M S I N T E R N A T I O N A L p l c Contents The year in brief Chairman’s statement Directors and advisers Report of the Directors Statement of Directors’ responsibilities Report of the auditors Group income statement Group and company statement of comprehensive income Group and company statement of changes in equity Balance sheets Cash flow statements Notes to the financial statements Summary of group results 2008 - 2012 Corporate governance statement Directors’ remuneration report Principal operating subsidiaries Notice of meeting 2 3 5 6 10 10 12 12 13 14 15 16 43 44 46 49 50 1 M S I N T E R N A T I O N A L p l c The year in brief 2011 Total £000 222222222222222222222222222222222222222222222222 Revenue 54,202 222222222222222222222222222222222222222222222222 Profit before taxation 6,684 222222222222222222222222222222222222222222222222 30.6p Earnings per share 222222222222222222222222222222222222222222222222 Dividends payable per share 6.50p 222222222222222222222222222222222222222222222222 2012 Total £000 55,948 8,388 34.8p 8.00p Financial Calendar Key Dates Annual Results Announced Annual General Meeting Final Dividend Payable Half-Year Results Announced Interim Dividend Payable June August August December December 2 M S I N T E R N A T I O N A L p l c Chairman’s Statement Results and review The Group has continued to prosper, with a 25% uplift of pre-tax profit on revenue marginally higher than the prior year. Profit before taxation for the 12 months ended 28th April, 2012 amounted to £8.39m (2011 – £6.68m) on revenue of £55.95m (2011 – £54.20m). Earnings per share were 34.8p (2011 – 30.6p). Net cash and short-term deposits at the year-end were £10.04m (2011 – £9.88m). These record results are in line with our expectations, displaying a strong trading performance across all three divisions – ‘Defence’ ‘Forgings’ and ‘Petrol Station Superstructures’ – and maintaining our upward trend in annual results. ‘Defence’, understandably, was not immune to the unfavourable effects of the well-chronicled budget constraints of national governments. Conversely and most pleasingly, the ‘Forgings’ and the ‘Petrol Station Superstructures’ divisions both experienced a progressive upturn in monthly order intake during the course of the year. ‘Defence’ – the Group’s largest division – produced another sterling performance lifting profitability handsomely on revenue lower than the prior year. Frustratingly, the time-line from customer enquiry to the placing of orders became increasingly protracted. As a consequence, the usual pattern and level of order inflow was uncomfortably interrupted, particularly in the domestic market. A positive highlight however, was that all deliveries to customers including each phase of the delivery critical and now completed US Navy contract for our 30mm naval gun systems, were completed in line with customer requirements. ‘Forgings’ generated a highly commendable result with a recovery in revenue, profitability and cash generation. This was a welcome and very pleasing upturn, following the recession influenced break-even performance of the prior year. We undertook further development of our manufacturing facilities across the board in the UK, Brazil and the United States. Importantly, the expansion of our non-UK facilities sealed a more emphatic ‘local element’ to our marketing perspective, which was instrumental in generating additional business. ‘Petrol Station Superstructures’ operations, based in both the UK and Poland have made laudable progress since becoming a wholly owned entity of the Group in May 2010. A more competitive, robust and proficient business approach, in a recovering market, enabled the division to gain market share, particularly in Eastern Europe. The UK operation provides structures to major international oil companies, dealer groups and supermarket chains in parts of Western Europe and as a recognised all-round high quality provider, is becoming the supplier of choice. The Polish business serves customers in its growing domestic market and that of other east European countries. To better support these markets and harness other business opportunities, we purchased a combined manufacturing and office facility on the outskirts of Krakow, in December 2011, replacing outgrown rented office space in the city. Outlook As always, we are looking forward with enthusiasm to the current year despite the escalating, political and macro-economic uncertainty. For the long-term, we remain optimistic, in the firm belief that by developing and investing in the individual businesses, we are driving the right strategy to sustain the Group’s growth. ‘Defence’ – we expect very little in the way of growth this year, in what is clearly a financially constrained, revenue flat line, industry-wide defence market. Nevertheless, marketing information confirms that despite the order delays, the many constituents of our mounting prospects list remain in place, with nothing knowingly cancelled or lost to competitors. Inevitably, customer programme delays are leading to a substantial build-up of potential business still to be awarded. Yet, interestingly since the year end, we are comforted by having received the highest level of monthly order intake for some considerable time. Gratifyingly, the expanding fleet of MSI naval gun systems on ships around the world provides an increasing level of regular in-service maintenance and support work for the business. ‘In house’ research and development programmes continue apace in anticipation of future market requirements. Notably, major orders in hand for delivery within the current financial year will have a distinct customer specified second half year revenue bias, which will be evident in the Group’s first half/second half revenue profile. ‘Forgings’ – is emerging from the global recession with a new degree of confidence. It is better equipped, more efficient and consequently more competitive. The customary short lead-time nature of the division’s order books necessitates a sensitive and perceptive monitoring of regional global market variations. Presently, industrial engineering markets across continents are extremely uneven in activity, unpredictable and clearly susceptible to the prevailing and unsettling European economic conundrum. That said, the evolving new structure of the division’s businesses should provide the flexibility to enable a pro-active response to any fluctuations in demand. 3 M S I N T E R N A T I O N A L p l c Chairman’s Statement Continued ‘Petrol Station Superstructures’ – the development and construction of new large multi-function service station sites and the refurbishment and upgrade of existing facilities continues. The contemporary site typically comprises undercover car and separate HGV multi-pump fuel dispensaries, car valeting facilities and the escalating development of the retail shop/mini-market. Such filling stations can be a stand-alone road-side unit or alternatively the integral part of a supermarket complex. The division has attained a highly creditable reputation in the market for the design, manufacture, erection and refurbishment of all such forecourt structures. We are committed to build on that reputation and as the market leader focus on developing innovative ideas for the efficient and aesthetically pleasing construction of these structures. Whilst cautious about the current constrained level of defence spending, to be sure, at some stage, it is inevitable that the dam will burst on our ‘Defence’ prospect-list. An encouraging sign is that a string of current and proposed global naval ship building projects – all fully funded – are, at last, being taken forward after a series of delays. ‘Forgings’, is in dynamic form, capable of competitively accommodating any further rise in activity and ‘Petrol Station Superstructures’ stands before a wealth of opportunity. The prognosis for the world economy and particularly that of Europe is of grave concern. The lack of political resolve affects much that we try to achieve and in common with so many others, we are striving against a persistent and variable headwind. We must and will, maintain our prudent approach to managing and steering the Group for the long-term interests of shareholders and not just the immediate future. Corporate focus remains on creating excellence in everything we do for there is no room for complacency in these highly competitive and tight markets that we serve. Looking to the coming year the balance sheet is strong, the businesses are in very good shape and we expect to demonstrate further progress although as mentioned earlier, we anticipate a pronounced second half bias in revenue. Accordingly, the Board recommends the payment of an increased final dividend of 6.5p per share (2011 – 5.5p) making a total for the year of 8.0p (2011 – 6.5p). Michael Bell 13th June, 2012 4 M S I N T E R N A T I O N A L p l c Directors and advisers Directors Executive Michael Bell ARICS (Executive Chairman) Michael O’Connell FCA (Finance) David Pyle (Administration and Secretary) Non-executive Roger Lane-Smith – Age 66 Appointed a director on 21st January, 1983. He is a non-executive director of W H Ireland Group plc, Dolphin Capital Investors Ltd, Timpson Group plc, Avia Health Informatics plc and a number of other private companies. He is also a Senior Consultant at DLA Piper UK LLP. 222222222222222222222222222222222222222222222222 Registered Office Balby Carr Bank, Doncaster, DN4 8DH England 222222222222222222222222222222222222222222222222 Auditors Ernst & Young LLP, 1 Bridgewater Place, Water Lane, Leeds, LS11 5QR 222222222222222222222222222222222222222222222222 Registrars and Transfer Office Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU 222222222222222222222222222222222222222222222222 Solicitors DLA Piper UK LLP, 3 Noble Street, London, EC2V 7EE 222222222222222222222222222222222222222222222222 Bankers Lloyds TSB, First Floor, 14 Church Street, Sheffield, S1 1HP 222222222222222222222222222222222222222222222222 5 M S I N T E R N A T I O N A L p l c Report of the directors The directors present their report and the Group financial statements for the 52 weeks ended 28th April, 2012. The directors present their Corporate governance statement on page 44 of this report. 222222222222222222222222222222222222222222222222 1 Principal activities of the Group The Group is engaged in the design and manufacture of specialist engineering products and the provision of related services. 222222222222222222222222222222222222222222222222 2 Business review A review of the operations of the Company and subsidiaries during the period, and their position at 28th April, 2012, and indications of future developments are provided in the Chairman’s Statement. The principal risk and uncertainties facing the Group relate to levels of customer demand for the Group’s products and services. Customer demand is driven mainly by general economic conditions but also by pricing, product quality and delivery performance of MS INTERNATIONAL plc and in comparison with our competitors. Sterling exchange rates against other currencies can influence pricing. The principal financial risks and uncertainties in the business are set out in note 25 “Financial Instruments” to these Group Financial Statements. The Group has considerable financial resources together with long-term contracts with a number of customers. As a consequence, the directors believe that the Group is well placed to manage its business risk successfully despite the current uncertain economic outlook. After making enquiries the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts. 222222222222222222222222222222222222222222222222 3 Key performance indicators, results and dividends The directors report that the key performance indicators of revenue and profit before taxation have increased by 3.2% and 25.5%, respectively. The profit after taxation for the period attributable to shareholders amounted to £6,310,000 (2011 – £5,505,000).The Directors recommend a final dividend of 6.50 pence per share (2011 – 5.50 pence per share), making a total of 8.00 pence per share (2011 – 6.50 pence per share). 222222222222222222222222222222222222222222222222 4 Directors The names of the directors of the Company at 28th April, 2012 are shown on page 5. In accordance with the Articles of Association Michael O’Connell retires by rotation and, being eligible, offers himself for re-election. In addition, Roger Lane-Smith retires from the Board at the AGM and, being eligible, offers himself for re-election. The Chairman confirms that both Michael O’Connell and Roger Lane-Smith continue to be effective and to demonstrate commitment to their roles, including the commitment of their time for the board and committee meetings and their other duties. 222222222222222222222222222222222222222222222222 5 Substantial interests in shares As at 13th June, 2012, the directors had been advised of the following notifiable interests: Michael Bell Cavendish Asset Management Limited David Pyle Michael O’Connell The Trustee of the Group’s pension scheme Bank of New York (Nominees) Limited Mrs Patricia Snipe Gartmore Fledgling Index Tracker Fund % of share capital held 26.3% 13.0% 10.0% 8.2% 7.1% 6.9% 4.4% 3.2% Apart from these, the directors have not been formally notified of any other notifiable shareholdings in excess of 3% on 13th June, 2012. 6 M S I N T E R N A T I O N A L p l c Report of the directors Continued 6 Employee involvement The directors have continued their commitment to the development of employee involvement and communication throughout the Group. Regular meetings are held with employees to provide and discuss information of concern to them as employees, including financial and economic factors affecting the performance of the Company in which they are employed. 222222222222222222222222222222222222222222222222 7 Employment of disabled persons The Company and its subsidiaries have continued the policy regarding the employment of disabled persons. Full and fair consideration is given to applications for employment made by disabled persons having regard to their particular aptitudes and abilities. Appropriate training is arranged for disabled persons, including retraining for alternative work of employees who may become disabled, to promote their career development within the organisation. 222222222222222222222222222222222222222222222222 8 Additional information for shareholders The following provides the additional information required for shareholders as a result of the implementation of the Takeover Directive into UK Law. At 28th April, 2012 the Company’s issued share capital comprised: Ordinary shares of 10p each Number 18,396,073 £000 1,840 % of total share capital 100 The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and for voting rights. Ordinary shares On a show of hands at a general meeting of the Company every holder of ordinary shares present in person and entitled to vote shall have one vote and on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice of the general meeting specifies deadlines for exercising voting rights either by proxy notice or present in person or by proxy in relation to resolutions to be passed at general meeting. All proxy votes are counted and the numbers for, against or withheld in relation to each resolution are announced at the Annual General Meeting. There are no restrictions on the transfer of ordinary shares in the Company other than: l l Certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws and market requirements relating to close periods); and Pursuant to the Listing Rules of the Financial Services Authority whereby certain employees of the Company require the approval of the Company to deal in the Company’s securities. The Company’s articles of association may only be amended by a special resolution at a general meeting of the shareholders. Directors are reappointed by ordinary resolution at a general meeting of the shareholders. The Board can appoint a director but anyone so appointed must be elected by an ordinary resolution at the next general meeting. Any director, other than the Chairman, who has held office for more than three years since their last appointment must offer themselves up for re-election at the annual general meeting. Company share schemes The Employee Share Ownership Trust, holds 1.3% of the issued share capital of the Company in trust for the benefit of employees of the Group and their dependants. The voting rights in relation to these shares are exercised by the trustee. Charge of control The Company is not party to any agreements which take effect, alter or terminate upon a change of control of the Company following a takeover bid. 7 M S I N T E R N A T I O N A L p l c Report of the directors Continued There are no agreements between the Company and its directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid. 222222222222222222222222222222222222222222222222 9 Supplier payment policy It is the Company’s policy to abide by the terms of payment agreed with suppliers of all goods and services properly supplied and invoiced to the Company. The terms may be the suppliers’ standard terms or such other terms agreed with the supplier for specific transactions as appropriate. The Group’s creditor days for 2012 were 52 (2011 – 41). 222222222222222222222222222222222222222222222222 10 Special business at the Annual General Meeting Resolution 7: Authority to allot shares Generally, the directors may only allot shares in the Company (or grant rights to subscribe for, or to convert any security into, shares in the Company) if they have been authorised to do so by shareholders in general meeting. Resolution 7 renews a similar authority given at last year’s AGM and, if passed, will authorise the directors to allot shares in the Company (and to grant such rights) up to an aggregate nominal amount of £613,202 (which represents approximately one-third of the issued ordinary share capital of the Company as at 29th June, 2012, being the last practicable date before the publication of this document). If given, this authority will expire at the conclusion of the Company’s next AGM or on 14th November, 2013 (whichever is earlier). It is the directors’ intention to renew this authority each year. As at the date of this document, no ordinary shares are held by the Company in treasury. The directors have no current intention to exercise the authority sought under resolution 7. Resolution 8: Disapplication of pre emption rights Generally, if the directors wish to allot new shares or other equity securities (within the meaning of section 560 of the 2006) Act for cash then under the Act they must first offer such shares or securities to shareholders in proportion to their existing holdings. These statutory pre-emption rights may be disapplied by shareholders. Resolution 8, which will be proposed as a special resolution, renews a similar power given at last year’s AGM and, if passed, will enable the directors to allot equity securities for cash up to a maximum aggregate nominal amount of £91,980 without having to comply with statutory pre-emption rights, but this power will be limited to allotments: (a) (b) in connection with a rights issue, open offer or other pre emptive offer to ordinary shareholders and to holders of other equity securities (if required by the rights of those securities or the directors otherwise consider necessary), but (in accordance with normal practice) subject to such exclusions or other arrangements, such as for fractional entitlements and overseas shareholders, as the directors consider necessary; in any other case, up to an aggregate nominal amount of £91,980 (which represents approximately five per cent of the issued ordinary share capital of the Company as at 29th June, 2012, being the last practicable date before the publication of this document). If given, this power will expire at the conclusion of the Company’s next AGM or on 14th November, 2013 (whichever is the earlier). It is the directors’ intention to renew this power each year. Resolution 9: Purchase by the Company of its own shares Resolution 9, which will be proposed as a special resolution renews a similar authority given at last year’s AGM. If passed, it will allow the Company to purchase up to 1,839,607 ordinary shares in the market (which represents approximately 10% of the issued ordinary share capital of the Company as at 29th June, 2012, being the last practicable date before the publication of this document). The minimum and maximum prices for such a purchase are set out in the resolution. If given, this authority will expire at the conclusion of the Company’s next AGM or on 14th November, 2013 (whichever is earlier). It is the directors’ intention to renew this authority each year. The directors have no current intention to exercise the authority sought under resolution 9 to make market purchases, but consider the authority desirable to provide maximum flexibility in the management of the Company’s capital base. The directors intend to cancel any shares purchased under this authority. 8 M S I N T E R N A T I O N A L p l c Report of the directors Resolution 10: Notice period for general meetings Resolution 10 will be proposed as a special resolution to allow the Company to call general meetings (other than an AGM) on 14 clear days’ notice. Changes made to the 2006 Act by the Companies (Shareholders’ Rights) Regulations 2009 increase the notice period required for general meetings of the Company to 21 days unless shareholders approve a shorter notice period, which cannot however be less than 14 clear days. AGMs will continue to be held on at least 21 clear days’ notice. Before the Regulations came into force, the Company was able to call general meetings other than an AGM on 14 clear days’ notice without obtaining shareholder approval. Resolution 10 seeks such approval in order to preserve this flexibility. The shorter notice period would not however be used as a matter of routine for such meetings, but only where it is merited by the business of the meeting and is considered to be in the interests of shareholders as a whole. If given, the approval will be effective until the Company’s next annual general meeting, when it is intended that a similar resolution will be proposed. Note that the changes to the 2006 Act mean that, in order to be able to call a general meeting on less than 21 clear days’ notice, the Company must make a means of electronic voting available to all shareholders for that meeting. 222222222222222222222222222222222222222222222222 11 Auditors A resolution to reappoint the auditors, Ernst & Young LLP, will be proposed at the Annual General Meeting. 222222222222222222222222222222222222222222222222 12 Directors’ statement as to disclosure of information to auditors The directors who were members of the Board at the time of approving the directors’ report are listed on page 5. Having made enquiries of fellow directors and of the Company’s auditors, each of the directors confirms that: l to the best of each director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditors are unaware; and l each director has taken all the steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s auditors are aware of that information. 222222222222222222222222222222222222222222222222 13 We confirm that to the best of our knowledge: l l the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the business review, together with the Chairman’s Statement, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. By order of the Board, David Pyle Secretary 13th June, 2012 9 M S I N T E R N A T I O N A L p l c Statement of directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and regulations. Company law requires the directors to prepare such financial statements for each financial year. Under that law, the directors are required to prepare Group and Parent Company financial statements under IFRSs as adopted by the European Union. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group for that period. In preparing those financial statements, the directors are required to: l l l l l l present fairly the financial position, financial performance and cash flows of the Group and Parent Company; select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in accounting Estimates and Errors and then apply them consistently; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; make judgements that are reasonable; provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Parent Company’s financial position and financial performance; and state whether the Group and Parent Company financial statements have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for preparing the Directors’ Report, the Directors’ Remuneration Report and the Corporate Governance Statement in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules. Independent auditors’ report to the members of MS INTERNATIONAL plc – Registration Number 653735 We have audited the financial statements of MS INTERNATIONAL plc for the 52 weeks ended 28th April, 2012 which comprise the group income statement, the group and company statement of comprehensive income, the group and company statement of changes in equity, the group and company balance sheets, the group and company cashflow statements, and the related notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit 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. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 10, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. 10 M S I N T E R N A T I O N A L p l c Independent auditors’ report to the members of MS INTERNATIONAL plc Continued Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: l l l l the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 28th April, 2012 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: l l l the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the information given in the Corporate Governance Statement set out on pages 44 to 45 of this report with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit; or a Corporate Governance Statement has not been prepared by the company. l l l l l Under the Listing Rules we are required to review: l l l the Directors’ Statement, set out on page 6, in relation to going concern; the part of the Corporate Governance Statement relating to the company’s compliance with the UK Corporate Governance Code; and certain elements of the report to shareholders by the Board on directors’ remuneration. Alistair Denton (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Leeds 13th June, 2012 11 M S I N T E R N A T I O N A L p l c Group income statement For the 52 weeks ended 28th April, 2012 Notes 2012 Total £000 2011 Total £000 54,202 Revenue Cost of sales (37,840) 22222222222222222222222222222222222222 222 2222 16,362 Gross profit 55,948 (36,714) 3/4 19,234 Distribution costs Administrative expenses 2222222222222222222222222222222222222 (2,500) (8,144) (2,226) (8,157) (10,383) 2222222222222222222222222222222222222 2222 2222 5,979 Group operating profit (10,644) 4/5 8,590 Finance revenue Finance costs Other finance revenue/(costs) – pensions 390 (57) (50) 283 2222222222222222222222222222222222222 2222 2222 6,262 Profit before taxation and exceptional items 28 (418) 188 (202) 7 8 23 8,388 Exceptional gain Exceptional write off 1,250 (828) 422 2222222222222222222222222222222222222 2222 2222 Profit before taxation 6,684 Taxation (1,179) 2222222222222222222222222222222222222 2222 2222 Profit for the period attributable to equity holders of the parent 5,505 2222222222222222222222222222222222222 2222 2222 Earnings per share: basic and diluted 30.6p 2222222222222222222222222222222222222 2222 2222 8,388 (2,078) 15 12(e) 6,310 34.8p – – – 10 9 Group and company statement of comprehensive income For the 52 weeks ended 28th April, 2012 Group Company 2012 Total £000 2011 Total £000 2012 Total £000 2011 Total £000 2,379 (2,936) Actuarial (losses)/profits on defined benefit pension scheme Deferred taxation on actuarial profits/losses on defined benefit pension scheme (703) Revaluation deficit on land and buildings (334) Deferred taxation of revaluation deficit on land and buildings (193) Exchange differences on retranslation of foreign operations – 22222222222222222222222222 2222 2222 2222 2222 1,149 Net (expense)/income recognised directly in equity Profit attributable to equity holders of the parent 5,187 22222222222222222222222222 2222 2222 2222 2222 Total recognised income and expense for the period attributable to equity holders of the parent 6,336 22222222222222222222222222 2222 2222 2222 2222 680 – – (194) (703) (334) (193) 3 680 – – – (2,450) 6,310 (2,256) 5,671 1,152 5,505 (2,936) 3,860 3,415 6,657 2,379 12 M S I N T E R N A T I O N A L p l c Group and company statement of changes in equity Capital Issued redemption reserve capital £000 £000 Other Revaluation reserve £000 reserves £000 Special reserve £000 Foreign exchange reserve £000 Treasury shares £000 Retained earnings £000 Total £000 – – 3 – – – (527) 901 – 181 – 2,969 – 1,840 – 1,629 – 1,565 – 18,973 5,505 (391) 10,279 5,505 (a) Group At 1st May, 2010 Profit for the period Other comprehensive profit/(loss) – 1,152 222222222222 222 222 222 222 222 222 222 222 222 1,565 Total comprehensive income 25,630 – Dividends paid (180) 1,250 Transfer – – Change in taxation rates 27 – Exercise of share options 291 Share-based payments – 6 222222222222 222 222 222 222 222 222 222 222 222 2,815 At 30th April, 2011 25,774 – Profit for the period 6,310 Other comprehensive profit – (2,450) 222222222222 222 222 222 222 222 222 222 222 222 2,815 Total comprehensive income 29,634 – Dividends paid (1,271) Change in taxation rates – 42 222222222222 222 222 222 222 222 222 222 222 222 At 28th April, 2012 28,405 222222222222 222 222 222 222 222 222 222 222 222 (391) 17,460 (180) (1,250) – – 6 (100) 20,090 (1,271) – (100) 16,036 6,310 (2,256) 1,629 – – – – – 2,442 – – 27 – – 1,840 – – – – – 184 – – – – – 901 – – – – – – – – 291 – 1,629 – – 1,629 – – 2,469 – 42 1,840 – – 2,469 – – 1,840 – – 184 – (194) (100) 18,819 (10) – – 901 – – 901 – – 1,840 2,815 2,511 1,629 1,676 (10) 901 – – – – – – 901 – – (391) – – 1,840 – – 8,813 5,187 1,676 1,629 – – 2,969 – (527) 1,840 – – – – (b) Company 1,565 At 1st May, 2010 17,326 – Profit for the period 5,187 Other comprehensive loss – 1,149 222222222222 222 222 222 222 222 222 222 222 222 1,565 Total comprehensive income 23,662 – Dividends paid (180) – Change in taxation rates 27 – Exercise of share options 291 Share-based payments – 6 222222222222 222 222 222 222 222 222 222 222 222 1,565 At 30th April, 2011 23,806 – Profit for the period 5,671 Other comprehensive profit – (2,256) 222222222222 222 222 222 222 222 222 222 222 222 1,565 Total comprehensive income 27,221 – Dividends paid (1,271) Change in taxation rates – 42 222222222222 222 222 222 222 222 222 222 222 222 At 28th April, 2012 25,992 222222222222 222 222 222 222 222 222 222 222 222 (391) 15,676 (180) – – 6 (100) 18,917 (1,271) – (100) 15,502 5,671 (2,256) 1,629 – – – – 2,442 – 27 – – 901 – – – – 1,629 – – 1,629 – – 1,840 – – 2,469 – 42 2,469 – – 1,840 – – – – 291 – (100) 17,646 901 – – 901 – – – – – – – 1,840 1,565 2,511 1,629 – – – – – – 901 – – – – – 13 M S I N T E R N A T I O N A L p l c Balance sheets At 28th April, 2012 Group 2011 £000 2012 £000 Company 2011 £000 2012 £000 Note 20 31,345 17,674 18,616 30,673 23,365 17 18 19 12 13 14 16 11,694 69 11,451 151 13,818 4,798 – – 12,514 5,160 – – 7,824 12,208 – 604 10,037 6,726 13,757 – 527 9,001 7,099 12,482 377 1,510 9,877 ASSETS Non-current assets 12,187 Property, plant and equipment 114 Intangible assets 11,451 Investments in subsidiaries Deferred income tax asset – 22222222222222222222222222 2222 2222 2222 2222 23,752 22222222222222222222222222 2222 2222 2222 2222 Current assets 6,351 Inventories 12,951 Trade and other receivables 377 Financial assets 1,422 Prepayments 9,137 Cash and short-term deposits 22222222222222222222222222 2222 2222 2222 2222 30,238 22222222222222222222222222 2222 2222 2222 2222 53,990 TOTAL ASSETS 22222222222222222222222222 2222 2222 2222 2222 EQUITY AND LIABILITIES Equity Equity share capital 1,840 901 Capital redemption reserve 1,565 Other reserve 2,469 Revaluation reserve 1,629 Special reserve – Currency translation reserve (100) Treasury shares 15,502 Retained earnings 22222222222222222222222222 2222 2222 2222 2222 23,806 22222222222222222222222222 2222 2222 2222 2222 Non-current liabilities 1,819 Defined benefit pension liability 444 Deferred income tax liability 22222222222222222222222222 2222 2222 2222 2222 2,263 22222222222222222222222222 2222 2222 2222 2222 Current liabilities 26,987 Trade and other payables 934 Income tax payable 22222222222222222222222222 2222 2222 2222 2222 27,921 22222222222222222222222222 2222 2222 2222 2222 53,990 TOTAL EQUITY AND LIABILITIES 22222222222222222222222222 2222 2222 2222 2222 1,840 901 2,815 2,469 1,629 184 (100) 16,036 1,840 901 2,815 2,511 1,629 (10) (100) 18,819 1,840 901 1,565 2,511 1,629 – (100) 17,646 21 22 22 22 22 22 22 22 21,932 1,285 14,995 1,217 19,405 814 4,167 505 4,167 – 1,819 1,207 49,289 30,011 53,376 28,405 25,992 23,217 16,212 49,289 53,376 49,019 25,774 20,219 49,019 4,167 4,672 23 16 3,026 24 These accounts and notes on pages 16 to 42 were approved by the Board of Directors on 13th June, 2012 and signed on its behalf by: Michael Bell, Executive Chairman Michael O’Connell, Finance Director 14 M S I N T E R N A T I O N A L p l c Cash flow statements For the 52 weeks ended 28th April, 2012 Group 2011 £000 2012 £000 Company 2011 £000 2012 £000 Note 6,266 6,262 12 13 7,569 8,388 Profit before taxation and exceptional items Adjustments to reconcile profit before taxation to net cash in flow from operating activities 1,257 Depreciation charge 58 Amortisation charge (283) Finance costs/(revenue) – Foreign exchange (losses)/gains (3) RSA grant release Share based payments 6 (1,238) Increase in inventories (1,917) Decrease/(increase) in receivables 210 Decrease in prepayments 208 (Decrease)/increase in payables 1,832 (Decrease)/increase in progress payments (400) Pension fund payments 22222222222222222222222222 2222 2222 2222 2222 5,996 Cash generated from operating activities 22222222222222222222222222 2222 2222 2222 2222 (44) Interest (paid)/received (1,431) Taxation paid 22222222222222222222222222 2222 2222 2222 2222 4,521 Net cash inflow from operating activities 1,571 442 (283) 16 (3) 6 (1,514) (1,679) 203 (151) 1,798 (400) 1,339 362 202 (150) – – (725) 274 906 (247) (4,163) (400) 1,219 45 179 – – – (375) (806) 895 (674) (4,381) (400) (13) (1,650) 10 (1,420) (44) (1,557) 5,786 1,861 3,271 4,123 6,268 4,667 (379) 99 (3,532) – (2,711) 19 – – Investing activities (202) 12 Purchase of property , plant and equipment 34 Sale of property, plant and equipment 12 (4,148) Purchase of shares in Global-MSI plc net of cash acquired 15 1,000 Dividends received from Global-MSI plc 22222222222222222222222222 2222 2222 2222 2222 (3,316) Net cash outflow from investing activities 22222222222222222222222222 2222 2222 2222 2222 Financing activities 291 Share options exercised (180) Dividends paid 22222222222222222222222222 2222 2222 2222 2222 111 Net cash (outflow)/inflow from financing activities 22222222222222222222222222 2222 2222 2222 2222 1,316 Increase/(decrease) in cash and cash equivalents 7,821 Opening cash and cash equivalents 22222222222222222222222222 2222 2222 2222 2222 9,137 Closing cash and cash equivalents 22222222222222222222222222 2222 2222 2222 2222 (744) 18 – – – (1,271) – (1,271) (136) 9,137 160 9,877 966 8,911 291 (180) (2,692) (1,271) (1,271) 10,037 (3,812) 9,001 9,877 (726) 111 20 11 15 M S I N T E R N A T I O N A L p l c Notes to the financial statements At 30th April, 2012 1 Authorisation of financial statements and statement of compliance with IFRSs The Group’s and Company’s financial statements of MS INTERNATIONAL plc (the ‘Company’) for the year ended 28th April, 2012 were authorised for issue by the board of the directors on 13th June, 2012 and the balance sheets were signed on the Board’s behalf by Michael Bell and Michael O’Connell. MS INTERNATIONAL plc is a public limited company incorporated and domiciled in England and Wales. The Company’s ordinary shares are traded on the London Stock Exchange. The Group’s and Company’s financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU as they apply to the financial statements of the Group and Company for the year ended 28th April, 2012 applied in accordance with the provisions of the Companies Act 2006. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual income statement and related notes. 222222222222222222222222222222222222222222222222 2 Accounting Policies Basis of preparation The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand (£000) except when otherwise indicated. The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The following judgements have had the most significant effect on amounts recognised in the financial statements: Defined benefit pension obligations Measurement of defined benefits obligations requires estimation of future changes in salaries and inflation, as well as mortality rates, the expected return on assets and the selection of a suitable discount rate (see note 23). Contract sales Assessment of the extent to which contract outcomes can be measured reliability. Taxation The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience with previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Impairment of non-financial assets The Group’s impairment test for goodwill and intangible assets with indefinite useful lives is based either on fair value less costs to sell or a value in use calculation. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction on similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. 222222222222222222222222222222222222222222222222 Statement of compliance The consolidated financial statements of MS INTERNATIONAL plc have been prepared in accordance with International Financial Reporting Standards (IFRSs). 222222222222222222222222222222222222222222222222 Basis of consolidation The consolidated financial statements comprises the financial statements of MS INTERNATIONAL plc and its subsidiaries as at the Saturday nearest to the 30th April each period. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-Group transactions that are recognised in assets, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. 16 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 2 Accounting Policies (continued) Change in accounting policies The accounting policies adopted are consistent with those of the previous financial year except as described below. – IAS 24 Related Party Disclosures (Amendment) – IFRIC 14 Prepayments of a minimum funding requirement (Amendment) – Improvements to International Financial Reporting Standards (Issued May 2010) None of the above had a significant impact on the accounting policies, financial position or performance of the Group. 222222222222222222222222222222222222222222222222 The Company’s investments in subsidiaries In its separate financial statements the Company’s investments in subsidiaries are carried at cost less provision for impairment. 222222222222222222222222222222222222222222222222 Foreign currency translation The consolidated financial statements are presented in pounds sterling which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss. Non-monetary items measured at fair value in foreign currency are translated using the exchange rates at the date when the fair value was determined. The main functional currencies of the Group’s overseas subsidiaries are the US$ and the Brazilian Real. As at the reporting date, the assets and liabilities of the overseas subsidiaries are translated into the presentation currency of the Group at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the retranslation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. 222222222222222222222222222222222222222222222222 Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes costs directly attributable to making the asset capable of operating as intended. Borrowing costs attributable to assets under construction are recognised as an expense as incurred. Land and buildings are recognised initially at cost and thereafter carried at fair value less depreciation and impairment charged subsequent to the date of the revaluation. Fair value is based on periodic valuations by an external independent valuer and is determined from market-based evidence by appraisal. Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any revaluation surplus is credited to the revaluation reserve in equity except to the extent that it reverses a decrease in the carrying value of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to the extent of any existing surplus in respect of that asset in the revaluation reserve. Additionally, accumulated depreciation as at revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. 17 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 2 Accounting Policies (continued) Depreciation is provided on all property, plant and equipment, other than freehold land, at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the balance sheet date, of each asset evenly over its expected useful life as follows: Property other than freehold land – over 50 years Plant and machinery – over 3 to 8 years Computer equipment – over 3 to 5 years Fixtures and fittings – over 3 to 8 years The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. 222222222222222222222222222222222222222222222222 Intangible assets Intangible assets acquired separately are measured at cost on initial recognition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The useful economic lives of each tangible asset with finite lives are as follows: Tradename – over 20 years Design database – over 10 years Customer relationships – over 8 years Software costs – over 3 to 5 years Order backlog – over 1 year Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level and are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. 222222222222222222222222222222222222222222222222 Derivative financial instruments and hedging The Group uses derivative financial instruments such as forward currency contracts to hedge its risks associated with foreign currency fluctuations. Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge. Any gains or losses arising from changes in the fair value of derivatives that do not qualify for hedge accounting are taken to the income statement. 18 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 2 Accounting Policies (continued) Inventories Inventories are valued at the lower of historic cost and net realisable value. Costs incurred in bringing each product to its present location and condition is accounted for as follows: Raw Materials – purchase cost on a first-in, first-out basis. Finished goods and work in progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. Progress payments received and receivable are deducted from the value of raw materials and work in progress to which they relate. Any excess progress payments are included in trade and other payables. 222222222222222222222222222222222222222222222222 Trade and other receivables Trade receivables, which generally have 30 days’ terms, are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. Provision is made when there is objective evidence that the Group may not be able to collect the debts. Bad debts are written off when identified. 222222222222222222222222222222222222222222222222 Treasury shares Own shares held by the Company and Group are classified in equity and are recognised at cost. No gain or loss is recognised on the purchase, sale, issue or cancellation of the Group’s own equity instruments. 222222222222222222222222222222222222222222222222 Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above. 222222222222222222222222222222222222222222222222 Pension Scheme The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligation) and is based on actuarial advice. Past service costs are recognised in profit or loss on a straight-line basis over the vesting period or immediately if the benefits have vested. When a settlement (eliminating all obligations for benefits already accrued) or a curtailment (reducing future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement) occurs the obligation and related plan assets are remeasured using current actuarial assumptions and the resultant gain or loss recognised in the income statement during the period in which the settlement or curtailment occurs. The interest element of the defined benefit cost represents the change in present value of scheme obligations resulting from the passage of time, and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long-term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. The difference between the expected return on plan assets and the interest cost is recognised in the income statement as other finance income or expense. Actuarial gains and losses are recognised in full in the statement of recognised income and expense in the period in which they occur. 19 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 2 Accounting Policies (continued) The defined benefit pension asset or liability in the balance sheet comprises the total for each plan of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price information and in the case of quoted securities is the published bid price. The value of a net pension benefit asset is restricted to the sum of any unrecognised past service costs and the present value of any amount the Group expects to recover by way of refunds from the plan or reductions in the future contributions. Contributions to defined contribution schemes are recognised in the income statement in the period in which they become payable. 222222222222222222222222222222222222222222222222 Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree’s identifiable net assets is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity. Goodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree) over the net identifiable amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance with their nature and applicable IFRSs. Identifiable intangible assets, meeting either the contractual-legal or separability criterion are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition- date fair value can be measured reliably. If the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent liabilities and the fair value of any pre-existing interest held in the business acquired, the difference is recognised in profit and loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (or Groups of cash generating units) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal management purposes and not be larger than an operating segment before aggregation. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. 222222222222222222222222222222222222222222222222 20 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 2 Accounting Policies (continued) Revenue Revenue represents the turnover, net of discounts, derived from services provided to customers and sales of products applicable to the period. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. Revenue, in respect of products, is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably, this is usually on despatch. Revenue from the provision of engineering services is recognised as the work is performed. Contract sales are recognised by reference to the stage of completion. Stage of completion is measured by reference to the value of cost completed as a percentage of the total estimated value of the costs of the contract. Where the contract outcome cannot be measured reliably revenue is recognised only to the extent of the costs recognised that are recoverable. 222222222222222222222222222222222222222222222222 Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. 222222222222222222222222222222222222222222222222 Taxes Income tax is charged or credited directly to other comprehensive income or equity if it relates to items that are credited or charged to, respectively, other comprehensive income or equity. Otherwise income tax is recognised in the income statement. 222222222222222222222222222222222222222222222222 Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. 222222222222222222222222222222222222222222222222 Deferred tax Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions: l l l where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date. 222222222222222222222222222222222222222222222222 21 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 2 Accounting Policies (continued) Dividends payable Dividends are recognised when they become legally payable. In the case of interim dividends this is when paid, in the case of final dividends this is when approved by the shareholders. 222222222222222222222222222222222222222222222222 Exceptional items The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and unexpected infrequency of the events giving rise to them merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance. 222222222222222222222222222222222222222222222222 Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Judgement is required in determining the most appropriate valuation model for a grant of equity instruments, depending on the terms and conditions of the grant. Management are also required to use judgement in determining the most appropriate inputs to the valuation model including expected life of the option, volatility and dividend yield. New standards and interpretations not applied – The IASB and IFRIC have issued the following standards, amendments and interpretations with an effective date after the date of these financial statements: International Accounting Standards (IAS/IFRSs) Financial statement presentation (amendment) Income taxes (amendment) Employee benefits (amendment) Separate financial statements (as revised in 2011) Investments in Associates and Joint Ventures (Amendment) Effective date 01 July 2012 01 January 2012 01 January 2013 01 January 2013 01 January 2013 Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendment) 01 January 2013 Financial instruments * Consolidated financial statements Joint arrangements Disclosure of involvement with other entities Fair value measurement 01 January 2013 01 January 2013 01 January 2013 01 January 2013 01 January 2013 Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendment) 01 January 2014 IAS 1 IAS 12 IAS 19 IAS 27 IAS 28 IFRS 7 IFRS 9 IFRS 10 IFRS 11 IFRS 12 IFRS 13 IAS 32 * This has not yet been EU adopted so the effective date may change. The Group is currently assessing the impact that these standards will have on the financial position and performance. 222222222222222222222222222222222222222222222222 3 Revenue 2012 £000 2011 £000 Sale of goods 34,091 19,702 Revenue under contract accounting 2222222222222222222222222222222222222 2222 2222 53,793 409 Rendering of services 2222222222222222222222222222222222222 2222 2222 54,202 2222222222222222222222222222222222222 2222 2222 55,429 519 42,655 12,774 55,948 No revenue was derived from exchanges of goods or services (2011 – £Nil). 222222222222222222222222222222222222222222222222 22 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 4 Segment information The following table presents revenue and profit and certain assets and liability information regarding the Group's divisions for the periods ended 28th April, 2012 and 30th April, 2011. The reporting format is determined by the differences in manufacture and services provided by the Group. The Defence division is engaged in the design, manufacture and service of defence equipment. The Forgings division is engaged in the manufacture of forgings. The Petrol Station Forecourt Superstructures division is engaged in the design and construction of petrol station superstructures. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. Group financing (including finance costs and finance revenue) and income taxes are managed on a Group basis and are not allocated to operating segments. Defence Forgings 2012 £000 2011 £000 2012 £000 2011 £000 Petrol Station Superstructures 2011 2012 £000 £000 Total 2012 £000 2011 £000 Revenue External 2222222222 Total revenue 2222222222 Segment result Net finance costs Net exceptional gain 2222222222 Profit before taxation 2222222222 Taxation 2222222222 Profit for the period 2222222222 Segmental assets Unallocated assets 2222222222 Total assets 2222222222 Segmental liabilities Unallocated liabilities 2222222222 Total liabilities 2222222222 Capital expenditure Depreciation 22222222 Geographical analysis 37 588 896 5,354 9,007 9,007 1,071 6,623 32,568 32,568 12,627 12,627 10,568 15,524 10,568 15,524 55,948 54,202 29,856 222 222 222 222 222 222 222 222 55,948 54,202 29,856 222 222 222 222 222 222 222 222 5,979 8,590 283 (202) 422 – 222 222 6,684 222 222 (2,078) (1,179) 222 222 5,505 222 222 38,273 41,901 7,118 11,016 222 222 49,289 49,019 222 222 17,830 20,310 2,935 3,054 222 222 20,884 23,245 222 222 25,764 32,762 16,135 9,932 6,310 8,388 6,973 5,536 3,636 4,262 6,183 2,956 2,996 1,179 164 249 222 222 222 222 222 222 1,896 290 562 477 97 346 6 357 4 774 The following table presents revenue and expenditure and certain assets and liabilities information by geographical segment for the periods ended 28th April, 2012 and 30th April, 2011. The Group's geographical segments are based on the location of the Group's assets. Revenue from external customers is based on the geographical location of its customers. Europe 2012 £000 2011 £000 North America 2011 £000 2012 £000 Rest of the World 2011 £000 2012 £000 Total 2012 £000 2011 £000 Revenue External 2222222222 Non-current assets Current assets Liabilities 2222222222 Capital expenditure 2222222222 9,989 11,405 33,635 20,218 55,948 54,202 25,741 222 222 222 222 222 222 222 222 18,616 17,674 18,198 30,673 31,345 28,813 20,884 23,245 20,665 222 222 222 222 222 222 222 222 379 7 222 222 222 222 222 222 222 222 17,464 29,870 23,078 290 981 14 128 879 205 142 746 36 68 729 131 2,401 2,711 9,162 217 366 93 6 23 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 4 Segment information (continued) Information about major customers 2012 £000 2011 £000 Revenue from major customers arising from sales reported in the Defence Segment: Customer 1 Customer 1 Customer 2 – 9,846 9,196 222222222222222222222222222222222222222222222222 16,898 – – 5 Group operating profit This is stated after charging/(crediting): Audit of the financial statements Other fees for auditors Other assurance services Taxation service 2012 £000 78 15 19 2011 £000 79 11 37 1,571 442 416 531 112 28,693 900 (3) 275 222222222222222222222222222222222222222222222222 Depreciation Amortisation of intangible assets Foreign exchange (profits)/losses Hire of plant and machinery Other operating leases – minimum lease payments Cost of inventories recognised as an expense Research and development costs RSA grant release Redundancy and terminations costs 1,339 362 (267) 673 91 26,494 950 – 25 6 Employee Information 2012 Number 2011 Number The average number of employees, including executive directors, during the period was: Production Technical Distribution Administration 210 58 21 55 2222222222222222222222222222222222222 2222 2222 344 2222222222222222222222222222222222222 2222 2222 219 64 23 53 359 (a) Staff costs Their, including executive directors, employment costs were as follows: 2012 £000 2011 £000 Wages and salaries Social Security costs Other pension costs Share option costs (note 31) 11,286 1,250 717 6 2222222222222222222222222222222222222 2222 2222 13,259 2222222222222222222222222222222222222 2222 2222 12,310 1,440 851 – 14,601 (b) Directors’ emoluments 2012 £000 2011 £000 1,366 2222222222222222222222222222222222222 2222 2222 Aggregate directors’ emoluments (note 30) 1,688 24 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 7 Finance revenue 2012 £000 2011 £000 Bank interest Financial instrument fair value Other 12 377 1 2222222222222222222222222222222222222 2222 2222 390 2222222222222222222222222222222222222 2222 2222 28 – – 28 8 Finance costs 2011 £000 49 - 8 2222222222222222222222222222222222222 2222 2222 57 2222222222222222222222222222222222222 2222 2222 Bank interest Financial instrument fair value Interest on taxation 2012 £000 40 377 1 418 9 (a) Taxation The charge for taxation comprises: 2012 £000 2011 £000 Current tax United Kingdom corporation tax Tax (over)/under provided in previous years Foreign corporation tax 1,948 (283) 117 2222222222222222222222222222222222222 2222 2222 1,782 2222222222222222222222222222222222222 2222 2222 1,870 – 292 Group current tax 2,162 Deferred tax Origination and reversal of temporary differences (note 16) Adjustments in respect of prior years Impact of reduction in deferred tax rate (26% to 24%) (525) 13 (91) 2222222222222222222222222222222222222 2222 2222 (603) 2222222222222222222222222222222222222 2222 2222 1,179 2222222222222222222222222222222222222 2222 2222 102 (104) (82) Group deferred tax Tax on profit 2,078 (84) Tax relating to items charged or credited to other comprehensive income Deferred tax Actuarial gains on pension scheme current year (credit)/charge Impact of reduction in deferred tax rate (26% to 24%) 662 41 2222222222222222222222222222222222222 2222 2222 703 2222222222222222222222222222222222222 2222 2222 Income tax (credit)/charge in the statement of comprehensive income (763) 83 (680) 25 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 9 (b) Factors affecting the tax charge for the year The tax assessed for the period differs to the standard rate of corporation tax in the UK (26%). The differences are explained below: 2012 £000 2011 £000 Profit before tax 6,684 2222222222222222222222222222222222222 2222 2222 1,872 Profit multiplied by standard rate of corporation tax of 26% (2011 – 28%) Effects of: Expenses not deductible for tax purposes Adjustment in respect of prior periods Impact of reduction in deferred tax rate (26% to 24%) Non-taxable exceptional gain 18 (270) (91) (350) 2222222222222222222222222222222222222 2222 2222 1,179 2222222222222222222222222222222222222 2222 2222 Total tax charge for the period 83 (104) (82) – 8,388 2,181 2,078 10 Earnings per share The calculation of basic and diluted earnings per share is based on: (a) Profit for the period attributable to equity holders of the parent of £6,310,000 (2011 – £5,505,000); (b) 18,151,025(2011 – 18,003,085) Ordinary shares, being the diluted weighted average number of Ordinary shares in issue. This represents 18,396,073 (2011 – 18,396,073) being the weighted average number of Ordinary shares in issue less 245,048 (2011 – less 392,988) being the diluted weighted average number of shares held within the ESOT. 222222222222222222222222222222222222222222222222 11 Dividends paid and proposed 2012 £000 2011 £000 Declared and paid during the year On Ordinary shares Final dividend for 2011: 5.50p (2010 – 3.80p) 1.50p (2011 – 1.00p) Interim dividend for 2012: – 180 2222222222222222222222222222222222222 2222 2222 180 2222222222222222222222222222222222222 2222 2222 998 273 1,271 Proposed for approval by shareholders at the AGM Final dividend for 2012: 6.50p (2011 – 5.50p) 998 2222222222222222222222222222222222222 2222 2222 1,180 26 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 12 Property, plant and equipment Freehold property £000 Plant and equipment £000 (a) Group Cost or valuation At 1st May, 2010 Additions Disposals Acquisition of Global-MSI plc Impairment write off (see (e) below) Revaluation Exchange differences 14,173 379 (649) 343 (2,418) – (26) 2222222222222222222222222222222 2222 2222 11,802 1,126 (265) (104) 2222222222222222222222222222222 2222 2222 12,559 2222222222222222222222222222222 2222 2222 At 30th April, 2011 Additions Disposals Exchange differences 10,204 – – – – (954) – 9,250 1,585 – – At 28th April, 2012 10,835 Accumulated depreciation At 1st May, 2010 Depreciation charge for the period Disposals Impairment write off (see (e) below) Revaluation Exchange differences 9,256 1,438 (550) (1,590) – (16) 2222222222222222222222222222222 2222 2222 8,538 1,202 (246) (55) 2222222222222222222222222222222 2222 2222 9,439 2222222222222222222222222222222 2222 2222 3,120 2222222222222222222222222222222 2222 2222 3,264 2222222222222222222222222222222 2222 2222 At 30th April, 2011 Depreciation charge for the period Disposals Exchange differences 487 133 – – (620) – Net book value at 28th April, 2012 Net book value at 30th April, 2011 At 28th April, 2012 – 137 – – 10,698 9,250 137 Analysis of cost or valuation At professional valuation 2012 At cost – 12,559 2222222222222222222222222222222 2222 2222 12,559 2222222222222222222222222222222 2222 2222 9,250 1,585 10,835 27 Total £000 24,377 379 (649) 343 (2,418) (954) (26) 222 21,052 2,711 (265) (104) 222 23,394 222 9,743 1,571 (550) (1,590) (620) (16) 222 8,538 1,339 (246) (55) 222 9,576 222 13,818 222 12,514 222 9,250 14,144 222 23,394 222 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 12 (b) Property, plant and equipment (continued) Company Freehold property £000 Plant and equipment £000 Cost or valuation At 1st May, 2010 Additions Disposals Transfer from group company Impairment write off (see (e) below) Revaluation 12,186 202 (288) 1,963 (2,418) – 2222222222222222222222222222222 2222 2222 11,645 744 (355) 2222222222222222222222222222222 2222 2222 12,034 2222222222222222222222222222222 2222 2222 At 30th April, 2011 Additions Disposals 10,204 – – – – (954) 9,250 – – At 28th April, 2012 9,250 Accumulated depreciation At 1st May, 2010 Depreciation charge for the period Disposals Transfer from group company Impairment write off (see (e) below) Revaluation 7,960 1,124 (254) 1,468 (1,590) – 2222222222222222222222222222222 2222 2222 8,708 1,094 (337) 2222222222222222222222222222222 2222 2222 9,465 2222222222222222222222222222222 2222 2222 2,569 2222222222222222222222222222222 2222 2222 2,937 2222222222222222222222222222222 2222 2222 At 30th April, 2011 Depreciation charge for the period Disposals 487 133 – – – (620) Net book value at 28th April, 2012 Net book value at 30th April, 2011 At 28th April, 2012 – 125 – 9,125 9,250 125 Analysis of cost or valuation At professional valuation 2012 At cost – 12,034 2222222222222222222222222222222 2222 2222 12,034 2222222222222222222222222222222 2222 2222 9,250 – 9,250 Total £000 22,390 202 (288) 1,963 (2,418) (954) 222 20,895 744 (355) 222 21,284 222 8,447 1,257 (254) 1,468 (1,590) (620) 222 8,708 1,219 (337) 222 9,590 222 11,694 222 12,187 222 9,250 12,034 222 21,284 222 (c) (d) Depreciation has not been charged on freehold land which is included at a book value of £3,245,000 (2011 – £3,245,000) Company £3,245,000 (2011 – £3,245,000) at 28th April, 2012. The Group's land and buildings were independently valued by Dove Haigh Phillips as at 30th April, 2011, on the basis of an existing use value in accordance with the Appraisal and Valuation Standards (5th Edition) published by the Royal Institution of Chartered Surveyors. This has given rise to a revaluation surplus of £3,062,000. Had the land and buildings not been revalued the carrying value would be £6,188,000. (e) A review of plant and equipment in the forgings division resulted in a impairment write off of unused assets of £828,000 (cost £2,418,000 less depreciation to date £1,590,000). 28 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 13 Intangible assets Group Cost At 1st May, 2010 Acquisition of Global-MSI plc 222222222222222 At 30th April, 2011 Additions 222222222222222 At 28th April, 2012 222222222222222 Amortisation At 1st May, 2010 Amortisation during the year 222222222222222 At 30th April, 2011 Amortisation during the year 222222222222222 At 28th April, 2012 222222222222222 Net book value at 28th April, 2012 222222222222222 Net book value at 30th April, 2011 222222222222222 Goodwill £000 Trade name £000 Design Customer database relationship £000 £000 Order Development costs £000 backlog £000 Software costs £000 Group £000 – 111 – 865 – 2,064 – 1,020 – 1,370 609 5,430 222 222 222 222 222 222 222 222 6,039 – 222 222 222 222 222 222 222 222 6,039 222 222 222 222 222 222 222 222 1,370 – 2,064 – 1,020 – 330 – 865 – 279 – 111 – 2,064 1,020 1,370 279 – 330 – 865 279 330 111 – – – 40 – 117 – 125 – 102 437 442 222 222 222 222 222 222 222 222 879 362 222 222 222 222 222 222 222 222 1,241 222 222 222 222 222 222 222 222 125 138 279 – 216 45 102 9 117 127 40 43 279 111 261 244 263 – – 83 – 279 – 158 58 2,064 4,798 222 222 222 222 222 222 222 222 1,107 776 782 69 – – 2,064 5,160 222 222 222 222 222 222 222 222 1,245 825 903 114 9 – Development costs £000 Software costs £000 Company £000 Company Cost At 1st May, 2010 Additions 330 – 2222222222222222222222222222222 2222 2222 330 – 2222222222222222222222222222222 2222 2222 330 2222222222222222222222222222222 2222 2222 At 30th April, 2011 Additions At 28th April, 2012 279 – 279 – 279 Amortisation At 1st May, 2010 Amortisation during the year At 30th April, 2011 Amortisation during the year 158 58 2222222222222222222222222222222 2222 2222 216 45 2222222222222222222222222222222 2222 2222 261 2222222222222222222222222222222 2222 2222 69 2222222222222222222222222222222 2222 2222 114 2222222222222222222222222222222 2222 2222 Net book value at 28th April, 2012 Net book value at 30th April, 2011 At 28th April, 2012 279 – 279 – 279 – – 609 – 222 609 – 222 609 222 437 58 222 495 45 222 540 222 69 222 114 222 Goodwill acquired through business combinations and licences has been allocated for impairment testing purposes to the petrol station superstructures division which is an operating segment. 29 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 13 Intangible assets (continued) Impairment testing Goodwill considered significant in comparison to the group’s total carrying amount of such assets has been allocated to cash-generating units or groups of cash-generating units as follows: Goodwill 2012 £000 Goodwill 2011 £000 2,064 2222222222222222222222222222222222222 2222 2222 Petrol stations superstructure division 2,064 Group The performance of the petrol station superstructure division is the lowest level at which goodwill is monitored for internal management purposes. At the year end, value in use was determined by discounting the future cash flows generated from the continuing operations of the company over the next five years and was based on the following key assumptions: l l l Detailed five year management forecast. A growth in cashflows estimated for five years, and a growth rate of 2% assumed thereafter. Cash flows were discounted at a rate of 17.97%. This is the discount rate as calculated using the Weighted Average Cost of Capital. Based on the above assumptions, the value in use calculated for Global-MSI did not indicate the need for impairment. The growth rates used in the value in use calculation reflect management’s expectations for the business based upon previous experience and taking into consideration recent sales wins. No likely changes in the assumptions used would give rise to an impairment. 222222222222222222222222222222222222222222222222 14 Investment in subsidiary undertakings Principal subsidiary undertakings are set out on page 49. Company 2012 £000 2012 £000 Cost Impairment 2012 £000 Net book value 2011 £000 2011 £000 Cost Impairment 2011 £000 Net book value Investment in subsidiary undertakings 11,451 (2,006) 222222222222222 2222 2222 2222 2222 2222 2222 13,457 11,451 (2,006) 13,457 15 Aquisitions Group On 28th May, 2010 the Group acquired for a consideration of £4,500,000 a further 50% of the shares of Global- MSI plc (GMSI), not previously owned by the Group, to give a total shareholding of 100% of the shares of GMSI. GMSI is involved in the design, manufacture and construction of petrol station superstructures and associate infrastructure products. Until the 28th May, 2010, GMSI was included in the Group accounts as a joint venture using proportionate consolidation. As a result of this acquisition, the Group’s previously held investment under proportionate consolidation has been provisionally remeasured, in accordance with IFRS3 “Business Combinations” (revised), as detailed in the table below to represent 100% of it’s fair value on the date of acquisition resulting in a gain of £1,250,000 recognised in the Group income statement. 30 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 15 Aquisitions (continued) Book and fair values of the net assets acquired at the date of acquisition are as follows: Plant and equipment Inventories Receivables Prepayments Cash Payables Deferred tax liability Corporation tax liability Trade name Design database Customer relationships Order backlog Intangible assets Fair value to Group £000 686 164 1,338 76 1,936 (1,588) (953) (76) 865 1,370 1,020 111 3,366 2222222222222222222222222222222222222 2222 2222 4,949 2222222222222222222222222222222222222 2222 2222 2,064 2222 7,013 2222 Book value £000 686 164 1,338 76 1,936 (1,588) (10) (76) – – – – – 2222222222222222222222222222222222222 2222222222222222222222222222222222222 Goodwill arising on acquisition Fair value of consideration Net Assets 2,526 Allocated as follows: Net assets acquired (50% x £2,526,000) Consideration Exceptional gain 2222222222222222222222222222222222222 2222222222222222222222222222222222222 16 Deferred income tax The deferred income tax included in the Group income statement is as follows: £000 1,263 4,500 1,250 2222 7,013 2222 2012 £000 2011 £000 Taxation deferred by capital allowances Other temporary differences Taxation on defined benefits pension Adjustments in respect of prior periods Impact of reduction in deferred tax rate (26% to 24%) (339) (172) (14) 13 (91) 2222222222222222222222222222222222222 2222 2222 (603 2222222222222222222222222222222222222 2222 2222 (16) 69 49 (104) (82) (84) The deferred income tax included in the balance sheet is as follows: 2012 £000 2011 £000 Group Taxation deferred by capital allowances Other temporary differences Taxation on pension liability Taxation on buildings revaluation (588) (547) 473 (545) 2222222222222222222222222222222222222 2222 2222 (1,207) 2222222222222222222222222222222222222 2222 2222 (529) (473) 1,000 (503) Deferred income tax liability (505) 31 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 16 Deferred income tax (continued) 2012 £000 2011 £000 Company Taxation deferred by capital allowances Other temporary differences Taxation on pension liability Taxation on buildings revaluation (587) 215 473 (545) 2222222222222222222222222222222222222 2222 2222 (444) 2222222222222222222222222222222222222 2222 2222 Deferred income tax asset/(liability) (500) 154 1,000 (503) 151 Following the budget on 21st March, 2012 a resolution under the provisional collection of taxes act resulted in the corporation tax rate reducing to 24% with effect from 1st April, 2012. Deferred tax has, therefore, been provided at 24%. The budget on 21st March, 2012 also announced a further reduction of 1% per annum in the main rate of corporation tax down to 22% by 1st April, 2014. This change had not been substantatively enacted by the balance sheet date. If these changes had been substantially enacted at the balance sheet date, the deferred tax liability at 28th April, 2012 would have reduced by £41,000. The Group and Company also has capital losses of £4,350,000 (2011 – £4,350,000). 222222222222222222222222222222222222222222222222 17 Inventories Group Company Raw materials Work in progress Finished goods 222222222222222222222222 222222222222222222222222 18 Trade and other receivables Trade receivables Retentions on contracts Amounts owed by subsidiary undertakings Other receivables 222222222222222222222222 222222222222222222222222 Gross amounts due from customers for contract work – included above 222222222222222222222222 2012 £000 2011 £000 2012 £000 2,458 4,158 483 2,963 4,326 535 2,588 4,007 131 2222 2222 2222 6,726 2222 2222 2222 7,824 7,099 2011 £000 2,157 4,064 130 222 6,351 222 Group Company 2012 £000 2011 £000 2012 £000 8,087 4,384 – 11 7,749 4,456 – 3 6,534 4,456 2,764 3 2222 2222 2222 13,757 2222 2222 2222 12,208 12,482 5,204 4,659 2222 2222 2222 4,675 2011 £000 7,352 4,384 1,207 8 222 12,951 222 4,675 222 The aggregate amount of costs incurred and recognised profits to date on contracts is £12,774,000 (2011 – £19,702,000). 32 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 18 Trade and other receivables (continued) (a) Trade receivables are denominated in the following currencies: Group Company Sterling Euro US dollar Other currencies 222222222222222222222222 222222222222222222222222 2012 £000 2011 £000 2012 £000 6,158 359 1,116 454 4,600 598 2,007 544 4,600 325 1,609 – 2222 2222 2222 6,534 2222 2222 2222 7,749 8,087 2011 £000 6,158 328 824 42 222 7,352 222 Trade receivables are non-interest bearing and are generally on 30 days’ terms and are shown net of provision for impairment. The aged analysis of trade receivables not impaired is as follows: Group 2012 2011 Total £000 7,749 8,087 Not past due £000 5,453 4,254 < 30 days £000 30-60 days £000 60-90 days £000 > 90 days £000 2,138 1,684 89 1,624 – 144 69 381 As at 28th April, 2012 trade receivables at a nominal value of £355,000 (2011 – £58,000) were impaired and fully provided for. Bad debts of £nil (2011 – £5,000) were incurred. Company 2012 2011 6,534 7,352 4,564 3,866 1,863 1,403 61 1,575 – 136 46 372 (b) Retentions on contracts are denominated in the following currencies: Group Company Sterling Euro US dollar Other currencies 222222222222222222222222 222222222222222222222222 2012 £000 2011 £000 2012 £000 4,369 15 – – 1,912 2,544 – – 1,912 2,544 – – 2222 2222 2222 4,456 2222 2222 2222 4,456 4,384 2011 £000 4,369 15 – – 222 4,384 222 Retentions on contracts are non interest bearing and represent amounts contractually retained by customers on completion of contracts for specific time periods as follows: Group 2012 2011 Total £000 4,456 4,384 Up to 6 months £000 4,456 4,384 6-12 months £000 12-18 months £000 – – – – 18-24 months £000 – – Company 2012 2011 – 4,456 – 4,384 222222222222222222222222222222222222222222222222 4,456 4,384 – – – – 33 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 19 Financial assets Forward currency hedging contracts 222222222222222222222222 20 Cash Cash at bank and in hand Short term deposits 222222222222222222222222 222222222222222222222222 21 Issued capital Group Company 2012 £000 2011 £000 2012 £000 – 2222 2222 2222 – 377 2011 £000 377 222 Group Company 2012 £000 2011 £000 2012 £000 9,872 5 10,032 5 8,996 5 2222 2222 2222 9,001 2222 2222 2222 10,037 9,877 2011 £000 9,132 5 222 9,137 222 Group Company 2012 £000 3,500 2011 £000 3,500 2012 £000 3,500 2011 £000 3,500 Ordinary shares at 10p each Authorised – 35,000,000 (2011 – 35,000,000) Allotted, issued and fully paid – 18,396,073 (2011 – 18,396,073) 1,840 222222222222222222222222222222222222222222222222 1,840 1,840 1,840 22 Reserves Share Capital The balance classified as share capital includes the nominal value on issue of the Company’s equity share capital, comprising 10p Ordinary shares. Capital redemption reserve The balance classified as capital redemption reserve represents the nominal value of issued share capital of the Company, repurchased. Other reserve This is the revaluation reserve previously arising under UK GAAP which is now part of non-distributable retained reserves. Revaluation reserve The asset revaluation reserve is used to record increases in the fair value of land and buildings and decreases to the extent that such decrease relates to an increase on the same assets previously recognised in equity. This also includes the impact of the change in related deferred tax due to the change in corporation tax (26% to 24%). Special reserve The balance classified as special reserve represents the share premium on the issue of the Company’s equity share capital. Currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. Treasury Shares During 1991 the Company established an Employee Share Ownership Trust (“ESOT”). The trustee of the ESOT is Appleby Trust (Jersey) Ltd, an independent company registered in Jersey. The ESOT provides for the issue of options over Ordinary shares in the Company to Group employees, including executive directors, at the discretion of the Remuneration Committee. 34 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 22 Reserves (continued) The trust has purchased an aggregate 245,048 (2011- 245,048) Ordinary shares, which represents 1.3% (2011 – 1.3%) of the issued share capital of the Company at an aggregate cost of £100,006. The market value of the shares at 28th April, 2012 was £722,892. The Company has made payments of £Nil (2011 – £Nil) into the ESOT bank accounts during the period. No options over shares (2011 – Nil) have been granted during the period. Details of the outstanding share options, for Directors are included in the Directors’ remuneration report. The assets, liabilities, income and costs of the ESOT have been incorporated into the Company’s financial statements. Total ESOT costs charged to the income statement in the period amounts to £3,000 (2011 – £6,000). During the period no options on shares were exercised (2011 – 150,000) and no shares were purchased (2011 – Nil). 222222222222222222222222222222222222222222222222 23 Pension liability The Company operates an employee defined benefit scheme called the MS INTERNATIONAL plc Retirement and Death Benefits Scheme (‘“the Scheme’”). IAS19 requires disclosure of certain information about the Scheme as follows: l l l l The employer operates a defined contribution pension scheme. Until 5th April, 1997, the Scheme provided defined benefits and these liabilities remain in respect of service prior to 6th April, 1997. From 6th April, 1997 the Scheme provides future service benefits on a defined contribution basis. The last formal valuation of the Scheme was performed at 5th April, 2011 by a professionally qualified actuary. Members have paid contributions at a rate in line with the Scheme’s documentation over the accounting period. The employer has paid members contributions to the defined contributions section of the Scheme, life assurance premiums and other Scheme expenses. In addition, from April 2009, the employer has paid £100,000 per annum to the defined benefit section of the scheme. The Company’s policy for recognising actuarial gains and losses is to recognise them immediately through the statement of comprehensive income. Assumptions 2012 2011 5.35% 7.26% 4.10% 3.60% 2.70% 19.80 yrs 21.60 yrs 222222222222222222222222222222222222222222222222 Discount rate at year-end Expected return on plan assets at year-end Future salary increases Pension increases – RPI inflation Pension increases – CPI inflation Life expectancy of current pensioners (from age 65) Life expectancy of future pensioners (from age 65) 4.70% 6.70% 3.75% 3.25% 2.35% 20.10yrs 21.10yrs Balance sheet 2012 £000 2011 £000 Present value of obligations Fair value of plan assets 25,350 23,531 2222222222222222222222222222222222222 2222 2222 1,819 2222222222222222222222222222222222222 2222 2222 – 2222222222222222222222222222222222222 2222 2222 1,819 2222222222222222222222222222222222222 2222 2222 Unrecognised actuarial gains/(losses) 27,357 23,190 Net liability 4,167 4,167 – 35 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 23 Pension liability (continued) Profit & loss 2012 £000 2011 £000 Current service cost Interest on obligation Expected return on plan assets – 1,430 (1,380) 2222222222222222222222222222222222222 2222 2222 50 2222222222222222222222222222222222222 2222 2222 Total profit and loss (income)/cost – 1,308 (1,496) (188) Change in defined benefit obligation 2012 £000 2011 £000 Opening defined benefit obligation Service cost Interest cost Actuarial losses/(gains) Benefits paid 26,866 – 1,430 (1,113) (1,833) 2222222222222222222222222222222222222 2222 2222 25,350 2222222222222222222222222222222222222 2222 2222 25,350 – 1,308 2,182 (1,483) Defined benefit obligation 27,357 Change in fair value of plan assets 2012 £000 2011 £000 Opening fair value of plan assets Expected return Actuarial (losses)/gains Contributions by employer Contributions by employee Benefits paid 22,318 1,380 1,266 400 – (1,833) 2222222222222222222222222222222222222 2222 2222 23,531 2222222222222222222222222222222222222 2222 2222 23,531 1,496 (754) 400 – (1,483) Fair value of plan assets 23,190 Statement of comprehensive income 2012 £000 2011 £000 Actual return less expected return on assets Experience (losses)/gains arising on scheme liabilities Changes in assumptions underlying the present value of scheme liabilities 1,266 712 401 2222222222222222222222222222222222222 2222 2222 2,379 2222222222222222222222222222222222222 2222 2222 (754) (834) (1,348) (2,936) 100 2222222222222222222222222222222222222 2222 2222 Expected Group contribution to plan during next accounting year 100 2012 £000 2011 £000 36 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 23 Pension liability (continued) Breakdown of assets at 28th April, 2012 Equities Alternative assets Corporate Bonds Gilts Cash/other 2222222222222222222222222222 2222222222222222222222222222 Breakdown of assets at 30th April, 2011 Equities Alternative assets Corporate Bonds Gilts Cash/other 2222222222222222222222222222 2222222222222222222222222222 Long-term expected return Plan assets Asset allocation 8.00% 8.00% 5.00% 3.00% 1.00% 17,210 84 2,825 2,505 566 74% 0% 12% 11% 3% 2222 2222 2222 100% 2222 2222 2222 23,190 7.00% Long-term expected return Plan assets assets Asset allocation 8.20% 8.20% 5.35% 4.20% 0.50% 17,251 320 3,034 2,379 547 73% 2% 13% 10% 2% 2222 2222 2222 100% 2222 2222 2222 23,531 7.26% Fair value of scheme assets Present value of defined benefit obligation 2222222222222222222 (Deficit)/surplus in the scheme Experience adjustments arising on plan liabilities Experience adjustments arising on plan assets 2222222222222222222 2012 £000 23,190 2011 £000 2010 £000 2009 £000 2008 £000 23,531 22,318 18,808 25,420 (27,357) (23,564) 2222 2222 2222 2222 2222 1,856 (21,613) (25,350) (26,866) (4,548) (1,819) (2,805) (4,167) (834) 712 (1,336) 598 523 (1,068) 2222 2222 2222 2222 2222 (7,259) 3,334 1,266 (754) 24 Trade and other payables Group Company 2012 £000 2011 £000 2012 £000 4,697 – 1,227 2,782 6,289 3,514 – 2,775 2,664 10,452 4,252 8,102 1,036 2,609 5,933 2222 2222 2222 21,932 2222 2222 2222 14,995 19,405 6,289 5,933 2222 2222 2222 10,452 2011 £000 3,479 8,064 2,620 2,510 10,314 222 26,987 222 10,314 222 Trade payables Amounts owed to subsidiary undertakings Other payables Accruals Progress payments 222222222222222222222222 222222222222222222222222 Gross amounts due to customers for contract work – included above 222222222222222222222222 37 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 25 Financial instruments Management of financial risks The major financial risks faced by the Group and Company are funding risks, interest rate risks and currency risks. Funding risk At the year end the Group had net cash of £10.04m – Company £9.00m (2011 Group – £9.88m – Company £9.14m). The Group and Company has available a bank multicurrency overdraft facility of £4.8m which is renewable on 31st October, 2012. Interest rate risk The bank multicurrency overdraft facility is at a floating rate of interest, based on the base rate of each respective currency. This position is monitored constantly by the Board to ensure any risk is minimised. The Board believe that the main interest rate risk relates to maximising interest income on cash balances. The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant of the Group’s profit before tax. There is no impact on the Group’s equity. 2012 Sterling 2011 Sterling Increase/decrease in basis points Effect on profit before tax +50 –50 +50 –50 50 (50) 50 (50) The interest rate profile of the financial assets of the Group and Company as at 28th April, 2012 was as follows: Group Company 2012 Sterling US Dollar Euro Other 222222222222222222 Total 222222222222222222 2011 Sterling US Dollar Euro 222222222222222222 Total 222222222222222222 Floating rate financial assets/ (liabilities) £000 Floating rate financial assets/ (liabilities) £000 Total £000 10,592 (578) 921 (898) 2222 10,037 2222 7,696 1,281 900 2222 9,877 2222 10,592 (578) 921 (898) 2222 10,037 2222 7,696 1,281 900 2222 9,877 2222 10,590 (681) 325 (1,233) 2222 9,001 2222 7,480 1,223 434 2222 9,137 2222 Total £000 10,590 (681) 325 (1,233) 222 9,001 222 7,480 1,223 434 222 9,137 222 38 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 25 Financial instruments (continued) Foreign currency risk Exposure to risk is incurred by the Group and Company through overseas sales. This exposure is minimised by the following: (1) (2) invoicing in sterling where practicable. using foreign currency received for purchases where appropriate. Currency exposures The table below shows the Group's currency exposures; i.e., those transactional exposures that give rise to the net currency gains and losses recognised in the income statement. Such exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in the operating (or "functional") currency of the operating unit involved. As at 28th April, 2012 these currency exposures are as follows: Functional currency of Group operations 2012 Sterling 222222222222222222222222 Total 222222222222222222222222 2011 Sterling 222222222222222222222222 Total 222222222222222222222222 Functional currency of Company operations 2012 Sterling 222222222222222222222222 Total 222222222222222222222222 2011 Sterling 222222222222222222222222 Total 222222222222222222222222 Net foreign currency monetary assets/(liabilities)d Sterling £000 US Dollar £000 Total £000 Euro £000 1,127 (1,407) 1,113 2222 2222 2222 1,113 2222 2222 2222 (1,407) 1,127 263 1,131 694 2222 2222 2222 694 2222 2222 2222 1,131 263 833 222 833 222 2,088 222 2,088 222 Net foreign currency monetary assets/(liabilities)d Sterling £000 US Dollar £000 Total £000 Euro £000 (694) 1,127 244 2222 2222 2222 244 2222 2222 2222 1,127 (694) – 1,131 694 2222 2222 2222 694 2222 2222 2222 1,131 – 677 222 677 222 1,825 222 1,825 222 No significant differences exist between the book value and the fair value of the financial assets and liabilities as at 28th April, 2012 and 30th April, 2011. Fair values No significant differences exist between the book value and the fair value of the financial assets and liabilities as at 28th April, 2012 and 30th April, 2011. Credit risk There are no significant concentrations of credit risk within the Group or Company. The maximum credit risk exposure relating to financial assets is represented by carrying values at the balance sheet date. The Group and Company have established procedures to minimise the risk of default by trade debtors including credit checks undertaken before a customer is accepted and credit insurance where available and appropriate. Historically these procedures have proved effective in minimising the level of impaired and past due receivables. 39 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 25 Financial instruments (continued) Derivative financial instruments The fair value of forward currency hedging contracts are based on quotes from the issuing bank. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. Group Financial assets designated as fair value through profit or loss (note 19) 222222222222222222222222 Total financial assets at fair value through profit or loss 222222222222222222222222 Total financial instruments 222222222222222222222222 Company Financial assets designated as fair value through profit or loss (note 19) 222222222222222222222222 Total financial assets at fair value through profit or loss 222222222222222222222222 Total financial instruments 222222222222222222222222 26 Income statement Carrying Amount 2012 £000 Fair value 2012 £000 Carrying Amount 2011 £000 377 2222 2222 2222 – – – 377 2222 2222 2222 377 2222 2222 2222 – – – Carrying Amount 2012 £000 Fair value 2012 £000 Carrying Amount 2011 £000 377 2222 2222 2222 – – – 377 2222 2222 2222 377 2222 2222 2222 – – – Fair value 2011 £000 377 222 377 222 377 222 Fair value 2011 £000 377 222 377 222 377 222 The profit for the financial period dealt with in the financial statements of the Company was £5,671,000 (2011 – £5,187,000). 222222222222222222222222222222222222222222222222 27 Capital committments Group Company Contracted but not provided in the financial statements 18 22222222222222222222222222 2222 2222 2222 18 22222222222222222222222222 2222 2222 2222 340 340 18 18 2012 £000 2011 £000 2012 £000 2011 £000 256 222 256 222 28 Obligations under leases Future minimum rentals payable under non-cancellable operating leases are as follows: Group Company Amounts payable Within one year In two to five years 45 25 22222222222222222222222222 2222 2222 2222 70 22222222222222222222222222 2222 2222 2222 195 25 220 205 156 49 2012 £000 2011 £000 2012 £000 2011 £000 61 49 222 110 222 The Group has entered into commercial leases on certain plant and equipment. These leases have an average duration of between one and two years. 222222222222222222222222222222222222222222222222 40 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 29 Contingent liabilities The Company is contingently liable in respect of guarantees, indemnities and performance bonds given in the ordinary course of business amounting to £6,124,028 at 28th April, 2012 (2011 – £8,186,032). In the opinion of the directors, no material loss will arise in connection with the above matters. 222222222222222222222222222222222222222222222222 30 Related party transactions The following transactions took place, during the year, between the Company and other subsidiaries in the Group. Purchases of goods and services £29,672 (2011 – £106,369) Sales of goods and services £3,112,717(2011 – £3,133,588) The following balances between the Company and other subsidiaries in the Group are included in the Company balance sheet as at 28th April, 2012. Amounts owed by the Company £8,102,000 (2011 – £8,064,000) Amounts owed to the Company £2,764,000 (2011 – £1,207,000) Sales and purchases between related parties are made at normal market prices. Terms and conditions for transactions with subsidiaries and the joint venture are unsecured and interest free. Balances are placed on inter- company accounts with no specified credit period. Key management personnel (main board directors) compensation. Group Company Share option cost Short-term employee benefits Post-employment benefits 222222222222222222222222 222222222222222222222222 31 Share-based payments 2012 £000 2011 £000 2012 £000 – 1,366 542 – 1,688 669 – 1,688 669 2222 2222 2222 2,357 2222 2222 2222 2,357 1,908 2011 £000 – 1,366 542 222 1,908 222 Share options are granted to senior executives in two schemes; the Employee Share Option Scheme and the Enterprise Management Incentive Scheme. The exercise price of the option is no less than the market price of the shares on the date of the grant. The options vest after the executives have been in service for specified times of not less than one year from the date of grant. The contractual life of the options vary up to 10 years. There are no cash settlement alternatives. The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in, share options during the year: 2012 2012 2011 2011 Enterprise management incentive scheme Outstanding as at 30th April, 2011 Options exercised Options lapsed 222222222222222222222222 Outstanding as at 28th April, 2012 222222222222222222222222 194.0p – – 214,000 – – 364,000 (150,000) – 2222 2222 2222 214,000 2222 2222 2222 214,000 194.0p 194.0p – – 222 194.0p 222 The expense recognised for share options during the year is £nil (2011 – £6,000). 222222222222222222222222222222222222222222222222 41 M S I N T E R N A T I O N A L p l c Notes to the financial statements Continued 32 Capital management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made to the objectives, policies or processes during the years ended 28th April, 2012 and 30th April, 2011. Capital comprises equity attributable to the equity holders of the parent company £28,405,000 (2011 – £25,774,000). 222222222222222222222222222222222222222222222222 42 M S I N T E R N A T I O N A L p l c Summary of group results 2008 – 2012 GROUP INCOME STATEMENT 2012 £000 2011 £000 2010 £000 2009 £000 2008 £000 54,202 Group revenue Group operating profit Finance 53,861 55,948 22222222222222222222 2222 2222 2222 2222 2222 4,503 8,590 785 (202) 22222222222222222222 2222 2222 2222 2222 2222 5,288 8,388 (1,355) (2,078) 22222222222222222222 2222 2222 2222 2222 2222 3,933 6,310 22222222222222222222 2222 2222 2222 2222 2222 Profit before taxation Taxation Profit for the period 4,919 (1,401) 6,684 (1,179) 3,341 (952) 3,412 (71) 4,313 606 6,401 283 51,559 41,039 3,518 2,389 5,505 BALANCE SHEETS Assets employed Intangible assets Tangible fixed assets Other net current assets/(liabilities) Bank balances 138 4,798 16,101 13,818 (5,596) 4,424 10,071 10,037 22222222222222222222 2222 2222 2222 2222 2222 20,714 33,077 22222222222222222222 2222 2222 2222 2222 2222 106 15,810 (1,232) 8,234 172 14,634 (314) 8,911 5,160 12,514 1,249 9,877 22,918 28,800 23,403 Financed by Ordinary share capital Reserves 1,845 1,840 18,768 26,565 22222222222222222222 2222 2222 2222 2222 2222 20,613 28,405 101 4,672 22222222222222222222 2222 2222 2222 2222 2222 20,714 33,077 22222222222222222222 2222 2222 2222 2222 2222 Shareholders’ funds Net non-current liabilities 1,840 23,934 1,840 17,133 18,973 4,430 25,774 3,026 1,840 17,660 19,500 3,418 28,800 23,403 22,918 43 M S I N T E R N A T I O N A L p l c Corporate governance statement The Group is committed to high standards of corporate governance appropriate to its size and structure. The Board is accountable to the Company's shareholders for good corporate governance and accordingly has given careful consideration to the principles of the UK Corporate Governance Code. The Board consists of three executive directors, one of whom, Michael Bell, is the Executive Chairman and one non-executive director, Roger Lane-Smith. The Chairman has no other significant commitments. Day-to-day control of subsidiary and joint venture operations is vested in individual company managing directors, supported by their respective financial managers. The Board meets at least quarterly throughout the year to direct and control the overall strategy and operating performance of the Group. To enable them to carry out these responsibilities all directors have full and timely access to all relevant information. Executive directors, except for Company business trips and holidays, meet daily and the Chairman periodically meets with the non-executive director. Additionally subsidiary operations have monthly Board meetings which the main Board chairman chairs and the main Board financial director attends. Procedures are in place for directors to seek independent advice at the expense of the Company. The Company Secretary is responsible to the Board for ensuring that Board procedures are complied with and for advising the Board on all governance matters. Details of the number of meetings of, and members attendance at the Board, Audit and Remuneration Committees are set out in the table below. Number of meetings Michael Bell Roger Lane-Smith Michael O’Connell David Pyle Board Audit Committee Remuneration Committee 6 6 4 6 6 2 – 2 – – 1 – 1 – – The Audit Committee consists of the non-executive director, Roger Lane-Smith. In the opinion of the Board, the non-executive director has recent and relevant financial experience through his other directorships, and extensive experience in dealing with the City. All Board members attend all meetings as appropriate. The external auditors have direct access to the Committee without the executive directors being present. The Audit Committee evaluates the Group's risk profile and reviews the Group's half and full year financial statements. The Audit Committee is responsible for recommendations for appointment, reappointment or removal of the external auditors. The auditors provide taxation services to the Group. This arrangement has been reviewed by the Board and the audit committee and is not considered to affect the auditors objectivity and independence. The committee recommended that the board present a resolution to the shareholders at the 2012 AGM for the reappointment of the external auditors. This followed the assessment of the quality of the service provided, the expertise and resources made available to the Group, auditor independence and effectiveness of the audit process. Arrangements by which staff can, in confidence, raise concerns about possible improprieties in financial and other matters – 'whistleblowing' procedures, with any of the Board of directors are in place. The Audit Committee and the Board have considered whether there is a need for an internal audit function and believes that the circumstances and size of the Group make such a function unnecessary. The role and membership of the Remuneration Committee is set out in the Directors' Remuneration Report. The Board is responsible for establishing and maintaining the Group’s system of internal control. Internal control systems are designed to meet the particular needs of the Company concerned bearing in mind the resources available and the risks to which it is exposed, and by their nature can provide reasonable but not absolute assurance against material misstatement or loss. The key procedures which the directors have established with a view to providing effective internal control are as follows: The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for decision by the Board which covers the key areas of the Group's affairs including acquisitions and divestment policy, approval of budgets, capital expenditure, major buying and selling contracts and general treasury and risk management policies. There is a clearly decentralised structure which delegates authority, responsibility and accountability, including responsibility for internal financial control, to management of the operating companies. Responsibility levels and delegation of authority and authorisation levels throughout the Group are set out in the corporate accounting and procedures manual. 44 M S I N T E R N A T I O N A L p l c Corporate governance statement Continued There is a comprehensive system for reporting financial results. Monthly accounts are prepared on a timely basis. They include income statement, balance sheet, cash flow and capital expenditure reporting with comparisons to budget and forecast. The budget is prepared annually and revised forecasts are produced monthly. There is an investment evaluation process to ensure Board approval for all major capital expenditure commitments. There is a contract evaluation process to ensure executive director approval for all major sales contracts. The Board has reviewed the effectiveness of the system of internal controls and together with operational management, has identified and evaluated the critical business and financial risks of the Group. These risks are reviewed continually. Where appropriate, action is taken to manage the risks. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. The Board recognises the importance of communication with all shareholders and is ready, where practicable, to discuss relevant matters with all shareholders. Inter alia, the Board uses the Annual General Meeting to communicate with shareholders and welcomes their constructive participation. Details of the Annual General Meeting to be held on 14th August, 2012 can be found in the Notice of Meeting on page 50. The directors consider that the Group has not, during the year ended 28th April, 2012, complied with the requirements of the UK Corporate Governance Code as follows: (1) (2) (3) (4) (5) (6) (7) (8) UK Corporate Governance Code provisions A.2.1 and A.3.1; as the roles of Chairman and Chief Executive have been exercised by the Executive Chairman. UK Corporate Governance Code provision A.4 and B.1.1; as there are no independent non-executive directors. UK Corporate Governance Code provision B.2; as there is no separate nomination committee as nomination committee matters are dealt with by the Board as a whole. UK Corporate Governance Code provision B.6.1; as there is no formal annual evaluation of the performance of the Board and its committees and individual directors. The evaluation is made by the Board on a continuous basis. UK Corporate Governance Code provision B.7.1; as the Executive Chairman is not subject to re- election. This is in accordance with the articles of association. UK Corporate Governance Code provision B.6.2; as executive directors have contract periods of more than one year. UK Corporate Governance Code provision D.2.1; as the Remuneration Committee does not consist of at least two members. UK Corporate Governance Code provision C.3.1; as the Audit Committee does not consist of at least two members. The Board consider that although the UK Corporate Governance Code is not complied with in its entirety, as shown above, the individual circumstances, size and simplicity of the Group does not warrant absolute compliance and that the current structure provides the appropriate level of corporate governance. The Company has provided the information required under DTR 7.2.6 within the section headed “Additional information for shareholders” in the Directors’ Report on page 6. The terms of reference of the audit and remuneration committees explaining their role and the authority delegated to them by the Board are available from the Company Secretary, on request. On behalf of the Board David Pyle Secretary 13th June, 2012 45 M S I N T E R N A T I O N A L p l c Directors’ remuneration report Information not subject to audit Policy on remuneration of executive directors The Remuneration Committee which, currently, comprises the non-executive director, Roger Lane-Smith, aims to ensure that remuneration packages and service contracts are competitive and designed to retain, attract and motivate executive directors of the right calibre. The salary for each director is determined by the Remuneration Committee by reference to a range of factors including experience appropriate to the Group, length of service and salary rates for similar jobs in comparative companies. In view of the size and nature of the Group and the continuing need to optimise subordinate management structures particular emphasis is given to the advantages which flow from the long term continuity of the executive directors. All aspects of the executive directors’ current remuneration packages were established in June 1996 when revised contracts of service, embracing reduced notice periods, were agreed. The contracts of service are reviewed from time to time and consideration given to whether any amendment is appropriate. The Remuneration Committee has not sought any external advice during the year. The main components of the remuneration package for the executive directors are as follows: 1. Basic Salary Salaries for executive directors are reviewed annually by the Remuneration Committee. 2. Performance related annual bonus An annual bonus is paid depending on achievement of profitability targets. Bonus payments achieved for 2011/2012 amounted in total to 132.3% (2011 – 102.2%) of total executive basic salaries. 3. Share Options Directors are eligible to participate in the Employee and the Enterprise Management Incentive share option schemes. The Remuneration Committee is responsible for granting options. Options have only been granted at an exercise price of not less than the price paid by the scheme to acquire the shares. Share options are issued without performance criteria and have no vesting period. 4. 5. Pension contributions, usually calculated as a percentage of total emoluments, are paid for executive directors to personal retirement benefit schemes. Other benefits are provided in the form of company cars, death in service benefit cover and medical and disability insurance. Service Contracts Prior to June 1996, each of the three executive directors had four-year rolling contracts. These notice periods were reduced without compensation in June 1996. In recognition of this Michael Bell has a three-year rolling contract. Michael O’Connell and David Pyle each have two-year rolling contracts. The contracts are terminable by the directors, in the case of Michael Bell at three years’ notice and in the case of Michael O’Connell and David Pyle at two years’ notice and by the Company with three years’ notice in the case of Michael Bell and two years’ notice in the case of Michael O’Connell and David Pyle. Directors are entitled to termination payments equivalent to the unexpired portion of the contract based on basic salary and benefits including bonus payments. The dates of appointments are shown below: Michael Bell – 9th July, 1980 Michael O’Connell – 4th February, 1985 David Pyle – 9th July, 1980 Non-executive director The level of the non-executive director’s remuneration has been determined by the Board as an annual fee and is paid monthly. There is no formal service contract between the Company and the non-executive director. 46 M S I N T E R N A T I O N A L p l c Directors’ remuneration report Continued Information not subject to audit Performance Graph The performance graph shows the accumulated value, by 28th April, 2012, of £100 invested in MS INTERNATIONAL plc on 28th April, 2007 compared to the accumulated value of £100 invested in the FTSE Small Cap Index, over the same period. The other points plotted are the accumulated values at intervening year ends. The FTSE Small Cap Index is considered by the Board to be the most relevant index for comparison. MS INTERNATIONAL plc versus FTSE Small Cap Index MS INTERNATIONAL plc total shareholder return compared against total return of the FTSE Small Cap Index 200 n r u t e R l a t o T 150 100 50 0 Saturday, 28 April, 2007 Saturday, 3 May, 2008 Friday, 1 May, 2009 Sunday, 2 May, 2010 Saturday, 30 April, 2011 Saturday, 28 April, 2012 FTSE Small Cap MS INTERNATIONAL plc Information subject to audit Emoluments of directors Directors’ remuneration in respect of the period to 28th April, 2012: 2012 2011 2012 2011 2012 2011 Basic salary Basic salary and fees £ 2012 Other benefits £ 2011 Other benefits £ and fees £ Total £ 222222222222222222222222222222222222222222222222 Michael Bell 647,200 63,957 222222222222222222222222222222222222222222222222 Michael O’Connell 348,522 35,414 222222222222222222222222222222222222222222222222 David Pyle 340,118 10,111 222222222222222222222222222222222222222222222222 Roger Lane-Smith 30,000 222222222222222222222222222222222222222222222222 Bonus £ Bonus £ Total £ 317,500 172,000 172,500 219,084 219,084 438,168 819,625 426,998 401,695 309,070 154,535 154,535 285,000 160,000 160,000 40,000 40,000 53,130 33,987 25,583 30,000 – – – – Other benefits represent the provision of company cars, death in service benefit and medical and disability insurance. Pension contributions 2011 Pension contributions £ 256,880 Michael Bell 222222222222222222222222222222222222222222222222 149,409 Michael O’Connell 222222222222222222222222222222222222222222222222 David Pyle 136,047 222222222222222222222222222222222222222222222222 Roger Lane-Smith – 222222222222222222222222222222222222222222222222 Total £ 327,850 180,799 160,678 2012 – The pension contributions are paid to personal retirement benefit schemes. 47 M S I N T E R N A T I O N A L p l c Directors’ remuneration report Continued Information not subject to audit Directors’ share options Details of directors’ options at 28th April, 2012 and 30th April, 2011 granted under the Enterprise Management Incentive scheme are set out below. The directors' options were all granted at market price. The market price of the Company's shares at 28th April, 2012 was 295.0p and the range during the period was 195.5p to 312.5p Date Total Issued 222222222222222222222222222222222222222222222222 Share options at 28th April, 2012 and 30th April, 2011 exercisable between: 1st October, 2008 to 30th September, 2017 150,000 222222222222222222222222222222222222222222222222 Michael O’Connell Exercise price 1st October, 2007 David Pyle 194.0p 75,000 75,000 On behalf of the Board David Pyle Secretary 13th June, 2012 48 M S I N T E R N A T I O N A L p l c Principal operating subsidiaries MSI-Defence Systems Ltd. Salhouse Road, Design, manufacture and service of defence Norwich, NR7 9AY England equipment. MSI-Forks Ltd. Balby Carr Bank, Manufacture of fork-arms for the fork lift truck, Doncaster, DN4 8DH England construction, agricultural and quarrying equipment industries. MSI-Forks Inc. 280 Mount Gallant Road, Manufacture of fork-arms for the fork lift truck, MSI-Forks Garfos Industriais Ltda. Rock Hill SC 29730 USA construction, agricultural and quarrying equipment industries. Rua Professor Campos Manufacture of fork-arms for the fork lift truck, de Oliveira, 310 São Paulo Brazil construction, agricultural and quarrying equipment industries. MSI-Quality Forgings Ltd. Balby Carr Bank, Manufacture of open die forgings. Doncaster, DN4 8DH England Global-MSI plc Balby Carr Bank, Design, manufacture and construction of petrol Doncaster, DN4 8DH England station superstructures. Global-MSI Sp. z o.o. Ul. Działowskiego 13, Design, manufacture and construction of petrol 30-339 Krakow station superstructures. Poland NOTES 1. 2. 100% of the equity is held in all cases. All companies are registered in England and Wales with the exception of MSI-Forks Inc. which is registered in America, MSI-Forks Garfos Industriais Ltda which is registered in Brazil and Global-MSI Sp. z o.o. which is registered in Poland. All companies operate principally in the United Kingdom except for MSI-Forks Inc., MSI-Forks Garfos Industriais Ltda (which operate principally in the Americas) and Global-MSI Sp. z o.o. (which operates in Poland and Eastern Europe). All companies have been included in the Group consolidated accounts. 49 M S I N T E R N A T I O N A L p l c Notice of Annual General Meeting Notice is given that the fifty second annual general meeting of MS INTERNATIONAL plc (“Company”) will be held at The Holiday Inn, Warmsworth, Doncaster on 14th August, 2012 at 12 noon to consider and, if thought fit, to pass the following resolutions. Resolutions 1 to 7 will be proposed as ordinary resolutions and resolutions 8 to 10 will be proposed as special resolutions: As ordinary business: 1. 2. 3. 4. 5. 6. To receive the Company’s annual accounts and directors’ and auditors’ reports for the year ended 28th April, 2012. To approve the directors’ remuneration report for the year ended 28th April, 2012. To declare a final dividend. To re-elect as a director of the Company, Michael O’Connell, a director retiring by rotation. Michael O’Connell is aged 62 years old and joined the Company in 1980, becoming a director in 1985. To reappoint as a non-executive director of the Company Roger Lane-Smith. Appointed as a director on 21st January, 1983, he is a non-executive director of W H Ireland Group plc, Dolphin Capital Investors Ltd, Timpson Group plc, Avia Health Informatics plc and a number of other private companies. He is also a Senior Consultant at DLA Piper UK LLP. To reappoint Ernst & Young LLP as auditors of the Company and to authorise the directors to determine their remuneration. As special business: 7. 8. That, pursuant to section 551 of the Companies Act 2006 (“2006 Act”), the directors be and are generally and unconditionally authorised to exercise all powers of the Company to allot shares in the Company or to grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £613,202 provided that (unless previously revoked, varied or renewed) this authority shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on 14th November, 2013 (whichever is the earlier), save that the Company may make an offer or agreement before this authority expires which would or might require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after this authority expires and the directors may allot shares or grant such rights pursuant to any such offer or agreement as if this authority had not expired. This authority is in substitution for all existing authorities under section 80 of the Companies Act 1985 (which, to the extent unused at the date of this resolution, are revoked with immediate effect). That, subject to the passing of resolution 7 and pursuant to sections 570 and 573 of the Companies Act 2006 (“2006 Act”), the directors be and are generally empowered to allot equity securities (within the meaning of section 560 of the 2006 Act) for cash pursuant to the authority granted by resolution 7 as if section 561(1) of the 2006 Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: 8.1 in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise): 8.1.1 8.1.2 to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them; and to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the directors otherwise consider necessary. but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and 8.2 otherwise than pursuant to paragraph 8.1 of this resolution, up to an aggregate nominal amount of £91,980; and (unless previously revoked, varied or renewed) this power shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on 14th November, 2013 (whichever is the earlier), save that the Company may make an offer or 50 M S I N T E R N A T I O N A L p l c Notice of Annual General Meeting Continued agreement before this power expires which would or might require equity securities to be allotted for cash after this power expires and the directors may allot equity securities for cash pursuant to any such offer or agreement as if this power had not expired. This power is in substitution for all existing powers under section 95 of the Companies Act 1985 (which, to the extent unused at the date of this resolution, are revoked with immediate effect). 9. That, pursuant to section 701 of the Companies Act 2006 (“2006 Act”), the Company be and is generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the 2006 Act) of ordinary shares of £0.10 each in the capital of the Company (“Shares”), provided that: (a) (b) (c) the maximum aggregate number of Shares which may be purchased is 1,839,607; the minimum price (excluding expenses) which may be paid for a Share is £0.10; the maximum price (excluding expenses) which may be paid for a Share is the higher of: (i) (ii) an amount equal to 105 per cent of the average of the middle market quotations for a Share as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately preceding the day on which the purchase is made; and an amount equal to the higher of the price of the last independent trade of a Share and the highest current independent bid for a Share on the trading venue where the purchase is carried out, and (unless previously revoked, varied or renewed) this authority shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on 14th November, 2013 (whichever is the earlier), save that the Company may enter into a contract to purchase Shares before this authority expires under which such purchase will or may be completed or executed wholly or partly after this authority expires and may make a purchase of Shares pursuant to any such contract as if this authority had not expired. 10. That a general meeting of the Company (other than an annual general meeting) may be called on not less than 14 clear days’ notice. By Order of the Board ……………………………………… David Pyle Secretary 29th June, 2012 Registered office Balby Carr Bank Balby Doncaster DN4 8DH Registered in England and Wales No. 653735 51 M S I N T E R N A T I O N A L p l c Notice of Annual General Meeting Continued Notes Entitlement to attend and vote 1. The right to vote at the meeting is determined by reference to the register of members. Only those shareholders registered in the register of members of the Company as at 12 noon on 12th August, 2012 (or, if the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members after that time shall be disregarded in determining the rights of any person to attend or vote (and the number of votes they may cast) at the meeting. Proxies 2. A shareholder is entitled to appoint another person as his or her proxy to exercise all or any of his or her rights to attend and to speak and vote at the meeting. A proxy need not be a member of the Company. A shareholder may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. Failure to specify the number of shares each proxy appointment relates to or specifying a number which when taken together with the numbers of shares set out in the other proxy appointments is in excess of the number of shares held by the shareholder may result in the proxy appointment being invalid. A proxy may only be appointed in accordance with the procedures set out in notes 3 to 4 and the notes to the proxy form. The appointment of a proxy will not preclude a shareholder from attending and voting in person at the meeting. 3. 4. A form of proxy is enclosed. When appointing more than one proxy, the proxy form may be photocopied. Please indicate the proxy holder’s name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope. To be valid, a proxy form must be received by post or (during normal business hours only) by hand at the offices of the Company’s registrar, Capita Registrars, PXS, 34 Beckenham Road, Kent, BR3 4TU, no later than 12 noon on 12th August 2012 (or, if the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). CREST members who wish to appoint a proxy or proxies for the meeting (or any adjournment of it) through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by Capita Registrars (ID RA10) no later than 12 noon on 12th August, 2012 (or, if the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which Capita Registrars is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 52 M S I N T E R N A T I O N A L p l c Notice of Annual General Meeting Continued The Company may treat a CREST Proxy Instruction as invalid in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. Corporate representatives 5. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that (where there is more than one representative and the vote is otherwise than on a show of hands) they do not do so in relation to the same shares. Total voting rights As at 29th June, 2012 (being the last practicable date before the publication of this notice), the Company’s 6. issued share capital consists of 18,396,073 ordinary shares of £0.10 each, carrying one vote each. The Company does not hold any ordinary shares in treasury. Therefore, the total voting rights in the Company as at 29th June, 2012 are 18,396,073. Nominated Persons Where a copy of this notice is being received by a person who has been nominated to enjoy information rights 7. under section 146 of the Companies Act 2006 (“2006 Act”) (“Nominated Person”): (a) (b) the Nominated Person may have a right under an agreement between him/her and the shareholder by whom he/she was nominated, to be appointed, or to have someone else appointed, as a proxy for the meeting; or if the Nominated Person has no such right or does not wish to exercise such right, he/she may have a right under such an agreement to give instructions to the shareholder as to the exercise of voting rights. The statement of the rights of shareholders in relation to the appointment of proxies in notes 2 to 4 does not apply to a Nominated Person. The rights described in such notes can only be exercised by shareholders of the Company. Questions at the meeting 8. Shareholders have the right to ask questions at the meeting relating to the business being dealt with at the meeting in accordance with section 319A of the 2006 Act. The Company must answer any such question unless: (a) (b) to do so would interfere unduly with the preparation for the meeting or would involve the disclosure of confidential information; or it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. Documents available for inspection 9. The following documents will be available for inspection during normal business hours at the registered office of the Company from the date of this notice until the time of the meeting. They will also be available for inspection at the place of the meeting from at least 15 minutes before the meeting until it ends: (a) (b) Copies of the service contracts of the executive directors; and Particulars of transactions of directors in the shares of the Company. Biographical details of directors 10. Biographical details of all those directors who are offering themselves for reappointment at the meeting are set out in the Notice. 11. Dividend Warrants Dividend warrants will be posted on 16th August, 2012 to those members registered on the books of the Company on 20th July, 2012. 53 M S I N T E R N A T I O N A L p l c 54 M S I N T E R N A T I O N A L p l c 55 M S I N T E R N A T I O N A L p l c 56