length of time and an investigation will begin. Such an investigation may include internal reviews or reviews by external lawyers, accountants or an appropriate external body. If the claim of malpractice or misconduct is substantiated, appropriate disciplinary action will be taken against the responsible individuals. Our whistleblowing policy exists to enable all staff across our Group to feel confident that they can expose wrongdoing without any risk to themselves. Mincon will not tolerate malpractice and attaches extreme importance to identifying and remedying any issues in relation to corruption or bribery. 62 63 FINANCIAL STATEMENTS Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements SEPARATE FINANCIAL STATEMENTS OF THE COMPANY Company Statement of Financial Position Company Statement of Changes in Equity Notes to the Company Financial Statements 66 75 76 77 78 79 80 116 117 118 GROUP FINANCIAL STATEMENTS 64 65 INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MINCON GROUP PLC Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, Opinion We have audited the financial statements of Mincon Group PLC (“the Company”) and its subsidiaries (‘’the Group’’), which comprise the Consolidated income statement and Consolidated statement of comprehensive income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of changes in Equity, the Consolidated Statement of Cash flows for the financial year ended 31 December 2022, and the related notes to the financial statements, including the summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is Irish law and International Financial Reporting Standards (IFRS) as adopted by the European Union for the Group and accounting standards issued by the Financial Reporting Council including FRS 101. “Reduced Disclosure Framework”(Generally Accepted Accounting Practice in Ireland) for the Company. In our opinion: • the consolidated financial statements give a true and fair view in accordance with IFRS as adopted by the European Union, of the assets, liabilities and financial position of the Group as at 31 December 2022 and of the Group’s financial performance and cash flows for the financial year then ended; • the Company’s statement of financial position gives a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland, of the assets, liabilities and financial position of the Company as at 31 December 2021; and • the Group and Company financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014 Basis for opinion We conducted our audit in accordance with International Standards on Auditing (Ireland) (‘ISAs (Ireland)) and applicable law. Our responsibilities under those standards are further described in the ‘Responsibilities of the auditor for the audit of the financial statements’ section of our report. We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Ireland, including the Ethical Standard for Auditors (Ireland) issued by the Irish Auditing and Accounting Supervisory Authority (IAASA), and the ethical pronouncements established by Chartered Accountants Ireland, applied as determined to be appropriate in the circumstances for the Group and Company. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern In auditing the financial statements, we have concluded that the director’s use of going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and Company’s ability to continue as a going concern basis of accounting included: • Gaining an understanding of the business and the associated processes of management in the going concern assessment • Evaluating management’s future cash flow forecasts, the process by which they were prepared, and assessed the calculations are mathematically accurate the cashflow forecast is prepared up to 31 December 2025 • Challenging the underlying key assumptions such as expected cash inflow from product sales and cash outflow from purchases of inventory and other operating expenses • Regarding revenue expectations, challenging the estimates made by management by assessing whether the estimates regarding sales forecasts and sales prices are in line with historical revenues to date and current contracts in place • We also assessed a sensitivity analysis of management using the low end of revenue forecasts and accompanying key assumptions to ascertain the extent of change in those assumptions that either individually or collectively would lead to alternative conclusions • Making inquiries with management and reviewing the board minutes and available other available written communication in order to understand the future plans and to identify potential contradictory information • Assessing the adequacy of the disclosures with respect to the going concern assertion individually or collectively, may cast significant doubt on the Group and Company’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Other matter The financial statements of Mincon Group PLC and its subsidiaries for the financial year ended 31 December 2021, were audited by KPMG who expressed an unmodified opinion on those statements on 11 March 2022. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current financial period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and the directing of efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and therefore we do not provide a separate opinion on these matters. Overall audit strategy We designed our audit by determining materiality and assessing 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 in particularly regarding the valuation of intangibles and goodwill and investment in subsidiary undertakings that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was any evidence of potential bias that could result in a risk of material misstatement due to fraud. Based on our considerations as set out below, our areas of focus included: • Revenue recognition (cut-off) • Valuation of intangibles and goodwill • Investment in subsidiary undertakings (Company only) How we tailored the audit scope Mincon Group PLC is an Irish engineering Group listed on the AIM Market of the London Stock Exchange and the Euronext Growth Market. The Group specialises in the design, manufacture, sale and servicing of rock drilling tools and associated products. Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement. We performed and audit of the complete financial information of 10 components and performed audit procedures on specific balances for a further five components. The components we performed an audit of the complete financial information accounted for 76% of total assets, 75% of total inventories and 76% of total revenue before consolidation adjustments. The components we performed audit procedures on specific balances accounted for another 8% of total assets, 16% of total inventories and 15% of total revenue before consolidation adjustments. Components represent companies across the Group considered for audit scoping purposes. 66 67 INDEPENDENT AUDITOR’S REPORT CONTINUED Materiality and audit approach Significant matters identified The scope of our audit is influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are together with qualitative considerations, such as our understanding of the Group and its environment, the history of misstatements, set out below as significant matters together with an explanation of how we tailored our audit to address these specific areas in order the complexity of the Group and the reliability of the control environment, helped us to determine the scope of our audit and the to provide an opinion on the financial statements as a whole. This is not a complete list of all risks identified by our audit. nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole. OVERALL GROUP MATERIALITY 2022 €800,000 2021 €800,000 Basis for determining materiality 5% of Group profit before taxation 5% of Group profit before taxation We determined that the Group profit before tax measure is appropriate considering that the Group is profit-making and its principal activities as an engineering company is to design, manufacture, selling and servicing of rock drilling tools and associated products, such that the Group profit before tax is considered to be a key financial metric for users of the financial statements. Rational for the benchmark applied We allocated group materiality to significant components dependent on the size and our assessment of the risk of material misstatement of that component Performance materiality €520,000 €600,000 Basis for determining performance materiality 65% of materiality having considered our review of the predecessor auditor’s assessment of the risk of misstatements, business risks and fraud risks associated with the entity and its control environment, our expectations about misstatements and our understanding of the business and processes of the Group and Company. This is to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole. We agreed with the audit committee and directors that we would report to them misstatements identified during our audit above 3% of group materiality, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. SIGNIFICANT DESCRIPTION OF SIGNIFICANT MATTER AND AUDIT RESPONSE MATTERS IMPACTING THE GROUP Revenue recognition Under ISA (Ireland) 240 ‘The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial (cut-off) Statements’, there is a presumption that there are risks of fraud in revenue recognition. Notes 3 and 4, Pages The Group’s standard policy is to recognise revenue when goods ship and risks and responsibility is 80–88 transferred to the customer, as a consequence, some revenue arrangements have a cut-off risk at year end. Based on the above we considered this as a key audit matter. Revenue for the financial year ended 31 December 2022 was €170m (2021: €144.4m). We performed the following audit procedures to address the risk: • We obtained and documented an understanding of the revenue process including control activities, relevant to such risks; this includes performing a walkthrough per revenue stream • We performed substantive procedures over a sample of revenue transactions. These were vouched to supporting documents to assess the appropriateness of revenue recognition in terms of IFRS 15 criteria • We reviewed and tested subsequent quantity adjustments from the end customer and verified that it is adequately reflected in the revenue recognised for the financial year ended 31 December 2022 • We performed cut off testing around year-end transactions to verify that revenue was recognised in the correct period and verified that the corresponding cost of sales were appropriately accounted for by reviewing manual adjustments • We reviewed and tested the credit notes issued from 01 January 2023 up to the date of the report to ensure revenue is not materially overstated • We reviewed the margins on sales and reviewed the extent to which open customer orders were supported by inventory to support the margin, in order to identify any increased risk exposure • We reviewed disclosures regarding Revenue in terms of the disclosure requirements of IFRS 15 Key observations: On the basis of the work performed we consider the policies applied to revenue recognition to be reasonable. We did not identify any material misstatements. We assessed the disclosures in respect of revenue to be in accordance with the IFRS 15 requirements. 68 69 INDEPENDENT AUDITOR’S REPORT CONTINUED SIGNIFICANT MATTER DESCRIPTION OF SIGNIFICANT MATTER AND AUDIT RESPONSE SIGNIFICANT MATTER DESCRIPTION OF SIGNIFICANT MATTER AND AUDIT RESPONSE IMPACTING THE COMPANY Valuation of Intangibles And Goodwill Notes 3 and 12, Pages 80–88 and 97–98 Management performs an annual impairment assessment in terms of Intangible assets and Goodwill. Conducting this review is complex, judgemental and applies numerous significant assumptions regarding growth, revenue forecasts, EBITDA margin and WACC. Intangibles and Goodwill as at 31 December 2022 were €40.1m (2021: €40.2m). Based on the foregoing, we considered this as a key audit matter. We performed the following audit procedures to address the risk: IMPACTING THE COMPANY Investments in subsidiary undertakings The investment in subsidiary undertakings is carried at the Company’s financial statements at cost less impairment. The investment in subsidiary undertaking as at 31 December 2022 was €69.8m (2021:€77.4m) has Notes 1 and 3, Pages been identified as a material balance to the Company’s financial statements. In addition, there is a 118 and Page 119 risk that the future cash flows and performance of the undertakings might not be sufficient to support the carrying value of the investment. As a result, we considered this as a key audit matter We performed the following audit procedures to address the risk: • We obtained an understanding of the process and risks over the valuation of intangibles and • We obtained an understanding of the process and risks over the recoverability of investments in goodwill subsidiary undertakings • We obtained and critically assessed the impairment models and the supporting documentation prepared by management regarding the recoverability of both internally generated intangible asset and the Goodwill held as at the financial year-end • Critically reviewed and challenged Management’s assessment and considered whether further indicators should have been assessed based on our knowledge of the business, its operating environment, industry knowledge, current market conditions and other information obtained during the audit • We performed procedures to evaluate and conclude on the competence and independence of the Management expert • Critically reviewed the Discounted Cash Flow model used in the impairment assessment for Goodwill and challenged the appropriateness of estimates and assumptions • We reviewed the sensitivity analysis prepared by management/management expert and reviewed the key assumptions/inputs of the sensitivity analysis • Critically reviewed management’s accounting paper on the internally generated intangible assets’ useful life assessment as well as the nature of the costs capitalised to ensure the appropriate criteria under IAS 38 have been considered and applied • We performed integrity checks on the applicable models • We reviewed the financial statements disclosures to ensure adequate disclosure Key observations: Based on the work performed we considered that the policies applied to the valuation of Intangibles and Goodwill are reasonable. We did not identify any material misstatements. We have assessed management’s judgements and estimates to be supported with appropriate assumptions. We concluded that the disclosure for the Intangible assets and Goodwill provided sufficient detail to the user to allow an understanding of the impairment assessment. • We reviewed management’s assessment of the recoverability of investments in subsidiary undertaking and critically assessed and evaluated the assumptions made in management’s assessment • We obtained the net asset details of each subsidiary undertaking and compared it to the carrying amount of the investment undertakings recognised • We inquired about significant changes that could have an adverse effect on the Company’s subsidiary undertakings and have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, the Company’s subsidiary undertakings operates • We reviewed minutes of meetings, other external sources and risk registers to identify any matters which could impact on the recoverability of the investments in subsidiary undertakings Key observations: Based on the procedures performed we have assessed management’s measurement of the carrying value of the investment in subsidiary undertakings to be appropriate. We did not identify any material misstatements. 70 71 INDEPENDENT AUDITOR’S REPORT CONTINUED Other information Other information comprises information included in the annual report, other than the financial statements and the auditor’s report thereon, including the Directors’ Report, Directors’ Statement on Corporate Governance, Audit Committee Report, Nominations Committee Report, Remunerations Committee Report and the Environment and Sustainability Report. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies in the financial statements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Matters on which we are required to report by the Companies Act 2014 • We have obtained all the information and explanations which we consider necessary for the purposes of our audit • In our opinion the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited • The financial statements are in agreement with the accounting records • In our opinion the information given in the Directors’ report is consistent with the financial statements. Based solely on the work undertaken in the course of our audit, in our opinion, the Directors’ report has been prepared in accordance with the requirements of the Companies Act 2014 Matters on which we are required to report by exception Based on our knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Directors’ report. Under the Companies Act 2014 we are required to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions specified by sections 305 to 312 of the Act have not been made. We have no exceptions to report arising from this responsibility. Responsibilities of management and those charged with governance for the financial statements As explained more fully in the Statement of Directors’ Responsibilities management is responsible for the preparation of the financial statements which give a true and fair view in accordance with IFRS as adopted by the European Union for the Group and in accordance with Generally Accepted Accounting Practice in Ireland, including FRS 101, for the Company, and for such internal control as they determine 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, management is responsible for assessing the Group and 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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group and Company’s financial reporting process. Responsibilities of the auditor for the audit of the financial statements The objectives of an auditor are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) 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 Irish Auditing and Accounting Supervisory Authority’s website at: http://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_ auditors_responsibilities_for_audit.pdf. This description forms part of our auditor’s report. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatement in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (Ireland). Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to compliance with Euronext Growth Stock Exchange Listing Rules, AIM Listing Rules as per the London Stock exchange, Data Privacy law, Employment Law and Health & Safety, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the local law, Companies Act 2014 and Irish tax legislation. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate financial performance and management bias through judgements and assumptions in significant accounting estimates, in particular in relation to significant one-off or unusual transactions. We apply professional scepticism through the audit to consider potential deliberate omission or concealment of significant transactions, or incomplete/inaccurate disclosures in the financial statement. The group engagement team shared the risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. 72 73 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2022 CONTINUING OPERATIONS Revenue Cost of sales Gross profit Operating costs Operating profit Finance costs Finance income Foreign exchange gain Movement on deferred consideration Profit before tax Income tax expense Profit for the period PROFIT ATTRIBUTABLE TO - owners of the Parent EARNINGS PER ORDINARY SHARE Basic earnings per share Diluted earnings per share The notes on pages 80 to 115 are an integral part of these consolidated financial statements. Notes 4 6 6 7 22 11 20 20 2022 €’000 170,008 (115,938) 54,070 (34,321) 19,749 (1,479) 26 469 (31) 2021 €’000 144,362 (95,599) 48,763 (30,656) 18,107 (927) 20 630 (2) 18,734 17,828 (4,030) (3,228) 14,704 14,600 14,704 14,600 6.92 6.85 6.87 6.69 INDEPENDENT AUDITOR’S REPORT CONTINUED The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: • enquiries of management board, risk and compliance and legal functions and audit committee on the policies and procedures in place regarding compliance with laws and regulations, including consideration of known or suspected instances of non- compliance and whether they have knowledge of any actual, suspected or alleged fraud; • inspection of the Group’s regulatory and legal correspondence and review of minutes of board, director’s and audit committee meetings during the year to corroborate inquiries made; • gaining an understanding of the internal controls established to mitigate risk related to fraud; • discussion amongst the engagement team in relation to the identified laws and regulations and regarding the risk of fraud, and remaining alert to any indications of non-compliance or opportunities for fraudulent manipulation of financial statements throughout the audit; • identifying and testing journal entries to address the risk of inappropriate journals and management override of controls; • designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing; • challenging assumptions and judgements made by management in their significant accounting estimates, including impairment assessment of assets and provisions; • performing a detailed review of the Group’s year-end adjusting entries and investigating any that appear unusual as to nature or amount and agreeing to supporting documentation; • reviewing of the financial statement disclosures to underlying supporting documentation and inquiries of management; • requesting the component auditors to report any identification of instances of non-compliance with laws and regulations that could give rise to a material misstatement of the Group financial statements as part of the Group instructions and procedures that were required to be performed; and • ensuring the engagement team collectively had the appropriate competence and capabilities to identify or recognise non- compliance with the laws and regulation and they were appropriately briefed on where the risk areas are The primary responsibility for the prevention and detection of irregularities including fraud rests with those charged with governance and management. As with any audit, there remains a risk of non-detection or irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or override of internal controls. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Cathal Kelly For and on behalf of Grant Thornton Chartered Accountants & Statutory Audit Firm 12-18 City Quay Dublin 2, Ireland 74 75 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION For the year ended 31 December 2022 As at 31 December 2022 Profit for the year Other comprehensive loss: Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation – foreign operations Other comprehensive (loss)/income for the year Total comprehensive income for the year TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: ‑ owners of the Parent The notes on pages 80 to 115 are an integral part of these consolidated financial statements. 2022 €’000 2021 €’000 14,704 14,600 (418) (418) 2,865 2,865 14,286 17,465 14,286 17,465 NON-CURRENT ASSETS Intangible assets and goodwill Property, plant and equipment Deferred tax asset Total Non-Current Assets CURRENT ASSETS Inventory and capital equipment Trade and other receivables Prepayments and other current assets Current tax asset Cash and cash equivalents Total Current Assets Total Assets EQUITY Ordinary share capital Share premium Undenominated capital Merger reserve Share based payment reserve Foreign currency translation reserve Retained earnings Total Equity NON-CURRENT LIABILITIES Loans and borrowings Deferred tax liability Deferred consideration Other liabilities Total Non-Current Liabilities CURRENT LIABILITIES Loans and borrowings Trade and other payables Accrued and other liabilities Current tax liability Total Current Liabilities Total Liabilities Total Equity and Liabilities The notes on pages 80 to 115 are an integral part of these consolidated financial statements. On behalf of the Board: Hugh McCullough Chairman Joseph Purcell Chief Executive Officer 10 March 2023 Notes 12 13 11 14 15a 15b 22 19 18 11 22 18 16 16 2022 €’000 40,109 53,004 2,050 2021 €’000 40,157 50,660 1,075 95,163 91,892 76,911 23,872 12,727 305 15,939 63,050 25,110 8,822 521 19,049 129,754 116,552 224,917 208,444 2,125 67,647 39 (17,393) 2,505 (5,586) 104,449 2,125 67,647 39 (17,393) 2,695 (5,168) 94,207 153,786 144,152 26,971 2,046 1,705 833 23,265 1,622 4,224 852 31,555 29,963 14,973 14,420 8,699 1,484 11,205 15,683 6,027 1,414 39,576 34,329 71,131 64,292 224,917 208,444 76 77 CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2022 For the year ended 31 December 2022 OPERATING ACTIVITIES Profit for the period Adjustments to reconcile profit to net cash provided by operating activities: Depreciation Amortisation of intellectual property Amortisation of internally generated intangible asset Movement on deferred consideration Finance cost Finance income Loss/(Gain) on sale of property, plant and equipment Income tax expense Other non‑cash movements Changes in trade and other receivables Changes in prepayments and other assets Changes in inventory Changes in trade and other payables Cash provided by operations Interest received Interest paid Income taxes paid Net cash provided by operating activities INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from the sale of property, plant and equipment Investment in intangible assets Proceeds from the issuance of share capital Acquisitions of subsidiary, net of cash acquired Investment in acquired intangible assets Payment of deferred consideration Proceeds from the sale of subsidiaries Net cash used in investing activities FINANCING ACTIVITIES Dividends paid Repayment of borrowings Repayment of lease liabilities Drawdown of loans Net cash provided by/(used in) financing activities Effect of foreign exchange rate changes on cash Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Notes 2022 €’000 2021 €’000 14,704 14,600 Share capital €’000 Share premium €’000 Merger reserve €’000 Un-de- nominated capital €’000 Share based payment reserve €’000 Foreign currency translation reserve €’000 Retained earnings €’000 Total equity €’000 Balances at 1 January 2021 2,117 67,647 (17,393) 39 2,259 (8,033) 86,300 132,936 COMPREHENSIVE INCOME: Profit for the year OTHER COMPREHENSIVE INCOME/(LOSS): Foreign currency translation Total comprehensive income TRANSACTIONS WITH SHAREHOLDERS: Issuance of share capital Share based payments Dividends Total transactions with Shareholders ‑ ‑ 8 ‑ ‑ 8 ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ 436 ‑ 436 ‑ 14,600 14,600 2,865 ‑ 2,865 2,865 14,600 17,465 ‑ ‑ ‑ - ‑ ‑ (6,693) 8 436 (6,693) (6,693) (6,249) Balances at 31 December 2021 2,125 67,647 (17,393) 39 2,695 (5,168) 94,207 144,152 COMPREHENSIVE INCOME: Profit for the year OTHER COMPREHENSIVE INCOME/(LOSS): Foreign currency translation Total comprehensive income TRANSACTIONS WITH SHAREHOLDERS: Issuance of share capital Share‑based payments Dividends Total transactions with Shareholders ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ - ‑ ‑ ‑ (190) ‑ (190) ‑ 14,704 14,704 (418) ‑ (418) (418) 14,704 14,286 ‑ ‑ ‑ - ‑ ‑ (4,462) - (190) (4,462) (4,462) (4,462) Balances at 31 December 2022 2,125 67,647 (17,393) 39 2,505 (5,586) 104,449 153,786 The notes on pages 80 to 115 are an integral part of these consolidated financial statements. See note 19 for explanation of movements in reserve balances. 13 12 12 13 13 12 9 12 22 19 18 18 18 7,782 190 121 31 1,479 (26) 32 4,030 (458) 27,885 1,354 (3,848) (13,463) 1,632 13,560 26 (1,479) (4,042) 8,065 (7,309) 996 (286) ‑ (1,014) (147) (2,628) ‑ 7,105 105 ‑ 2 927 (20) (177) 3,228 (633) 25,137 (2,695) (4,502) (7,468) 5,240 15,712 20 (927) (3,627) 11,178 (7,567) 543 (1,139) 8 (681) (275) (2,082) 111 (10,388) (11,082) (4,462) (4,107) (3,993) 11,478 (1,084) 297 (3,110) 19,049 (6,693) (3,262) (3,590) 15,236 1,691 217 2,004 17,045 Cash and cash equivalents at the end of the year 15,939 19,049 The notes on pages 80 to 115 are an integral part of these consolidated financial statements. 78 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS The consolidated financial statements of Mincon Group plc (also referred to as “Mincon” or “the Group”) comprises the Company and its subsidiaries (together referred to as “the Group”). The companies registered address is Smithstown Industrial Estate, Smithstown, Shannon, Co. Clare, Ireland. The Group is an Irish engineering Group, specialising in the design, manufacturing, sale and servicing of rock drilling tools and associated products. Mincon Group Plc is domiciled in Shannon, Ireland. On 26 November 2013, Mincon Group plc was admitted to trading on the Euronext Growth and the Alternative Investment Market (AIM) of the London Stock Exchange. 2. BASIS OF PREPARATION These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (EU IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB), and endorsed by the EU. The Group’s financial statements consolidate those of the parent company and all of its subsidiaries as of 31 December 2022. All subsidiaries have a reporting date of 31 December. The accounting policies set out in note 3 have been applied consistently in preparing the Group and Company financial statements for the years ended 31 December 2022 and 31 December 2021. The Group and Company financial statements are presented in euro, which is the functional currency of the Company and also the presentation currency for the Group’s financial reporting. Unless otherwise indicated, the amounts are presented in thousands of euro. These financial statements are prepared on the historical cost basis. The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The judgements, estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates. The areas involving a high degree of judgement and the areas where estimates and assumptions are critical to the consolidated financial statements are discussed in note 3. The directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to continue to prepare our consolidated financial statements on a going concern basis. 3. SIGNIFICANT ACCOUNTING PRINCIPLES, ACCOUNTING ESTIMATES AND JUDGEMENTS The accounting principles as set out in the following paragraphs have, unless otherwise stated, been consistently applied to all periods presented in the consolidated financial statements and for all entities included in the consolidated financial statements. The following new and amended standards are not expected to have a significant impact on the Group’s consolidated financial statements: New Standards adopted as at 1 January 2022 • IFRS 3 References to the Conceptual Framework • IAS 16 Proceeds before Intended Use • IAS 37 Onerous Contracts – Cost of Fulfilling a Contract • IFRS 1, IFRS 9, IFRS 16, IAS 41 Annual Improvements to IFRS Standards 2018‑2020 Cycle Standards, amendments and Interpretations to existing Standards that are not yet effective • IAS 1 Classification of Liabilities as Current or Non‑current • IAS 1 Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) • IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) • IAS 1 Disclosure of Accounting Policies • IAS 8 Definition of Accounting Estimates Segment Reporting An operating segment is a component of the Group that engages in busi¬ness activities from which it may earn revenue and incur expenses, and for which discrete financial information is available. The operating results of the operating segment is reviewed regularly by the Board of Directors, the chief operating decision maker, to make deci¬sions about allocation of resources and also to assess performance. Results are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). Our CODM has been identified as the Board of Directors. The Group has determined that it has one reportable segment (see Note 5). The Group is managed as a single business unit that sells drilling equipment, primarily manufactured by Mincon manufacturing sites. Revenue Recognition The Group is involved in the sale and servicing of rock drilling tools and associated products. Revenue from the sale of these goods and services to customers is measured at the fair value of the consideration received or receivable (excluding sales taxes). The Group recognises revenue when it transfers control of goods to a customer or has completed a service over a set period (typically one month) for a customer. The following provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies. Customers obtain control of products when one of the following conditions are satisfied: 1. The goods have been picked up by the customer from Mincon’s premises. 2. When goods have been shipped by Mincon, the goods are delivered to the customer and have been accepted at their premises, or; 3. The customer accepts responsibility of the goods during transit that is in line with international commercial terms. Where the Group provides a service to a customer, who also purchases Mincon manufactured product from the Group, the revenue associated with this service is separately identified in a set period (typically one month) and is recognised in the Groups revenue as it occurs. Invoices are generated when the above conditions are satisfied. Invoices are payable within the timeframe as set in agreement with the customer at the point of placing the order of the product or service. Discounts are provided from time‑to‑time to customers. Customers may be permitted to return goods where issues are identified with regard to quality of the product. Returned goods are exchanged only for new goods or a credit note. No cash refunds are offered. Where the customer is permitted to return an item, revenue is recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Therefore, the amount of revenue recognised is adjusted for expected returns, which are estimated based on the historical data for specific types of product. In these circumstances, a refund liability and a right to recover returned goods asset are recognised. The Group has elected to apply IFRS 15 Practical expedient, the Group need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the Group transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. 80 81 3. SIGNIFICANT ACCOUNTING PRINCIPLES, ACCOUNTING ESTIMATES Leases AND JUDGEMENTS (CONTINUED) Government Grants Amounts recognised in the profit and loss account are presented under the heading Operating Costs on a systematic basis in the periods in which the expenses are recognised, unless the conditions for receiving the grant are met after the related expenses have been recognised. In this case, the grant is recognised when it is receivable. Current government grants have no conditions attached. Earnings per share Basic earnings per share is calculated based on the profit for the year attributable to owners of the Company and the basic weighted average number of shares outstanding. Diluted earnings per share is calculated based on the profit for the year attributable to owners of the Company and the diluted weighted average number of shares outstanding. Taxation Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met. Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • not a business combination and that affects neither accounting nor taxable profit or loss; • temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and • taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. (i) As a lessee At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand‑alone prices. The Group recognises a right‑of‑use asset and a lease liability at the lease commencement date. The right‑of‑use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right‑of‑use asset is subsequently depreciated using the straight‑line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right‑of‑use asset reflects that the Group will exercise a purchase option. In that case the right‑of‑use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right‑of‑use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in‑substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right‑of‑use asset, or is recorded in profit or loss if the carrying amount of the right‑of‑use asset has been reduced to zero. (ii) As a lessor At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand‑alone prices. When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub‑lease separately. It assesses the lease classification of a sub‑lease with reference to the right‑of‑use asset arising from the head lease, not with reference to the underlying asset. Short term leases and leases of low-value assets The Group has elected not to recognise right‑of‑use assets and lease liabilities for leases of low‑value assets and short‑term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight‑line basis over the lease term. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Inventories and capital equipment Deferred tax assets and liabilities are offset only if certain criteria are met. Inventories and capital equipment (rigs) are valued at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. The cost of inventories is based on the first‑in, first‑out principle and includes the costs of acquiring inventories and bringing them to their existing location and condition. Inventories manufactured by the Group and work in progress include an appropriate share of production overheads based on normal operating capacity. Inventories are reported net of deductions for obsolescence. 82 83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACCOUNTING PRINCIPLES, ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) Intangible Assets and Goodwill Goodwill The Group accounts for acquisitions using the purchase accounting method as outlined in IFRS 3 Business Combinations. Goodwill is not amortised and is tested annually. Intangible assets Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is capitalised only if the Group can demonstrate if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in the profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Acquired IP which has been obtained at a cost that can be measured reliably, and that meets the definition and recognition criteria of IAS38, will be accounted for as an intangible asset. Recognising an internally developed intangible assets post the development phase once the company has assessed the development phase is complete and the asset is ready for use. Internally generated assets have an infinite life. They will be amortised over a fifteen year period on a straight line basis. Currently there is fourteen years and nine months remaining on the amortisation. Foreign Currency Foreign currency transactions Transactions in foreign currencies (those which are denominated in a currency other than the functional currency) are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the foreign exchange rate at the statement of financial position date. Exchange gains and losses related to trade receivables and payables, other financial assets and payables, and other operating receivables and payables are separately presented on the face of the income statement. Exchange rate differences on translation to functional currency are reported in profit or loss, except when reported in other comprehensive income for the translation of intra‑group receivables from, or liabilities to, a foreign operation that in substance is part of the net investment in the foreign operation. Exchange rates for major currencies used in the various reporting periods are shown in note 22. Translation of accounts of foreign entities The assets and liabilities of foreign entities, including goodwill and fair value adjustments arising on consolidation, are translated to euro at the exchange rates ruling at the reporting date. Revenues, expenses, gains, and losses are translated at average exchange rates, when these approximate the exchange rate for the respective transaction. Foreign exchange differences arising on translation of foreign entities are recognised in other comprehensive income and are accumulated in a separate component of equity as a translation reserve. On divestment of foreign entities, the accumulated exchange differences, are recycled through profit or loss, increasing or decreasing the profit or loss on divestments. Business combinations and consolidation The consolidated financial statements include the financial statements of the Group and all companies in which Mincon Group plc, directly or indirectly, has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. The consolidated financial statements have been prepared in accordance with the acquisition method. Consideration transferred is measured at its fair value. It includes the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the previous owners of the acquiree, and equity interests issued by the Group. Deferred consideration is initially measured at its acquisition‑date fair value. Any subsequent change in such fair value is recognised in profit or loss, unless the deferred consideration is classified as equity. In that case, there is no remeasurement and the subsequent settlement is accounted for within equity. Deferred consideration arises in the current year where part payment for an acquisition is deferred to the following year or years. Transaction costs that the Group incurs in connection with a business combination, such as legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred. Goodwill is measured as the excess of the fair value of the consideration transferred, the amount of any non‑controlling interest in the acquiree, and the fair value of the Group’s previously held equity interest in the acquiree (if any) over the net of acquisition‑date fair values of the identifiable assets acquired and liabilities assumed. Goodwill is not amortised but tested for impairment at least annually. Non‑controlling interest is initially measured either at fair value or at the non‑controlling interest’s proportionate share of the fair value of the acquiree’s identifiable net assets. This means that goodwill is either recorded in “full” (on the total acquired net assets) or in “part” (only on the Group’s share of net assets). The choice of measurement basis is made on an acquisition‑by‑acquisition basis. Earnings from the acquirees are reported in the consolidated income statement from the date of control. Intra‑group balances and transactions such as income, expenses and dividends are eliminated in preparing the consolidated financial statements. Profits and losses resulting from intra‑group transactions that are recognised in assets, such as inventory, are eliminated in full, but losses are only eliminated to the extent that there is no evidence of impairment. Property, plant and equipment Items of property, plant and equipment are carried at cost less accumulated depreciation and impairment losses. Cost of an item of property, plant and equipment comprises the purchase price, import duties, and any cost directly attributable to bringing the asset to its location and condition for use. The Group capitalises costs on initial recognition and on replacement of significant parts of property, plant and equipment, if it is probable that the future economic benefits embodied will flow to the Group and the cost can be measured reliably. All other costs are recognised as an expense in profit or loss when incurred. Depreciation Depreciation is calculated based on cost using the straight‑line method over the estimated useful life of the asset. The following useful lives are used for depreciation: Buildings Plant and equipment Years 20–30 3–10 The depreciation methods, useful lives and residual values are reassessed annually. Land is not depreciated. Right of use assets are depreciated using the straight‑line method over the estimated useful life of the asset being the remaining duration of the lease from inception date of the asset. The depreciation methods, useful lives and residual values are reassessed annually. Financial Assets and Liabilities Classification and initial measurement of financial assets financial liabilities Financial assets and liabilities are recognised at fair value when the Group becomes a party to the contractual provisions of the instrument. Purchases and sales of financial assets are accounted for at trade date, which is the day when the Group contractually commits to acquire or dispose of the assets. Trade receivables are recognised once the responsibility associated with control of the product has transferred to the customer. Liabilities are recognised when the other party has performed and there is a contractual obligation to pay. A financial asset and a financial liability are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to either settle on a net basis or to realise the asset and settle the liability simultaneously. According to this method, business combinations are seen as if the Group directly acquires the assets and assumes the liabilities of the entity acquired. At the acquisition date, i.e., the date on which control is obtained, each identifiable asset acquired, and liability assumed is recognised at its acquisition‑date fair value. The classification is determined by both: • the entity’s business model for managing the financial asset, and • the contractual cash flow characteristics of the financial asset. 84 85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACCOUNTING PRINCIPLES, ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) Financial Assets and Liabilities (continued) Subsequent measurement of financial assets and financial liabilities Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows, and • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. Financial liabilities at amortised cost Subsequently, financial liabilities are measured at amortised cost using the effective interest method. Derecognition (fully or partially) of a financial asset occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of ownership have been removed from the Group. Financial assets are assessed at each reporting date. The Group derecognises (fully or partially) a financial liability when the obligation specified in the contract is discharged or otherwise expires. Impairment of financial assets Financial assets are assessed from initial recognition and at each reporting date to determine whether there is a requirement for impairment. Financial assets require there expected lifetime losses to be recognised from initial recognition. IFRS 9’s impairment requirements use forward‑looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. Instruments within the scope of the requirements included loans and other debt‑type financial assets measured at amortised cost, trade and other receivables. The Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward‑looking approach, a distinction is made between: • financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and Financial instruments carried at fair value: Deferred consideration Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. These are set amounts detailed in each contract. Finance income and expenses Finance income and expense are included in profit or loss using the effective interest method. Contingent liabilities A contingent liability is a possible obligation or a present obligation that arises from past events that is not reported as a liability or provision, as it is not probable that an outflow of resources will be required to settle the obligation or that a sufficiently reliable calculation of the amount cannot be made. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less. Provisions A provision is recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and the outflow can be estimated reliably. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date. If the effect of the time value of money is material, the provision is determined by discounting the expected future cash flows at a pre‑tax rate that reflects the current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan and the restructuring has either commenced or been announced publicly. Future operating losses are not provided for. Defined contribution plans A defined contribution retirement benefit plan is a post‑employment benefit plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution retirement benefit plans are recognised as an employee benefit expense in profit or loss when employees provide services entitling them to the contributions. • financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low Share-based payment transactions (‘Stage 2’) ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date. ‘12‑month expected credit losses’ are recognised for the first category (ie Stage 1) while ‘lifetime expected credit losses’ are recognised for the second category (ie Stage 2). Measurement of the expected credit losses is determined by a probability‑weighted estimate of credit losses over the expected life of the financial instrument. Trade and other receivables The Group makes use of a simplified approach in accounting for trade and other receivables and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward‑looking information to calculate the expected credit losses using a provision matrix. The Group assesses impairment of trade and other receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due. Borrowing costs All borrowing costs are expensed in accordance with the effective interest rate method. Equity Shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effect. The Group operates a long term incentive plan which allows the Company to grant Restricted Share Awards (“RSAs”) to executive directors and senior management. All schemes are equity settled arrangements under IFRS 2 Share‑based Payment. The grant‑date fair value of share‑based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non‑market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non‑market performance conditions at the vesting date. It is reversed only where entitlements do not vest because all non‑market performance conditions have not been met or where an employee in receipt of share entitlements leaves the Group before the end of the vesting period and forfeits those options in consequence. Critical accounting estimates and judgements The preparation of financial statements requires management’s judgement and the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the prevailing circumstances. Actual results may differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised in the period in which they are revised and in any future periods affected. Following are the estimates and judgements which, in the opinion of management, are significant to the underlying amounts included in the financial reports and for which there is a significant risk that future events or new information could entail a change in those estimates or judgements. 86 87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACCOUNTING PRINCIPLES, ACCOUNTING ESTIMATES 5. OPERATING SEGMENT AND JUDGEMENTS (CONTINUED) Critical accounting estimates and judgements (continued) Deferred consideration The deferred consideration payable represents management’s best estimate of the fair value of the amounts that will be payable, discounted as appropriate using a market interest rate. The fair value was estimated by assigning probabilities, based on management’s current expectations, to the potential pay‑out scenarios. The fair value of deferred consideration is primarily dependent on the future performance of the acquired businesses against predetermined targets and on management’s current expectations thereof. Climate-related matters Consistent with the prior year, as at 31 December 2022, the Group has not identified significant risks induced by climate changes that could negatively and materially affect the estimates and judgements currently used in the Group’s financial statements. Management continuously assesses the impact of climate‑related matters. Goodwill The initial recognition of goodwill represents management’ best estimate of the fair value of the acquired entities value less the identified assets acquired. During the annual impairment assessment over goodwill, management calculate the recoverable value of the group using their best estimate of the discounted future cash flows of the group. The fair values were estimated using management’s current and future projections of the Mincon Group’s performance as well as appropriate data inputs and assumptions. Useful life and residual values of Intangible Assets Distinguishing the research and development phase, determining the useful life, and deciding whether the recognition requirements for the capitalisation of development costs of new projects are met all require judgement. These judgements are based on historical experience and various other factors that are believed to be reasonable under the prevailing circumstances. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Trade and other receivables Trade and other receivables are included in current assets, except for those with maturities more than 12 months after the reporting date, which are classified as non‑current assets. The Group estimates the risk that receivables will not be paid and provides for doubtful debts in line with IFRS 9. The Group applies the simplified approach to providing for expected credit losses (ECL) permitted by IFRS 9 Financial Instruments, which requires expected lifetime losses to be recognised from initial recognition of the receivables and considered at each reporting date. Loss rates are calculated using a “roll rate” method based on the probability of a receivable progressing through successive chains of non‑payment to write‑off. Trade receivables are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the company. Where recoveries are made, these are recognised in the Consolidated Income Statement. 4. REVENUE In the following table, revenue is disaggregated between Mincon manufactured product and product that is purchased outside the Group and resold through Mincon distribution channels. PRODUCT REVENUE: Sale of Mincon product Sale of third party product Total revenue The Group’s revenue disaggregated by primary geographical markets are disclosed in Note 5. 2022 €’000 2021 €’000 141,830 28,178 118,802 25,560 170,008 144,362 The CODM assesses operating segment performance based on operating profit. Segment revenue for the year ended 31 December 2021 of €170 million (2020: €144.4 million) is wholly derived from sales to external customers. Entity-wide disclosures The business is managed on a worldwide basis but operates manufacturing facilities and sales offices in Ireland, UK, Sweden, Finland, South Africa, Western Australia, the United States and Canada and sales offices in ten other locations including Eastern Australia, South Africa, France, Spain, Namibia, Sweden, Chile and Peru. In presenting information on geography, revenue is based on the geographical location of customers and non‑current assets based on the location of these assets. Revenue by region (by location of customers): REGION: Ireland Americas Australasia Europe, Middle East, Africa 2022 €’000 2,974 69,752 16,882 80,400 2021 €’000 1,859 45,908 17,327 79,268 Total revenue from continuing operations 170,008 144,362 During 2022, Mincon had sales in the USA of €42.4 million (2020: €24.4 million), this contributed to more than 10% of the entire Group’s sales for 2022. REGION: Americas Australasia Europe, Middle East, Africa Total non-current assets(1) (1) Non‑current assets exclude deferred tax assets. 2022 €’000 17,752 12,252 63,109 2021 €’000 14,682 11,838 64,297 93,113 90,817 During 2022, Mincon held non‑current assets (excluding deferred tax assets) in Ireland of €17.6 million (2021: €18.3 million), in the USA of €12.5 million (2021: €10.7 million) these separately contributed to more than 10% of the entire Group’s non‑current assets (excluding deferred tax assets) for 2022. REGION: Americas Australasia Europe, Middle East, Africa Total non-current liabilities(1) (1)Non‑current liabilities exclude deferred tax liabilities. 2022 €’000 6,839 2,555 20,115 2021 €’000 4,577 2,290 21,474 29,509 28,341 During 2022, Mincon held non‑current liabilities (excluding deferred tax liabilities) in Ireland of €13.5 million (2021: €11.6 million), this contributed to more than 10% of the entire Group’s non‑current liabilities (excluding deferred tax liabilities) for 2022. 88 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. COST OF SALES AND OPERATING EXPENSES Included within cost of sales and operating costs were the following major components: Cost of sales Raw materials Third party product purchases Employee costs Depreciation (note 13) In bound costs on purchases Energy costs Maintenance of machinery Subcontracting Amortisation of product development Other Total cost of sales 2022 €’000 45,523 21,838 23,093 5,194 4,759 3,116 2,120 7,139 121 3,035 2021 €’000 37,081 19,275 19,764 4,801 3,772 2,188 1,711 5,463 ‑ 1,544 115,938 95,599 7. FINANCE COSTS Interest on lease liabilities Interest on loans and borrowings Finance costs 8. EMPLOYEE INFORMATION Wages and salaries – excluding directors Wages, salaries, fees and retirement benefit – directors (note 10) Social security costs Retirement benefit costs of defined contribution plans Share based payment expense (note 21) 2022 €’000 609 870 1,479 2022 €’000 36,085 868 4,428 2,272 (190) 2021 €’000 684 243 927 2021 €’000 31,830 797 3,357 1,959 436 The Group invested approximately €4.4 million on research and development projects in 2022 (2021: €3.9 million). €4.1 million of this has been expensed in the period (2021: €2.8 million), with the balance of €285,000 of development costs capitalised (2021: €1.1 million) (note 12). Total employee costs 43,463 38,379 In addition to the above employee costs, the Group capitalised payroll costs of €151,000 in 2022 (2021: €700,000) in relation to development. Operating costs At 31 December 2022, there was €234,000 (2020: €256,000) accrued for and not in paid pension contributions. Employee costs (including director emoluments) Depreciation (note 13) Amortisation of acquired IP Travel Professional costs Administration Marketing Legal cost Other 2022 €’000 20,370 2,588 190 1,927 2,637 2,997 706 846 2,060 2021 €’000 18,615 2,304 105 1,238 2,589 2,841 694 629 1,641 Total other operating costs 34,321 30,656 The Group recognised €119,000 in Government Grants in 2021 (2021: €450,000). These grants differ in structure from country to country, they primarily relate to personnel costs. The average number of employees was as follows: Sales and distribution General and administration Manufacturing, service and development Average number of persons employed 2022 Number 2021 Number 133 75 417 625 136 75 383 594 Retirement benefit and Other Employee Benefit Plans The Group operates various defined contribution retirement benefit plans. During the year ended 31 December 2022, the Group recorded €2.3 million (2021: €2 million) of expense in connection with these plans. 90 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. ACQUISITIONS & DISPOSALS 2022 Acquisition In January 2022, Mincon acquired 100% shareholding in Spartan Drilling Tools, a manufacturer of drill pipe and related products based in the USA for a consideration of €1,014,000. Spartan Drilling Tools was acquired to manufacture drill pipe closer to the end user in the America’s region. A. Consideration transferred The following table summarises the acquisition date fair value of each major class of consideration transferred. Consideration transferred Total consideration transferred Spartan Drilling Tools €’000 1,014 1,014 B. Identifiable assets acquired and liabilities assumed The following table summarises the recognised amounts of assets and liabilities assumed at the date of acquisition. Property, plant and equipment Right of use assets Inventories Trade receivables Other assets Trade and other payables Right of use liabilities Other accruals and liabilities Fair value of identifiable net assets acquired Total €’000 1,014 1,014 Total €’000 480 455 369 133 63 (83) (455) (109) 853 Goodwill Goodwill of €161,000 is primarily due to growth expectations, expected future profitability and expected cost synergies. Goodwill arising from the acquisition has been recognised as follows: Consideration transferred Fair value of identifiable net assets Goodwill 2021 Acquisition Spartan Drilling Tools Total 2022 €’000 €’000 1,014 (853) 161 1,014 (853) 161 In June 2021, Mincon acquired the business of Campbell’s Welding & Fabrication, for a consideration of €421,000. This was made up of a cash consideration of €84,000 and deferred consideration of €337,000. Mincon acquired Campbell’s Welding & Fabrication to bring in‑house their knowhow and processes. In June 2021, Mincon acquired 100% shareholding in Attakroc, a Canadian‑based mining and construction product distributor, for a consideration of €1.8 million. The Group acquired Attakroc to bring in‑house their vast experience in selling and servicing the mining and construction industries in western Canada. Attakroc brings their knowledge of the local market conditions and give Mincon a distinctive advantage in this region. The transaction included a cash consideration of €600,000 and deferred consideration of €1.2 million. A. Consideration transferred The following table summarises the acquisition date fair value of each major class of consideration transferred. Cash Deferred consideration Total consideration transferred Campbell Welding & Fabrication €’000 Attakroc €’000 84 337 421 597 1,227 1,824 Measurement of fair values The valuation techniques used for measuring the fair value of material assets acquired were as follows: B. Identifiable assets acquired and liabilities assumed The following table summarises the recognised amounts of assets and liabilities assumed at the date of acquisition. ASSETS ACQUIRED VALUATION TECHNIQUE Property, plant and equipment Inventories Market comparison technique and cost technique: The valuation model considers quoted market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence Market comparison technique: The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories Trade receivables All receivable balances were assessed and all are collectable Trade and other payables All were accessed and deemed payable to credible suppliers Other current assets All were accessed for recoverability and all is recoverable Other accruals and liabilities All were assessed for credibility and deemed payable The loss from the acquisition of Spartan Drilling Tools has been consolidated into the Mincon Group 2022 profit for the reporting period. Property, plant and equipment Right of use assets Inventories Trade receivables Other assets Trade and other payables Right of use liabilities Other accruals and liabilities Fair value of identifiable net assets acquired Total €’000 681 1,564 2,245 Total €’000 176 39 958 1,174 15 (699) (39) (615) 1,009 92 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. ACQUISITIONS & DISPOSALS (CONTINUED) Measurement of fair values The valuation techniques used for measuring the fair value of material assets acquired were as follows: ASSETS ACQUIRED VALUATION TECHNIQUE Property, plant and equipment Market comparison technique and cost technique: The valuation model considers quoted market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence. Inventories Market comparison technique: The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories. Goodwill Goodwill arising from the acquisition has been recognised as follows: 11. INCOME TAX Tax recognised in income statement: CURRENT TAX EXPENSE Current year Adjustment for prior years Total current tax expense DEFERRED TAX EXPENSE Origination and reversal of temporary differences Total deferred tax expense Total income tax expense 2022 €’000 4,409 172 4,581 (551) (551) 2021 €’000 3,427 (7) 3,420 (192) (192) 4,030 3,228 Consideration transferred Fair value of identifiable net assets Goodwill 10. STATUTORY AND OTHER REQUIRED DISCLOSURES Operating profit is stated after charging the following amounts: DIRECTORS’ REMUNERATION Fees Wages and salaries Retirement benefit contributions Total directors’ remuneration Auditor’s remuneration AUDITOR’S REMUNERATION – FEES PAYABLE TO LEAD AUDIT FIRM Audit of the Group financial statements Audit of the Company financial statements Other assurance services AUDITOR’S REMUNERATION – FEES PAYABLE TO OTHER FIRMS IN LEAD AUDIT FIRM’S NETWORK Audit services Other assurance services Tax advisory services Total auditor’s remuneration Attakroc Total 2021 €’000 1,824 (1,009) 815 €’000 1,824 (1,009) 815 2022 €’000 2021 €’000 210 599 59 868 220 522 55 797 2022 €’000 2021 €’000 180 10 13 203 35 ‑ 2 37 205 15 20 240 149 3 ‑ 152 A reconciliation of the expected income tax expense for continuing operations is computed by applying the standard Irish tax rate to the profit before tax and the reconciliation to the actual income tax expense is as follows: Profit before tax from continuing operations Irish standard tax rate (12.5%) Taxes at the Irish standard rate Foreign income at rates other than the Irish standard rate Losses created/utilised Other Total income tax expense The Group’s net deferred taxation liability was as follows: DEFERRED TAXATION ASSETS: Reserves, provisions and tax credits Tax losses and unrealised FX gains Total deferred taxation asset DEFERRED TAXATION LIABILITIES: Property, plant and equipment Profit not yet taxable Total deferred taxation liabilities Net deferred taxation asset/(liability) 2022 €’000 18,734 12.5% 2,342 662 304 723 2021 €’000 17,828 12.5% 2,229 691 277 31 4,030 3,228 2022 €’000 1,044 1,006 2,050 (1,808) (238) 2021 €’000 741 334 1,075 (1,332) (290) (2,046) (1,622) 4 (547) 94 95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. INCOME TAX (CONTINUED) The movement in temporary differences during the year were as follows: 1 January 2021 – 31 December 2021 DEFERRED TAXATION ASSETS: Reserves, provisions and tax credits Accrued income Tax losses Total deferred taxation asset DEFERRED TAXATION LIABILITIES: Property, plant and equipment Profit not yet taxable Total deferred taxation liabilities Net deferred taxation liability 1 January 2022 – 31 December 2022 DEFERRED TAXATION ASSETS: Reserves, provisions and tax credits Accrued income Tax losses Total deferred taxation asset DEFERRED TAXATION LIABILITIES: Property, plant and equipment Profit not yet taxable Total deferred taxation liabilities Net deferred taxation liability Balance 1 January €’000 Recognised in Profit or Loss €’000 Acquired in a Business combination €’000 Balance 31 December €’000 585 31 477 1,093 (1,780) (52) (1,832) (739) 156 (31) (143) (18) 448 (238) 210 192 ‑ ‑ ‑ - ‑ ‑ - - 741 ‑ 334 1,075 (1,332) (290) (1,622) (547) Balance 1 January €’000 Recognised in Profit or Loss €’000 Acquired in a Business combination €’000 Balance 31 December €’000 741 ‑ 334 1,075 (1,332) (290) (1,622) (547) 303 ‑ 672 975 (476) 52 (424) 551 Deferred taxation assets have not been recognised in respect of the following items: Tax losses Total 12. INTANGIBLE ASSETS AND GOODWILL Balance at 1 January 2021 Internally developed Acquisitions Acquired intellectual property Amortisation of intellectual property Translation differences Balance at 31 December 2021 Internally developed Acquisitions (note 9) Transfer to internally generated intangible asset Acquired intellectual property Amortisation of intellectual property Amortisation of product development Translation differences Product development €’000 Internally generated intangible asset €’000 5,847 1,139 ‑ ‑ ‑ ‑ 6,986 285 ‑ (7,271) ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ - ‑ ‑ 7,271 ‑ ‑ (121) ‑ Goodwill €’000 31,140 ‑ 815 ‑ ‑ 590 32,545 ‑ 161 ‑ ‑ ‑ ‑ (378) Balance at 31 December 2022 - 7,150 32,328 Acquired intellectual property €’000 - ‑ ‑ 696 (105) 35 626 ‑ ‑ ‑ 147 (190) ‑ 48 631 Total €’000 36,987 1,139 815 696 (105) 625 40,157 285 161 ‑ 147 (190) (121) (330) 40,109 Goodwill relates to the acquisition of the below companies, being the dates that the Group obtained control of these business: ‑ ‑ ‑ - ‑ ‑ - - 2022 €’000 3,850 3,850 1,044 ‑ 1,006 2,050 (1,808) (238) (2,046) 4 2021 €’000 3,546 3,546 • The remaining 60% of DDS‑SA Pty Limited in November 2009. • The 60% acquisition of Omina Supplies in August 2014. • The 65% acquisition of Rotacan in August 2014. • The acquisition of ABC products in August 2014. • The acquisition of Ozmine in January 2015. • The acquisition of Mincon Chile in March 2015. • The acquisition of and Mincon Tanzania in March 2015. • The acquisition of Premier in November 2016. • The acquisition of Rockdrill Engineering in November 2016. • The acquisition of PPV in April 2017. • The acquisition of Viqing July 2017. • The acquisition of Driconeq in March 2018. • The acquisition of Pacific Bit of Canada in January 2019. • The acquisition of Lehti Group in January 2020. • The acquisition of Rocdrill in May 2020. • The acquisition of Attakroc in June 2021. • The acquisition of Spartan Drilling Tools in January 2022. The Group accounts for acquisitions using the purchase accounting method as outlined in IFRS 3 Business Combinations. 96 97 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. INTANGIBLE ASSETS AND GOODWILL (CONTINUED) 13. PROPERTY, PLANT AND EQUIPMENT The recoverable amount of goodwill has been assessed based on estimates of fair value less costs of disposal (FVLCD). The FVLCD valuation is calculated on the basis of a discounted cash flow (“DCF”) model. The most significant assumptions within the DCF are weighted average cost of capital (“WACC”), tax rates and terminal value assumptions. Goodwill impairment testing did not indicate any impairment during any of the periods being reported. Four sensitivities are applied as part of the analysis considering the effects of changes in: 1) the WACC, 2) the EBITDA margin, 3) the long term growth rate and 4) the level of terminal value capital expenditure. The sensitivities calculate downside scenarios to assess potential indications of impairments due to changes in key assumptions. The results from the sensitivity analysis did not suggest that goodwill would be impaired when those sensitivities were applied. The carrying amount of the CGU was determined to be lower than its fair value less costs of disposal by €52.4 million (2021: €42.9 million), giving management substantial headroom and comfort in the above stated impairment assessment. The key assumptions used in the estimation of the fair value less cost calculation were as follows: WACC EBIDTA margin Long term growth rate Terminal value capital expenditure 2022 2021 12.60% 20.23% 2.20% 9.60% 16.69% 2.24% €10.6 million €9.3 million At 31 December 2021 The WACC calculation considers market data and data from comparable public companies. Peer group data was especially considered for the beta factor and assumed financing structure (gearing level). The analysis resulted in a discount rate range of 11.65% to 13.50%. This results in a midpoint WACC being used of 12.6%. The Long term growth rate of 2.20% applied is based on a weighted average of the long term inflation rates of the countries in which Mincon generates revenues and earnings. The budgeted EBITDA was based on expectations of future outcomes, taking account for past experience, adjusted for anticipated revenue growth as detailed in managements approved Budget. No EBITDA margin effect is assumed in the terminal value i.e. the budgeted EBITDA margin of 20.23% for 2025 is assumed in the Terminal Value calculation used to arrive at the FVLCD. Terminal value capital expenditure assumes no balance sheet growth is assumed in the terminal value, capital expenditure is assumed to equal depreciation of €10.6 million. The following table shows the amount by which the two assumptions below would need to change to individually for the estimated recoverable amount to be equal to the carrying amount. COST: At 1 January 2021 Acquisitions through business combinations Additions Disposals and derecognition of ROU assets Foreign exchange differences At 31 December 2021 Acquisitions through business combinations Additions Disposals and derecognition of ROU assets Foreign exchange differences At 31 December 2022 ACCUMULATED DEPRECIATION: At 1 January 2021 Charged in year Disposals Foreign exchange differences Charged in year Disposals Foreign exchange differences At 31 December 2022 Carrying amount: 31 December 2022 Carrying amount: 31 December 2021 Carrying amount: 1 January 2021 WACC Long term growth rate 2022 2021 14.80% 1.35% 10.60% 1.48% Cost of sales Cost of sales ROU assets Operating expenses Operating expenses ROU asset Total depreciation charge for property, plant and equipment Investment expenditure of €285,000, which has been capitalised, is in relation to ongoing product development within the Group. Amortisation began in October 2022 once the project was commercialised. Amortisation is charged into the income statement over fifteen years on a straight line basis. Land & Buildings €’000 Plant & Equipment €’000 ROU Assets €’000 16,291 51,540 ‑ 1,524 (264) 496 176 6,043 (570) 1,586 18,047 58,775 9 1,146 (1,226) 181 471 6,164 (1,176) 274 6,887 39 3,419 (1,022) 122 9,445 455 2,880 (1,191) (58) Total €’000 74,718 215 10,986 (1,856) 2,204 86,267 935 10,190 (3,593) 397 18,157 64,508 11,531 94,196 (3,420) (22,832) (524) 18 (79) (4,685) 450 (786) (2,646) (1,896) 866 (73) (28,898) (7,105) 1,334 (938) (4,005) (27,853) (3,749) (35,607) (577) 381 (41) (5,046) 994 (282) (2,159) 1,134 11 (7,782) 2,509 (312) (4,242) (32,187) (4,763) (41,192) 13,915 32,321 14,042 30,922 12,871 28,708 6,768 5,696 4,241 53,004 50,660 45,820 2022 €’000 4,768 426 852 1,736 7,782 2021 €’000 4,413 388 796 1,508 7,105 ROU assets includes Property of €6 million (2021: €5 million) and Plant and Equipment of €800,000 (2021: €700,000). The depreciation charge for property, plant and equipment is recognised in the following line items in the income statement: 98 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. INVENTORY AND CAPITAL EQUIPMENT 15. TRADE AND OTHER RECEIVABLES AND OTHER CURRENT ASSETS (CONTINUED) Finished goods Work‑in‑progress Raw materials Total inventory 2022 €’000 47,983 12,943 15,985 2021 €’000 42,396 9,596 11,058 b) Prepayments and other current assets Plant and machinery prepaid and under commission Prepayments and other current assets 76,911 63,050 Prepayments and other current assets The Group recorded an impairment of €128,000 against inventory to take account of net realisable value during the year ended 31 December 2022 (2021: €22,000). Write‑downs are included in cost of sales. 15. TRADE AND OTHER RECEIVABLES AND OTHER CURRENT ASSETS a) Trade and other receivables 16. TRADE CREDITORS, ACCRUALS AND OTHER LIABILITIES Gross receivable Provision for impairment Net trade and other receivables Balance at 1 January 2022 Increase in provision arising from prior years receivables impairment Increase in ECL model Balance at 31 December 2022 2022 €’000 24,975 (1,103) 2021 €’000 26,047 (937) 23,872 25,110 Provision for impairment €’000 (937) (10) (156) (1,103) The following table provides the information about the exposure to credit risk and ECL’s for trade receivables as at 31 December 2022. Weighted average loss rate Gross carrying amount Loss allowance Current (not past due) 1‑30 days past due 31‑60 days past due 61 to 90 days More than 90 days past due Net trade and other receivables % 1% 5% 13% 21% 100% €’000 17,929 4,245 1,459 1,034 308 24,975 €’000 179 211 189 216 308 1,103 The following table provides the information about the exposure to credit risk and ECL’s for trade receivables as at 31 December 2021. Weighted average loss rate Gross carrying amount Loss allowance Current (not past due) 1‑30 days past due 31‑60 days past due 61 to 90 days More than 90 days past due Net trade and other receivables 100 % 1% 5% 14% 17% 100% €’000 19,804 3,749 1,649 628 216 26,047 €’000 198 187 230 106 216 937 Trade creditors Total creditors and other payables VAT Social security costs Other accruals and liabilities Total accruals and other liabilities 17. CAPITAL MANAGEMENT The Group’s policy is to have a strong capital base in order to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital, as well as the level of dividends to ordinary shareholders. The Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the advantages and security afforded by a sound capital position. The Group monitors capital using a ratio of ‘net debt’ to equity. Net debt is calculated as total liabilities less cash and cash equivalents (as shown in the statement of financial position). Total liabilities Less: cash and cash equivalents Net debt Total equity Net debt to equity ratio 2022 €’000 (71,131) 15,939 2021 €’000 (64,292) 19,049 (55,192) (45,243) 153,786 144,152 0.36 0.31 101 2022 €’000 9,852 2,875 12,727 2021 €’000 5,781 3,041 8,822 2022 €’000 14,420 2021 €’000 15,683 14,420 15,683 2022 €’000 104 1,929 6,666 2021 €’000 31 768 5,228 8,699 6,027 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. LOANS AND BORROWINGS 19. SHARE CAPITAL AND RESERVES Bank loans Lease Liabilities Total loans and borrowings Current Non‑current Maturity 2023‑2036 2023‑2032 2022 €’000 30,848 11,096 2021 €’000 23,391 11,079 41,944 34,470 14,973 26,971 11,205 23,265 The Group has a number of bank loans and lease liabilities with a mixture of variable and fixed interest rates. The Group has not been in default on any of these debt agreements during any of the periods presented. The loans are secured against the assets for which they have been drawn down for. The Group has been in compliance with all debt agreements during the periods presented. The loan agreements in Ireland of €13.5 million (2020: €10.5 million) carry restrictive financial covenants including, EBITA to be no less than €18 million at end of each reporting period, interest cover to be 3:1 and to maintain a minimum cash balance of €5 million. Interest rates on current borrowings are at an average rate of 4.89% During 2022, the Group availed of the option to enter into overdraft facilities and to draw down loans of €11.5 million, €8.8 million in loans and €2.7 million in overdraft facilities. Loans are repayable in line with their specific terms, the Group has one bullet repayment due in 2026 of €5 million. Reconciliation of movements of liabilities to cash flows arising from financing activities Loans and borrowings Lease liabilities Total Loans and borrowings Lease liabilities Total Bank loans Lease Liabilities Balance at 1 January 2021 €’000 11,090 10,521 21,611 Balance at 1 January 2022 €’000 23,391 11,079 34,470 Arising from acquisition €’000 Cash movements €’000 Non-cash movements €’000 Foreign exchange differences €’000 Balance at 31 December 2021 €’000 83 39 122 11,974 (3,590) 8,384 ‑ 3,943 3,943 244 166 410 23,391 11,079 34,470 Arising from acquisition €’000 Cash movements €’000 Non-cash movements €’000 Foreign exchange differences €’000 Balance at 31 December 2022 €’000 109 455 564 7,372 (3,994) 3,378 ‑ 3,604 3,604 (24) (48) (72) 30,848 11,096 41,944 Interest rate range Effective interest rate 1%–9% 3%–15% 4.5% 5.2% At 31 December 2022 Authorised Share Capital Ordinary Shares of €0.01 each Allotted, called-up and fully paid up shares Ordinary Shares of €0.01 each Opening Share Capital Share Awards vested during year Authorised Share Capital Number 500,000,000 Number 212,472,413 €000 5,000 €000 2,125 2022 2021 212,472,413 211,675,024 ‑ 797,389 212,472,413 212,472,413 Share issuances On 26 November 2013, Mincon Group plc was admitted to trading on the Euronext Growth and the Alternative Investment Market (AIM) of the London Stock Exchange. Voting rights The holders of Ordinary Shares have the right to receive notice of and attend and vote at all general meetings of the Company and they are entitled, on a poll or a show of hands, to one vote for every Ordinary Share they hold. Votes at general meetings may be given either personally or by proxy. Subject to the Companies Act and any special rights or restrictions as to voting attached to any shares, on a show of hands every member who (being an individual) is present in person and every proxy and every member (being a corporation) who is present by a representative duly authorised, shall have one vote, so, however, that no individual shall have more than one vote for every share carrying voting rights and on a poll every member present in person or by proxy shall have one vote for every share of which he is the holder. Dividends In June 2022, Mincon Group plc paid a final dividend for 2021 of €0.0105 (1.05 cent) per ordinary share (€2.2 million). In September 2022, Mincon Group plc paid an interim dividend in the amount of €0.0105 (1.05 cent) per ordinary share (€2.2 million total payment), which was paid to shareholders on the register at the close of business on 19 August 2022. The Directors recommend the payment of a final dividend of €0.0105 (1.05 cent) per share for the year ended 31 December 2022 (31 December 2021: 1.05 cent per share). Share premium and other reserves As part of a Group reorganisation of the Company, Mincon Group plc, became the ultimate parent entity of the Group. On 30 August 2013, the Company acquired 100% of the issued share capital in Smithstown Holdings and acquired (directly or indirectly) the shareholdings previously held by Smithstown Holdings in each of its subsidiaries, thereby creating a merger reserve. 102 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. EARNINGS PER SHARE 22. FINANCIAL RISK MANAGEMENT Basic earnings per share (EPS) is computed by dividing the profit for the period available to ordinary shareholders by the weighted average number of Ordinary Shares outstanding during the period. Diluted earnings per share is computed by dividing the profit for the period by the weighted average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares. The following table sets forth the computation for basic and diluted net profit per share for the years ended 31 December: NUMERATOR (AMOUNTS IN €’000): Profit attributable to owners of the Parent DENOMINATOR (NUMBER): Basic shares outstanding Restricted share awards Diluted weighted average shares outstanding EARNINGS PER ORDINARY SHARE Basic earnings per share, € Diluted earnings per share, € 21. SHARE BASED PAYMENT 2022 2021 14,704 14,600 212,472,413 2,030,000 214,502,413 212,472,413 5,820,000 218,292,413 6.92 6.85 6.87 6.69 The vesting conditions of the scheme state that the minimum growth in EPS shall be CPI plus 5% per annum, compounded annually, over the relevant three accounting years up to the share award of 100% of the participants basic salary. Where awards have been granted to a participant in excess of 100% of their basic salary, the performance condition for the element that is in excess of 100% of basic salary is that the minimum growth in EPS shall be CPI plus 10% per annum, compounded annually, over the three accounting years. Reconciliation of outstanding share options Number of Options in thousands Outstanding on 1 January 2022 *Forfeited during the year Exercised during the year Granted during the year Outstanding at 31 December 2022 *Based on the conditions set out in the 2022 conditional awards agreement, all shares were forfeited as conditions were not met. 2021 5,820 (3,790) ‑ ‑ 2,030 2020 LTIP Scheme Conditional Award at Grant Date Conditional Award at Grant Date Conditional Award Invitation date Year of Potential vesting Share price at grant date Exercise price per share/share options Expected Volatility Expected life Risk free rate Expected dividend yield Fair value at grant date Valuation model April 2021 2024/2028 €1.35 €1.35 36.57% 7 years (0.53%) 1.58% €0.39 April 2020 2023/2027 €0.80 €0.80 36.81% 7 years (0.50%) 2.53% €0.21 Black & Scholes Model Black & Scholes Model The Group is exposed to various financial risks arising in the normal course of business. Its financial risk exposures are predominantly related to changes in foreign currency exchange rates and interest rates, as well as the creditworthiness of our counterparties. The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group audit committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. a) Liquidity and capital The Group defines liquid resources as the total of its cash, cash equivalents and short term deposits. Capital is defined as the Group’s shareholders’ equity and borrowings. The Group’s objectives when managing its liquid resources are: • To maintain adequate liquid resources to fund its ongoing operations and safeguard its ability to continue as a going concern, so that it can continue to create value for investors; • To have available the necessary financial resources to allow it to invest in areas that may create value for shareholders; and • To maintain sufficient financial resources to mitigate against risks and unforeseen events. Liquid and capital resources are monitored on the basis of the total amount of such resources available and the Group’s anticipated requirements for the foreseeable future. The Group’s liquid resources and shareholders’ equity at 31 December 2022 and 31 December 2021 were as follows: Cash and cash equivalents Loans and borrowings Shareholders’ equity 2022 €’000 15,939 41,944 153,786 2021 €’000 19,049 34,470 144,152 The Group frequently assess its liquidity requirements, together with this requirement and the rate return of long term euro deposits, the Group has decided to keep all cash readily available that is accessible within a month or less. Cash at bank earns interest at floating rates based on daily bank deposits. The fair value of cash and cash equivalents equals the carrying amount. Cash and cash equivalents are held by major Irish, European, United States and Australian institutions with credit rating of A3 or better. The Company deposits cash with individual institutions to avoid concentration of risk with any one counterparty. The Group has also engaged the services of a depository to ensure the security of the cash assets. Risk of counterparty default arising on cash and cash equivalents and derivative financial instruments is controlled by dealing with high‑quality institutions and by policy, limiting the amount of credit exposure to any one bank or institution. 104 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. FINANCIAL RISK MANAGEMENT (CONTINUED) At year-end, the Group’s total cash and cash equivalents were held in the following jurisdictions: Ireland Americas Australasia Europe, Middle East, Africa Total cash, cash equivalents and short term deposits 31 December 31 December 2021 €’000 2022 €’000 3,668 3,039 347 8,885 4,760 3,136 1,108 10,045 15,939 19,049 b) Foreign currency risk The Group is a multinational business operating in a number of countries and the euro is the presentation currency. The Group, however, does have revenues, costs, assets and liabilities denominated in currencies other than euro. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the reporting date and the resulting gains and losses are recognised in the income statement. The Group manages some of its transaction exposure by matching cash inflows and outflows of the same currencies. The Group does not engage in hedging transactions and therefore any movements in the primary transactional currencies will impact profitability. The Group continues to monitor the appropriateness of this policy. Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into EURO at the closing rate: There are currently no restrictions that would have a material adverse impact on the Group in relation to the intercompany transfer of cash held by its foreign subsidiaries. The Group continually evaluates its liquidity requirements, capital needs and availability of resources in view of, among other things, alternative uses of capital, the cost of debt and equity capital and estimated future operating cash flow. In the normal course of business, the Group may investigate, evaluate, discuss and engage in future company or product acquisitions, capital expenditures, investments and other business opportunities. In the event of any future acquisitions, capital expenditures, investments or other business opportunities, the Group may consider using available cash or raising additional capital, including the issuance of additional debt. The maturity of the contractual undiscounted cash flows (including estimated future interest payments on debt) of the Group’s financial liabilities at 31 December were as follows: Total Current Value of Cash Flows €’000 Total Undiscounted contractual Cash Flows €’000 Less than 1 Year €’000 1-3 Years €’000 3-5 Years €’000 More than 5 Years €’000 AT 31 DECEMBER 2021: Deferred consideration Loans and borrowings Lease liabilities Trade and other payables Accrued and other financial liabilities 4,224 23,391 11,079 15,683 6,027 4,281 23,866 11,302 15,683 6,027 2,319 7,565 3,640 15,683 6,027 1,759 7,163 5,249 ‑ ‑ 203 4,409 1,699 ‑ ‑ ‑ 4,729 714 ‑ ‑ Total at 31 December 2021 60,404 61,159 35,234 14,171 6,311 5,443 AT 31 DECEMBER 2022: Deferred consideration Loans and borrowings Lease liabilities Trade and other payables Accrued and other financial liabilities Total at 31 December 2022 1,705 30,848 11,096 14,420 8,699 66,769 1,725 31,443 11,309 14,420 8,699 67,596 1,054 11,024 3,949 14,420 8,699 39,146 671 6,805 4,695 ‑ ‑ 12,170 ‑ 13,306 2,082 ‑ ‑ 15,387 ‑ 308 584 ‑ ‑ 892 AT 31 DECEMBER 2022: Financial assets Financial liabilities Total Exposure AT 31 DECEMBER 2021: Financial assets Financial liabilities Total Exposure Short-term exposure Long-term debt USD SEK €’000 €’000 ZAR €’000 USD SEK €’000 €’000 ZAR €’000 31,075 (4,483) 12,476 (2,613) 10,790 (1,608) ‑ (3,284) ‑ (1,136) ‑ (1,372) 26,592 9,864 9,182 (3,284) (1,136) (1,372) 25,316 (4,071) 11,655 (2,959) 10,119 (1,533) ‑ (2,317) ‑ (1,094) ‑ (1,232) 21,245 8,695 8,586 (2,317) (1,094) (1,232) The following table illustrates the sensitivity of profit and equity in relating to the Group’s financial assets and financial liabilities and the USD/EUR exchange rate, SEK/EUR exchange rate and ZAR/EUR exchange rate ‘all other things being equal’. It assumes a +/‑ 4% change of the EUR/USD exchange rate for the year ended at 31 December 2022 (2021: 4%). A +/‑ 4% change is considered for the EUR/SEK exchange rate (2021: 4%). It assumes a +/‑ 4% change of the EUR/ZAR exchange rate for the year ended at 31 December 2022 (2021: 4%). Both of these percentages have been determined based on the average market volatility in exchange rates in the previous twelve months. 31 December 2022 31 December 2021 31 December 2022 31 December 2021 Profit for the year Equity USD SEK €’000 €’000 ZAR €’000 ZAR ZAR €’000 €’000 ZAR €’000 (3) 211 35 155 14 (9) 218 244 (1,016) 2,166 98 141 Profit for the year Equity USD SEK €’000 €’000 ZAR €’000 ZAR ZAR €’000 €’000 ZAR €’000 12 320 (147) 16 (58) (84) (917) (1,026) (412) (2,135) 1,010 (292) 106 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. FINANCIAL RISK MANAGEMENT (CONTINUED) b) Foreign currency risk (continued) The Group has material subsidiaries with a functional currency other than the euro, such as US dollar, Australian dollar, South African rand, Canadian dollar, British pound and Swedish krona. Changes in the exchange rate year on year between the reporting currencies of these operations and the Euro, have an impact on the Group’s consolidated reported result. The Group’s worldwide presence creates currency volatility when compared year on year. During 2022, currencies were volatile due to ongoing war in the Ukraine, however the euro remained relatively steady against all major currencies the Group trades in. In 2022, 56% (2021: 54%) of Mincon’s revenue €170 million (2020: €144 million) was generated in AUD, SEK and USD. The majority of the Group’s manufacturing base has a euro, US dollar or Swedish Krona cost base. While Group management makes every effort to reduce the impact of this currency volatility, it is impossible to eliminate or significantly reduce given the fact that the highest grades of our key raw materials are either not available or not denominated in these markets and currencies. Additionally, the ability to increase prices for our products in these jurisdictions is limited by the current market factors. The Group is also exposed to foreign currency risk on its liquid resources (cash), of which the euro equivalent of €4.2 million was held in US dollar (USD 4.5 million), €3 million was held in Swedish krona (SEK 33.3 million), €1.5 million was held in South Africa rand (ZAR 27 million), and the euro equivalent of €1.2 million was held in Canadian dollar (CAD 1.8 million). c) Credit risk (continued) Trade receivables and contract assets (continued) Trade receivables are written off (i.e. derecognised) when there is no reasonable expectation of recovery. Failure to make payments within 180 days from the invoice date and failure to engage with the Group on alternative payment arrangement amongst other is considered indicators of no reasonable expectation of recovery. The closing balance of the trade receivables loss allowance as at 31 December 2022 reconciles with the trade receivables loss allowance opening balance as follows: Opening loss allowance as at 1 January 2021 Loss allowance recognised during the year Loss allowance as at 31 December 2021 Loss allowance recognised during the year Loss allowance as at 31 December 2022 Trade receivables €’000 1,190 (253) 937 166 1,103 Euro exchange rates US Dollar Australian Dollar South African Rand Swedish Krona 2022 2021 Closing Average Closing Average 1.07 1.57 18.18 11.15 1.05 1.52 17.19 10.63 1.13 1.56 18.06 10.26 1.18 1.57 17.47 10.14 Expected credit loss assessment The Group allocates each exposure to a credit risk grade based on data that is determined to be predictive of the risk of loss and applying experienced credit judgement. Credit risk grades are defined using quantitative factors that are indicative of the risk of default and are aligned to past experiences. Loss rates are based on accrual credit loss experience over the past five years (Note 15). The maximum exposure to credit risk for trade and other receivables at 31 December 2022 and 31 December 2021 by geographic region was as follows: c) Credit risk Credit risk is the risk that the possibility that the Group’s customers may experience financial difficulty and be unable to meet their obligations. The Group monitors its collection experience on a monthly basis and ensures that a stringent policy is adopted to provide for all past due amounts. The majority of the Group’s customers are third party distributors and end users of drilling tools and equipment. Credit risk management The credit risk is managed on a group basis based on the Group’s credit risk management policies and procedures. The credit risk in respect of cash balances held with banks and deposits with banks are managed via diversification of bank deposits, and are only with major reputable financial institutions. The Group continuously monitors the credit quality of customers. Where available, external credit ratings and/or reports on customers are obtained and used. The credit terms range between 30 and 90 days. The credit terms for customers as negotiated with customers are subject to an internal approval. The ongoing credit risk is managed through regular review of ageing analysis. Trade receivables consist of a large number of customers in various industries and geographical areas. Trade receivables and contract assets The Group applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers. Americas Australasia Europe, Middle East, Africa Total amounts owed 2022 €’000 8,173 3,300 12,399 2021 €’000 7,969 3,330 13,811 23,872 25,110 d) Interest rate risk Interest Rate Risk on financial liabilities There were no significant changes in interest rates during 2022 and therefore there was no significant impact. Movements in interest rates had no significant impact on our financial liabilities or finance cost recognised in either 2021 or 2020. Interest Rate Risk on cash and cash equivalents Our exposure to interest rate risk on cash and cash equivalents is actively monitored and managed, the rate risk on cash and cash equivalents is not considered material to the Group. 108 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. FINANCIAL RISK MANAGEMENT (CONTINUED) e) Fair values Fair value is the amount at which a financial instrument could be exchanged in an arms‑length transaction between informed and willing parties, other than in a forced or liquidation sale. The contractual amounts payable less impairment provision of trade receivables, trade payables and other accrued liabilities approximate to their fair values. Financial assets and financial liabilities measured at fair value in the consolidated statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly • Level 3: unobservable inputs for the asset or liability Mincon Group plc only apply level 3 for fair value, using the detail displayed above. Deferred consideration The movements in respect of the deferred consideration value in the year to 31 December 2022 are as follows: Balance at 1 January 2022 Arising on acquisition Cash payment Foreign currency translation adjustment Unwinding of discount on deferred consideration Balance at 31 December 2022 Level 3 €’000 4,224 ‑ (2,629) 79 31 1,705 Deferred consideration includes multiple deferred payments for prior acquisitions over a fixed period of time. These carry no significant observational inputs. 23. SUBSIDIARY UNDERTAKINGS At 31 December 2022, the Group had the following subsidiary undertakings: Company Group Share %* Registered Office & Country of Incorporation Mincon International Limited Manufacturer of rock drilling equipment Mincon Rockdrills PTY Ltd Manufacturer of rock drilling equipment 1676427 Ontario Inc. (Operating as Mincon Canada) Manufacturer of rock drilling equipment Mincon Carbide Ltd Manufacturer of tungsten carbide Mincon Inc. Sales company Mincon Sweden AB Sales company Mincon Nordic OY Sales company 100% Smithstown, Shannon, Co. Clare, Ireland 100% 8 Fargo Way, Welshpool, WA 6106, Australia 100% 400B Kirkpatrick Street, North Bay, Ontario, P1B 8G5, Canada 100% Windsor St, Sheffield S4 7WB, United Kingdom 100% 603 Centre Avenue, N.W. Roanoke, VA 24016, USA 100% Industrivagen 2‑4, 61202 Finspang, Sweden 100% Hulikanmutka 6, 37570 Lempäälä, Finland Mincon Holdings Southern Africa (Pty) Sales company 100% 1 Northlake, Jetpark 1469, Gauteng, South Africa ABC Products (Rocky) Pty Ltd Sales company Mincon West Africa SARL Dormant company Mincon West Africa SL Sales company Mincon Poland Dormant company Mincon Canada – Western Service Centre (previously Pacific Bit of Canada) Sales company Mincon Rockdrills Ghana Limited Dormant company Mincon S.A.C. Sales company Ozmine International Pty Limited Dormant company Mincon Chile Sales company Mincon Tanzania Dormant company Mincon Namibia Pty Ltd Sales company Mincon Russia Dormant Company *All shares held are ordinary shares. 100% 2/57 Alexandra Street, North Rockhampton, Queensland, 4701 Australia 100% Villa TF 4635 GRD, Almadies, Dakar B.P. 45534, Senegal 100% Calle Adolfo Alonso Fernández, s/n, Parcela P‑16, Planta 2, Oficina 23, Zona Franca de Gran Canaria, Puerto de la Luz, Código Postal 35008, Las Palmas de Gran Canari 100% ul.Mickiewicza 32, 32‑050 Skawina, Poland 100% 3568‑191 Street, Unit 101, Surrey BC, V3Z 0P6, Canada 100% P.O. Box CT5105, Accra, Ghana 100% Calle La Arboleda 151, Dpto 201, La Planicie, La Molina, Peru 100% Gidgegannup, WA 6083, Australia 100% Av. La Dehesa #1201, Torre Norte, Lo Barnechea, Santiago, Chile 100% Plot 1/3 Nyakato Road, Mwanza, Tanzania 100% Ausspannplatz, Windhoek, Namibia 100% 4,4 Lesnoy In,125047 Moscow, Russia 110 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. SUBSIDIARY UNDERTAKINGS (CONTINUED) At 31 December 2022, the Group had the following subsidiary undertakings: Company Group Share %* Registered Office & Country of Incorporation 100% 19789‑92a Avenue, Langley, British Columbia V1M3B3, Canada 24. LEASES A. Leases as Lessees (IFRS 16) The Group leases property, plant and equipment across its global operations. Mincon Group PLC has elected to apply the practical expedient allowed under IFRS 16 for short‑term leases by class of underlying asset to which the right of use relates. A class of underlying asset is a grouping of underlying assets of a similar nature and use in an entity’s operations. The class of underlying assets this applies to short term leases of office equipment. Mincon Mining Equipment Inc Sales company Mincon Exports USA Inc. Group finance company Mincon International Shannon Dormant company Smithstown Holdings Holding company Mincon Canada Drilling Products Inc. Holding company Lotusglade Limited Holding company Floralglade Company Holding company Spartan Drilling Tools Manufacturing facility Castle Heat Treatment Limited Holding company Mincon Microcare Limited Holding company Driconeq AB Holding company Driconeq Production AB Manufacturing facility Driconeq Fastighet AB Property holding company Driconeq Do Brasil Sales company Driconeq Africa Ltd Manufacturing facility Driconeq Australia Holdings Pty Ltd Holding company Driconeq Australia Pty Ltd Manufacturing facility Mincon Drill String AB Holding company EURL Roc Drill Sales company Attakroc Inc Sales company Mincon Quebec Holding company 100% 603 Centre Ave, Roanoke VA 24016, USA Information about leases for which the Group is a lessee is presented below. 100% Smithstown, Shannon, Co. Clare, Ireland i) Right-of-use assets 100% Smithstown, Shannon, Co. Clare, Ireland 100% Suite 1800‑355 Burrard Street, Vancouver, BC V6C 268, Canada 100% Smithstown, Shannon, Co. Clare, Ireland 100% Smithstown, Shannon, Co. Clare, Ireland 100% 1882 US HWY 6 & 50 Fruita, CO 81507, USA 100% Smithstown, Shannon, Co. Clare, Ireland 100% Smithstown, Shannon, Co. Clare, Ireland 100% Svetsarevägen 4, 686 33, Sunne, Sweden Balance at 1 January Depreciation charge for the year Additions to right of use assets Disposal of right of use asset Foreign exchange difference Balance at 31 December 2021 Balance at 1 January Depreciation charge for the year Additions to right of use assets Disposal of right of use asset Foreign exchange difference Balance at 31 December 2022 100% Svetsarevägen 4, 686 33, Sunne, Sweden ii) Amounts recognised in income statement 100% Svetsarevägen 4, 686 33, Sunne, Sweden 100% Rua Dr. Ramiro De Araujo Filho, 348, Jundai, SP, Brasil Interest on lease liabilities Expenses related to short term leases Expenses related to leases of low value assets 100% Cnr of Harriet and James Bright Avenue, Driehoek. Germiston 1400 Leases under IFRS 16 100% 47 Greenwich Parade, AU‑6031 Neerabup, WA, Australia iii) Amounts recognised in statement of cash flows 100% 47 Greenwich Parade, AU‑6031 Neerabup, WA, Australia 100% Svetsarevägen 4, 686 33, Sunne, Sweden 100% Rue Charles Rolland, 29650 Guerlesquin, France 100% 601, rue Adanac, Quebec, G1C 7G6, Canada 100% 601, rue Adanac, Quebec, G1C 7G6, Canada Total cash outflow for leases Total cash outflow of leases iv) Extension options Some property leases contain extension options exercisable by the Group. The Group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The Group is reasonably certain it will not incur future lease liabilities beyond what is currently calculated. 31 December 2021 €’000 4,241 (1,896) 3,458 (156) 49 5,696 31 December 2022 €’000 5,696 (2,159) 3,334 (57) (46) 6,768 2021 €’000 308 311 65 684 2021 €’000 3,590 2022 €’000 354 245 10 609 2022 €’000 3,994 3,994 3,590 112 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. LEASES (CONTINUED) A. Leases as Lessees (IFRS 16) (continued) iv) Extension options (continued) The following table sets out a maturity analysis of lease liabilities, showing the undiscounted lease payments to be paid after the reporting date. 26. LITIGATION The Group is not involved in legal proceedings that could have a material adverse effect on its results or financial position. 27. RELATED PARTIES 31 December 2022 As at 31 December 2022, the share capital of Mincon Group plc was 56.32% owned by Kingbell Company which is ultimately controlled by Patrick Purcell and members of the Purcell family. Patrick Purcell is also a director of the Company. Less than one year One to two years Two to five years More than 5 years Total €’000 2,129 3,068 1,525 568 7,290 B. Leases as Lessor (IFRS 16) i) Financing Lease The Group subleased a properties that had been recognised as a right of use asset in Finland and Australia. The Group recognised income interest in the year in relation to this totalling €193,000. The Group manages the risk to retain the right to the assets as they have a right to inspect the property, the right to enforce the contractual arrangement with the lessee and the right to perform maintenance. The following table sets out a maturity analysis of lease receivable, showing the undiscounted lease payments to be received after the reporting date. In June 2022, the Group paid a final dividend for 2021 of €0.0105 to all shareholders. The total dividend paid to Kingbell Company was €1,256,477. In September 2022, the Group paid an interim dividend for 2022 of €0.0105 to all shareholders. The total dividend paid to Kingbell Company was €1,256,477 (September 2020: €1,261,385). The Group has a related party relationship with its subsidiary undertakings (see note 23) for a list of these undertakings), directors and officers. All transactions with subsidiaries eliminate on consolidation and are not disclosed. Transactions with Directors The Group is owed €Nil from directors and shareholders at 31 December 2022 and 2021. The Group has amounts owing to directors of €Nil as at 31 December 2022 and 2021. Key management compensation The profit before tax from continuing operations has been arrived at after charging the following key management compensation: Less than one year One to two years Balance at 31 December Unearned finance income Total undiscounted lease receivable 31 December 2022 €’000 31 December 2021 €’000 147 ‑ 147 (10) 137 192 146 338 (22) 316 Short term employee benefits Bonus and other emoluments Post‑employment contributions Social security costs Share based payment charged in the year Total 2022 €’000 1,561 348 149 110 (153) 2021 €’000 1,514 320 145 109 221 2,015 2,309 ii) Operating leases The group leases company owned property out to tenants in the USA under various agreements. The group recognises these leases as operating leases from a lessor perspective due to the fact they do not transfer substantially all of the risks and rewards incidental to the ownership of the assets. Rental income recognised by the Group during 2022 was €180,000 (2021: €214,000). The following table sets out a maturity analysis of lease receivable, showing the undiscounted lease payments to be received after the reporting date. Less than one year Total 25. COMMITMENTS 31 December 2022 €’000 22 22 The following capital commitments for the purchase of property, plant and equipment had been authorised by the directors at 31 December 2022: Contracted for Not‑contracted for Total 114 31 December 2022 €’000 31 December 2021 €’000 3,360 229 3,589 2,837 772 3,609 The key management compensation amounts disclosed above represent compensation to those people having the authority and responsibility for planning, directing and controlling the activities of the Group, which comprises the Board of Directors and executive management (ten in total at year end). Amounts included above are time weighted for the period of the individuals employment. 28. EVENTS AFTER THE REPORTING DATE The Board of Mincon Group plc is recommending the payment of a final dividend for the year ended 31 December 2022 in the amount of €0.0105 (1.05 cent) per ordinary share, which will be subject to approval at the Annual General Meeting of the Company in May 2023. Subject to Shareholder approval at the Company’s annual general meeting, the final dividend will be paid on 16 June 2023 to Shareholders on the register at the close of business on 26 May 2023. 29. APPROVAL OF FINANCIAL STATEMENTS The Board of Directors approved the consolidated financial statements on 10 March 2023. 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) COMPANY STATEMENT OF FINANCIAL POSITION COMPANY STATEMENT OF CHANGES IN EQUITY As at 31 December 2022 For the year ended 31 December 2022 NON-CURRENT ASSETS Investments in subsidiary undertakings Deferred tax liability Total Non-Current Assets CURRENT ASSETS Loan amounts owing from subsidiary companies Other assets Cash and cash equivalents Total Current Assets Total Assets EQUITY Ordinary share capital Share premium Undenominated capital Share based payment reserve Retained earnings Total Equity NON-CURRENT LIABILITIES Loans and borrowings Total Non-Current Liabilities CURRENT LIABILITIES Loans and borrowings Accrued and other liabilities Amounts owed to subsidiary companies Total Current Liabilities Total Liabilities Total Equity and Liabilities The accompanying notes on pages 118 to 120 are an integral part of these financial statements. On behalf of the Board: Hugh McCullough Chairman Joseph Purcell Chief Executive Officer 10 March 2023 Notes 3 4 2 5 5 2022 €’000 69,759 56 2021 €’000 77,352 ‑ 69,815 77,352 17,815 21 3,531 12,666 76 4,041 21,367 16,783 91,182 94,135 2,125 67,647 39 2,505 4,753 2,125 67,647 39 2,695 10,415 77,069 82,921 11,500 11,500 2,000 455 158 2,613 9,000 9,000 1,500 556 158 2,214 14,113 11,214 91,182 94,135 Share capital €’000 Share premium €’000 Undenomi- nated Capital €’000 Share based payment reserve €’000 Retained earnings €’000 Total equity €’000 Balance at 01 January 2021 2,117 67,647 39 2,259 17,260 89,322 COMPREHENSIVE INCOME: Loss for the year Total comprehensive income TRANSACTIONS WITH SHAREHOLDERS: Equity settled share based payments Share based payments Dividends Total transactions with Shareholders ‑ 8 ‑ ‑ 8 ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ 436 ‑ 436 (152) (152) ‑ ‑ (6,693) (152) (152) 8 436 (6,693) (6,693) (6,249) Balances at 31 December 2021 2,125 67,647 39 2,695 10,415 82,921 COMPREHENSIVE INCOME: Loss for the year Total comprehensive income TRANSACTIONS WITH SHAREHOLDERS: Equity settled share based payments Share based payments Dividends Total transactions with Shareholders ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ (190) ‑ (1,200) (1,200) ‑ ‑ (4,462) (1,200) (1,200) - (190) (4,462) (190) (4,462) (4,652) Balances at 31 December 2022 2,125 67,647 39 2,505 (4,753) 77,069 The accompanying notes on pages 118 to 120 are an integral part of these financial statements. 116 117 NOTES TO THE COMPANY FINANCIAL STATEMENTS 1. BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). There have been no material departures from the Standards. The functional and presentation currency of these financial statements is EUR. All amounts in the financial statements have been rounded to the nearest thousand. In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where necessary in order to comply with the Companies Act 2014 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken. The Company is the ultimate parent company of the Mincon Group which includes the Company in its consolidated financial statements. In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the following disclosures: • cash flow statement and related notes; • comparative period reconciliations for tangible fixed assets and intangible assets; • disclosures in respect of transactions with wholly owned subsidiaries; • disclosures in respect of capital management; • the effects of new but not yet effective IFRSs; • disclosures in respect of the compensation of Key Management Personnel; • disclosures of transactions with a management entity that provides Key Management Personnel services to the company; and • certain disclosures regarding revenue. As the consolidated financial statements of the Mincon Group include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of the following disclosures: • IFRS 2 Share‑based Payments in respect of group settled Share‑based payments; • certain disclosures required by IAS 36 Impairment of assets in respect of the impairment of goodwill and indefinite life intangible assets; • certain disclosures required by IFRS 3 Business Combinations in respect of business combinations undertaken by the Company; and Investments in subsidiaries Investments in subsidiary undertakings are stated at cost less provision for impairment in the Company’s statement of financial position. Loans to subsidiary undertakings are initially recorded at fair value in the Company statement of financial position and subsequently at amortised cost using an effective interest rate methodology. At each reporting investments in subsidiaries undertakings are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset is estimated and compared with its carrying amount. If estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in profit or loss. If an impairment loss subsequently reverses, the carry amount of the asset is increased to the revised estimate of its recoverable amount, but not in excess of the amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. Going concern The Company is in a net asset position of €77.1 million at year‑end. The Directors are satisfied that there are no material uncertainties with regard to the going concern of the Company and as a result have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of these consolidated financial statements, and therefore they continue to adopt the going concern basis of accounting in preparation of its financial statements. The group’s and company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the business and strategy review section of the Group annual report. The accounting policies set out in note 3 of the Group financial statements have been applied consistently to all periods presented in these financial statements. 2. SHARE CAPITAL See note 19 of the Mincon Group plc consolidated financial statements for details of the authorised and issued share capital of the company. 3. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS • certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument During the year ended 31 December 2022, Mincon Group plc subscribed for equity in the following subsidiaries as follows: Disclosures. As permitted by section 304 of the Companies Act 2014, no separate profit and loss account is presented in respect of the Company. The Company recorded a loss for the year of €1.2 million (2021: €152,000), which included dividends received of €6 million (2021: €2.3 million) from subsidiary companies. The following new and amended standards are not expected to have a significant impact on the Company’s financial statements: New Standards adopted as at 1 January 2022 • IFRS 3 References to the Conceptual Framework • IAS 16 Proceeds before Intended Use • IAS 37 Onerous Contracts – Cost of Fulfilling a Contract • IFRS 1, IFRS 9, IFRS 16, IAS 41 Annual Improvements to IFRS Standards 2018‑2020 Cycle Standards, amendments and Interpretations to existing Standards that are not yet effective • IAS 1 Classification of Liabilities as Current or Non‑current • IAS 1 Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) • IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) • IAS 1 Disclosure of Accounting Policies • IAS 8 Definition of Accounting Estimates 118 Balance at 1 January 2022 Investment in Viqing Investment in EURL Roc Drill Investment in Mincon Exports USA Investment in Gold Cup Investment in Mincon Peru Investment in Mincon West Africa Investment in Mincon Carbide Investment in Mincon Chile Balance at 31 December 2022 Investments in subsidiary €’000 77,352 1,500 110 (2) (5) (1,100) (1,330) (2,466) (4,300) 69,759 Mincon Group PLC (entity only)own all entities (either directly or indirectly) in Note 23. The investment in subsidiary undertakings is carried by the Company at cost less impairment. There is a risk in respect of the carrying value of these investments if future cash flows and performance of these subsidiaries is not sufficient to support the Company’s investment. Investments were impaired by €5.4 million during the year ended 31 December 2022 (2021: €NIL). 119 NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED) 4. SHORT TERM DEPOSITS At 31 December 2022, the Company had €3.5 million cash readily available (2021: €4 million). 5. LOANS AND BORROWINGS During 2022, the Company drew down loans of €4.5 million (2021: €7.5 million). Repayments are made quarterly, with a €5 million bullet repayment due in 2026. The effective rate for the loans and borrowings is 4.7%. Balance at 1 January 2022 Bank loan drawdowns Repayment of bank loan Total loans and borrowings 31 December 2022 Current Non‑current 6. SHARE BASED PAYMENTS Bank Loans €’000 10,500 4,500 (1,500) 13,500 2,000 11,500 The Company operates one share option scheme. Further details of the two schemes are given in the Group financial statements at note 21. 7. APPROVAL OF FINANCIAL STATEMENTS The Board of Directors approved the financial statements on 10 March 2023. FINANCIAL STATEMENTS Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements SEPARATE FINANCIAL STATEMENTS OF THE COMPANY Company Statement of Financial Position Company Statement of Cash Flows Company Statement of Changes in Equity Notes to the Company Financial Statements 64 69 70 71 72 73 74 114 115 116 117 120 6 MINCON GROUP PLC Smithstown Industrial Estate, Shannon, Co. Clare, Ireland. T. +353 (61) 361 099 E. investorrelations@mincon.com W. mincon.com M I N C O N G R O U P P L C A n n u a l R e p o r t & C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s 2 0 2 2