Driving transformational
business outcomes with
ingenious automation and
packaging machinery
Annual Report and Accounts 2019
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Mpac Group plc is an international company, listed on the
London Stock Exchange (symbol: MPAC), with a long and
proud history of delivering innovation and excellence on a
global basis. The business is focused on creating high speed
production lines that package the products that millions of
people worldwide depend on. Making an iMpacT.
Find out more online
mpac-group.com
Full line
solutions
p10
Strategy
p12
Key
Opportunities
p14
H I G H L I G H T S
C O N T E N T S
Order intake
Revenue
£87.6m
£88.8m
(2018: £63.8m)
(2018: £58.3m)
Underlying earnings per share1
Cash
39.5p
(2018: 4.5p per share)
£18.9m
(2018: £27.9m)
» Continued progress on the Group’s strategic initiatives
» Increase in order intake of 37% to £87.6m (2018: £63.8m)
» Revenue growth of 52% to £88.8m (2018: £58.3m)
» Underlying profit before tax of £7.5m (2018: £1.4m)
» Statutory profit before tax of £5.4m (2018: loss £7.4m)
» Underlying earnings per share of 39.5p (2018: 4.5p)
» Basic earnings per share of 29.7p (2018: loss of 30.1p)
» Cash of £18.9m (2018: £27.9m)
» The Board has decided to recommend a final dividend payment
of 1.5p per share (2018: nil)
02 Our business at a glance
04 Chairman’s introduction
05 Operating review
10
Full line solutions
12 Business model and strategy
15
Financial review
18 Principal risks and uncertainties
21 Chairman’s Corporate
Governance statement
23 Board of Directors
24 Corporate Governance report
28 Audit Committee report
32 Remuneration and Nomination
Committee report
34 Annual Remuneration report
36 Remuneration policy
41 Directors’ report
44
Statement of directors’
responsibilities
45
Independent Auditor’s report
54 Consolidated income statement
55
Statements of
comprehensive income
56 Statements of changes in equity
58 Statements of financial position
59 Statements of cash flow
60 Accounting policies
67 Notes to the accounts
103 Five year record
104 Principal divisions and subsidiaries
105 Notice of Annual General Meeting
111 Corporate information
Notes
1 Adjusted to exclude non-underlying items as disclosed in note 5 to the financial statements.
01
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
O U R B U S I N E S S AT A G L A N C E
Our sectors
O N E M PA C
Mpac Group plc is focused on
providing full line packaging
and automation solutions
in the growth sectors of
Healthcare, Pharmaceutical
and Food & Beverage.
The Group leverages its engineering
expertise with cutting-edge
manufacturing technologies and
proven machinery designs, and
supports its customers with world
class services, delivered locally.
AUTOMATION AND PACKAGING
MACHINERY
Mpac serves customer needs for
Ingenious, Innovative Automation
and Packaging Machinery
encompassing: Make, Pack, Monitor
and Service. We design, precision
engineer and manufacture high
speed packaging solutions, first-
of-a-kind machinery and high
specification automation, secondary
packaging equipment and end-
of-line robotics with integrated
testing solutions. In addition, we
provide complete turnkey solutions
including the design and integration
of packaging systems.
02
HEALTHCARE
Supporting healthcare industries as
diverse as contact lenses, facial tissues
and personal care. Mpac supplies
innovative first-of-a-kind machinery
as well as standard packing and
testing equipment.
Read more P13
PHARMACEUTICAL
To meet our customers’ diverse and
specialised demands, Mpac offers a
first-of-a-kind service for novel dosing
and packaging. Process assurance via
standard and custom test equipment
is available.
Read more P13
FOOD AND BEVERAGE
Providing innovative solutions for
secondary and end-of-line packaging.
Cartoning and case packing of bags,
stick packs, pouches, flow wrapped
products, bottles and more to our
customers’ requirements.
Read more P13
Mpac Group plc Annual Report and Accounts 2019 Revenue by sector (£m)
Healthcare
Pharmaceutical
Food and Beverage
£66.1m
£2.9m
£19.8m
£88.8m
Revenue by region (£m)
Americas
Europe, Middle
East & Africa
£56.8m
£24.8m
Asia Pacific
£7.2m
Global reach
Manufacturing
Sales
Customer support
Mississauga (CA),
89 staff
Coventry &Tadcaster (UK),
205 staff
Wijchen (NL),
165 staff
Singapore,
12 staff
Where we operate
The Group serves its customers
through its wide geographic
spread of sales, service and
manufacturing locations.
We support our international
customer base through shared
resources and infrastructure.
Americas
Established for more than 50 years
in the region, the Group operates
from its facilities in Ontario, Canada.
Europe, Middle East & Africa
The Group supports both its
multinational and regional
customers from its sites in the UK
and the Netherlands; together with
extensive sales, engineering and
field support services deployed
across the region.
Asia Pacific
The Group supports the region
from its principal base in Singapore
as well as through its field service
engineers and agents across
Asia Pacific.
03
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS C H A I R M A N ’ S
I N T R O D U C T I O N
The acquisition represents a compelling
fit with Mpac’s strategic intent of being
a market leader in the provision of
full-line packaging solutions for the
pharmaceutical, healthcare and food
and beverage sectors.
DIVIDEND
Having considered the trading results
for 2019, together with the opportunities
for investment in the growth of the
Group, the Board is recommending
a final dividend of 1.5p per share.
No interim dividend was paid in 2019.
The Board is delighted to be returning
to the dividend list now that the Group
is generating positive net cashflows.
Subject to approval at the Annual
General Meeting on 6 May 2020
the final dividend will be paid on 15
May 2020 to ordinary shareholders
registered at the close of business
on 17 April 2020, at a cost of £0.3m.
OUTLOOK
The Group now operates in a range
of attractive global sectors which are
expected to grow in real terms for the
foreseeable future. We are still a small
player in that large, growing global
marketplace and there is much still
to go for.
I consider that the prospects for the
Group over the short and medium term
are very positive, as the revenue and
profit growth initiatives put in place by
the leadership team continue to develop,
and I look forward to reporting on the
progress that will be made during 2020.
ANDREW KITCHINGMAN
Chairman
3 March 2020
A N D R E W
K I T C H I N G M A N
C H A I R M A N
development roadmap and a focus on
software and platform developments.
On pages 21 to 22 I discuss corporate
governance and the Board’s activities
during the year.
SUMMARY OF RESULTS
The strong performance in the year
is reflected in the order intake for
the Group of £87.6m (2018: £63.8m)
being 37% above prior year and Group
revenues of £88.8m (2018: £58.3m)
being 52% above the prior year.
Underlying operating profit was in line
with revised market expectations at
£7.7m (2018: £1.4m). Group cash ended
the year at £18.9m (2018: £27.9m).
ACQUISITIONS
In May 2019 the Group acquired
Lambert for initial consideration of
£15.0m. Lambert was founded in 1973
and is a provider of technology leading
automation solutions to the medical
and consumer healthcare sectors.
Lambert is based in Tadcaster, UK
and employs approximately 160 staff.
2019 has been a year of realisation of
our long-term strategy into the financial
performance of the Group. In 2016
the Board appointed Tony Steels as
Chief Executive Officer, who initiated
an ambitious new strategic direction
for the Group based around leveraging
the latent potential from the growth
sectors in which we operate. The output
of this review was a clearly defined
set of strategic objectives aimed at
transforming the performance of the
Group over a five-year period.
The result of this strategy is apparent
with a step change in financial
performance of existing businesses,
the acquisition of Lambert Automation
(Lambert) completed in 2019 and fully
integrated by the end of the year and
further significant progress made in
the Group operating as a single entity
business across a global platform.
Our strategy to focus on high growth
pharmaceutical, healthcare and food and
beverage sectors is underpinned by the
deployment of a comprehensive product
04
Mpac Group plc Annual Report and Accounts 2019 O P E R AT I N G
R E V I E W
I am pleased to present my report as
Chief Executive of Mpac Group plc.
Reflecting on the progress that was
made in 2019, it can only be described
as a transformational year for Mpac.
We have made significant progress
in our key strategic initiatives and
have delivered order intake and
revenue growth, the successful
acquisition and integration of Lambert
Automation Limited ('Lambert')
alongside a significantly improved
financial performance, underpinned
by a high quality order book.
The Group entered 2019 with an
excellent orderbook which needed a
combined One Mpac approach in order
to convert these orders into delivered
solutions on time and to the projected
margins. The global team delivered
on this challenge, utilising the global
supply chain and multi-site capability
to ensure the customers’ needs were
met in full and the financial results
were delivered for Mpac.
T O N Y S T E E L S
C H I E F E X E C U T I V E
The acquisition of Lambert in May 2019
was a strategic milestone for the Group.
Lambert is a compelling fit with Mpac’s
strategic intent of being a market leader
in the provision of full-line packaging
solutions for the pharmaceutical,
healthcare and food and beverage
sectors. Lambert typically works
upstream in its customers’ product and
production lifecycle, its integration into
the Group enables Mpac to offer a more
comprehensive and broader range of
automation and packaging solutions to
its customers. Mpac now has a presence
in the medical and healthcare product
assembly and packaging market, fulfilling
the expected increase in demand for
wellness products. The integration of
Lambert into the Group is complete,
with the initial synergies realised and has
started to deliver commercial synergies
through cross-selling of projects and in
providing access to a wider global sales
and service infrastructure. During the
year the business was rebranded as
Mpac Lambert.
The Board initiated an external mid-
term review of the strategic plan,
which confirmed the fundamentals are
on track and guided to an increased
focus on the healthcare sector with the
ability to provide a full solution to our
customers with the capabilities of Mpac
Lambert added to the Group, together
with further development of the service
proposition embracing the Industry
4.0 potential.
Whilst we continue the search for
further complementary acquisition
targets, management focus remains
on delivering organic growth by
extending our commercial reach to new
customers and with new products and
services, supported by a comprehensive
development roadmap. The focus of
our innovation initiatives in 2019 was
directed towards enhancing our range
of end-of-line packaging solutions and
in developing a unique human machine
interface ('HMI') to enhance customers
operational efficiency.
Industry 4.0 is the term coined for
the fourth industrial revolution and
marks the change of industry towards
a more flexible approach to the supply
of goods and automatic control of
the production process. To meet our
customers’ demands and expectations,
Mpac, as a leader in innovation is
developing and delivering features such
as ‘overall equipment effectiveness’
monitoring, predictive maintenance,
video instructions and facilitating
connectivity via multiple devices
through an enhanced HMI. We expect to
further showcase these developments
at trade shows throughout 2020 and
initial customer reaction has been
extremely positive.
05
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS O P E R AT I N G R E V I E W C O N T I N U E D
During 2019 market expectations
were upgraded a number of times and,
assisted by the earnings enhancing
Lambert acquisition, I am delighted
to report that underlying profit before
tax for the year was £7.5m compared
to £1.4m in 2018.
Following the acquisition of Lambert and
investment in working capital to support
the Group’s continued growth the Group
cash ended the year at £18.9m (2018:
£27.9m) providing the Group with the
financial resources required to invest in
the strategic initiatives which will deliver
profitable growth in future years.
STRATEGIC DEVELOPMENTS
Further significant progress has been
made during 2019 to deliver our five-year
strategic plan, originally launched in
2017. As 2019 represented the mid-
point in execution of the strategic plan,
we commissioned a third-party review
of the commercial strategy to assess
progress to date and validate the longer
term goals. The results confirmed that
Mpac remains on track to meet its
broader objectives and that the growth
opportunity from the sectors in which we
operate is aligned to its long-term goals.
I believe that it is due to the
implementation of the strategic plans
and our continued focus on increasing
the scale and diversity of the Group
that the business was able to deliver
order intake, revenue and underlying
profitability growth above previous
years and that the recent trajectory
is expected to continue into 2020.
RESTRUCTURING
During the year the Group took the
necessary restructuring actions
associated with the integration of
Lambert to deliver profitable growth
whilst ensuring financial performance
across the Group met or exceeded
expectations. The Group is committed
to ensuring that all aspects of the
organisation support the future growth
of the business and the targets continue
to be met.
ACQUISITION STRATEGY
The Board continues to evaluate
potential acquisition opportunities, the
focus of which is to find businesses that
will enhance our customer proposition
in packaging solutions by extending our
product range and our access to broader
sectors and add value to the Group.
MOVING FORWARD
We continue to pursue our strategic
goals, which were recalibrated during
the year, and build on the strong
foundations made towards achieving
the three strategic priorities: Going
for Growth, Make Service a Business
and Operational Efficiency. Further
information on these strategic priorities
is provided in the Strategic Update.
Revenue by geography
North America
Europe
UK
Asia Pacific
64%
17%
11%
8%
The nature of the business is project
based and, by definition, variable month
on month in terms of order intake. A
strong focus on our prospects pipeline
together with strategic initiatives of
operating as a single entity business,
One Mpac and driving growth in
recurring Service revenue is being
implemented to mitigate against variable
project demand and deliver consistent
financial performance.
I am excited about the next phase for
the Group and am extremely pleased
about what has been accomplished so
far. I believe that we are firmly on track
to deliver our long-term strategic plans
and to take advantage of our enhanced
position in growth sectors.
TRADING
The trading performance in 2019 was
very strong. Overall order intake for
the Group grew by 37% to £87.6m
(18% growth excluding the effect of the
Lambert acquisition ('like-for-like'), with
a significant increase in order intake
from our Service business.
The Group entered 2020 with an order
book of £52.2m, broadly similar to
the opening order book, but with a
significantly diversified customer base,
reducing our reliance on any individual
customer. We remain vigilant to project
execution risk and are confident that the
2019 closing order book can be delivered
at sold margins. The timing of conversion
of prospects to orders continues to vary
based on our customers’ investment
plans. Conversion rates were strong
in the second half of 2019, giving
confidence in the future prospects
of the Group.
Group revenues of £88.8m represented
an increase of 52% compared to the
previous year (24% like-for-like). Original
Equipment revenue grew by 50% to
£69.4m, supported by strong growth in
the healthcare sector. Service revenue
grew by 60% to £19.4m, with significant
growth being generated in the Americas.
06
Mpac Group plc Annual Report and Accounts 2019 Revenue
£88.8m
(2018: £58.3m)
Order intake
£87.6m
(2018: £63.8m)
Healthcare sector revenue
£66.1m
(2018: £20.2m)
SUSTAINABILITY
At Mpac our sustainability vision is
broadening and growing with us. We
promise to do our part in protecting
the planet’s future; partnering with our
customers to support their reduction
in packaging materials usage and the
effective adoption of biodegradable and
recyclable materials. Mpac’s evolving
flexibility and innovative solution designs
offer our customers opportunities
to achieve their sustainability goals.
Mpac encourages internal activities
which support the culture and
adoption of continuous improvement
in sustainability.
BUSINESS REVIEW
The Group aims to achieve double digit
percentage revenue growth over the
medium-term, culminating in delivering
an improved return on sales, targeted at
10%. To support this intent, we manage
the business in two parts, Original
Equipment ('OE') and Service and across
three regions, Americas, EMEA and Asia.
Individual contracts received by the
OE business, and to a lesser extent
the Service business, can be large.
Accordingly, a few significant orders can
have a disproportionate impact on the
growth rates seen in individual sectors
from year to year.
Revenue by region was split as follows;
Americas £56.8m (2018: £26.9m), EMEA
£24.8m (2018: £24.7m) and Asia £7.2m
(2018: £6.7m).
Revenue by sector was split as follows;
food & beverage £19.8m (2018: £32.5m),
healthcare £66.1m (2018: £20.2m) and
pharmaceuticals £2.9m (2018: £5.6m).
Original Equipment
OE revenues of £69.4m were 50% and
£23.2m ahead of prior year (20% on a
like for like basis). OE order intake of
£65.0m was 25% and £13.0m ahead
of prior year (£4.2m and 8% higher
on a like for like basis).
Our focus on our three key sectors
continued to drive our success, with
an outstanding performance in the
healthcare sector as well as revenue
in the region from Mpac Lambert
contributing to Americas OE revenue
in the period increasing to £45.8m from
£20.5m in 2018.
EMEA revenue in the period was £17.6m
compared to £20.1m in 2018. Revenue
from first of a kind equipment showed
a reduction in the year, reflecting a lower
proportion of revenue from projects
to the mainly UK customer base.
Asia revenue, predominantly driven by
the food and beverage sector, increased
7% to £6.0m, compared to £5.6m
in 2018.
Overall order prospects remain strong,
especially in the healthcare sector and
activity levels across the OE business
remain high, such that the business
is well positioned moving into 2020.
Service
Order intake for the Service division
grew significantly in 2019 to £22.6m
from £11.9m in the prior year. The growth
in order intake predominantly originated
from the Americas and healthcare
sector where we extended our
Service offering to include production
support agreements.
Revenue in 2019 of £19.4m was £7.3m
or 60% above the prior year, again driven
by the Americas and healthcare sector.
As revenue from OE continues to grow,
further commercial opportunities arise
to offer customers revenue generating
support for our equipment.
Americas revenue in the year was £11.0m
compared to £6.4m in 2018. EMEA
revenue in the year was £7.2m compared
to £4.6m in 2018. Asia revenue of £1.2m
was unchanged compared to 2018.
07
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS O P E R AT I N G R E V I E W C O N T I N U E D
CORONAVIRUS
We remain in close contact with our
supply chain in China and, whilst there
was a delayed return to work after
the national holidays, production has
restarted and we do not currently expect
a delay to the supply of parts. Our supply
chain from China currently represents a
small element of our global supply chain.
Travel restrictions to Asia have been put
in place for our own employees.
We continue to monitor the situation
carefully across our customer, supplier
and employee base to understand
the risk, especially with our key OEM
suppliers and the impact of delays
in their supply chain, particularly
relating to electronic and other
specialist components originating
from China or other affected areas.
Certain customers with sites in Asia are
implementing travel restrictions for their
staff which has the potential to impact
on the timing of order placement or
project acceptance for a small number
of projects.
OUTLOOK
Significant progress has been made in
the execution of our long-term strategy
and we continue to focus on the growth
sectors in which the Group currently
operates: the pharmaceutical, healthcare
and food and beverage sectors. The
Group has both the financial and
managerial resource available to develop
the business, with the prime focus being
on organic growth. This will be delivered
through the leveraging of its global
position, development of its products
and an improved and expanded service
offering to its customers. We continue
to evaluate potential complementary
acquisition opportunities.
The global marketplace is beginning
to be influenced by the requirements
associated with Industry 4.0 and
customer demands associated with
these developments fit well with the
value that Mpac has to offer and the
technology Mpac has in development.
08
Through the One Mpac business model
and a rich history of innovative packaging
machinery and automation solutions, we
are in an enviable position to serve our
customers with efficient, connected and
reliable solutions.
confident that the overall growth targets
remain accessible, underpinned by
the execution of our technology and
innovation roadmap which will accelerate
progress in achieving our strategic aims
in the growth sectors of pharmaceutical,
healthcare and food and beverage.
The Group entered 2020 with a similar
scale of order book to the previous
year but with a broader portfolio of
customers, alongside an updated
technology and product portfolio
delivered by our innovation roadmap.
2020 has started well with this
foundation and a strong operational
and management team and after taking
into consideration our view of the
impact of the spread of the coronavirus,
the Group's future prospects
remain positive.
STRATEGY UPDATE
Our strategic review identified three key
initiatives to drive growth:
Going for Growth – Offering customers
comprehensive “Make, Pack, Monitor,
Service” solutions in our target sectors.
Make Service a Business – Providing
customers with a comprehensive
portfolio of service products to
ensure they maximise their return
on investment.
Operational Efficiency – Operational
excellence and flexibility of supply
chain to increase responsiveness
to investment cycles.
Going for Growth
Our five-year strategic plan is to
develop the business through organic
growth in our target growth sectors
of pharmaceutical, healthcare and
food and beverage. To enable this, we
created a global sales approach under
our single entity model, One Mpac,
offering innovative packaging machinery
solutions from our extensive portfolio
of engineered modules. The strategy
and objectives were validated during
2019 with the support of a third-party
assessment of our approach. We remain
Order intake and revenues increased in
2019, providing the necessary scale for
the Group. We have continued to deploy
our commercial excellence programme
to new members of our sales team
and further development of strategic
selling to key accounts. The Group
made a major investment in the USA
sales team during the year which has
already positively impacted growth and
improved prospects. The acquisition of
Mpac Lambert provides a step change
opportunity to cross sell automation
and packaging solutions to common
customers and our commercial teams
from across the Group are generating
qualified opportunities to leverage the
Group’s extended product, solutions and
technology offering. Cross selling of the
existing product and service offering to
new and existing customers is a clear
target, ensuring we better understand
their evolving needs and extend our
customer proposition with a broader
solution approach.
The Group has undertaken a review
of our market approach and digital
platform customer proposition and as a
result, Mpac Lambert has launched an
Mpac branded website (www.mpac-
lambert.com) and aligned its commercial
approach to the wider Mpac Group which
has been positively received. Further
investment in our online presence will
continue in 2020.
We will continue our commercial
excellence programme with further
training modules aimed at increasing our
win ratio and expanding our customer
base through our geographic reach.
Mpac Group plc Annual Report and Accounts 2019 Innovation remains the key to long term
sustainable growth and during the year
we developed equipment to expand our
end of line packaging offering alongside
innovations focussed on improved
machine performance together with
the Industry 4.0 enabled technology.
Make Service a Business
Our customers have an extensive
globally installed base which they
expect to run continuously at high
levels of overall equipment efficiency.
The trends towards Industry 4.0 and
its enabling technological platforms
support our strategy to work with our
customers to ensure they maximise
their return on investment throughout
the life-cycle of the equipment. We offer
comprehensive service, monitoring and
maintenance programmes to maximise
uptime and minimise cost of production
through our global service business.
The focus remains to ensure that the
Service business teams work closely
with every customer to understand
their current and future needs and to
tailor contracted service programme
agreements aimed at customer
productivity improvements. Working
across our strategic lines, our Excellence
in Service programme is an initiative
focused on quick response and high
spare part availability for our global
customers, which has already begun
to increase service revenue.
Service business growth will be
supported by new OE product launches
during the year, the technology within
which will enable customers to optimise
their production processes and improve
product quality through greater
equipment connectivity, data extraction
and interpretation as well as enable
Mpac to deliver a wider range of more
planned service.
Operational Efficiency
Our consistent aim is to be a customer
focused, responsive and flexible Group
achieved through organisational
excellence, underpinned by a global
supply chain and supported by a single
business model, 'One Mpac'. The cross
utilisation of resources is now the norm
as opposed to an exception.
During 2019 we commenced a project
to harmonise our global ERP landscape
and to leverage the work previously
completed in deploying common
engineering design platforms to our
manufacturing sites. Additionally,
operational integration of Lambert's
project management and engineering
systems and processes has started,
for completion in 2020.
The acquisition of Lambert presented
an opportunity to access an established
low-cost supply chain in our existing
businesses, the benefits of which started
to be realised in 2019.
MPAC BUSINESS MODEL 'ONE MPAC'
We have operations around the world
and industry-leading technologies. None
of that is possible, of course, without
the intelligence and commitment of
our people. Having a highly skilled,
technical workforce in place and
ensuring everyone can contribute at
their highest level and grow in their
position over the long term enables us to
win as a team. Through 'One Mpac', we
are developing leaders, whilst engaging
and empowering our global workforce.
With strong leaders, engaged people
and common processes we strengthen
the organisation and create value for
our customers and shareholders.
TONY STEELS
Chief Executive
3 March 2020
09
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Full line
solutions
INGENIOUS AUTOMATION
PROVIDING FULL LINE
SOLUTIONS FOR THE
HEALTHCARE SECTOR
The acquisition of Lambert in 2019
provides Mpac with additional capacity
and technology to accelerate the
development of an integrated full
automation and packaging platform
solution focussed upon customers
in the Healthcare sector. Our full line
solutions incorporate both Lambert
and Langen equipment and technology,
presenting Mpac to the sector as a
full production line solutions provider.
Growth in number of
engineers within product
development 2019 v 2018
62%
Common and integrated control systems
are deployed throughout the production
line, seamlessly and efficiently
handling the customer’s product with
maximum overall equipment efficiency,
supported by a single point of contact
for aftersales support.
INVESTING IN THE FUTURE
AND SUSTAINABILITY
Mpac fully supports the manufacturer’s
need to be able to react to predicted and
unpredicted changes in both the packing
processes and the wider markets. The
machines used by our customers must be
flexible and adaptable to react to these
challenges. To future proof our customers’
investment we design machinery and
solutions with features which allow
swift identification of efficiency and
productivity improvements within their
production environment. An application
of this flexible approach is providing
our customers with options to reduce
dependency on single-use plastics and
increasing the range of sustainable
packaging machinery solutions.
Revenue from new product
development
£5.9m
Environmental and sustainability concerns
from our customers and end consumers
necessitate flexible packaging processes.
The focus on reducing packaging materials
and removing packaging stages has led
to a revolution within the industry which
Mpac is well placed to meet the demands
of with both existing and future solutions.
Our strategy for innovation is designed
to deliver flexible and rapid solutions
to meet the fast pace of change in our
customers’ markets.
10
Mpac Group plc Annual Report and Accounts 2019 AN INNOVATION AND
TECHNOLOGY ROADMAP
TO SUPPORT OUR
STRATEGY GOAL
Mpac has a proud history as a leader
in packaging machinery technology
and product development. Innovation
is core to our growth strategy and
is the lifeblood of the Group. Our
innovation team is globally located
and has a track record of delivering
ambitious development programmes,
ensuring Mpac continues to offer
customers future proof technology.
The innovation team is organised
into two teams, one focussed on
developing the next generation
of cartoners and case packers for
our Langen customers and the
other developing full line primary
and automation solutions for our
Lambert customers.
KEY INNOVATION HIGHLIGHTS
FROM 2019
» Development of flagship ALISIO top
load casepacker
» Implementation of user friendly
advanced HMI
» Launch of Industry 4.0
development features
» Extension of Maestro cartoner
platform to incorporate
tissue formats
» Further enhancements to SOLANO
sideload casepacker
11
Growth in total product development
budgeted for in 2020
72%
(2019: £1.8m; 2020 budget £3.1m)
THE FUTURE OF INNOVATION AND
AUTOMATION: INDUSTRY 4.0
Core to our innovation strategy is delivering
an advanced HMI with all automation
and packaging machines to ensure that
our customers benefit from the shift in
performance available to them from Industry
4.0. The next phase in our development
roadmap of Industry 4.0 enhancements is
focussed on providing platforms with the
ability to unlock the potential from the vast
amount of data generated during production.
The potential benefits from accessing this
data include increased machine uptime via
preventative maintenance software and
service, video instructions and enhanced
operator usability.
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS B U S I N E S S M O D E L
A N D S T R AT EG Y
Our mission
To be a global leader of high speed packaging
solutions focused on attractive growth sectors
enhanced by a world class service offering to
ensure maximum return on customer investments;
What we do
1
Creating and enabling
new ideas that give a
competitive advantage
and keep customers at
the forefront of their
markets.
M a k e
1
M
o
n
i
t
o
r
4
Condition monitoring
technologies are incorporated
into the solutions we provide
to ensure product quality
and compliance.
12
2
Provider of high speed
processing and packing
technologies that drive
business performance
and long-term value.
2
P
a
c
k
3
e r vice
S
4
0.0125
0.0125
3
Providing lifetime
service and sustaining
excellence, globally,
quickly and efficiently.
Mpac Group plc Annual Report and Accounts 2019 Customer focused, responsive and flexible through
operational excellence underpinned by a global
competitive supply chain and internal activities
optimised to maximise efficiency;
Address our customers’ unmet needs by leveraging
market leading technology, innovation and application
know-how.
Our sectors
Our values
The One Mpac business model was
introduced in 2018 aimed at ensuring
we deliver consistent high quality
services to our customers globally
and wherever they choose to locate
a manufacturing site.
The Group offers its customers a
packaging solution customised to
their requirements using a portfolio
of proven modules augmented with
a customer specific product package
handling solution.
The implementation of our One Mpac
business model is well progressed
covering contract engineering and
project management. During 2020 we
will continue to focus on procurement
and manufacturing, through to
assembly, test and then site delivery
and customer acceptance. Common
processes are all monitored and
controlled by effective project
management. Service support is
then provided through the life of the
product at the customers’ sites.
The capital equipment market is
cyclical by its nature with a high need
for responsiveness and flexibility to
adapt to customer demands and lead
time needs, seizing the opportunities
as they arise.
The group is now able to exploit
synergies, utilising best practice
across the sites and a shared services
resource in order to improve the
operational efficiencies.
This creates a model whereby we can
increase utilisation with the ability
to expand capacity with increased
demand and reduce capacity
in periods of lower demand.
H E A LT H C A R E
Supporting healthcare Industries
as diverse as contact lenses,
facial tissues and dentifrice. Mpac
supplies innovative first-of-a-kind
machinery as well as standard
packing and testing equipment.
P H A R M A C E U T I C A L
To meet our customers’ diverse and
specialised demands, Mpac offers
a first-of-a-kind service for novel
dosing and packaging. Process
assurance via standard and custom
test equipment is available.
FO O D A N D B E V E R AG E
Providing innovative solutions for
secondary and end-of-line packaging.
Cartoning and case packing of bags,
stick packs, pouches, flow wrapped
products, bottles and more to our
customers’ requirements.
I N T E G R I T Y
Deliver on our promise,
respect and value others
E X C E L L E N C E
Always striving to be better
PA S S I O N AT E
Be energised to deliver
I N N O VAT I O N
Identify a need, think
outside of the box and
deliver solutions
C O L L A B O R AT I O N
Working together without
boundaries for the
collective goal
13
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS B U S I N E S S M O D E L A N D S T R AT EG Y
C O N T I N U E D
Strategic priorities
Going for
Growth
Make
Service a
Business
Operational
Efficiency
2019 PROGRESS
» Lambert acquisition
» Innovation to expand the case
packing range
» New customer acquisition
» Increased US sales presence
FUTURE PLANS
» Full solutions offering to
healthcare customers
» Integrated packaging solutions
» Industry 4.0 commercialisation
» Global key account management
2019 PROGRESS
» Regional service management
and footprint
» Traction with
contractual agreements
» Focussed operational excellence
» Expanded resources fully deployed
FUTURE PLANS
» Upgrade programmes
» Life-cycle ROI proposition
» Service systems enhancements
» Product innovation - Industry 4.0
2019 PROGRESS
» Global supply chain
» Engineering systems
platform complete
» Global resource pooling
» Common project
management processes
» Cross business resource utilisation
FUTURE PLANS
» Flexible resource model
» Phased ERP launch
» Supply chain efficiency
» Talent development and retention
14
Key opportunities
The sector and customer demands are continually evolving,
with a clear need for full solutions to their automation and
packaging requirements supported by a comprehensive service
proposition to ensure maximised return on investments.
Demand for data capture and traceability throughout the
product life-cycle is also an increasing trend. By utilising the
impressive array of innovative engineering solutions and
technology throughout the Mpac sites, supported by a focused
product development roadmap targeted on the attractive
growth sectors, we are well positioned to deliver growth
beyond industry forecasts.
The Group offers first-of-a-kind innovative solutions, working
with the customers’ product development engineers and
marketing functions on the next generation of innovative
products. By partnering with these key global customers,
Mpac is well positioned to support the customer from prototype
to series production. This capability will be leveraged across
our global sales team and into our global key accounts and
prospects. In particular, Service represents a key opportunity
based on a substantial installed base and a growing demand
for bespoke support from our customers.
A detailed review of our customers' support requirements has
been undertaken to assess the potential additional revenue
opportunities and a customer focused approach to transition
to contractual agreements aimed at improved equipment
utilisation and therefore customer return on investment.
Product innovation and development is key to sustained growth
in the large and attractive sectors we operate in. Our current
product development roadmap is under continued review to
ensure it is realigned to effectively support customer trends
in the identified growth sectors. The focus for innovation in the
coming years will be on software enhancements to support
our customers short term needs as well as regional nuances,
alongside a longer term roadmap to ensure we supplement
the full solution objective in our target sectors and address
emerging customer demand for increased data capture
to support maximised utilisation and product conformity.
The 'One Mpac' business model with a regionally focused,
single business entity model has been implemented and
continues to be enhanced. This is supported by a global
service business, operations and shared services function.
Customer responsiveness and reduced lead times are key
competitive advantages and as such we need to continuously
improve. By working on a global basis, operations and shared
services will be better able to increase operational efficiencies,
whilst simultaneously creating a flexible and responsive
manufacturing base and supply chain to quickly adapt
to changes in customer demand and investment cycles.
Mpac Group plc Annual Report and Accounts 2019 F I N A N C I A L
F I N A N C I A L
R E V I E W
R E V I E W
W I L L I A M W I L K I N S
G R O U P F I N A N C E
D I R E C T O R
REVENUE AND OPERATING RESULTS
Group revenue in the year was £88.8m
(2018: £58.3m). Revenue in the Original
Equipment ('OE') division was £69.4m
(2018: £46.2m) and revenue in the
Service division was £19.4m (2018:
£12.1m). Gross profit was £26.0m
(2018: £14.0m) and underlying selling,
distribution and administration costs
were £18.3m (2018: £12.6m).
Underlying operating profit was
£7.7m (2018: £1.4m). Underlying profit
after tax was £7.8m (2018: £0.9m)
and statutory profit for the period
was £5.9m (2018: £6.0m loss).
NON-UNDERLYING ITEMS
The loss before tax for the year from
non-underlying items was £2.1m (2018:
£8.8m). This comprised £1.9m of costs,
interest and amortisation relating to
the acquisition of Lambert (2018: £nil),
a credit of £1.1m (2018: £nil) relating to
past service gains following an exercise
to offer members of the US pension
scheme alternative options, £0.8m
(2018: £0.7m) of administration costs
and interest relating to the Group’s
defined benefit pension schemes, a
provision of £0.2m (2018: £nil) relating
to the 2017 disposal of the tobacco
business and restructuring costs of
£0.3m (2018: £0.8m). In 2018 £7.3m
of past service costs for GMP pension
scheme equalisation were recognised.
Non-underlying items merit separate
presentation in the consolidated
income statement to allow a better
understanding of the Group’s financial
performance, by facilitating comparisons
with prior periods and assessments
of trends in financial performance.
Pension costs, restructuring costs
and acquisition-related charges are
considered non-underlying items as
they are not representative of the
core trading activities of the Group
and are not included in the underlying
profit before tax measure reviewed
by key stakeholders.
RESTRUCTURING
The Group undertook a limited number
of restructuring initiatives during the
year to reshape the Group to achieve
its strategic objectives and support
its ongoing growth, with changes
made within the UK Head Office
and Coventry site.
INTEREST AND TAXATION
Net financing income was £0.1m (2018:
£0.2m), which includes a net financing
income of £0.4m (2018: £0.2m) on
pension scheme balances. Underlying
financing costs increased by £0.1m
during the year as a result of the adoption
of IFRS 16 Leases. The tax credit on
underlying profit before tax was £0.3m
(2018: tax charge £0.5m), mainly due
to a number of one-off events and the
relative changes in the global location of
the Group revenue. The total tax credit
on the Group’s profit before tax was
£0.5m (2018: £1.4m).
DIVIDENDS
Having considered the trading results
for 2019, together with the opportunities
for investment in the growth of the
Group, the Board is recommending
recommencement of divident payment
with a final dividend of 1.5p per ordinary
share. No interim dividend was paid in
2019. Subject to approval at the Annual
General Meeting on 6 May 2020 the final
dividend will be paid on 15 May 2020
to ordinary shareholders registered at
the close of business on 17 April 2020,
at a cost of £0.3m.
CASH, TREASURY AND
FUNDING ACTIVITIES
Cash at the end of the year was £18.9m
(2018: £27.9m). Net cash inflow before
reorganisation was £5.1m (2018: £1.1m),
after an increase in working capital
of £2.1m (2018: £1.9m decrease) and
defined benefit pension payments of
£2.9m (2018: £3.0m). Reorganisation
payments of £1.0m (2018: £1.0m) were
15
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS F I N A N C I A L R E V I E W
C O N T I N U E D
made in the year. Net taxation receipts
were £1.0m (2018: £1.0m paid). Capital
expenditure on property, plant and
equipment was £1.4m (2018: £1.1m),
capital expenditure on assets under
construction was £0.6m (2018: £nil)
and capitalised product development
expenditure was £0.3m (2018: £0.3m).
The acquisition of Lambert brought a
step-change in the levels of working
capital required in the Group. The
business was acquired with an unusually
high level of cash (£6.2m) due to the
timing of customer orders. These
orders have progressed during the year,
increasing the working capital in use
to close to the expected level for the
enlarged Group.
The acquisition of Lambert resulted in an
immediate net cash outflow of £10.6m.
Deferred consideration of up to £3.0m
is expected to fall due over the coming
three years, predominantly in 2022. It
is pleasing to report that the acquired
business continues to perform ahead
of the criteria required for full payment
of the deferred consideration.
The Group entered into a five-year
funding agreement with HSBC during
the year, which provides the Group with
a £10.0m revolving credit facility to
support future growth. This facility also
provides a number of other opportunities
to more proactively manage the Group’s
cash and ensure that the Group is well
placed to react to opportunities, both
organic and acquisition related,
as they arise.
There were no significant changes
during the year in the financial risks,
principally currency risks and interest
rate movements, to which the business
is exposed, and the Group treasury
policy has remained unchanged.
The Group does not trade in financial
instruments and enters into derivatives
(mainly forward foreign exchange
16
Reconciliation of underlying profit before tax
to profit/(loss) before tax
Underlying profit before tax
Non-underlying items
UK Defined benefit pension scheme – past service cost
GMP equalisation
US Defined benefit pension scheme – past
service gain from options exercise
Defined benefit pension schemes – other costs and interest
Reorganisation costs
Acquisition costs and acquired intangible asset amortisation
Provision in respect of discontinued operation
2019
£m
7.5
–
1.1
(0.8)
(0.3)
(1.9)
(0.2)
2018
£m
1.4
(7.3)
–
(0.7)
(0.8)
–
–
Profit/(loss) before tax
5.4
(7.4)
Key performance indicators
Revenue (£m)
£88.8m
Underlying operating return on sales (%)
8.7%
Underlying profit before tax (£m)
£7.5m
Underlying EPS (p)
39.5p
100
80
60
40
20
0
10
5
0
-5
10
5
0
-5
40
30
20
10
0
-10
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Mpac Group plc Annual Report and Accounts 2019 During the year the Company made
payments to the UK defined benefit
scheme of £1.9m (2018: £1.9m) in
respect of the deficit recovery plan.
The Company paid a one-off amount
to the Fund of £0.1m (2018: £0.1m),
representing 10% of the net proceeds
in the year (after costs and taxation)
from the sale of the Instrumentation &
Tobacco Machinery division. Payments
of £0.9m (2018: £1.0m) were made
to the US schemes in the year.
In 2019 the UK scheme’s triennial
valuation as at 30 June 2018 was
completed, with the reported deficit
reducing to £35.2m (30 June 2015:
£69.6m). The contributions remained at
the same level, but the recovery period
reduced to six years and one month
(30 June 2015: 14 years 2 months).
Further details are shown in note 24.
EQUITY
Group equity at 31 December 2019 was
£47.5m (2018: £40.6m). The movement
arises mainly from the profit for the
period of £5.9m, a net actuarial loss in
respect of the Group’s defined benefit
pension schemes of £0.2m and currency
translation gains on foreign currency
net investments of £1.0m; all figures
are stated net of tax where applicable.
S172 OF THE COMPANIES ACT
Disclosures related to s172 of the
Companies Act are contained within
the Director's Report on page 41.
WILLIAM WILKINS
Group Finance Director
3 March 2020
contracts) solely for the purpose of
minimising currency exposures on sales
or purchases in other than the functional
currencies of its various operations.
PENSION SCHEMES
The Group is responsible for defined
benefit pension schemes in the UK
and the USA, in which there are
no active members.
The IAS 19 valuation of the UK scheme’s
assets and liabilities was undertaken
as at 31 December 2019 and was based
on the information used for the funding
valuation work as at 30 June 2018,
updated to reflect both conditions at
the 2019 year end and the specific
requirements of IAS 19. The smaller US
defined benefit schemes were valued
as at 31 December 2019, using actuarial
data as of 1 January 2017, updated for
conditions existing at the year end.
Under IAS 19 the Group has elected to
recognise all actuarial gains and losses
outside of the income statement.
The IAS 19 valuation of the UK scheme
resulted in a net surplus at the end of
the year of £20.4m (2018: £20.5m)
which is included within the Group's
and Company's assets. The value of
the scheme’s assets at 31 December
2019 was £423.6m (2018: £398.2m)
and the value of the scheme’s liabilities
was £403.2m (2018: £377.7m). The
scheme was largely protected from the
sharp reduction in the main discount
rate by the liability matching strategy
agreed between the trustee and the
Company, which was implemented early
in 2019 and continues to evolve as the
scheme matures.
The IAS 19 valuations of the US pension
schemes showed an aggregated net
deficit of £3.1m (2018: £6.2m) with
total assets of £10.4m (2018: £16.3m).
This halving of the deficit was achieved
through a combination of a successful
exercise undertaken to provide scheme
members with alternative options for
their scheme benefits and strong asset
returns. The options exercise resulted in
the scheme being halved in size, with the
consequent reduction in both the liability
of the Group and the risk to which the
Group is exposed.
17
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS P R I N C I PA L R I S K S A N D U N C E R TA I N T I E S
The Board regularly considers the main risks that the Group faces and how to mitigate those risks.
The principal risks and uncertainties to which the business is exposed are summarised as follows.
Risk
Mitigation
ECONOMIC AND MARKET CYCLES
The Group is potentially affected by global and local economic
cycles and changes in a number of industrial sectors, including
the Pharmaceutical, Healthcare and Food and Beverage
industries. Such potential changes include those arising
as a consequence of governmental activities, such
as regulation and taxation.
‘BREXIT’
The impact on the Group of the UK leaving the EU is uncertain.
Customers, suppliers and Group operations are geographically
diverse and the Group sells a range of products and services
to a number of industries in all parts of the world.
‘Brexit’ risk is partially mitigated by matching the locations of
customers and production within the Mpac Langen business,
flexible production facilities across three continents along with
limited reliance upon the UK market.
The issue is being closely monitored by the leadership team,
with contingency plans being continuously evolved to ensure
our customers continue to enjoy seamless service.
REGULATORY CHANGE
The Group may be affected by changes in global or national
regulations across any of its key sectors, examples of which
include changes in regulations which significantly change the
demand for our customer’s products or restrictions upon/
changes to the methods of packaging and distribution.
The Group’s products are used to produce and package a very
wide range of products and restrictions or changes to any one
product, especially within our key sectors where individuals
are reliant upon the sector on a daily basis, provides some
mitigation against sudden change.
The Group has extensive knowledge and experience in
designing machines to accept all kinds of products and
packaging materials, including those with the lowest
environmental impact and machines designed to minimize
packaging material usage whilst maintaining the customer’s
product in perfect condition.
LOSS OF TRADING PARTNERS
The Group faces the general risk of trading partners, including
both customers and suppliers, ceasing to operate; the loss of
any such partner could have an adverse effect on the Group’s
operating results and financial condition, including potentially
affecting the viability of a subsidiary company. A number
of customers operate in countries which may face a higher
degree of political risk than others.
The Group has a diversified base of customers. In certain years
sales to a customer may be more than 15% of Group revenue,
although the sales would typically be both original equipment
and service, and to a number of different geographic regions.
The Group regularly reviews its trading relationships with
suppliers with the aim of ensuring that alternative sources
of supply are available.
LARGE ONE-OFF PROJECTS
The Group undertakes large, one-off projects for its
customers each year. Several risks follow from the nature of
this type of business, including the potential for cost over-
runs and delays in performing the contract, with a consequent
impact on cash flows and profits. Also, the Group is prone to
potentially large fluctuations in business levels, as demand
can be volatile.
The Group utilises good project management practices,
including regular technical and commercial reviews of its major
projects. Resource capacity is regularly reviewed, alongside
reviews of order prospects lists.
18
Mpac Group plc Annual Report and Accounts 2019 Risk
LOSS OF A KEY FACILITY
Mitigation
The Group operates a number of sites around the world and
the loss of any one of them would interrupt a revenue stream
and could potentially have an adverse effect on the Group’s
operating results and financial condition.
Disaster recovery plans are in place for each site. IT
infrastructures are designed to have minimal inter dependence
across the Group, thereby not exposing a number of facilities
to the failure of one central system.
The Group, and the Group’s customers and suppliers, may also
be affected by sudden restrictions in global logistics.
EXCHANGE RATE MOVEMENTS
The majority of the Group’s trading is conducted
outside of the UK and in currencies other than sterling.
Consequently, its financial performance is affected by
fluctuations in foreign exchange rates, particularly as
a result of changes in the relative values of the US dollar,
Canadian dollar, euro, and sterling.
IT SECURITY
The Group holds sensitive data relating to its employees,
customers and suppliers as well as intellectual property and
financial data. Should security infringement occur the Group
risks loss of customers, disruption of normal operations, fines
and reputational damage.
AVAILABILITY OF FUNDING
The banking facilities in place prove insufficient for the needs
of the Group to meet its growth objectives.
The diverse locations and common skill sets around the
Group, along with the Group’s investments in communication
technology, means that production could be moved from one
site to another at short notice in the event that a site or its
region were unable to function for a period of time.
The Group has a wide supply base in different countries
and monitors the relative values of currencies in making
purchasing decisions. The Group enters into forward foreign
exchange contracts to minimise currency exposures on
sales and purchases in other than the functional currencies
of its operations.
The Group continually reviews the effectiveness of its IT
security controls in consultation with external experts and
invests in industry best practice security software. The security
arrangements of the Group’s IT assets prevent unauthorised
access to core IT hardware. IT infrastructures are designed
to have minimal inter dependence across the Group.
The Group conducted an in-depth review of its requirements
and put in place a £10.0m revolving credit facility with HSBC
during 2019.
As at 31 December 2019, the Group holds cash balances
of £18.9m. It is considered that the Group has sufficient
cash resources to carry on in operational existence for the
foreseeable future without the use of the new facility, which
thus provides a substantial buffer against the Group being
constrained by restricted availability of funding.
19
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS P R I N C I PA L R I S K S A N D U N C E R TA I N T I E S
C O N T I N U E D
Risk
Mitigation
LIABILITIES OF THE GROUP SPONSORED DEFINED BENEFIT PENSION SCHEMES
The Group and the pension schemes implement liability
reduction strategies where such opportunities exist and the
Group maintains regular dialogue with its pension advisors on
such matters. Regular meetings are held with the trustee of
the UK pension scheme, to input into their asset investment
decisions and to apprise the trustee of the progress of the
Group to help inform them in making decisions which may
impact the scheme funding requirements. In particular,
the Group and the trustees of the schemes have an active
programme of risk mitigation for the schemes, including
seeking to match investments to the underlying liabilities and
to provide options for the membership which can benefit both
themselves and the schemes. However, many factors which
impact the valuations and funding requirements of the pension
schemes are outside the control of the Group.
The Group is responsible for the funding of a defined benefit
pension scheme in the UK, which pays a levy to the Pension
Protection Fund of an amount outside the control of the Group,
as well as three smaller such schemes in the USA. Changes
in the value of the liabilities of the pension schemes, which
were valued in aggregate at £416.7m at 31 December 2019
in accordance with IAS 19, as a consequence of changes
in interest rates and mortality rates, amongst others, and
changes in the value of the assets of the pension schemes,
which were valued in aggregate at £434.0m at 31 December
2019, are largely outside the control of the Group. The
valuation of these schemes impact on the value of capital
employed in the Group and the extent to which, as a matter
of law, it has available as distributable profits. The Group
has responsibility for the adequate funding of the pension
schemes and is currently paying to the UK scheme £1.9m
per annum in respect of deficit funding following an actuarial
funding valuation as at 30 June 2018. The UK scheme is
subject to a full actuarial funding valuation as at 30 June
2021 which will help inform its funding requirements over
the subsequent periods.
LITIGATION
The Group from time to time may be subject to claims from
third parties in relation to its current and past operations,
which could result in legal costs and rulings against it that
may have a material effect on the Group’s operating results
and financial condition.
The Group has a comprehensive risk management and review
process which is aimed at minimising the risk of such claims
arising as a consequence of its actions. Insurance policies are
in place to cover some such incidences and third-party legal
assistance is sought as required.
20
Mpac Group plc Annual Report and Accounts 2019 C H A I R M A N ’ S
C O R P O R AT E
G O V E R N A N C E
S TAT E M E N T
A N D R E W
K I T C H I N G M A N
C H A I R M A N
We are committed to
excellence in corporate
governance and maintain
clear policies and practices
that promote good
corporate governance.
As Chairman, I am responsible for leading
the Board and upholding high standards
of corporate governance throughout the
Group and particularly at Board level. It
therefore gives me pleasure to introduce
our governance statement.
The Company is listed on AIM and since
September 2018 has been required to
provide a statement of its compliance
with a recognised corporate governance
code. My colleagues share the view that
sound governance is fundamental to
the successful growth of the business.
After the Company’s admission to AIM
in 2014, the Board continued to follow
the principles of the UK Corporate
Governance Code, as appropriate to the
size and nature of the Group. Following
a review earlier in the year, the Board
has decided to apply the QCA Corporate
Governance Code, an updated version
of which was published in April 2018
(the 'QCA Code').
THE QCA'S TEN PRINCIPLES
OF CORPORATE GOVERNANCE
The Board believes that it applies the
ten principles of the New QCA Code
but recognises the need to continue
to develop governance practices and
disclosures in some areas in order
to ensure we continue to apply the
principles going forward. The policies,
procedures and relevant systems we
have implemented to date have given
us a firm foundation for our governance
structure, which is described on page
22. The Board regularly reviews the
structure to ensure that it develops in
line with the growth and strategic plans
of the Group.
ANDREW KITCHINGMAN
Chairman
3 March 2020
21
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS DELIVER GROWTH
The Board has collective responsibility for setting the strategic aims and
objectives of the Group. Our strategy is articulated on pages 12 to 14 and
on our website. In the course of implementing our strategic aims, the
Board takes into account expectations of the Company’s shareholders
and also its wider stakeholders and social responsibilities.
The Board also has responsibility for the Group’s internal control and
risk management systems. The Board regularly reviews the risks faced
and ensures the mitigation strategies in place are the most effective
and appropriate to the Group’s operations.
DYNAMIC MANAGEMENT FRAMEWORK
As Chairman, I regularly consider the operation of the Board as a whole
and the performance of the directors individually. The directors attend
seminars from time to time as appropriate, have regular updates at
Board meetings to assist with training and awareness of compliance
issues facing boards of quoted companies and also are made aware of
developments in governance generally. The Board carries out a formal
review annually in respect of its performance over the previous year. The
evaluation is informed by detailed questionnaires completed by each
director which are then summarised on an anonymous basis, considered
by the Board and action taken as appropriate. All appointments to the
Board will be on merit, but with due consideration to the need for diversity
on the Board. Such appointments will be made to complement the
existing balance of skills and experience on the Board.
The Company operates an open and inclusive culture and this is reflected
in the way that the Board conducts itself. The Non-Executive Directors
regularly attend the Group’s offices and other Group events. With a
relatively small employee base, such interactions mean it is relatively
straightforward for the Board to promote and assess the desired
corporate culture.
BUILD TRUST
During the year the Board has continued to review governance and the
Group’s corporate governance framework. The Board will continue to
monitor its application of the New QCA Code and revise its governance
framework as appropriate as the Group evolves.
The Board recognises the importance of maintaining regular dialogue
with institutional shareholders to ensure that the Group’s strategy is
communicated and to understand the expectations of our shareholders.
Our Board and Committee Structure
CHAIRMAN
THE BOARD
COMPANY
SECRETARY
REMUNERATION AND
NOMINATION
COMMITTEE
AUDIT
COMMITTEE
22
1 Establish a strategy and business model which
promote long-term value for shareholders.
2 Seek to understand and meet shareholder needs
and expectations.
3 Take into account wider stakeholder and social
responsibilities and their implications for long-
term success.
4 Embed effective risk management, considering both
opportunities and threats, throughout the organisation.
5 Maintain the Board as a well-functioning, balanced
team led by the Chair.
6 Ensure that between them the directors have
the necessary up-to-date experience, skills
and capabilities.
7 Evaluate board performance based on clear and
relevant objectives, seeking continuous improvement.
8 Promote a corporate culture that is based on ethical
values and behaviours.
9 Maintain governance structures and processes that are
fit for purpose and support good decision-making by
the Board.
10 Communicate how the Company is governed
and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders.
EXECUTIVE LEADERSHIP TEAM
» Chief Executive
» Group Finance Director
» Managing Director – Americas
» Regional Managing Director – Asia
» Managing Director – EMEA
» Managing Director – Lambert
» Innovation Director
Mpac Group plc Annual Report and Accounts 2019 B O A R D O F D I R EC T O R S
1
1 ANDREW KITCHINGMAN FCA
Independent Non-Executive Chairman
Appointment: Andrew Kitchingman was
appointed Chairman of the Board on 19 April
2018. He joined the Board on 11 May 2016 as a
non-executive director.
Committees: Member of the Audit Committee
and Remuneration and Nomination Committee.
Skills and experience: Andrew is a Fellow of
the Institute of Chartered Accountants in
England and Wales and formerly worked in
senior positions in corporate finance with a
number of firms, including KPMG, Hill Samuel,
Albert E Sharp, Brewin Dolphin and WH Ireland.
Key strengths:
» Strong experience of financial control and
good corporate governance
» Expertise in equity and debt capital raising
» Mergers & acquisitions
Other commitments: Non-executive director
of Andrew Sykes Group plc, Morhomes plc,
Lon-Pro Holdings plc, Incommunities Group
Limited. Chairman of British Board of
Agrement and a director of The Cathedral
Choir School Ripon Limited.
2 DR TONY STEELS
Chief Executive
Appointment: Tony Steels joined the Company
and was appointed to the Board as Chief
Executive on 6 June 2016.
Skills and experience: Tony previously held a
number of senior UK and international
management positions, most recently at Cytec
Industries, Umeco plc and Georg Fischer AG.
He has degrees in both Engineering and
Management augmented with over 30 years
industrial management experience.
Key strengths:
» Capital Equipment Industry experience
of more than 15 years
» Delivery of strategic transformations and
sustainable profitable growth
» Extensive senior executive international
business development
» Selection and development of high-
performance leadership teams
2
4
3
5
3 WILL WILKINS FCCA
Group Finance Director
Appointment: Will Wilkins joined the Mpac
Group Board as Group Finance Director on
22 June 2018.
Skills and experience: Will is a Chartered
Certified Accountant and prior to his
appointment, he held a variety of senior
positions with the Company including Group
Financial Controller and Group Operations
Director. He previously held a senior financial
position at BSH Home Appliances and began
his career at Grant Thornton in 1992.
Key strengths:
» Extensive experience at improving
business systems, processes and controls
» More than 25 years proven track record as
a senior finance professional with strong
financial reporting discipline
» Cross functional practical experience
in operations and finance
4 JOHN DAVIES
Independent Non-Executive Director
Appointment: John Davies joined the Board on
27 January 2011 as a non-executive director.
Committees: Chairman of the Remuneration
and Nomination Committee and member
of the Audit Committee.
Skills and experience: John is a non-executive
director of Redde Northgate plc and he was
formerly non-executive Chairman of Autologic
Holdings plc, Managing Director of Lloyds
TSB’s Asset Finance division, Head of
Consumer Finance for Standard Chartered
Bank and Managing Director of United
Dominions Trust, a subsidiary of Lloyds TSB
Bank plc.
Key strengths:
» Proven track record of developing
companies through acquisition
and mergers
» International business experience
» Strong financial analysis and financial
control skills
» Experience of negotiating and managing
joint ventures
Other commitments: Non-executive director
of Redde Northgate plc.
5 DOUG ROBERTSON
Independent Non-Executive Director
Appointment: Doug Robertson joined the
Mpac Group Board on 1 November 2018
as a non-executive director.
Committees: Chairman of the Audit
Committee and member of the Remuneration
and Nomination Committee.
Skills and experience: Doug was Group
Finance Director of SIG plc until he retired from
the role in January 2017. Prior to joining SIG,
Doug was Group Finance Director of Umeco plc
and Seton House Group Limited. He spent his
early career with Williams plc in a variety
of senior financial and business roles.
Key strengths:
» Extensive multinational financial
management experience in both public
and private companies
» Strategic planning
» Acquisitions and divestments
Other commitments: Non-executive director
at HSS Hire Group plc and Zotefoams plc.
23
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS C O R P O R AT E G O V E R N A N C E R E P O R T
COMPOSITION AND INDEPENDENCE
OF THE BOARD
The Board consists of five directors: The
Non-Executive Chairman, two Executive
Directors and two Non-Executive
Directors. All of the Non-Executive
Directors are considered independent.
Details of each Director’s experience
and background are given in their
biographies on page 23. The skill-set and
experience of Board members is relevant
for the current position of the Company
and covers areas including financial
management and control, capital raising,
capital goods industries, banking,
engineering, strategic planning, business
development, mergers and acquisitions
and international management.
APPOINTMENTS TO THE BOARD
AND RE-ELECTION
The Board has delegated the tasks of
reviewing Board composition, searching
for appropriate candidates and making
recommendations to the Board on
candidates to be appointed as directors
to the Remuneration and Nomination
Committee. Further details on the role
of the Remuneration and Nomination
Committee may be found on page 32.
All directors will offer themselves for
annual re-election, in accordance with
best practice in corporate governance.
The Board considers all directors to be
effective and committed to their roles.
DIVISION OF RESPONSIBILITIES
The Chairman and Chief Executive
have separate, clearly defined roles.
The Chairman leads the Board and is
responsible for its overall effectiveness
in directing the Company and the
Chief Executive is responsible for
implementing the Group’s strategy
and for its operational performance.
EXECUTIVE DIRECTORS
The Executive Directors are full time
employees of the Company and have
entered into service agreements with
the Company.
NON-EXECUTIVE DIRECTORS
Each of the Non-Executive Directors has
entered into a letter of appointment with
the Company which set out the duties of
the Director and commitment expected.
They are expected to commit at least
24 days per annum to their role and
are specifically tasked with:
» bringing independent judgement
to bear on issues put to the Board;
» applying their knowledge and
experience in considering matters
such as strategy, company
performance, use of resources
and standards of conduct; and
» ensuring high standards of financial
probity and corporate governance.
HOW THE BOARD OPERATES
The Board is responsible for:
» developing Group strategy,
business planning, budgeting
and risk management;
» monitoring performance against
budget and other agreed objectives;
» setting the Group’s values and
standards, including policies on
employment, health and safety,
environment and ethics;
» relationships with shareholders
and other major stakeholders;
» determining the financial
and corporate structure of
the Group (including financing
and dividend policy);
» major investment and divestment
decisions, including acquisitions, and
approving material contracts; and
» Group compliance with relevant laws
and regulations.
24
The Board retains control of certain
key decisions through the schedule
of matters reserved for the Board.
It has delegated other matters,
responsibilities and authorities to each
of the Audit and Remuneration and
Nomination Committees and these are
documented in the Terms of Reference
of each of those committees. Anything
falling outside of the schedule of
matters reserved or the committee
Terms of Reference falls within the
responsibility and authority of the
Chief Executive, including all executive
management matters.
Day to day management of the
Company’s business is delegated to
the Executive Directors and in turn
to senior members of the leadership
team in accordance with a clear
and comprehensive statement
of delegated authorities.
The Board meets at regular intervals
and met eight times during the year.
Directors also have contact on a variety
of issues between formal meetings and
there is also regular contact with the
Executive Leadership Team and the
wider senior leadership of the Group.
An agenda and accompanying detailed
papers, covering key business and
governance issues and including reports
from the Executive Directors and other
members of senior management, are
circulated to the Board in advance of
each Board meeting. All Directors have
direct access to senior management
should they require additional
information on any of the items to be
discussed. A calendar of matters to be
discussed at each meeting is prepared
to ensure that all key issues are captured.
At each meeting, the Board reviews
comprehensive financial and
trading information produced by the
management team and considers the
trends in the Company’s business
and its performance against strategic
objectives and plans. It also regularly
reviews the work of its formally
constituted standing Committees as
described below and compliance with
the Group’s policies and obligations.
Mpac Group plc Annual Report and Accounts 2019 All Directors are expected to attend
all meetings of the Board and any
committees of which they are members,
and to devote sufficient time to the
Company’s affairs to fulfil their duties
as Directors. Where Directors are unable
to attend a meeting, they are encouraged
to submit any comments on paper to
be considered at the meeting to the
Chairman in advance to ensure that
their views are recorded and taken
into account during the meeting.
Directors are encouraged to question
and voice any concerns they may
have on any topic put to the Board for
debate. The Board is supported in its
work by Board Committees, which
are responsible for a variety of tasks
delegated by the Board. There is also an
Executive Leadership Team composed
of the Chief Executive and Group Finance
Director and representatives from senior
management whose responsibilities are
to implement the decisions of the Board
and review the key business objectives
and status of projects.
Attendance at Board and Committee meetings by the Directors is shown below.
Andrew Kitchingman
John Davies
Doug Robertson
Tony Steels
Will Wilkins
Board
Audit
Committee
Remuneration
and
Nomination
Committee
8/8
8/8
8/8
8/8
8/8
4/4
4/4
4/4
–
–
5/5
5/5
5/5
–
–
THE MAIN ACTIVITIES OF THE BOARD
DURING THE YEAR
There are a number of standing and
routine items included for review on
each Board agenda. These include
the Chief Executive’s trading update,
a health and safety report, operations
reports, financial reports, governance
and investor relations updates. In
addition, key areas put to the Board for
consideration and review included:
» approval of annual and half year
report and financial statements;
» dividends;
» review and approval of budget;
» review against strategy;
» going concern and cash flow;
» material customer proposals;
» consideration of
banking arrangements;
» investor relations;
» acquisitions and integration;
» review of corporate governance and
group policies;
» review of AGM business;
» outcomes from the Board evaluation
process; and
» briefings and review of conflicts
of interest.
During the year, a strategy meeting was
held with members of the Board and
senior management, giving the Board
greater visibility and understanding
over the Group's business and the steps
being taken to execute its strategy.
Board meetings were held at the Group’s
facilities in Wijchen, the Netherlands and
Mississauga, Ontario, Canada and the
Chairman and Non-Executive Directors
were invited to participate in senior
leadership meetings.
25
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS ACCOUNTABILITY
The Company has in place a system of
internal financial controls commensurate
with its current size and activities, which
is designed to ensure that the possibility
of misstatement or loss is kept to a
minimum. These procedures include the
preparation of management accounts,
forecast variance analysis and other
ad-hoc reports. There are clearly defined
authority limits throughout the Group,
including matters reserved specifically
for the Board.
RISK MANAGEMENT
AND INTERNAL CONTROL
Risks throughout the Group are
considered and reviewed on a regular
basis. Risks are identified and mitigating
actions put into place as appropriate.
Principal risks identified are set out in
the Strategic report on pages 18 to 20.
Internal control and risk management
procedures can only provide reasonable
and not absolute assurance against
material misstatement. The internal
control procedures were in place
throughout the financial year and up
to the date of approval of this report.
FINANCIAL AND
BUSINESS REPORTING
The Board seeks to present a fair,
balanced and understandable
assessment of the Group’s position
and prospects in all half-year, final and
any other ad-hoc reports and other
information as may be required from
time to time. The Board receives a
number of reports, including those
from the Audit Committee, to enable it
to monitor and clearly understand the
Group’s financial position.
C O R P O R AT E G O V E R N A N C E R E P O R T
C O N T I N U E D
THE BOARD COMMITTEES
There are two Board Committees, the
Audit Committee and the Remuneration
and Nomination Committee. Both
Committees are composed of the
three Non-Executive Directors.
Each committee has approved
Terms of Reference setting out their
responsibilities which were reviewed
and approved by the Board during the
year and are available on the Company’s
website www.mpac-group.com.
Details of the operation of the Board
Committees are set out in their
respective reports below. All of the
Board Committees are authorised
to obtain, at the Company’s expense,
professional advice on any matter within
their Terms of Reference and to have
access to sufficient resources in order
to carry out their duties.
EXTERNAL ADVISERS
The Board seeks advice on various
matters from its nominated adviser
Shore Capital and Corporate Limited
(and previously Panmure Gordon & Co)
and other advisers as appropriate. The
Board also sought remuneration advice
from KPMG LLP during the year.
DEVELOPMENT, INFORMATION
AND SUPPORT
Directors keep their skillset up to date
with a combination of attendance at
industry events, individual reading and
study and experience gained from other
board roles. The Company Secretary
ensures the Board is aware of any
applicable regulatory and governance
changes and developments and updates
the Board as and when relevant.
Directors are able to take independent
professional advice in the furtherance
of their duties, if necessary, at the
Company’s expense. Directors also have
direct access to the advice and services
of the Company Secretary.
The Company Secretary supports the
Chairman in ensuring that the Board
receives the information and support
it needs to carry out its roles.
DIRECTORS’ INDUCTION
When Directors join the Board, they
receive an induction covering topics such
as the operation of the Board, Directors’
responsibilities, insider dealing, AIM
Rules and governance.
CONFLICTS OF INTEREST
Under the Articles, the Directors may
authorise any actual or potential conflict
of interest a Director may have and may
impose any conditions on the Director
that are felt to be appropriate. Directors
are not able to vote in respect of any
contract, arrangement or transaction in
which they have a material interest and
they are not counted in the quorum.
A process is in place to identify any of the
Directors’ potential or actual conflicts
of interest.
PERFORMANCE EVALUATION
The Chairman considers the operation
of the Board and performance of the
Directors on an ongoing basis as part
of his duties and will bring any areas of
improvement he considers are needed
to the attention of the Board. The Board
carries out an evaluation process each
year in respect of its performance
over the previous year. The evaluation
is informed by a detailed Board
effectiveness questionnaire completed
by each director and covering topics
such as the composition of the Board,
the quality and timeliness of information
provided, relationships between the
Board, shareholders and employees
and succession planning. The results
are collated and reported to the Board
for discussion.
An evaluation process has been
undertaken in respect of 2019 and
the results discussed by the Board.
26
Mpac Group plc Annual Report and Accounts 2019 All shareholders are encouraged to
attend the Annual General Meeting
(AGM) at which the Group’s activities will
be considered and questions answered.
The Directors are available to listen to
the views of shareholders informally
immediately following the AGM.
This year’s AGM will be held on
Wednesday 6 May 2020. The Notice of
Annual General Meeting is set out on
pages 105 to 110 and will be available on
the Company’s website at www.mpac-
group.com. Separate resolutions are
provided on each issue so that they can
be given proper consideration.
I would like to thank all employees
for their efforts in contributing to the
impressive performance of the Group
in 2019 and the continued success
of the business.
ANDREW KITCHINGMAN
Chairman
3 March 2020
BUSINESS ETHICS
The Board is committed to the Group
operating to the highest standards of
ethical behaviour. The Group’s Ethics
policy, which was reviewed by the
Board during the year, sets out certain
principles that the Board expects all
businesses within the Group to adhere
to and certain values that should be
embodied in the day-to-day activities
of the Group. It expects all employees
of the Group, led by the members
of the Board and the Group’s senior
management, to encourage and
support all other employees in acting in
accordance with the policy. In support of
this policy and its principles, the Board
has published guidance in the Group
Ethics policy, which is available on the
Company’s website at www.mpac-group.
com/mpac-group-policies.
WHISTLEBLOWING
The Company has a whistleblowing
procedure, details of which are provided
to all employees. Staff may report any
suspicion of fraud, financial irregularity
or other malpractice to a senior manager,
executive director, the Company
Secretary or an independent helpline.
The policy is reviewed by the Audit
Committee every year and updated as
required. Details of any matters raised
under this procedure are reported to the
Audit Committee.
SHAREHOLDERS
The Company welcomes contact with
its shareholders and the Group Finance
Director’s contact details are set out
in the Investors section of our website:
www.mpac-group.com/investors/ir-
contacts.
Directors are available to discuss any
matters that shareholders might wish
to raise. They maintain communication
with institutional shareholders, other
investors and analysts through meetings,
particularly following publication
of the Group’s interim and full year
preliminary results.
Investor relations activity and a review
of the shareholder register are quarterly
items on the Board’s agenda. The Board
also regularly receives copies of analysts’
and brokers’ briefings.
The Company strives to provide a clear,
balanced and comprehensive level of
information and written material. The
Company maintains a corporate website
which contains regularly updated
regulatory and other information. The
Annual Report and Accounts is a key
communication document and is also
available on the Company’s website.
The Company also issues both statutory
and non-statutory regulatory news
announcements throughout the year
to update on financial, operational and
other matters. The Company offers its
larger shareholders, either directly or
via its broker, face-to-face meetings
on a bi-annual basis at a minimum to
present and discuss performance and
other matters and obtain any feedback.
These meetings are hosted by the
Company’s Chief Executive and Group
Finance Director. The Company also
hosts a briefing for analysts, arranged by
the Company’s financial public relations
adviser, twice a year to coincide with
the announcement of its half year and
full year financial results to present
and discuss the same matters.
27
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS A U D I T
C O M M I T T E E
R E P O R T
D O U G R O B E R T S O N
C H A I R M A N O F T H E
A U D I T C O M M I T T E E
I am pleased to present
my report as Chairman
of the Audit Committee
for the year ended
31 December 2019.
28
MEMBERSHIP
The Committee’s members are the
Non-Executive directors, whose
biographies are set out on page 23.
The members of the Committee are all
independent, non-executive directors.
MEETINGS AND ATTENDANCE
The Committee met four times during
the year. All members of the Committee
at the time of each meeting were present
at the meetings. The Chief Executive,
Group Finance Director, Secretary, senior
member of the internal audit function
and representatives of the external
auditors (when half-year accounts,
year-end accounts or external audit plan
proposals are considered) are invited to
attend all or part of each meeting. Each
of them has confidential access to me
at other times as required.
Mpac Group plc Annual Report and Accounts 2019 DUTIES
The duties of the Committee are as set
out in its Terms of Reference which are
available on the Company’s website
at www.mpac-group.com. The Terms
of Reference are reviewed annually
and approved by the Board.
The main items of business considered
by the Committee during the
year included:
» review of the year-end audit plan,
and consideration of the scope of the
audit, Group accounting policies and
the external auditor’s fees
» review of the annual report and
financial statements, including
consideration of the significant
accounting issues relating to the
financial statements, and the going
concern review
» consideration of the external
audit report and management
representation letter
» review and approval of the interim
financial statements and the external
auditor’s report
» review of the risk management and
internal control systems
» assessment of external
audit effectiveness
» consideration of the internal audit
review by BDO LLP
» review of
whistleblowing arrangements
» review of the Committee’s Terms
of Reference
EXTERNAL AUDITOR
The Committee has reviewed
the auditor’s independence and
performance to date, and has
recommended to the Board that they
should be re-appointed for the 2020
audit. A resolution to appoint Grant
Thornton UK LLP as the Company’s
auditor is to be proposed at the
forthcoming Annual General Meeting
on Wednesday 6 May 2020.
POLICIES FOR NON-AUDIT SERVICES
AND ENGAGEMENT OF FORMER
EMPLOYEES OF THE EXTERNAL
AUDITOR
The Committee has developed
policies relating to the employment
of former employees of the external
auditor and the engagement of the
auditors, or advisors related to the
auditors, on non-audit services. These
policies, which have been adopted
formally by the Board, require, inter
alia, the Committee’s consent to
any engagements or employment,
with appropriate confirmation of
independence from the auditors and
the approval of the Committee. These
policies were reviewed during the year.
EXTERNAL FINANCIAL REPORTING
The committee reviews all areas of the
Group’s external financial reporting, with
particular focus on judgemental areas
such as going concern, pension fund
valuation and contract accounting.
AUDIT PROCESS
The external auditor prepares an audit
plan for its review of the full-year
financial statements, and the audit plan
is reviewed and agreed in advance by
the Committee. Prior to approval of the
financial statements, the external auditor
presents its findings to the Committee,
highlighting areas of significant financial
judgement for discussion.
INTERNAL AUDIT
The Committee considers annually how
the internal audit function operates in the
Group, including its Terms of Reference
and whether this gives sufficient
assurance that the business and controls
of the Group are reviewed adequately.
The Committee also approves the
internal audit work plan each year. This
function is part of the Group’s finance
department and its senior member
reports to the Committee at each
meeting on its activities and has direct
access to me as required at all times.
During the year, the principal activities
have included a review of the internal
audit provision, following which the
Committee approved the engagement
of BDO LLP to conduct an internal audit
review at the Company’s three main
operating locations. The findings from
the review are monitored by the internal
audit function and progress reported
to the Committee at each meeting.
WHISTLEBLOWING
The Group has in place a whistleblowing
policy which sets out the formal
process by which an employee of
the Group may, in confidence, raise
concerns about possible improprieties
in financial reporting or other matters.
Whistleblowing is an annual item on
the Committee’s agenda, and any
reported incidents will be notified to
the Committee. During the year under
review, there were no reported incidents.
29
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS A U D I T C O M M I T T E E R E P O R T
C O N T I N U E D
SIGNIFICANT ISSUES CONSIDERED IN RELATION TO THE FINANCIAL STATEMENTS
Significant issues and accounting judgements are identified by the finance team and the external audit process and then reviewed
by the Audit Committee. The significant issues considered by the Audit Committee in respect of the year ended 31 December 2019
are set out above.
Significant issue/
accounting judgement identified
Acquisition accounting, including the
valuation of intangible assets
Valuation of contracts and provisioning
Pension accounting
RISK MANAGEMENT AND INTERNAL
CONTROLS
The Group has established a system
of risk management and internal
controls. The Committee is responsible
for reviewing the systems of risk
management and internal control and
has reviewed management’s progress
in implementing and maintaining
such control systems during the
year. The Committee is satisfied
that the internal control systems
are operating effectively.
The Board has taken and will continue
to take appropriate measures to
ensure that the chances of financial
irregularities occurring are reduced
as far as reasonably possible by
improving the quality of information
at all levels in the Group, fostering an
open environment and ensuring that
financial analysis is rigorously applied.
Any system of internal control can,
however, only provide reasonable, but
not absolute, assurance against material
misstatement or loss.
How it was addressed
External experts were used to ensure that the valuation methods employed
were appropriate, the disclosures meet the requirements and the asset lives
are appropriate.
The valuation of contracts is carefully monitored throughout the year, utilising both
accounting data and inputs from all aspects of the business, to ensure contracts are
valued appropriately at all times.
External experts are used on an ongoing basis to value the scheme in line with IAS19
and ensure a consistent and appropriate level of disclosure.
» each site is required to comply with
defined policies, financial controls and
procedures and authorisation levels
which are clearly communicated;
» a programme of internal control
reviews and specific investigations
is carried out. These are followed
up during regular executive
management visits. The internal
control reviews include assessments
of compliance with Group policies
and procedures and findings are
reported to the Audit Committee and
Board as appropriate; a formal risk
management audit is regularly carried
out by group personnel and external
risk management consultants,
which covers physical damage,
environmental and health and
safety risks together with business
continuity issues; and
» formal reports including
recommendations are sent to each
site for action and reported back to
group management. Progress reports
are issued to the Board for review
and monitoring.
The major elements of the system
of internal control are as follows:
» major commercial, strategic and
financial risks are formally identified,
quantified and assessed during
the annual budgeting exercise and
presented to and discussed with
executive directors, after which they
are considered by the Board;
» there is a comprehensive system
of planning, budgeting, reporting
and monitoring. This includes
monthly management reporting
and monitoring of performance
and forecasts. Monthly reviews are
embedded in the internal control
process and cover each principal site.
Monthly reviews require the Executive
Leadership Team to consider, among
other things, business development,
financial performance against budget
and forecast, health and safety and
capital expenditure proposals, as well
as a review of longer-term business
development and all other aspects
of the business. In addition, quarterly
business reviews are carried out at
each principal site and are attended
by the executive directors and local
management teams as appropriate;
» there is an organisational structure
with clearly defined lines of
responsibility and delegation
of authority;
30
Mpac Group plc Annual Report and Accounts 2019 ACTIVITIES DURING THE YEAR
A summary of the Committee’s principal activities in 2019 is set out below.
Month
MARCH
MAY
AUGUST
NOVEMBER
Principal activities
» Review of financial reporting, including material judgements and estimates, goodwill impairment
review assumptions, going concern assumptions, draft Annual Report and Accounts 2018, governance
reports, draft preliminary results announcement, representation letter to the external auditors and the
audit report.
» Consideration of the external auditors’ activities, effectiveness, objectivity and independence.
» Consideration of the re-appointment of Grant Thornton UK LLP as external auditors.
» Review internal audit plan for the year.
» Approval of the internal audit work plan for the year.
» Consideration of the effectiveness of the external audit process.
» Review of results of internal control self-assessments.
» Review of financial reporting, including consideration of the going concern assumptions, the draft
half-year announcement and the external auditors’ review report of the half-year condensed set
of financial statements.
» Consider purchase price allocation report in respect of acquisition of Lambert Automation Ltd.
» Consider plan for external control reviews.
» Review of results of internal control self-assessments.
» Review and approval of the external audit plan for 2019 financial reporting.
» Consideration of and approval of external audit fee quotation for 2019 financial reporting.
» Consider findings of external control reviews.
» Review of system of internal controls and risk management processes.
» Review of Committee terms of reference for Board approval.
» Review of whistleblowing arrangements.
» Review of anti-bribery and corruption policy and procedures.
» Annual Committee performance evaluation.
DOUG ROBERTSON
Chairman of the Audit Committee
3 March 2020
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Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS R E M U N E R AT I O N
A N D N O M I N AT I O N
C O M M I T T E E R E P O R T
J O H N D AV I E S
C H A I R M A N O F T H E R E M U N E R AT I O N
A N D N O M I N AT I O N C O M M I T T E E
As Chairman of the Remuneration and
Nomination Committee (the Committee)
and on behalf of the Board, I am pleased
to present our report which is presented
in three sections: the Remuneration
and Nomination Committee report, the
Remuneration report and the forward-
looking Remuneration policy.
The Remuneration report, on pages 34
to 35, details the amounts earned by
the directors in respect of the period
to 31 December 2019 and is subject
to an advisory shareholder vote. The
Remuneration policy, on pages 36 to 40,
will be put to a binding vote at the Annual
General Meeting on 6 May 2020, which
if approved, will then be effective for
a period of up to a further three years
from that date.
The Committee deals with all
aspects of remuneration of
the executive directors and
certain senior managers and
identifying and nominating
members of the Board.
32
Mpac Group plc Annual Report and Accounts 2019 During the year, the Committee also
discussed succession solutions
for the senior leadership positions
within the business. The importance
of identifying internal candidates
and forming development paths for
potential successors formed part of
the discussions. Succession plans for
the Executive Directors and senior
leadership positions are reviewed
on an annual basis.
LTIP
During the year, a Long Term Incentive
Plan (the “LTIP”) was introduced to
incentivise the Executive Directors and
certain senior managers. The Committee
engaged KPMG LLP to provide advice
during the development of the LTIP.
REMUNERATION AND
NOMINATION COMMITTEE
Membership
The members of the Committee are
the non-executive directors, whose
biographies are set out on page 23.
The members of the Committee are all
independent, non-executive directors.
Meetings and attendance
The Committee meets as often as
required and at least twice a year.
The Committee met five times during the
year. All members of the Committee at
the time of each meeting were present
at the meetings. The Chief Executive,
Group Finance Director and Company
Secretary are invited to attend all or
part of each meeting. Each of them has
confidential access to me at other times
as required.
Duties
The duties of the Committee are as set
out in its Terms of Reference which is
available on the Company’s website
at www.mpac-group.com/investors.
The Terms of Reference are reviewed
annually and approved by the Board.
The Committee deals with all aspects
of remuneration of the executive
directors and certain senior managers
and identifying and nominating members
of the Board.
The main items of business considered
by the Committee during the
year focused on remuneration
matters, including:
» approving bonus payments to
executive directors under the
Management Incentive Bonus
Scheme 2018, following assessment
of 2018 performance against
agreed objectives and approving the
performance criteria for the 2019
annual bonus;
» approving awards under the Deferred
Share Plan;
» the approval of a new Long Term
Incentive Plan for Executive Directors
and senior management;
» approval of Executive Directors’
and certain senior managers
salary increases;
» succession planning;
» re-election of directors at the
AGM; and
» reviewing the Committee’s Terms
of Reference.
With respect to its nomination
responsibilities, there have been no
external appointments to the Board
during the year. The Committee
considered the renewal of the letter
of appointment for Mr Kitchingman,
which ended in May 2019, for a further
term of three years.
33
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS R E M U N E R AT I O N A N D N O M I N AT I O N C O M M I T T E E R E P O R T
C O N T I N U E D
ANNUAL REMUNERATION REPORT
Directors’ total remuneration
The remuneration of the executive directors for the years 2019 and 2018 is made up as follows:
Executive directors’ remuneration as a single figure
2019
T Steels
W C Wilkins
2018
T Steels
J R Haughey
(resigned 22 June 2018)
W C Wilkins
(appointed 22 June 2018)
All
benefitsa
£000
Short-term
incentive
schemec
£000
31
18
293
215
Salary
£000
243
172
All
benefitsa
£000
Termination
paymentsb
£000
Short-term
incentive
schemec
£000
14
9
7
–
33
–
24
–
30f
Salary
£000
237
120
76
Deferred
share pland
£000
48
45
Deferred
share pland
£000
105
–
–
Pensione
£000
56
17
Pensione
£000
24
12
7
Total
£000
671
467
Total
£000
405
174
120
a Benefits include:
Dr Steels, Mr Wilkins and Mr Haughey – car allowance payments, income replacement insurance and private medical cover;
b Mr Haughey resigned as a director of the Company on 22 June 2018 and as an employee on 31 August 2018. The termination payment represents
pay in lieu of notice and reflects the principle of mitigation;
c The performance criteria for the short-term incentive scheme is described in the Remuneration policy on page 39.
d The amounts represent the values of the awards made in the form of conditional grants which are exercisable no earlier than three years from the
date of grant. The share price at the date of grant in 2019 was 134.7p (2018: 178.9p).
e The values in respect of Dr Steels are the amounts contributed by the Company into the Company’s Personal Pension Plan on his account and
a payment made to cover the impact of a restriction on tax relief on contributions. The values in respect of Mr Wilkins and Mr Haughey are the
amounts contributed by the Company into the Company’s Personal Pension Plan on their accounts.
Includes an amount related to the period prior to Mr Wilkins appointment as a director.
f
The remuneration of the non-executive directors for the years 2019 and 2018 is made up as follows:
Non-executive directors’ remuneration as a single figure
P J Moorhouse (resigned 19 April 2018)
J L Davies
A J Kitchingman
D G Robertson (appointed 1 November 2018)
2019
All taxable
benefits
£000
–
–
–
–
Fees
£000
–
51
76
51
Total
£000
Fees
£000
–
51
76
51
25
50
65
8
2018
All taxable
benefits
£000
–
–
–
–
Total
£000
25
50
65
8
Directors’ interests in shares
The beneficial interests of directors holding office at 31 December 2019 and persons connected with them in the ordinary shares
of the Company (excluding share options) were as follows:
T Steels
A J Kitchingman
34
Held at
1 January
2019
18,650
6,451
Acquired in
the year
Held at
31 December
2019
–
6,682
18,650
13,133
Mpac Group plc Annual Report and Accounts 2019 No director holds, or held at any time during the year, a beneficial interest in the Company’s preference shares. There were
no changes in the directors’ interests in shares between 31 December 2019 and 2 March 2020.
Incentive scheme – Deferred share plan
Details of conditional grants of Mpac Group plc ordinary shares under the Company’s Deferred share plan yet to vest for each
director who held office during the year and who is eligible to participate in the plan are as follows:
T Steels
T Steels
T Steels
W C Wilkins
W C Wilkins
Date of award
1 May 2019
13 March 2018
8 June 2017
1 May 2019
13 March 2018
Basis of
award (% of
salary)
20.0%
45.0%
38.5%
30.0%
Number of
shares
Face value at
grant (£000)
35,409
58,811
113,924
33,407
7,713
48
105
90
45
14
Mr Wilkins’ shares awarded on 13 March 2018 were awarded whilst he was an employee, but not a director, of the Company.
Awards are made following the achievement of personal objectives linked to long-term strategic initiatives. The earliest date that
awards can vest is three years from the date of award.
Long Term Incentive Plan
During the year, awards were made in respect of the Company’s Long Term Incentive Plan (LTIP). Details of conditional grants
of Mpac Group plc ordinary shares under the LTIP yet to vest for each director who held office during the year and who is eligible
to participate in the plan are as follows:
T Steels
W C Wilkins
Date of award
Number of
shares
12 June 2019
210,000
12 June 2019
120,000
Face value
at grant
(£000)
349
199
% of
salary
143%
111%
End of three-year
performance
period
31 Dec 2021
31 Dec 2021
Face value of awards at the date of grant is calculated based on the closing share price of 166p per ordinary share.
Performance metrics selected reflect underlying business performance. 70% of the award of shares is based on cumulative
Earnings Per Share ('EPS') performance over a three year period. 30% of the award of shares is based on average Return On Capital
Employed ('ROCE') over the same three year period. In respect of the percentage of the award that relates to EPS, 20% of the award
is made if EPS is 85p. 100% of the award is made if EPS is equal to or exceeds 115p. Between these two points, allocation will be
on a straight line basis pro rata. If EPS is below 85p no award will be made in respect of EPS. In respect of the percentage of the
award that relates to ROCE, 20% of the award is made if ROCE is 20%. 100% of the award is made if ROCE equals or exceeds 30%.
Between these two points, allocation will be on a straight line basis pro rata. If ROCE is below 20% no award will be made in respect
of ROCE.
A cap of £5 per ordinary share exists at the time of vesting such that the number of shares vesting is reduced accordingly.
Awards will normally remain subject to a holding period of two years commencing on the vesting date with the exception of sales
to cover related personal tax liabilities.
Payments to past directors
In 2018 Mr Haughey received remuneration for the period from the date he ceased to be a director, on 22 June 2018, until the date
his employment ceased on 31 August 2018.
35
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS R E M U N E R AT I O N A N D N O M I N AT I O N C O M M I T T E E R E P O R T
C O N T I N U E D
REMUNERATION POLICY
This part of the Remuneration and Nomination Committee’s report sets out the Remuneration policy which was determined by the
Company’s Remuneration and Nomination Committee and approved by the Board at their meetings on 21 January 2020 and which
will be subject to a binding vote at the Annual General Meeting on 6 May 2020, and will be effective until no later than 6 May 2023.
The policy is not subject to audit.
The Remuneration policy is designed to ensure that the remuneration packages offered, and the terms of the contracts of service,
are competitive and are designed to attract, retain and motivate executive directors of the right calibre. To achieve these goals,
the Remuneration and Nomination Committee’s policy is to establish fixed salary at around half of the total obtainable in the case
of excellent performance, with recognition and reward for achieving performance targets annually and growth in the long-term.
Key changes to the Remuneration policy are the inclusion of the Long-Term Incentive Plan and the removal of the share-based
element of the Short-Term Incentive Plan. The Short-Term Incentive Plan had previously included a share-based element because
the Company didn’t operate a long-term incentive plan.
Remuneration packages
The main components of the package for each executive director are:
i. Basic salary
Basic salary is determined by taking into account the performance of the individual and information on the rates of salary for similar
jobs in companies of comparable size and complexity in a range of engineering and other technology industries.
ii. Incentive schemes
The executive directors participate in a short-term incentive scheme in which the minimum bonus payable is nil and the maximum
bonus payable is 120% of relevant salaries. The incentive is payable wholly in cash. The targets against which performance is
judged are primarily the Group’s key financial performance indicators and personal objectives. The directors’ personal objectives
are commercially sensitive and therefore remain, and are expected to continue to remain, confidential to the Company. In some
years the targets may be varied to reflect particular objectives determined by the Committee.
iii. Long Term Incentive Plan (the “LTIP”)
A new LTIP, which was adopted by the Board on 10 June 2019, has been introduced to incentivise executive directors and certain
senior managers over the longer term and encourage retention. 70% of the award of shares is based on cumulative Earnings Per
Share (“EPS”) performance over a three year period. 30% of the award of shares is based on average Return On Capital Employed
(“ROCE”) over the same three year period. In respect of the percentage of the award that relates to EPS, 20% of the award is
made if EPS is 85p. 100% of the award is made if EPS is equal to or exceeds 115p. Between these two points, allocation will be
on a straight line basis pro rata. If EPS is below 85p no award will be made in respect of EPS. In respect of the percentage of the
award that relates to ROCE, 20% of the award is made if ROCE is 20%. 100% of the award is made if ROCE equals or exceeds 30%.
Between these two points, allocation will be on a straight line basis pro rata. If ROCE is below 20% no award will be made in respect
of ROCE.
An award granted under the LTIP in the form of a conditional right giving the participant a right to acquire ordinary shares in the
Company if certain conditions are met. Awards were made covering a three year period. Awards will normally vest following the
end of the three year performance period, once it is determined whether and to what extent the performance conditions have been
achieved. Awards will normally remain subject to a holding period of two years commencing on the vesting date. Standard malus,
clawback and leaver provisions apply.
iv. Pensions
Directors may choose to join the Mpac Group Personal Pension Plan, which is a defined contribution scheme. Additionally,
life assurance and income protection policies are put in place for the executive directors.
36
Mpac Group plc Annual Report and Accounts 2019 Contracts of service
The Company’s policy is to offer contracts of employment that attract, motivate and retain skilled employees who are incentivised
to deliver the Company’s strategy. The current service contracts were concluded with Dr Steels on 6 June 2016 and with Mr Wilkins
on 22 June 2018. These service contracts are terminable on notice of one year given by the Company and six months given by the
director. In the event of termination by the Company, the Company has the option of making a payment of liquidated damages
equivalent to the value of 12 months’ salary, or the balance of the period to the date of expiry if less, or of negotiating appropriate
compensation reflecting the principle of mitigation. In the event of a change of control in the Company, if the Company terminates
an executive director's contract within six months of the change of control, or if an executive director terminates the contract within
six months of the change of control, the Company will be obliged to pay liquidated damages equivalent to the value of 12 months’
salary. The purpose of the change of control clause, which is reviewed regularly, is that the contracts should provide reasonable
and appropriate security to the director concerned and to the Company.
Any commitment contained within the current directors’ service contracts, or a current employee’s contract of employment
who is subsequently promoted to the role of director, will be honoured even where it may be inconsistent with the Company’s
Remuneration policy.
Letters of appointment
The non-executive directors are not issued with a separate service contract on appointment. The terms of their appointment are
set out in their letter of appointment. The Company does not make termination payments to non-executive directors in the event
that a non-executive director’s appointment is terminated by the Company.
Recruitment
The Committee reserves the right to make payments outside the Remuneration policy in exceptional circumstances.
The Committee would only use this right where it believes that this is in the best interests of the Company and when
it would be disproportionate to seek the specific approval of the shareholders in a general meeting.
When hiring a new executive director, the Committee will use the Remuneration policy to determine the executive director’s
remuneration package. To facilitate the hiring of candidates of the appropriate calibre to implement the Group’s strategy, the
Committee may include any other remuneration component or award not explicitly referred to in this Remuneration policy
sufficient to attract the right candidate. In determining the appropriate remuneration the Committee will take into consideration
all relevant factors (including the quantum and nature of the remuneration) to ensure the arrangements are in the best interests
of the Company and its shareholders.
The Committee may buy-out incentive arrangements forfeited on leaving a previous employer after taking account of relevant
factors including the form of the award, any performance conditions attached to the award and when they would have vested.
The Committee may consider other components for structuring the buy-out including cash or share awards where there
is a commercial rationale for this.
Where the recruitment requires the individual to relocate appropriate relocation costs may be offered.
Recruitment awards will normally be liable to forfeiture or clawback if the executive director leaves the Company within the first
two years of their employment. Any such awards will be linked to the achievement of appropriate and challenging performance
measures and will be forfeited if performance or continued employment conditions are not met.
37
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS R E M U N E R AT I O N A N D N O M I N AT I O N C O M M I T T E E R E P O R T
C O N T I N U E D
Termination
The Committee reserves the right to make additional liquidated damages payments outside the terms of the directors’ service
contracts where such payments are made in good faith in order to discharge an existing legal obligation (or by way of damages
for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination
of a director’s office or employment.
Non-executive directors
The fees of non-executive directors are determined by the Board based upon comparable market levels. The non-executive
directors do not participate in the Company’s incentive schemes and nor do they receive any benefits or pension contributions.
Future Remuneration policy table
The following table provides a summary of the key components of the remuneration package for directors:
Salary
PURPOSE AND LINK TO STRATEGY
This is a fixed element of the executive directors’ remuneration and is intended
to be competitive and attract, retain and motivate.
OPERATION
OPPORTUNITY
Takes into account the performance of the individual and information on the rates
of salary for similar jobs in companies of comparable size and complexity in a range
of engineering and technology industries.
Salary is normally reviewed annually. Ordinarily, salary increases will be in line with
increases awarded to other employees within the Group. However, increases may
be made above this level at the Remuneration and Nomination Committee’s
discretion to take account of individual circumstances such as:
» increase in scope and responsibility;
» to reflect the individual’s development and performance in the role; and
» alignment to market level.
PERFORMANCE METRICS
Not applicable, although individual performance is one of the considerations
in determining the level of salary
Benefits
PURPOSE AND LINK TO STRATEGY
The benefits provided to the executive directors are intended to be competitive
and attract and retain the right calibre of candidate.
OPERATION
OPPORTUNITY
Benefits are paid to the executive directors in line with market practice.
Benefits are set at a level which the Remuneration and Nomination
Committee considers:
» are appropriately positioned against comparable roles in companies of a similar size
and complexity in the relevant market; and
» provide a sufficient level of benefit based upon the role and
individual circumstances.
PERFORMANCE METRICS
Not applicable.
38
Mpac Group plc Annual Report and Accounts 2019 Short-term incentive scheme
PURPOSE AND LINK TO STRATEGY
OPERATION
The short-term incentive scheme is intended to reward executive directors for the
performance of the Group in the financial year.
The Remuneration and Nomination Committee reviews the financial performance
of the Group following the end of each financial year and determines the payments
to be made.
OPPORTUNITY
Maximum of 120% of salary.
PERFORMANCE METRICS
The targets against which performance is judged are primarily the Group’s key
performance metrics in each financial year set annually by the Remuneration and
Nomination Committee as well as personal objectives. In some years the targets
for the short-term incentive scheme may be varied to reflect particular objectives
determined by the Remuneration and Nomination Committee. The Remuneration and
Nomination Committee retains the ability to adjust and/or set different performance
measures if events occur (such as a change in strategy, a material acquisition/
divestment of a Group business, a change in prevailing market conditions, or a change
in regulation which affects the Group) which cause the Remuneration and Nomination
Committee to determine that the measures are no longer appropriate and that
amendment is required so that they achieve their original purpose.
Long Term Incentive Plan
(“LTIP”)
PURPOSE AND LINK TO STRATEGY
OPERATION
OPPORTUNITY
PERFORMANCE METRICS
The LTIP is intended to incentivise executive directors and certain senior
managers over the longer term in direct alignment with shareholders’ interests
and encourage retention.
An award granted under the LTIP in the form of a conditional right giving the
participant a right to acquire ordinary shares in Company if certain conditions are met.
Awards were made covering a three year period. Awards will normally vest following
the end of the three year performance period, once it is determined whether and to
what extent the performance conditions have been achieved. Awards will normally
remain subject to a holding period of two years commencing on the vesting date
with the exception of sales to cover related personal tax liabilities. Standard malus,
clawback and leaver provisions apply.
The normal maximum award, covering the three year plan period, is 300% of salary
based on the value of the award at the date of grant.
Performance metrics selected reflect underlying business performance. 70% of the
award of shares is based on cumulative Earnings Per Share (“EPS”) performance over
a three year period. 30% of the award of shares is based on average Return On Capital
Employed (“ROCE”) over the same three year period. In respect of the percentage of
the award that relates to EPS, 20% of the award is made if EPS is 85p. 100% of the
award is made if EPS is equal to or exceeds 115p. Between these two points, allocation
will be on a straight line basis pro rata. If EPS is below 85p no award will be made in
respect of EPS. In respect of the percentage of the award that relates to ROCE, 20%
of the award is made if ROCE is 20%. 100% of the award is made if ROCE equals or
exceeds 30%. Between these two points, allocation will be on a straight line basis pro
rata. If ROCE is below 20% no award will be made in respect of ROCE.
39
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS R E M U N E R AT I O N A N D N O M I N AT I O N C O M M I T T E E R E P O R T
C O N T I N U E D
Pension
PURPOSE AND LINK TO STRATEGY
OPERATION
OPPORTUNITY
The payment of a pension benefit is intended to form an integral part of an executive
director’s remuneration package that is competitive and attracts, retains and
motivates the director.
Directors may join the Mpac Group Personal Pension Plan, or alternatively, in lieu
of payments to the pension scheme, the Company may pay additional emoluments.
Any percentage increase in pension contributions will not exceed the percentage
increase in salary.
PERFORMANCE METRICS
Not applicable.
Non-executive directors’ fees
PURPOSE AND LINK TO STRATEGY
To attract and retain non-executive directors of the right calibre.
OPERATION
The fees of non-executive directors are determined by the Board based upon
comparable market levels. The non-executive directors do not participate
in the Company’s incentive schemes and nor do they receive any benefits
or pension contributions.
STATEMENT OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE GROUP
The Group applies the same key principles to setting remuneration for its employees as those applied to the directors’
remuneration. In setting salaries and benefits each business considers the need to retain and incentivise key employees
and the impact such policy has on the continued success of the Group.
By order of the Board
JOHN DAVIES
Chairman of the Remuneration and Nomination Committee
3 March 2020
40
Mpac Group plc Annual Report and Accounts 2019 D I R EC T O R S ' R E P O R T
BUSINESS REVIEW
The directors’ business review is set out as part of the
Strategic report with the results of the Group being set out
in the Consolidated income statement on page 54 and in its
related notes.
GOING CONCERN
The Group‘s activities together with the factors likely to
affect its future development, performance and position
are as described within the Strategic report on pages 2 to
20. The directors have considered the trading outlook of the
Group for a 24 month period ending 31 December 2021, its
financial resources including its cash resources and access to
borrowings, as set out in note 20 to the accounts on pages 79
to 80, and its continuing obligations, including to its defined
benefit pension schemes, details of which are set out in note 24
to the accounts on pages 82 to 87. Having made due enquiries
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 financial statements.
FUTURE DEVELOPMENTS
Details of future developments and events that have occurred
after the balance sheet date can be found in the Strategic
report on pages 2 to 20.
DIRECTORS
Biographical details of the Directors currently serving on the
Board and their dates of appointment are set out on page 23.
The Company’s approach to the appointment and replacement
of Directors is governed by its Articles of Association (together
with relevant legislation) and takes into consideration any
recommendations of the QCA Code.
Subject to any restrictions in its Articles of Association and the
Companies Act 2006, the Directors may exercise any powers
which are not reserved for exercise by the shareholders.
The Company maintained Directors’ and Officers’ Liability
Insurance cover throughout 2019. The Articles of Association
of the Company permit it to indemnify the Company’s officers,
and officers of any associated company, against liabilities
arising from conducting Company business, to the extent
permitted by law. The Company’s Articles of Association and
Directors’ Service Contracts, are available for inspection during
normal business hours at the Company’s registered office and
will be available at the AGM.
DIRECTORS AND DIRECTORS’ INTERESTS
Directors’ interests in the Company’s shares as at 31 December
2019 are shown on page 35 in the Remuneration report. There
are no shareholding requirements for directors.
SUBSTANTIAL SHAREHOLDINGS
At 3 March 2020, the Company had been notified, or is aware
of, the following interests in the issued ordinary share capital
of the Company:
The Directors who served during the year are as follows:
Executive Directors
Non-Executive Directors
Tony Steels
Will Wilkins
John Davies
Andrew Kitchingman
Doug Robertson
Schroder Investment
Management Limited
River and Mercantile Asset
Management LLP
Mr G V L Oury
Number of
ordinary
shares
% of issued
ordinary
shares
4,463,152
22.1
1,003,991
1,250,000
5.0
6.2
RESULTS AND DIVIDENDS
The Group’s profit for the year was £5.9m (31 December 2018:
£6.0m loss). Having considered the trading results for 2019,
together with the opportunities for investment in the growth
of the Group, the Board has decided that it is appropriate
to propose a final dividend of 1.5p per ordinary share to all
shareholders on the register of members at the close of
business on 17 April 2020. No interim dividend was paid in 2019.
Dividends on the 6% preference shares are due for payment
on 30 June and 31 December in each year and in 2019
amounted to £0.1m (2018: £0.1m).
41
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS D I R EC T O R S ' R E P O R T C O N T I N U E D
RESEARCH AND DEVELOPMENT
Group policy is to retain and enhance its market position
through the design and development of specialist machinery,
instrumentation and services. To achieve this objective,
engineering and product development facilities are maintained in
the UK and overseas. Research and development expenditure for
the Group incurred in 2019, net of third-party income, amounted
to £1.1m (2018: £1.2m), of which £0.8m (2018: £0.9m) was charged
to the consolidated income statement and £0.3m (2018: £0.3m)
was capitalised and included in development costs.
SHARE CAPITAL
At 31 December 2019, the Company’s issued share capital was
£5,042,885 divided into 20,171,540 ordinary shares of £0.25
each. Details of movements in issued share capital in the year
are set out in note 25 to the financial statements. Authority
for the purchase of up to 3,000,000 ordinary shares for
cancellation was granted at the 2019 Annual General Meeting
and this authority expires at the end of the 2020 AGM. The
directors consider it appropriate to seek further authority from
the shareholders at the forthcoming Annual General Meeting
for the Company to purchase its own shares.
Resolution 15, which will be proposed as a special resolution, will
seek the necessary authority to enable the Company to purchase
for cancellation ordinary shares in the market for a period of up
to 12 months from the date of the meeting, upon the terms set
out in the resolution, up to a maximum number of 3,000,000
ordinary shares representing approximately 15% of the issued
ordinary share capital at the date of the notice convening the
Annual General Meeting. No shares were purchased by the
Company under the equivalent resolution during the year.
EES Trustees International Limited holds shares as trustee
in connection with the Company’s long-term incentive
arrangements for the benefit of the Group’s employees; at 2
March 2020 it held 337,716 shares. The trustee has agreed to
waive all dividends and not to exercise voting rights in respect
of shares representing 1.7% of the issued share capital.
Information about the Company’s share capital is given in note
25 to the accounts on pages 87 to 88.
DISCLOSURE OF INFORMATION TO THE AUDITOR
As far as the Directors are aware, there is no relevant audit
information of which the Group’s auditor is unaware, and each
Director has taken all reasonable steps that they ought to have
taken as a Director in order to make themselves aware of any
relevant audit information to establish that the Group’s auditors
are aware of that information.
42
AUDITOR
Grant Thornton UK LLP has indicated its willingness to continue
in office as auditor and a resolution to re-appoint them will
be proposed at the forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING
The Annual General Meeting will take place on 6 May 2020.
Notice of the meeting can be found on pages 105 to 110.
POLITICAL DONATIONS
The Company made no political donations during the year
to 31 December 2019.
FINANCIAL INSTRUMENTS
The financial risk management objectives of the Group,
including details of the exposure of the Company and its
subsidiaries to financial risks including credit risk, interest
rate risk and currency risk, are provided in note 26 of the
financial statements.
SOCIAL, COMMUNITY AND HUMAN RIGHTS
EMPLOYMENT POLICIES
The Group is committed to developing its employment policies
in line with best practice and providing equal opportunities
for all, irrespective of gender, age, marital status, sexual
orientation, ethnic origin, religious belief or disability. Full and
fair consideration is given to applications for employment
from people with disabilities having regard to their aptitudes
and abilities.
Every reasonable effort is made to support those who become
disabled, either in the same job or, if this is not practicable,
in suitable alternative work.
EMPLOYEE INVOLVEMENT
Emphasis is placed on training, effective communication
and the involvement of employees in the development of the
business. Information is regularly provided on the progress
of the Group through local review meetings, briefings and
consultative bodies. Involvement in the achievements of the
business is encouraged through other means appropriate
to each location.
STAKEHOLDER ENGAGEMENT AND KEY DECISIONS
Details of the key decisions and discussions of the Board during
the year and the main stakeholder inputs into those decisions
are set out in the Strategic Report on pages 2 to 20.
ETHICS POLICY
The Group’s Ethics policy was reviewed, updated and reissued
in February 2019. The Ethics policy, which is distributed to every
Group employee and is available on the Group’s website at
www.mpac-group.com, sets out the values which Mpac Group
plc seeks to encourage and certain principles governing the
way it does business.
Mpac Group plc Annual Report and Accounts 2019 SUSTAINABILITY POLICY
The Group is committed not only to compliance with
environmental legislation but also to the progressive
introduction of appropriate measures to limit the adverse
effects of its operations upon the environment. In particular,
efforts are made to minimise waste arising from operations,
to recycle materials wherever possible and to consider
alternative methods of design or operation.
The Group aims both to reduce its costs by these means and to
promote good practice in use of resources at sustainable levels.
ANNUAL QUANTITY OF EMISSIONS
Mpac Group plc has chosen to report emissions for the Group
on a voluntary basis as set out below. Emissions are measured
as tonnes of CO2 equivalent resulting directly from the Group’s
purchase of electricity and the combustion of fuel arising from
the activities of the Group for which it is responsible, and an
intensity ratio has also been included.
Intensity
ratio
(tonnes
of CO2
equivalent
per
employeea)
3.1
2.9
Emissions
(tonnes
of CO2
equivalent)
805
436
1,241
890
2019
Purchased electricity
Combustion of fuel
Total
Total 2018
a Calculated using average number of employees in the year.
The Board considers the interests of the Group's employees
and other stakeholders, including the impact of its activities
on the community, environment and the Group’s reputation,
when making decisions. The Board, acting fairly between
members, and acting in good faith, considers what is most likely
to promote the success of the Group for its shareholders in the
long term.
Further information in relation to specific considerations of the
Board are set out below:
Consideration
Further information
The likely consequences of any
decision in the long term;
the interests of the company's
employees,
Pages 21 and 22 set out the
corporate governance and
management framework, whilst
the strategy update is on page
8 to 9.
Page 42 sets out the
consideration of the interests
of the employees.
the need to foster the
company's business
relationships with suppliers,
customers and others,
The operating review, on pages
5 to 9, discusses the need to
foster the business’s external
relationships.
the impact of the company's
operations on the community
and the environment,
The operating review, on pages
5 to 9, discusses these issues,
along with the environmental
reporting within the directors’
report on page 43.
the desirability of the company
maintaining a reputation for
high standards of business
conduct, and
The corporate governance
report, on pages 21 to 27, with
specific consideration of
business ethics on page 27.
S172 OF THE COMPANIES ACT
Disclosures related to s172 of the Companies Act came into
force on 1 January 2019 and require a specific reference to how
the board promotes the success of the Company for the benefit
of its members as a whole.
the need to act fairly as
between members of the
company.
Pages 12 and 13 set out the
company’s mission and values,
whilst the company’s ethics
policy is discussed within the
corporate governance report
on page 27.
Mpac Group plc takes decisions for the long term, and the
Group aims to uphold the highest standards of conduct.
The Board expects all of our colleagues, at every level of the
business, to do the same. Similarly, the Board understands that
our business can only grow and prosper over the long term if
the Group understands and respects the views and needs of
our customers, colleagues and the communities in which we
operate, as well as our suppliers and the shareholders to whom
we are accountable. This is reflected in our values (see page
13) and this report sets out more detail on how we manage
our relationships with them.
The Company Secretary ensures the Board considers the
effect of s172 in all of its decisions and that the impact
on any of the specified groups is considered.
The Strategic report on pages 2 to 20 and Directors’ report on
pages 41 to 43 are hereby approved by the Board of Directors.
By Order of the Board
DUNCAN TYLER
Company Secretary
3 March 2020
43
Mpac Group plc Annual Report and Accounts 2019STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS S TAT E M E N T O F D I R EC T O R S ’ R E S P O N S I B I L I T I E S
I N R E S P EC T O F T H E A N N U A L R E P O R T A N D T H E
F I N A N C I A L S TAT E M E N T S
The directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements
in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and
parent Company financial statements for each financial year.
As required by the AIM Rules of the London Stock Exchange
they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards as
adopted by the EU (IFRSs as adopted by the EU) and applicable
law and have elected to prepare the parent Company financial
statements on the same basis.
Under company law the directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and parent
Company and of their profit or loss for that period. In preparing
each of the Group and parent Company financial statements,
the directors are required to:
» select suitable accounting policies and then apply
them consistently;
» make judgements and estimates that are reasonable,
relevant and reliable;
» state whether they have been prepared in accordance with
IFRSs as adopted by the EU;
» assess the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related
to going concern; and
» use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to
cease operations or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report and a Directors’
Report that complies with that law and those regulations.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
By order of the Board
TONY STEELS
Chief Executive
3 March 2020
WILLIAM WILKINS
Group Finance Director
44
Mpac Group plc Annual Report and Accounts 2019
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F M PA C G R O U P P L C
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of MPAC Group plc
(the ‘parent company’) and its subsidiaries (the ‘group’) for the
year ended 31 December 2019 which comprise the
consolidated income statement, the Group and Company
statements of comprehensive income, the Group and Company
statements of changes in equity, the Group and Company
statements of financial position, the Group and Company
statements of cash flow and notes to the financial statements,
including a summary of significant accounting policies. 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.
In our opinion:
» 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
31 December 2019 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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the ‘Auditor’s responsibilities for the audit of the financial
statements’ section of our report. We are independent of the
group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard
as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
The impact of uncertainties arising from the UK exiting
the European Union on our audit
Our audit of the financial statements requires us to obtain an
understanding of all relevant uncertainties, including those
arising as a consequence of the effects of Brexit. All audits
assess and challenge the reasonableness of estimates
made by the directors and the related disclosures and the
appropriateness of the going concern basis of preparation of
the financial statements. All of these depend on assessments
of the future economic environment and the company’s future
prospects and performance.
Brexit is one of the most significant economic events for the
UK, and at the date of this report its effects are subject to
unprecedented levels of uncertainty, with the full range of
possible outcomes and their impacts unknown. We applied
a standardised firm-wide approach in response to these
uncertainties when assessing the company’s future prospects
and performance. However, no audit should be expected
to predict the unknowable factors or all possible future
implications for a company associated with a course
of action such as Brexit.
Conclusions relating to going concern
We have nothing to report in respect of the following matters
in relation to which the ISAs (UK) require us to report
to you where:
» the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is not
appropriate; or
» the directors have not disclosed in the financial statements
any identified material uncertainties that may cast
significant doubt about the group’s or the parent company’s
ability to continue to adopt the going concern basis of
accounting for a period of at least twelve months from the
date when the financial statements are authorised for issue.
In our evaluation of the directors' conclusions, we considered
the risks associated with the group and parent company's
business model, including effects arising from Brexit, and
analysed how those risks might affect the group and parent
company's financial resources or ability to continue operations
over the period of at least twelve months from the date when
the financial statements are authorised for issue. In accordance
with the above, we have nothing to report in these respects.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time
they were made, the absence of reference to a material
uncertainty in this auditor's report is not a guarantee that the
group and parent company will continue in operation.
45
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F M PA C G R O U P P L C
C O N T I N U E D
Overview of our audit approach
» Overall materiality: £342,000, which represents 5% of the group’s profit before taxation
and non-underlying items such as acquisition costs, provision in respect of discontinued
operations and reorganisation costs;
» Key audit matters were identified as improper revenue recognition and contract accounting,
the acquisition of Lambert Automation Limited and the valuation of the defined benefit
pension scheme;
» We performed full scope audit procedures on the financial statements of components in the
United Kingdom and Grant Thornton member firms performed full scope work over the
significant components in Netherlands and Canada. We performed analytical procedures
over the component in Singapore.
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement
impact and the extent of management judgement.
Management
override of
controls
Improper
revenue
recognition
and contract
accounting
Valuation of
defined benefit
pension scheme
Acquisition
of Lambert
Automation Group
Implementation
of IFRS 16
Hedge
accounting
High
Potential
financial
statement
impact
Low
Low
Extent of management judgment
High
Key audit matter
Significant risk
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
46
Mpac Group plc Annual Report and Accounts 2019 Key Audit Matter – Group
How the matter was addressed in the audit – Group
Improper revenue recognition and contract accounting
Revenue is recognised throughout the group as the fair value
of consideration received or receivable in respect of the
performance of contracts and the sale of spares and services.
Determining the amount of revenue to be recognised from the
performance of contracts requires management to make
significant judgements and estimates as to the stage of
completion, the labour hours to complete, the impact of any
changes in scope of work and the recoverability of contract
assets and receivables balances.
There is a significant financial statement impact of the revenue
derived from sales of spares and services and performance
of contracts, as well as the high level of estimation required
in determining the appropriate accounting treatment on
contract accounting. There is also a risk of fraud/improper
revenue recognition within these revenue streams.
We therefore identified improper revenue recognition and
contract accounting as a significant risk, which was one of the
most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
» documenting our understanding of management’s process
for evaluating revenue recognition and assessing the design
effectiveness of related key controls;
» judgementally selecting a sample of open contracts by
reference to materiality and other risk factors including
contracts with significant profit and loss balance, contract
assets and receivables balances;
» for open contracts selected for testing, assessing whether
the revenue and profit recognised were in accordance with
the group’s accounting policies and International Financial
Reporting Standard (IFRS) 15 ‘Revenue from contracts with
customers’. This is completed by agreeing inputs to contract
terms and timesheets, re-performing management’s
calculations and challenging management’s assumptions
and assertions underpinning their forecast for contracts’
future performance. We have completed this by reference
to supporting documentation, such as contracts KPIs,
historical performance against forecasts, and discussions
with key contract accounting personnel;
» investigating the recoverability of contract assets and
receivables for a sample of contracts by reference to post
report date collection;
» examining those contracts management identified as being
at risk of incurring future losses during the remaining life of
the contract, and challenging management’s assumptions
and assertions relating to the future results of those
contracts by reference to supporting evidence, such as
forecast models and post statement of financial position
contract performance;
» testing a sample of closed contracts and agreeing to the
signed agreement including signed contract variations and
site acceptance test to ensure the contract is completed
and to support occurrence; and
» testing a sample of non-contract revenue transactions,
covering both spares and service sales, agreeing
items selected for testing through to document
to support occurrence.
The group's accounting policy on long term contracts is shown
on page 63 to the financial statements and related disclosures
are included in note 1.
Key observations
Based on our audit work, we found that the assumptions and
judgements used in management’s application of the group’s
contract accounting were appropriate. We found no material
errors in the underlying calculations for the contract samples
we have tested.
47
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F M PA C G R O U P P L C
C O N T I N U E D
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Acquisition of Lambert Automation Limited
During the year, the group acquired the entire share capital of
Lambert Automation Limited for a total purchase consideration
of £19.4 million. This acquisition has had a material impact on
the financial statements, resulting in the recognition of goodwill
and intangible assets of £16.2 million.
The group measures goodwill at the acquisition date as being
the fair value of consideration, including the estimated value of
deferred and contingent consideration transferred less the net
recognised amount of identifiable assets acquired and liabilities
assumed. Goodwill of £5.7 million was recognised as a result
of the acquisition of Lambert Automation Limited.
Under IAS 38 ‘Intangible Assets’, intangible assets acquired in
a business combination are deemed to have a cost to the group
equal to their fair value at the acquisition date. Intangible assets
of £10.5 million were recognised as a result of the acquisition.
These intangibles were valued, based on discounted cash flow
forecasts prepared by management, which require judgement
by the Directors around key assumptions such as revenue
growth, discount rates and long term growth rates.
On initial recognition, the assets and liabilities acquired in a
business combination are included in the consolidated balance
sheet at their fair values, which are also used as the basis for
subsequent measurement in accordance with the group
accounting policies. Determining the fair value of certain
assets and liabilities requires judgement to be exercised
by the Directors, particularly in respect to estimating the
value in use of assets acquired.
Due to the significant financial statement impact of the
acquisition, as well as the high level of estimation required in
determining the appropriate accounting treatment, we
therefore identified acquisition accounting, including valuation
of goodwill and intangibles, as a significant risk, which was one
of the most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
» assessing whether the accounting policies adopted by the
directors are in accordance with the requirements of IAS 38;
» obtaining an understanding of the acquisition through
review of legal agreements;
» re-performing management’s calculation of the fair value
of the consideration, including the estimated value of the
deferred and contingent consideration transferred less the
net recognised amount of identifiable assets acquired and
liabilities assumed, ensuring this is in accordance with the
requirements of IFRS 3 “Business Combinations”;
» using our internal valuation expert to evaluate and assess
the assumptions used, including discount rates, growth rates
and forecast future trading performance, in the calculation
of the fair value of the intangibles recognised;
» testing significant fair value adjustments made to the
assets and liabilities acquired, and challenging
management’s assumptions in the value in use assigned
to certain assets; and
» assessing the adequacy of disclosures in respect of the
acquisition to ensure these are in accordance with
IAS 38 and IFRS 3.
The group's accounting policy on acquisition accounting is
shown in ‘Principal accounting policies – group’ to the financial
statements on page 62 and related disclosures are included
in note 30.
Key observations
Based on our audit work, we found that the assumptions and
judgements used in management’s accounting treatment of
the Lambert Automation Limited acquisition were reasonable.
We also note that the valuation of goodwill and intangibles
is not materially misstated. We found no material errors
in the underlying calculations.
48
Mpac Group plc Annual Report and Accounts 2019 Key Audit Matter – Group
How the matter was addressed in the audit – Group
Valuation of defined benefit pension scheme
UK pension scheme
The Group operates a defined benefit pension scheme in the
UK that provides benefits to a number of current and former
employees. At 31 December 2019, the defined benefit asset
was £20.4 million. The total fair (bid) value of scheme assets
and present value of defined benefit obligations which form the
net asset amount to £423.6 million and £403.2
million respectively.
The valuation of the pension liabilities and assets in accordance
with IAS 19 ‘Employee benefits’ involves significant judgement
and is subject to complex actuarial assumptions. Small
variations in those actuarial assumptions can lead to a
materially different defined benefit pension scheme asset or
liability being recognised within the group financial statements.
Management also need to interpret the scheme rules in order to
assess whether it is appropriate to recognise a pension surplus
within the provisions of IFRIC 14, The Limit on a Defined Benefit
Asset, Minimum Funding Requirements and their Interaction.
We therefore identified valuation of the UK defined benefit
pension scheme as a significant risk, which was one of the
most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
» documenting our understanding of management’s process
for evaluating the defined benefit pension scheme and
assessing the design effectiveness of related key controls;
» evaluating the competence of management’s expert;
» using an internal actuarial expert to inform our challenge
of the assumptions used, including discount rates, growth
rates, mortality rates and the calculation methods employed
in the calculation of the pension liability;
» directly confirming the existence and valuation of the
pension scheme assets with the group’s pension scheme’s
external asset custodians; and
» testing management’s assessment as to whether the
recognition of the pension scheme surplus is appropriate
in accordance with the requirements of IFRIC 14, The Limit
on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction.
The group's accounting policy on the defined benefit pension
scheme is shown on page 65 to the financial statements and
related disclosures are included in note 24.
Key observations
Based on our audit work, we found the valuation methodologies
to be balanced and consistent with the expectation of our
internal actuarial expert and the recognition of the asset to be
appropriate in line with IFRIC 14. We consider that the group's
disclosures in note 24 are in accordance with IAS 19. We found
no material errors in the calculations we tested.
49
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F M PA C G R O U P P L C
C O N T I N U E D
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,
timing and extent of our audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality Measure
Group
Parent
Financial statements as a whole
Performance materiality used to drive
the extent of our testing
Specific materiality
£342,000 which is 5% of profit before
tax and non-underlying items such as
acquisition costs, provision in respect
of discontinued operations and
reorganisation costs. This benchmark
is considered the most appropriate
because this is a key performance
measure used by the Board of Directors
to report to investors on the financial
performance of the group.
£70,000 which is determined based
on approximately 3% of the parent
company’s revenue for the year,
capped at component materiality.
This benchmark is considered the
most appropriate because this is
a key performance measure used
by the Board of Directors to report
to investors on the financial
performance of the parent company.
Materiality for the current year is higher
than the level that we determined for the
period ended 31 December 2018 as a
result of the increase in current year’s
Group profit before tax after excluding
non-underlying items and change in
benchmark from the prior year where
we used 10% of Group profit before tax
and non-underlying items.
Materiality for the current year is lower
than the level that we determined for
the period ended 31 December 2018
to reflect the change in benchmark
from profit before tax to revenue
given that the parent company
is in a breakeven position.
75% of financial statement materiality.
75% of financial statement materiality.
We determined a lower level of
materiality for director’s remuneration
and related party transactions.
We determined a lower level of
materiality for director’s remuneration
and related party transactions.
Communication of misstatements
to the audit committee
£17,100 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£3,500 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
50
Mpac Group plc Annual Report and Accounts 2019 An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group's business, its environment and
risk profile. The components of the group were identified by the group audit team based on a measure of materiality, considering
each as a percentage of the group's revenues and operating profit, to assess the significance of the component and determine the
planned audit response. There was no change to the audit scope from last year other than the inclusion of additional component
entity as a result of the acquisition during the year.
An audit of the financial statements for all significant components was determined based on their relative materiality to the group
and our assessment of the audit risk.
We performed a full scope audit of the financial statements of the parent company, Mpac Group plc, Mpac Overseas Holdings
Limited and Lambert Automation Limited and its subsidiaries in the United Kingdom, and of all other significant component entities
in the Mississauga in Canada and Wijchen in Netherlands. The significant components represented 98.5 percent of
consolidated revenues.
The non-significant component in Singapore was subject to analytical procedures at a group level over their financial performance
and position after taking into account the risks identified above and the significance of the component to the Group.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement in the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact.
We have nothing to report in this regard.
51
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F M PA C G R O U P P L C
C O N T I N U E D
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
» the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
» the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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 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.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 44, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have
no realistic alternative but to do so.
52
Mpac Group plc Annual Report and Accounts 2019 Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
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.
REBECCA EAGLE
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Birmingham, UK
3 March 2020
53
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 C O N S O L I D AT E D I N C O M E S TAT E M E N T
for the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Other operating expenses
Operating profit/(loss)
Financial income
Financial expenses
Net financing (expense)/income
Profit/(loss) before tax
Taxation
Profit/(loss) for the period
Earnings/(loss) per ordinary share
Basic
Diluted
2019
Non-
underlying
£m
Underlying
£m
88.8
(62.8)
26.0
(7.2)
(10.3)
(0.8)
7.7
–
(0.2)
(0.2)
7.5
0.3
7.8
–
–
–
–
(2.4)
–
(2.4)
0.4
(0.1)
0.3
(2.1)
0.2
(1.9)
Note
1
3
1,4
8
8
9
11
11
Total
£m
88.8
(62.8)
26.0
(7.2)
(12.7)
(0.8)
5.3
0.4
(0.3)
0.1
5.4
0.5
5.9
29.7p
29.4p
2018
Non-
underlying
£m
Underlying
£m
58.3
(44.3)
14.0
(5.0)
(7.2)
(0.4)
1.4
0.1
(0.1)
–
1.4
(0.5)
0.9
–
–
–
–
(9.0)
–
(9.0)
0.2
–
0.2
(8.8)
1.9
(6.9)
Total
£m
58.3
(44.3)
14.0
(5.0)
(16.2)
(0.4)
(7.6)
0.3
(0.1)
0.2
(7.4)
1.4
(6.0)
(30.1)p
(30.1)p
The Group has initially applied IFRS 16 using the cumulative method. Under this method, the comparative information is not
restated. See Accounting Policies note on page 60.
54
Mpac Group plc Annual Report and Accounts 2019 S TAT E M E N T S O F C O M P R E H E N S I V E I N C O M E
for the year ended 31 December 2019
Profit/(loss) for the period
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Actuarial (losses)/gains
Tax on items that will not be reclassified to profit or loss
Note
24
9
Items that may be reclassified subsequently to profit or loss
Currency translation movements arising on foreign currency
net investments
Effective portion of changes in fair value of cash flow hedges
26
Other comprehensive income/(expense) for the period
Total comprehensive income/(expense) for the period
Group
Company
2019
£m
5.9
2018
£m
(6.0)
2019
£m
0.2
(0.3)
0.1
(0.2)
(0.1)
1.1
1.0
0.8
6.7
8.3
(2.9)
5.4
(0.6)
(1.0)
(1.6)
3.8
(2.2)
(1.8)
0.1
(1.7)
–
0.1
0.1
(1.6)
(1.4)
2018
£m
(5.2)
8.5
(2.9)
5.6
–
(0.1)
(0.1)
5.5
0.3
The Group has initially applied IFRS 16 using the cumulative method. Under this method, the comparative information is not
restated. See Accounting Policies note on page 60.
55
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 S TAT E M E N T S O F C H A N G E S I N EQ U I T Y
for the year ended 31 December 2019
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Note
Group
Capital
redemption
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Balance at
1 January 2018
Loss for the period
Other comprehensive
(expense)/income
for the period
Total comprehensive
expense for the period
Balance at
31 December 2018
Profit for the period
Other comprehensive
(expense)/income
for the period
Total comprehensive
(expense)/income for
the period
Equity settled share
based transactions
Purchase of own shares
Total transactions with
owners, recorded
directly in equity
Balance at
31 December 2019
5.0
26.0
–
–
–
–
–
–
5.0
26.0
–
–
–
–
–
–
–
–
–
–
–
–
1.7
–
(0.6)
(0.6)
1.1
–
(0.1)
(0.1)
–
–
–
3.9
–
–
–
3.9
–
–
–
–
–
–
0.2
–
(1.0)
(1.0)
(0.8)
–
1.1
1.1
–
–
–
24
25
Total
equity
£m
42.8
(6.0)
6.0
(6.0)
5.4
3.8
(0.6)
(2.2)
5.4
5.9
40.6
5.9
(0.2)
0.8
5.7
0.3
(0.1)
6.7
0.3
(0.1)
0.2
0.2
5.0
26.0
1.0
3.9
0.3
11.3
47.5
The Group has initially applied IFRS 16 using the cumulative method. Under this method, the comparative information is not
restated. See Accounting Policies note on page 60.
56
Mpac Group plc Annual Report and Accounts 2019 Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Note
Company
Capital
redemption
reserve
£m
Balance at
1 January 2018
Loss for the period
Other comprehensive
(expense)/income
for the period
Total comprehensive
(expense)/income
for the period
Balance at
31 December 2018
Profit for the period
Other comprehensive
(expense)/income
for the period
Total comprehensive
income/(expense)
for the period
Equity settled share
based transactions
Purchase of own shares
Total transactions with
owners, recorded
directly in equity
Balance at
31 December 2019
24
25
5.0
26.0
–
–
–
–
–
–
5.0
26.0
–
–
–
–
–
–
–
–
–
–
–
–
5.0
26.0
–
–
–
–
–
–
–
–
–
–
–
–
3.9
–
–
–
3.9
–
–
–
–
–
–
3.9
Hedging
reserve
£m
Retained
earnings
£m
–
–
28.8
(5.2)
Total
equity
£m
63.7
(5.2)
(0.1)
5.6
5.5
(0.1)
(0.1)
–
0.4
29.2
0.2
0.3
64.0
0.2
0.1
(1.7)
(1.6)
0.1
–
–
–
–
(1.5)
0.3
(0.1)
(1.4)
0.3
(0.1)
0.2
0.2
27.9
62.8
57
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 S TAT E M E N T S O F F I N A N C I A L P O S I T I O N
as at 31 December 2019
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Right of use assets
Investments
Employee benefits
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Contract assets
Current tax assets
Cash and cash equivalents
Current liabilities
Lease liabilities
Trade and other payables
Contract liabilities
Current tax liabilities
Provisions
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Employee benefits
Deferred tax liabilities
Lease liabilities
Deferred contingent consideration
Net assets
Equity
Issued capital
Share premium
Reserves
Retained earnings
Total equity
Note
12
13
14
27
15
24
16
17
19
18
10
21
27
22
18
10
23
20
24
16
27
30
1
25
Group
Company
2019
£m
16.9
5.6
0.8
4.7
–
20.4
1.7
50.1
7.1
17.2
4.7
0.4
18.9
48.3
(0.9)
(22.9)
(5.8)
(0.7)
(1.3)
(31.6)
16.7
66.8
(0.9)
(3.1)
(8.8)
(3.9)
(2.6)
(19.3)
47.5
5.0
26.0
5.2
11.3
47.5
2018
£m
1.0
4.4
0.8
–
–
20.5
1.7
28.4
3.3
16.9
5.5
0.8
27.9
54.4
–
(14.7)
(11.6)
(0.4)
(1.1)
(27.8)
26.6
55.0
(0.9)
(6.2)
(7.3)
–
–
(14.4)
40.6
5.0
26.0
4.2
5.4
40.6
2019
£m
–
2.3
0.8
–
63.8
20.4
–
87.3
–
3.2
–
–
8.9
12.1
–
(25.9)
–
–
–
(25.9)
(13.8)
73.5
(0.9)
–
(7.2)
–
(2.6)
(10.7)
62.8
5.0
26.0
3.9
27.9
62.8
2018
£m
0.1
1.9
0.8
–
47.4
20.5
–
70.7
0.7
5.2
0.8
0.1
17.4
24.2
–
(22.5)
–
–
(0.2)
(22.7)
1.5
72.2
(0.9)
–
(7.3)
–
–
(8.2)
64.0
5.0
26.0
3.8
29.2
64.0
The Group has initially applied IFRS16 using the cumulative method. Under this method, the comparative information is not restated. See
Accounting Policies note on page 60. The parent company has taken the exemption conferred by s.408 of the Companies Act 2006 not
to publish the income statement of the parent company with these consolidated accounts. The parent company profit for the year was
£0.2m (2018: £5.2m loss). These financial statements were approved by the directors on 3 March 2020 and signed on their behalf by:
TONY STEELS
Director
WILLIAM WILKINS
Director
Registered number: 124855
58
Mpac Group plc Annual Report and Accounts 2019 S TAT E M E N T S O F C A S H F L O W
for the year ended 31 December 2019
Operating activities
Operating profit/(loss)
Non-underlying items included in operating profit
Amortisation
Depreciation
Other non-cash items
Pension payments
Working capital movements:
– (increase)/decrease in inventories
– decrease/(increase) in contract assets
– decrease/(increase) in trade and other receivables
– increase/(decrease) in trade and other payables
– increase in provisions
– (decrease)/increase in contract liabilities
Cash flows from continuing operations before reorganisation
Cash flows from discontinued operations
Acquisition and reorganisation costs paid
Cash flows from operations
Taxation received/(paid)
Cash flows from/(used in) operating activities
Investing activities
Interest received
Proceeds from sale of property, plant and equipment
Capitalised development expenditure
Acquisition of assets under construction
Acquisition of property, plant and equipment
Dividends received from Group entities
Net cash flow on acquisition
Cash flows used in investing activities
Financing activities
Interest paid
Purchase of own shares
Principal elements of lease payments
Cash flows used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
Note
12
13
24
12
12
13
30
21
Group
2019
£m
Company
2018
£m
2019
£m
2018
£m
5.3
2.4
0.2
1.9
0.3
(2.9)
(3.2)
1.8
5.2
4.7
0.4
(11.0)
5.1
–
(1.0)
4.1
1.0
5.1
–
0.2
(0.3)
(0.6)
(1.4)
–
(10.6)
(12.7)
(0.1)
(0.1)
(1.0)
(1.2)
(8.8)
27.9
(0.2)
18.9
(7.6)
9.0
0.2
0.6
–
(3.0)
1.7
(1.3)
(1.3)
(1.4)
0.1
4.1
1.1
–
(1.0)
0.1
(1.0)
(0.9)
0.1
0.1
(0.3)
–
(1.1)
–
–
(1.2)
(0.1)
–
–
(0.1)
(2.2)
30.3
(0.2)
27.9
(2.7)
1.5
0.1
–
0.4
(2.0)
0.3
0.7
–
2.8
–
–
1.1
–
(1.1)
–
0.9
0.9
–
–
–
(0.6)
–
2.0
(10.6)
(9.2)
(0.1)
(0.1)
–
(0.2)
(8.5)
17.4
–
8.9
(8.3)
8.3
–
0.1
–
(1.9)
(0.5)
(0.7)
1.2
(1.9)
0.1
–
(3.6)
(1.0)
(0.4)
(5.0)
0.1
(4.9)
0.1
–
–
–
(0.2)
1.8
–
1.7
(0.1)
–
–
(0.1)
(3.3)
20.7
–
17.4
59
The Group has initially applied IFRS16 using the cumulative method. Under this method, the comparative information is not
restated. See Accounting Policies note on page 60.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 A C C O U N T I N G P O L I C I E S
The significant accounting policies which are set out below
apply to both the Group and Company financial statements,
as appropriate.
Basis of accounting
Mpac Group plc (the Company) is a company incorporated and
domiciled in the UK. The Group financial statements
consolidate those of the Company and its subsidiaries (together
referred to as the Group).
Both the Company financial statements and the Group financial
statements have been prepared and approved by the Directors
in accordance with International Financial Reporting Standards
as adopted by the EU (Adopted IFRSs).
The financial statements have been prepared on the historical
cost basis except that derivative financial instruments,
principally forward foreign exchange contracts, are stated at
fair value and non-current assets are stated at the lower of
previous carrying amount and fair value less costs to sell.
The preparation of financial statements in conformity with
Adopted IFRS requires the Directors to make judgements,
estimates and assumptions that affect the application of
policies and reported amounts of assets, liabilities, income and
expenses. The estimates and assumptions are based on
historical experience and other factors considered reasonable
at the time, but actual results may differ from these estimates.
Revisions to these estimates are made in the period in which
they are recognised.
The accounting policies, presentation and methods of
computation applied by the Group and Company in these
financial statements are in the main consistent with those
applied in the 2018 financial statements.
The Group has initially adopted IFRS 16 Leases from 1 January
2019. The effect of initially applying this standard is to increase
both the assets and liabilities shown on the balance sheet and
to make a number of more minor adjustments to the
classifications of items within the revenue statement. A full
description of the new accounting policy is set out below, with
the effects of the standard on introduction and within the year
being shown in note 27.
The Group’s accounting policy for business combinations
has also been included following the acquisition of Lambert
on 1 May 2019.
60
IFRS 16 Leases
The Group leases various factories, equipment and cars. Rental
contracts are typically made for fixed periods of 3 to 5 years for
equipment and 10-20 years for properties. These may have
extension options. Lease terms are negotiated on an individual
basis and contain a wide range of different terms and
conditions. The lease agreements do not impose any
covenants, but leased assets may not be used as security
for borrowing purposes.
Until the 2019 financial year, leases of property, plant and
equipment were classified as either finance or operating leases.
Payments made under operating leases (net of any incentives
received from the lessor) were charged to profit or loss on a
straight-line basis over the period of the lease. From 1 January
2019, leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is
available for use by the group. Each lease payment is allocated
between the liability and finance cost. The finance cost is
charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance
of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and
the lease term on a straight-line basis.
The presentation of cash flows arising from these leases also
changes. Up to 1 January 2019, cash flows arising were treated
as part of operating cash flow. From this date, IFRS 16 requires
the capital element of the leases to be disclosed as a financing
cost, with the amortisation of the assets being treated as a
non-cash item.
Assets and liabilities arising from a lease are initially measured
on a present value basis. Lease liabilities include the net
present value of the following lease payments (where they exist
within a lease):
» fixed payments (including in-substance fixed payments),
less any lease incentives receivable;
» variable lease payments that are based on an index or a rate;
» amounts expected to be payable by the lessee under
residual value guarantees;
» the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
» payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee’s incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value in a similar economic
environment with similar terms and conditions.
Mpac Group plc Annual Report and Accounts 2019 Right-of-use assets are measured at cost comprising
the following:
» the amount of the initial measurement of lease liability;
» any lease payments made at or before the commencement
date less any lease incentives received;
» any initial direct costs; and
» restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
small items of workshop equipment, office furniture
and machines.
Derivative financial instruments
The Group’s derivative financial instruments are measured
at fair value and are summarised below:
The Group uses forward foreign exchange contracts to mitigate
exchange rate exposure arising from forecast trade receivables
in currencies other than the functional currency of the
operating entity.
Hedge effectiveness is determined at inception of the hedge
relationship and at every reporting period end through the
assessment of the hedged items and hedging instrument
to determine whether there is still an economic relationship
between the two.
The critical terms of the foreign currency forwards entered into
exactly match the terms of the terms of the hedged item.
Hedge ineffectiveness may arise if the critical terms of the
forecast transaction no longer meet those of the hedging
instrument, for example if there was a change in the timing
of the forecast transactions from what was initially estimated.
The hedged items and the hedging instrument are denominated
in the same currency and as a result the hedging ratio is always
one to one. All forward exchange contracts had been
designated as hedging instruments in cash flow hedges
under IFRS 9.
All derivative financial instruments used for hedge accounting
are recognised initially at fair value and reported subsequently
at fair value in the statement of financial position.
To the extent that the hedge is effective, changes in the fair
value of derivatives designated as hedging instruments in cash
flow hedges are recognised in other comprehensive income
and included within the cash flow hedge reserve in equity.
Any ineffectiveness in the hedge relationship is recognised
immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or
loss previously recognised in other comprehensive income
is reclassified from equity to profit or loss and presented
as a reclassification adjustment within other
comprehensive income.
If a forecast transaction is no longer expected to occur, any
related gain or loss recognised in other comprehensive income
is transferred immediately to profit or loss. If the hedging
relationship ceases to meet the effectiveness conditions,
hedge accounting is discontinued, and the related gain or loss is
held in the equity reserve until the forecast transaction occurs.
Non-underlying items and alternative performance measures
Non-underlying items are income and expenditure that,
because of the nature of the item, merit separate presentation
in the income statement to allow a better understanding of the
Group’s financial performance by facilitating comparisons with
prior periods and assessments of trends in
financial performance.
Non-underlying items may include, but are not limited to, the
impact on the income statement of the Group’s defined benefit
pension schemes including administration charges and pension
interest, acquisition or disposal costs and the amortisation of
acquired intangible assets, significant reorganisation costs,
profits or losses arising on discontinued operations, significant
impairments of tangible or intangible assets and related
taxation. Accordingly, alternative performance measures,
which exclude non-underlying items, are presented to aid
interpretation of performance. Further analysis of the items
included in non-underlying items is provided in note 5 to the
financial statements.
Recent accounting developments
At the date of this report there were no new standards in issue
which were relevant to the Group and Company.
Going concern
The Group’s activities together with the factors likely to affect
its future development, performance and position are
described within the Operating review on pages 5 to 9,
Financial review on pages 15 to 17 and in the Principal risks
and uncertainties on pages 18 and 20.
The Directors have considered the trading outlook of the Group
and Company for a 24 month period ending 31 December 2021,
its financial position, including its cash resources and access to
borrowings, as set out in the Financial review on pages 15 to 17
and in note 20 to the accounts on pages 79 to 80, and its
continuing obligations, including to its defined benefit pension
schemes, details of which are set out in note 24 to the accounts
on pages 82 to 87. Having made due enquiries the Directors
have a reasonable expectation that the Group and Company
has adequate resources to continue in operational existence
for the foreseeable future.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 A C C O U N T I N G P O L I C I E S C O N T I N U E D
For this reason, they continue to adopt the going concern basis
in preparing the financial statements.
Basis of consolidation
The Group financial statements comprise the consolidated
results of the Company and all of its subsidiary companies
together with the Group’s share of the results of its associated
companies on an equity accounting basis. A separate income
statement dealing only with the results of the Company has
not been presented in accordance with section 408 of the
Companies Act 2006.
A subsidiary is a company controlled, directly or indirectly, by
the Group. Control is the power to govern the financial and
operating policies of the subsidiary company so as to obtain
benefits from its activities. A subsidiary’s results are included
in the Group financial statements from the date that control
commences until the date that control ceases.
Intragroup balances and any unrealised gains and losses or
income and expenses arising from intragroup transactions are
eliminated in preparing the consolidated financial statements.
Business combinations
The acquisition method of accounting is used to account for all
business combinations, regardless of whether equity
instruments or other assets are acquired.
The consideration transferred for the acquisition of a subsidiary
comprises the:
» fair values of the assets transferred;
» liabilities incurred to the former owners of the
acquired business;
» equity interests issued by the group;
» fair value of any asset or liability resulting from a contingent
consideration arrangement; and
» fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date.
Acquisition-related costs are expensed as incurred.
The excess of the:
» consideration transferred;
» amount of any non-controlling interest in the acquired
entity; and
» acquisition-date fair value of any previous equity interest
in the acquired entity
over the fair value of the net identifiable assets acquired is
recorded as goodwill. Where settlement of any part of cash
consideration is deferred, the amounts payable in the future are
discounted to their present value as at the date of exchange.
The discount rate used is the entity’s incremental borrowing
rate, being the rate at which a similar borrowing could be
obtained from an independent financier under comparable
terms and conditions.
Contingent consideration is classified as a financial liability.
Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised
in profit or loss.
Foreign currency
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
statement of financial position date are translated at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income
statement. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the
transaction. Non-monetary assets and liabilities denominated
in foreign currencies that are stated at fair value are translated
at foreign exchange rates ruling at the date the fair value
was determined.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
are translated at foreign exchange rates ruling at the statement
of financial position date.
The revenues and expenses of foreign operations are
translated at an average rate for the period where this rate
approximates to the foreign exchange rates ruling at the dates
of the transactions.
Exchange differences arising from the translation of foreign
operations, and of related qualifying hedges, are taken directly
to the translation reserve. They are released into the income
statement upon disposal.
Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the Group’s interest in the fair value
of the identifiable assets and liabilities of the subsidiary
or associated undertaking at the date of acquisition.
Goodwill is recognised as an asset and is not amortised but is
reviewed for impairment at least annually on the basis of its
value in use. Any impairment is recognised immediately through
the income statement and is not subsequently reversed.
Impairment losses recognised are allocated first to reduce the
62
Mpac Group plc Annual Report and Accounts 2019 carrying value of the goodwill the business relates to, and then
to reduce the carrying value of the other assets of that business
on a pro rata basis.
Certain items of property that had been revalued to fair value
on or prior to 1 January 2004, the date of transition to IFRS, are
measured on the basis of deemed cost, being the revalued
amount at the date of the revaluation.
On disposal of a subsidiary or associated undertaking, the
attributable amount of goodwill is included in the determination
of the profit or loss on disposal.
Research and development
Research and development and related product development
costs are charged to the income statement in the year in which
they are incurred unless they are specifically chargeable to and
recoverable from customers under agreed contract terms
or the expenditure meets the criteria for capitalisation.
Where the expenditure relates to the development of a new
product for which the technical feasibility and commercial
viability of the product is identified, where development costs
can be measured reliably and where future economic benefits
are probable, development costs are capitalised and amortised
over their useful economic lives, up to a maximum of five years.
The expenditure capitalised includes costs of materials, direct
labour and an appropriate proportion of overheads. Such
intangible assets are assessed for indicators of impairment
at least annually and any impairment is charged to the
income statement.
Other intangible assets
Other intangible assets are valued at cost less accumulated
amortisation and impairment charges and amortised on a
straight-line basis over their estimated useful economic life
which is set on an item by item basis. All intangible assets are
tested for impairment at least annually and any impairment
is charged to the income statement.
Property, plant and equipment
Property, plant and equipment is stated at cost or deemed cost
less accumulated depreciation and any provision for
impairment in value.
Depreciation is provided on a straight-line basis to write-off the
cost, less the estimated residual value, of property, plant and
equipment over its estimated useful life.
The annual depreciation rates used are as follows:
– nil
Freehold land
– 3% on cost or deemed cost
Freehold buildings
– over life of lease
Leasehold property
Plant and machinery
– 8% to 25%
Fixtures, fittings and vehicles – 10% to 33%
The carrying value of property, plant and equipment is reviewed
at least annually for indicators of impairment. Any change in
value arising from impairment is charged or credited (up to the
carrying value prior to any previous impairment) to the income
statement for the year.
Investment property
Investment property, which is property held to earn rentals and/
or for capital appreciation, is stated at cost. Depreciation is
based on cost less residual value. Where the expected residual
value exceeds cost no depreciation is provided.
Investments
Investments in subsidiary undertakings are held at cost less
provision for any impairment in value. The carrying value of
investments in subsidiary undertakings are reviewed at least
annually for indicators of impairment.
Revenue and Contracts
Revenue
Revenue represents income derived from contracts for the
provision of goods and services by the Company and its
subsidiary undertakings to customers in exchange for
consideration in the ordinary course of the Group’s activities.
Transaction price
At the start of the contract, the total transaction price is
estimated as the amount of consideration to which the Group
expects to be entitled in exchange for transferring the
promised goods and services to the customer, excluding sales
taxes. The transaction price does not include estimates of
consideration resulting from contract modifications, such as
change orders, until they have been approved by the parties
to the contract.
Revenue and profit recognition
Revenue is recognised as performance obligations are satisfied
as control of the goods and services is transferred to the
customer. For each performance obligation within a contract,
the Group determines whether it is satisfied over time or at a
point in time. Performance obligations are satisfied over time
if one of the following criteria is satisfied:
» the customer simultaneously receives and consumes
the benefits provided by the Group’s performance
as it performs;
» the Group’s performance creates or enhances an asset
that the customer controls as the asset is created or
enhanced; or
» the Group’s performance does not create an asset with an
alternative use to the Group and it has an enforceable right
to payment for performance completed to date.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 A C C O U N T I N G P O L I C I E S C O N T I N U E D
The Group has determined that most of its contracts satisfy the
over time criteria, as performance does not generally create an
asset with an alternative use to the Group and it has an
enforceable right to payment for performance completed
to date (typically development or production contracts).
Costs to fulfil a contract
Contract fulfilment costs in respect of over time contracts
are expensed as incurred. Contract fulfilment costs in
respect of point in time contracts are accounted for under
IAS 2 Inventories.
For each performance obligation to be recognised over time,
the Group recognises revenue using an input method, based on
labour costs incurred in the period. Revenue and attributable
margin are calculated by reference to reliable estimates of the
total labour hours and labour hours to be incurred, after making
suitable allowances for technical and other risks. Revenue and
associated margin are therefore recognised progressively as
costs are incurred, and as risks have been mitigated or retired.
The Group has determined that this method faithfully depicts
the Group’s performance in transferring control of the goods
and services to the customer.
If the over time criteria for revenue recognition are not met,
revenue is recognised at the point in time that control is
transferred to the customer, which is usually when legal title
passes to the customer and the business has the right to
payment, for example, on delivery.
Contract modifications
The Group’s contracts are often amended for changes in
customers’ requirements and specifications. A contract
modification exists when the parties to the contract approve
a modification that either changes existing or creates new
enforceable rights and obligations. The effect of a contract
modification on the transaction price and the Group’s measure
of progress towards the satisfaction of the performance
obligation to which it relates is recognised in one of the
following ways:
1. prospectively as an additional, separate contract;
2. prospectively as a termination of the existing contract and
creation of a new contract; or
3. as part of the original contract using a cumulative catch up.
The majority of the Group’s contract modifications are treated
under 3 (for example, a change in the specification of the
distinct goods or services for a partially completed contract),
although the facts and circumstances of any contract
modification are considered individually as the types of
modifications will vary contract-by-contract and may result
in different accounting outcomes.
Costs to obtain a contract
The Group expenses pre-contract bidding costs which are
incurred regardless of whether a contract is awarded.
The Group does not typically incur costs to obtain contracts
that it would not have incurred had the contracts not been
awarded, such as sales commission.
64
Where assets have been recognised in respect of costs to fulfil
a contract, these are tested for impairment under IFRS 15.
Inventories
Inventories includes raw materials, work-in-progress and
finished goods recognised in accordance with IAS 2 in respect
of contracts with customers which have been determined to
fulfil the criteria for point in time revenue recognition under
IFRS 15. It also includes inventories in relation to parts which
have not been utilised as part of a contract to date but are
expected to be used in this manner in the future. The Group
does not typically build inventory to stock. Inventories are
stated at the lower of cost, including all relevant overhead
expenditure, and net realisable value.
Contract assets
A contract asset is a right to consideration conditional on
something other than the passage of time.
Contract liabilities
The contract liabilities represent the obligation to transfer
goods or services to a customer for which consideration has
been received, or consideration is due, from the customer.
Performance obligations
A small proportion of the Group’s contracts recognised over
time comprise a variety of performance obligations, including
but not limited to machinery, elements of design and
customisation, installation and after-sales services. Under IFRS
15, the Group must evaluate the separability of the promised
goods or services based on whether they are ‘distinct’.
A promised good or service is ‘distinct’ if both:
» the customer benefits from the item either on its own or
together with other readily available resources; and
» it is separately identifiable (i.e. the Group does not provide a
significant service integrating, modifying or customising it.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and
short-term fixed deposits, and for the statements of cash
flows they also include bank overdrafts.
Share capital
When share capital is repurchased, the amount of consideration
paid, including directly attributable costs, is recognised as a
change in equity. Repurchased shares are classified as treasury
shares and presented as a deduction from total equity.
Mpac Group plc Annual Report and Accounts 2019 Preference share capital is classified as a liability as dividend
payments are not discretionary.
Dividends on the preference shares are disclosed as interest
charges, are recognised as a liability and are accounted for
on an accruals basis. Dividends on ordinary shares are only
recognised in the period in which they are paid.
For those contracts included in an effective cash flow hedging
relationship, changes in the fair value of the hedging instrument
are recognised in other comprehensive income and taken to
equity. When the hedged forecast transaction occurs, amounts
previously recorded in equity are recognised in the income
statement. Any ineffectiveness in the hedging arrangement
is included in the income statement.
Financial instruments
IFRS9 Financial instruments requires the classification
of financial instruments into different types for which
the accounting requirement is different. The Group
has classified its financial instruments as follows:
» short-term fixed deposits, principally comprising funds held
with banks and other financial institutions;
» trade and other receivables are held at amortised cost;
» trade and other payables are held at amortised cost;
» borrowings are classified as other liabilities held at
amortised cost; and
» derivatives, comprising forward foreign exchange contracts
and the deferred contingent consideration on acqusition are
classified as instruments with fair value through profit
or loss.
Financial instruments are initially measured at fair value. Their
subsequent measurement depends on their classification:
» loans and receivables and other liabilities are held at
amortised cost; and
» instruments that are held for trading are held at fair value.
Changes in fair value are included in the income statement
unless the instrument is included in a cash flow hedge.
Trade & other receivables and contract assets
The Group makes use of a simplified approach in accounting for
trade & other receivables as well as contract assets, recording
the loss allowance as lifetime expected credit losses. These are
the expected shortfalls in contractual cash flows, considering
the potential for default at any point during the life of the
financial instrument. In calculating the lifetime credit losses,
the Group uses its historical experience, external indicators
and forward looking information to calculate the expected
losses. Refer to note 26 for further details.
Hedge accounting
The Group applies cash flow hedge accounting to forward
foreign exchange contracts, held to reduce the exposure to
movements in the future value of foreign currency receipts
and payments.
Post-retirement and other employee benefits
The Group and Company account for pensions and other
post-retirement benefits under IAS 19 Employee benefits.
For defined benefit schemes, the net obligation is calculated
separately for each scheme by estimating the amount of future
benefits that employees have earned in return for their service
in the current and prior periods. The benefit is discounted to
determine its present value, and the fair value of the schemes’
assets (at bid price) is deducted. The liability discount rate is
either the yield at the statement of financial position date on AA
credit rated bonds that have maturity dates approximating to
the terms of the obligations or by a cash flow matching method
reflecting the duration of the liabilities, whichever more
accurately reflects the schemes’ pattern of cash flows. The
calculations are performed by qualified actuaries using the
projected unit credit method. The expense of administering the
pension schemes and financing income/expense of the
schemes are recognised in the income statement. Past service
costs/credits and curtailment costs/credits are recognised
in the periods in which they arise. Actuarial gains and losses
are recognised in the period in which they arise in other
comprehensive income.
Payments to defined contribution schemes are charged to the
income statement as incurred.
The net obligation in respect of long-term service benefits,
other than pension plans, is the amount of the future benefit
that employees have earned in return for their service in the
current and prior periods. Obligations are measured at their
present value.
Share-based payments
The Group has applied the requirements of IFRS 2
Share- based payments.
The Group issues equity-settled share-based payments to
certain employees. These are measured at their fair value at the
date of grant and are expensed on a straight-line basis over the
vesting period, based on an estimate of the number of shares
that will eventually vest, and adjusted for the effect of non-
market related conditions.
Charges made to the income statement in respect of share-
based payments are credited to retained earnings.
65
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 A C C O U N T I N G P O L I C I E S C O N T I N U E D
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted at the balance sheet date. Deferred tax is
charged or credited to the income statement, except when it
relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other
comprehensive income.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
Operating segments
An operating segment is a component of the Group that is
engaged in business activities from which it may earn revenues
and incur expenses, and for which discrete financial information
is available. All operating segments’ results are regularly
reviewed by the Group’s chief operating decision maker, which
is the Board of Directors, in order to assess performance and
make decisions about the allocation of resources to
each segment.
Discontinued operations
A discontinued operation is a component of the Group’s
business that represents a separate major line of business or
geographical area of operations that has been disposed of or is
held for sale, or is a subsidiary acquired exclusively with a view
to resale. Classification as a discontinued operation occurs
upon disposal or when the operation meets the criteria to
be classified as held for sale, if earlier. When an operation
is classified as a discontinued operation, the comparative
income statement is restated as if the operation has been
discontinued from the start of the comparative period.
Provisions
A provision is recognised when the Group has a legal or
constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required
to settle the obligation.
Interest receivable
Interest receivable is recognised in the income statement using
the effective interest method as defined in IFRS 9
Financial instruments.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets are added
to the cost of those assets.
All other borrowing costs are recognised in the income
statement in the period in which they are incurred.
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except
to the extent that it relates to items recognised in other
comprehensive income, in which case it is recognised in the
statements of comprehensive income, or to items recorded
directly in equity in which case it is recorded directly in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the statement of financial position date, and any adjustment to
tax payable in respect of previous years.
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit and is
accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised
to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can
be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from the initial recognition of
goodwill; the initial recognition of other assets and liabilities
that affect neither the taxable profit nor the accounting profit;
and differences relating to investments in subsidiaries
to the extent that they will probably not reverse in the
foreseeable future.
66
Mpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S
1. Revenue and operating segments
All revenue information is prepared in accordance with the Group accounting policies shown on pages 60 to 66.
The following is a description of the principal activities, separated by reportable segments, from which the Group generates
its revenue.
Original Equipment (OE)
The OE segments of the Group principally generate revenue from the make, pack, and test of high speed packaging solutions,
first of a kind machinery and high specification automation, secondary packaging equipment and at line instrumentation solutions.
The typical length of a contract for OE Equipment is four to twelve months. The contracts are accounted for over time unless the
installation and commissioning consideration of the contact is a distinct performance obligation which could be undertaken by a
third party in which case the contract is disaggregated with the equipment consideration recognised over time and the installation
consideration is recognised at a point in time. Where contracts are recognised over time the consideration recognised is based
on an estimate of labour costs completed at the statement of financial position date as a proportion of total expected labour
costs for the contract.
Service
The service segment of the Group generates revenue from sales of spare parts and providing service engineers and support
staff to customers enabling them to maximise the benefits of their high speed packaging solutions, first of a kind machinery
and high specification automation, secondary packaging equipment, end of line robotics and at line instrumentation solutions.
Service contracts are usually short term contracts and either have a fixed price or are based on time and materials.
The Group’s revenue reflects the basis of the Group’s management and internal reporting structure. A commentary on the
performance of the operating segments during the year is provided in the operating review on pages 5 to 9.
In the following table revenue is disaggregated by primary geographical market, major product lines, sector and timing
of revenue recognition.
Disaggregation of revenue
Sector
Pharmaceutical
Healthcare
Food and Beverage
Other
Total
Timing of revenue recognition
Products and services transferred at a point in time
Products and services transferred over time
Total
2019
£m
2.9
62.5
19.8
3.6
88.8
25.5
63.3
88.8
2018
£m
5.6
13.1
32.5
7.1
58.3
14.0
44.3
58.3
The Group disaggregates revenue of Original Equipment (OE) and Service together with the regional split, Americas, EMEA
and Asia Pacific.
Information regarding the results of each operating segment is included overleaf. Performance is measured based on underlying
segment gross profit. Unallocated items comprise distribution and administrative expenditure. The unallocated items are excluded
from segment profit or loss as they are not region specific.
67
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
1. Revenue and operating segments continued
The measurement of segment assets and liabilities excludes central items that are not allocated to the regions. Unallocated items
comprise mainly of goodwill and acquired intangible assets, net debt/funds (excluding the lease liabilities), pension assets/
liabilities, taxation balances and net liabilities attributable to the Group’s head office.
Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used
for more than one period.
Segment information
Revenue
Americas
EMEA
Asia Pacific
Total
Gross profit
Selling, distribution and administration
Underlying operating profit
Unallocated non-underlying items included in
operating profit/(loss)
Operating profit/(loss)
Net financing income
Profit/(loss) before tax
OE
£m
45.8
17.6
6.0
69.4
18.2
2019
Service
£m
11.0
7.2
1.2
19.4
7.8
Total
£m
56.8
24.8
7.2
88.8
26.0
(18.3)
7.7
(2.4)
5.3
0.1
5.4
OE
£m
20.5
20.1
5.6
46.2
9.3
2018
Service
£m
6.4
4.6
1.1
12.1
4.7
Total
£m
26.9
24.7
6.7
58.3
14.0
(12.6)
1.4
(9.0)
(7.6)
0.2
(7.4)
Americas
EMEA
Asia
Total
Unallocated net assets
Total net assets
2019
2018
Segment
assets
Segment
liabilities
Segment net
assets
Segment
assets
Segment
liabilities
Segment net
assets
16.4
25.6
0.5
42.5
(12.4)
(23.0)
(0.2)
(35.6)
4.0
2.6
0.3
6.9
40.6
47.5
19.7
9.7
0.5
29.9
(18.0)
(7.0)
(0.2)
(25.2)
1.7
2.7
0.3
4.7
35.9
40.6
68
Mpac Group plc Annual Report and Accounts 2019 Geographical information
Revenue
UK
Europe (excl. UK)
Africa and Middle East
USA
Americas (excl. USA)
Asia Pacific
Non-current assets (excluding taxation balances)
UK
Canada
Rest of the world
By location of customer
2019
£m
10.1
13.7
1.1
52.0
4.6
7.3
88.8
2019
%
11
16
1
59
5
8
100
2018
£m
11.6
12.0
1.1
22.7
4.2
6.7
58.3
2018
%
20
21
2
38
7
12
100
By location of assets
2019
£m
42.0
3.3
3.1
48.4
2018
£m
23.4
1.9
1.3
26.6
2. Major customers
In 2019 the Group generated 45.9% (2018 21%) of revenue from two customers. The most significant customer accounted for
35.6% (2018: 12%) of Group revenue. The sales constituted both equipment and service and were spread across a number of
different geographic regions.
3. Other operating expenses
Research and development costs (expensed as incurred)
2019
£m
0.8
2018
£m
0.4
69
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
4. Operating profit
Operating profit is arrived at after charging:
Amortisation of capitalised development costs
Depreciation of owned assets
Cost of inventories recognised as an expense
Leases (included in Depreciation in 2019)
– land and buildings
– other
Audit fees paid to the former auditor1 (Company £nil; 2018: £nil)
Audit fees paid to the current auditor1 (Company £0.1m; 2018: £0.1m)
Other fees paid to the current auditor1
– tax compliance (Company £0.1m; 2018: £0.1m)
– tax advisory (Company £nil; 2018: £nil)
2019
£m
0.2
0.9
40.0
0.8
0.2
–
0.2
0.1
–
2018
£m
0.2
0.6
26.2
0.6
0.2
0.1
0.2
0.1
–
1 The auditor changed from KPMG LLP to Grant Thornton UK LLP during 2018; the fees disclosed relate to the relevant company during their tenure
as auditor.
5. Non-underlying items
Non-underlying items
Acquisition costs
Amortisation of acquired intangible assets
Provision in respect of discontinued operations
Defined benefit pension scheme – Past service cost from GMP equalisation
Defined benefit pension schemes administration costs
US defined benefit pension scheme – Past service gain from options exercise
Reorganisation costs
Total non-underlying operating expenditure
Interest on deferred and contingent acquisition consideration
Net financing income on pension scheme balances
Total non-underlying expense before tax
Amortisation of deferred tax arising on acquisition
Total non-underlying expense after tax
2019
£m
2018
£m
(0.9)
(0.9)
(0.2)
–
(1.2)
1.1
(0.3)
(2.4)
(0.1)
0.4
(2.1)
0.2
(1.9)
(0.1)
–
–
(7.3)
(0.9)
–
(0.7)
(9.0)
–
0.2
(8.8)
–
(8.8)
The Group uses alternative performance measures (APM’s), in addition to those reported under IFRS, as management believe these
measures enable the users of financial statements to assess the underlying trading performance of the business. The APM’s used
include underlying operating profit, underlying profit before tax and underlying earnings per share. These measures are calculated
using the relevant IFRS measure as adjusted for non-underlying income/(expenditure) listed above.
70
Mpac Group plc Annual Report and Accounts 2019 6. Employee information
Period end
Average
2019
2018
2019
2018
The number of persons employed by the Group was:
Americas
EMEA
Asia Pacific
Head Office (including non-executive directors and pension
scheme administrators)
Total
89
355
12
15
471
Employment costs for the Group were:
Wages and salaries
Social security costs
Employee benefits
– defined contribution schemes
– equity-settled share-based transactions
72
194
12
15
293
Note
24
83
291
12
15
401
2019
£m
19.6
3.0
1.3
0.4
24.3
84
193
11
16
304
2018
£m
15.1
2.1
1.0
0.1
18.3
The costs of the defined benefit pension schemes are disclosed in note 24.
7. Emoluments of directors and interests in shares
Information on the emoluments of the directors (page 34), together with information regarding the beneficial interests of the
directors and persons connected with them in the ordinary shares of the Company, is included in the Remuneration report on pages
32 to 40.
8. Net financing income
Financial income:
Amounts receivable on cash and cash equivalents
Net interest received on pension scheme balances
Financial expenses:
Preference dividends paid
Interest on deferred contingent consideration
Lease interest (IFRS 16)
Net financing income
2019
£m
–
0.4
0.4
(0.1)
(0.1)
(0.1)
(0.3)
0.1
2018
£m
0.1
0.2
0.3
(0.1)
–
–
(0.1)
0.2
Net interest received on pension scheme balances and interest on deferred consideration is included in non-underlying items.
71
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
9. Taxation
Tax credit:
Current tax
Deferred tax
Total
2019
£m
(0.3)
(0.2)
(0.5)
2018
£m
0.5
(1.9)
(1.4)
Included within the total taxation is a tax credit of £0.2m (2018: £1.9m) attributable to the non-underlying items set out in note 5.
Reconciliation of effective tax rate
Profit/(loss) before tax
Income tax using the UK corporation tax rate of 19.00% (2018: 19.00%)
Research & development tax credits
Deferred tax movement on pension past service costs
Deferred tax movements on acquired intangible asset amortisation
Deferred tax movements on pension payments
Change in unrecognised deferred tax assets
Foreign tax charged at higher rates than UK corporation tax rate
Total credit
2019
£m
5.4
1.0
(0.8)
–
(0.2)
0.5
(1.1)
0.1
(0.5)
2018
£m
(7.4)
(1.4)
–
(1.1)
–
0.7
0.3
0.1
(1.4)
The main rate of UK corporation tax is 19% and will be reduced to 17% from 1 April 2020, as enacted in the Finance Act 2015.
The rate of deferred tax liability arising from the surplus in respect of the UK defined benefit pension scheme is 35%.
In view of probable timing of the utilisation of brought forward losses, deferred tax assets have not been recognised on tax losses
and timing differences in respect of the Group companies in the UK and the USA.
Deferred tax credit/(charge) on items in other comprehensive (expense)/income
Arising from actuarial gains/(losses)
2019
£m
0.1
2018
£m
(2.9)
10. Current tax assets and liabilities
Current tax assets of £0.4m (2018: £0.8m) and current tax liabilities of £0.7m (2018: £0.4m) for the Group, and current tax assets
of £nil (2018: £0.1m) for the Company, represent the amount of income taxes recoverable and payable in respect of current and
prior periods.
72
Mpac Group plc Annual Report and Accounts 2019 11. Earnings per share
Basic earnings/(loss) per ordinary share
The calculation of basic earnings/(loss) per ordinary share is based upon the profit for the year of £5.9m (2018: £6.0m loss) and the
weighted average number of ordinary shares in issue during the year. The weighted average number of shares excludes shares held
by the employee trust in respect of the Company’s deferred share plan arrangements.
Diluted earnings/(loss) per ordinary share
The calculation of diluted earnings/(loss) per ordinary share is based upon the profit for the year of £5.9m (2018: £6.0m loss) and
the diluted weighted average number of ordinary shares in issue during the year. The calculation of diluted earnings/(loss) per
ordinary share from continuing activities is based upon the profit for the period from continuing activities of £ 5.9m (2018: £6.0m
loss). For diluted earnings per ordinary share, the weighted average number of shares includes the diluting effect, if any, of own
shares held by the employee trust.
Weighted average number of ordinary shares (non-diluted) at 31 December
Effect of own shares
Weighted average number of ordinary shares (diluted) at 31 December
2019
2018
19,968,000
19,932,786
178,256
151,008
20,146,256
20,083,794
In the 12 months to 31 December 2018 the effect of the dilution would be to decrease the loss per ordinary share and is therefore
excluded from the dilution calculation.
Underlying and diluted underlying earnings per share
Underlying earnings per ordinary share and diluted underlying earnings per ordinary share, which are calculated on profit before
non-underlying items, amounted to 39.5p (2018: 4.5p) in respect of underlying earnings per share and 39.2p (2018: 4.5p) in respect
of diluted underlying earnings per share.
The calculations of underlying earnings per ordinary share and diluted underlying earnings per ordinary share are based upon
an underlying profit for the period of £7.8m (2018: £0.9m) which is calculated as follows:
Profit/(loss) for the period
Non-underlying items (net of tax)
Underlying profit for the period
2019
£m
5.9
1.9
7.8
2018
£m
(6.0)
6.9
0.9
73
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
12. Intangible assets
Cost:
Balance at
1 January 2018
Additions
Balance at
31 December 2018
Additions
Disposals
Retranslation
Balance at
31 December 2019
Amortisation and
impairment losses:
Balance at
1 January 2018
Amortisation for
the period
Balance at
31 December 2018
Amortisation for
the period
Disposals
Retranslation
Balance at
31 December 2019
Carrying amounts:
At 31 December 2018
Group
Company
Acquired
intangible
assets
£m
Goodwill
£m
Development
costs
£m
Assets under
construction
£m
Total
£m
Development
costs
£m
Assets under
construction
£m
Total
£m
–
–
–
5.7
–
–
5.7
–
–
–
–
–
–
–
–
–
–
–
10.5
–
–
10.5
–
–
–
0.9
–
–
0.9
–
9.6
3.7
0.3
4.0
0.3
–
(0.2)
4.1
2.8
0.2
3.0
0.2
–
(0.1)
3.1
1.0
1.0
–
–
–
0.6
–
–
0.6
–
–
–
–
–
–
–
–
0.6
3.7
0.3
4.0
17.1
–
(0.2)
20.9
2.8
0.2
3.0
1.1
–
(0.1)
4.0
1.0
16.9
0.5
–
0.5
–
(0.5)
–
–
0.3
0.1
0.4
–
(0.4)
–
–
0.1
–
–
–
–
0.6
–
–
0.6
–
–
–
–
–
–
–
–
0.6
0.5
–
0.5
0.6
(0.5)
–
0.6
0.3
0.1
0.4
–
(0.4)
–
–
0.1
0.6
At 31 December 2019
5.7
The amortisation for development costs is included in cost of sales in the consolidated income statement. Included within additions
are the intangible assets and goodwill acquired through business combinations as set out in note 30.
74
Mpac Group plc Annual Report and Accounts 2019 13. Property, plant and equipment
Group
Company
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
vehicles
£m
Total
£m
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
vehicles
£m
Cost:
Balance at
1 January 2018
Additions
Disposals
Balance at
31 December 2018
Additions
Disposals
Retranslation
Balance at
31 December 2019
Depreciation:
Balance at
1 January 2018
Depreciation charge
for the period
Disposals
Balance at
31 December 2018
Additions
Disposals
Retranslation
Balance at
31 December 2019
Carrying amounts:
At 31 December 2018
At 31 December 2019
3.1
–
–
3.1
1.0
–
–
4.1
1.2
0.1
–
1.3
0.1
–
–
1.4
1.8
2.7
2.8
0.5
(0.3)
3.0
0.4
(0.4)
(0.1)
4.5
0.6
–
5.1
1.0
–
(0.2)
10.4
1.1
(0.3)
11.2
2.4
(0.4)
(0.3)
2.9
5.9
12.9
1.5
0.2
(0.2)
1.5
0.3
(0.2)
(0.1)
1.5
1.5
1.4
3.7
0.3
–
4.0
0.5
–
(0.1)
4.4
1.1
1.5
6.4
0.6
(0.2)
6.8
0.9
(0.2)
(0.2)
7.3
4.4
5.6
2.6
–
–
2.6
–
–
–
2.6
0.3
–
–
0.3
–
(0.3)
–
–
0.9
0.3
–
–
0.9
0.1
–
–
1.0
1.7
1.6
–
–
0.3
–
(0.3)
–
–
–
–
1.0
0.2
–
1.2
0.1
(0.8)
–
0.5
0.9
0.1
–
1.0
–
(0.6)
–
0.4
0.2
0.1
Total
£m
3.9
0.2
–
4.1
0.1
(1.1)
–
3.2
2.1
0.1
–
2.2
0.1
(0.9)
–
1.4
1.9
1.7
Included within additions are the tangible assets acquired through business combinations, as set out in note 30.
14. Investment property
Balance at 1 January 2018 and 31 December 2018
Balance at 31 December 2019
Group
Company
2019
£m
0.8
0.8
2018
£m
0.8
0.8
2019
£m
0.8
0.8
2018
£m
0.8
0.8
Investment property is shown at cost. The fair value of the investment property at 31 December 2019 is £1.0m (2018: £1.0m) and
has been arrived at on the basis of a valuation carried out by independent valuers, Wilks Head & Eve LLP. The valuation, which
conforms to International Valuation Standards, was arrived at by reference to market evidence of transaction prices for
similar properties.
75
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019
N O T E S T O T H E A C C O U N T S C O N T I N U E D
15. Investments
Cost of shares in subsidiaries
Balance at 1 January
Acquisition of investment
Balance at 31 December
2019
£m
47.4
16.4
63.8
2018
£m
47.4
–
47.4
The Company’s subsidiary undertakings are shown in note 33.
Acquisition of investment
On 1 May 2019 the Company acquired the entire issued share capital of Lambert Automation Limited, further details of which are
set out in the acquisition note 30.
Impairment review of investments
Annual impairment reviews of investments in subsidiaries are undertaken and are determined from value in use calculations
for each cash generating unit (CGU) using cash flow projections based on the latest three year plan approved by the Board. The
main assumptions for each CGU, which relate to sales volume, selling prices and cost changes, are based on recent history and
expectations of future changes in the market. Cash flows beyond the period of the projections are extrapolated at growth rates
which do not exceed those used in the three year plan. The discount rate applied to the cash flow forecasts for each CGU is based
on a market participant’s pre-tax weighted average cost of capital of 10% (2018: 10%).
There has been no impairment of investments in subsidiaries in the year. Management considers that reasonable possible changes
in the assumptions would be an increase in the weighted average cost of capital of 1.0%, a reduction in the sales of the subsidiaries
of 5% and a 5% reduction in their operating profit. None of these changes in assumptions would have resulted in an impairment
of investments in subsidiaries in the year.
16. Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
2019
£m
–
1.7
–
1.7
1.7
Assets
2019
£m
–
–
–
2018
£m
–
1.7
–
1.7
1.7
2018
£m
–
–
–
2019
£m
(7.2)
–
(1.6)
(8.8)
(8.8)
Liabilities
2019
£m
(7.2)
(7.2)
(7.2)
2018
£m
(7.3)
–
–
(7.3)
(7.3)
2018
£m
(7.3)
(7.3)
(7.3)
2019
£m
(7.2)
1.7
(1.6)
(7.1)
(7.1)
Net
2019
£m
(7.2)
(7.2)
(7.2)
2018
£m
(7.3)
1.7
–
(5.6)
(5.6)
2018
£m
(7.3)
(7.3)
(7.3)
Group
Employee benefits
Tax losses
Acquired intangible assets
Deferred tax assets/(liabilities)
Net deferred tax assets/(liabilities)
Company
Employee benefits
Deferred tax liabilities
Net deferred tax liabilities
76
Mpac Group plc Annual Report and Accounts 2019 Deferred tax is measured at the rates that are expected to apply in the period when the temporary differences are expected to
reverse, based on tax rates and laws that have been enacted or substantively enacted by the statement of financial position date.
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries and associates. As the earnings are continually
reinvested by the Group, no tax is expected to be payable on them in the foreseeable future.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of temporary differences arising in certain subsidiary companies.
These assets are only recognised to the extent that it is probable that taxable profits will be available against which the deferred tax
asset can be utilised. At the year end the Group had £5.8m of unrecognised deferred tax assets (2018: £9.3m) which would become
recoverable if the relevant companies were to make sufficient profits in the future. Under current tax legislation these tax assets
expire as follows:
Expiry
10 to 20 years
No expiry date
Movement in temporary differences during the year
Group
Employee benefits
Tax losses
Acquired intangible assets
Group
2019
£m
1.5
4.3
5.8
2018
£m
5.0
4.3
9.3
Balance at
1 January
2019
£m
Recognised in
profit or loss
£m
(7.3)
1.7
–
(5.6)
–
–
0.2
0.2
Recognised
in other
comprehensive
income/
(expense)
£m
Recorded
on acquisition
£m
Balance at
31 December
2019
£m
0.1
–
–
0.1
–
–
(1.8)
(1.8)
(7.2)
1.7
(1.6)
(7.1)
77
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
16. Deferred tax assets and liabilities continued
Group
Employee benefits
Tax losses
Company
Employee benefits
Company
Employee benefits
17. Inventories
Work in progress
Finished goods
Balance at
1 January
2018
£m
Recognised in
profit or loss
£m
(6.3)
1.7
(4.6)
1.9
–
1.9
Recognised
in other
comprehensive
income/
(expense)
£m
Balance at
1 January
2019
£m
(7.3)
(7.3)
0.1
0.1
Recognised
in other
comprehensive
income/
(expense)
£m
(2.9)
–
(2.9)
Balance at
31 December
2018
£m
(7.3)
1.7
(5.6)
Recorded
on acquisition
£m
Balance at
31 December
2019
£m
–
–
(7.2)
(7.2)
Recognised
in other
comprehensive
income/
(expense)
£m
Balance at
31 December
2018
£m
Recognised in
profit or loss
£m
1.9
1.9
(2.9)
(2.9)
(7.3)
(7.3)
Balance at
1 January
2018
£m
(6.3)
(6.3)
Group
Company
2019
£m
5.0
2.1
7.1
2018
£m
1.7
1.6
3.3
2019
£m
–
–
–
2018
£m
0.5
0.2
0.7
An amount of £nil (2018: £nil) has been charged in the year in respect of inventory write-downs.
18. Contract assets & liabilities
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
Receivables, which are included in ‘Trade and other receivables’
Contract assets
Contract liabilities
Group
Company
2019
£m
7.9
4.7
(5.8)
2018
£m
10.2
5.5
(11.6)
2019
£m
–
–
–
2018
£m
–
0.8
–
78
Mpac Group plc Annual Report and Accounts 2019 Revenue recognised which is included in the contract liability balance at the
beginning of the period
Increases due to cash received, excluding amounts recognised as revenue
during the period
Transfers from contract assets recognised at the beginning of the period
to receivables
Increases as a result of changes recognised in the measure of progress
Group
Company
Contract
Assets
Contract
Liabilities
Contract
Assets
Contract
Liabilities
–
–
(5.5)
4.7
11.6
(5.8)
–
–
–
–
(0.8)
–
–
–
–
–
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.
The Group applies the practical expedient in paragraph 94 of IFRS 15 and recognises the incremental costs of obtaining
contracts as an expense when incurred if the amortisation period of the asset that the Group otherwise would have recognised
is one year or less.
The Group’s contracts with customers are predominantly for one year or less, accordingly the Group applies the practical expedient
in paragraph 63 of IFRS 15 and does not adjust the promised amount of consideration for the effects of any financing component.
19. Trade and other receivables
Current assets:
Trade receivables
Amounts owed by Group undertakings
Other receivables
Prepayments and accrued income
Foreign currency derivatives
20. Interest-bearing loans and borrowings
Non-current liabilities:
Repayable in more than five years
Group
Company
2019
£m
2018
£m
2019
£m
16.0
–
0.4
0.5
0.3
17.2
2018
£m
12.2
–
0.8
3.9
–
16.9
–
2.2
0.2
0.4
0.4
3.2
Group
Company
2019
£m
0.9
0.9
2018
£m
0.9
0.9
2019
£m
0.9
0.9
1.0
2.0
0.1
1.5
0.6
5.2
2018
£m
0.9
0.9
79
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019
N O T E S T O T H E A C C O U N T S C O N T I N U E D
20. Interest-bearing loans and borrowings continued
Preference shares
The preference shares carry a fixed cumulative preferential dividend at the rate of 6% per annum and on the winding-up of the
Company entitle the holders to repayment of the capital paid up thereon (together with a sum equal to any arrears or deficiency of
the fixed dividend calculated to the date of the return of capital and to be payable irrespective of whether such dividend has been
declared or earned or not) in priority to any payment to the holders of the ordinary shares. The preference shares do not entitle the
holders to any further participation in the profits or assets of the Company.
The preference shareholders are not entitled to receive notice of or to attend or vote at any general meeting unless either:
» at the date of the notice convening the meeting, the dividend on the preference shares is six months in arrears (for this purpose
the dividend on the preference shares is deemed to be payable half-yearly on 30 June and 31 December); or
» the business of the meeting includes the consideration of a resolution for the winding-up of the Company, or for reducing its
share capital or for sanctioning a sale of the undertaking, or any resolution directly and adversely affecting any of the special
rights or privileges attached to the preference shares.
There were no arrears in the payment of preference dividends at the statement of financial position date. Preference dividends paid
amounted to £0.1m (2018: £0.1m).
21. Reconciliation of net cash flow to movement in net funds
Net decrease in cash and cash equivalents
Change in net funds resulting from cash flows
Translation movements
Movement in net funds in the period
Opening net funds
Recognised on adoption of IFRS 16
Closing net funds
Analysis of net funds:
Cash and cash equivalents – current assets
Interest-bearing loans and borrowings – non-current liabilities
Lease liabilities
Closing net funds
Group
Company
2019
£m
(8.8)
(8.8)
(0.2)
(9.0)
27.0
(4.8)
13.2
18.9
(0.9)
(4.8)
13.2
2018
£m
(2.2)
(2.2)
(0.2)
(2.4)
29.4
–
27.0
27.9
(0.9)
–
27.0
2019
£m
(8.5)
(8.5)
–
(8.5)
17.4
–
8.9
8.9
(0.9)
–
8.0
2018
£m
(3.3)
(3.3)
–
(3.3)
19.8
–
16.5
17.4
(0.9)
–
16.5
80
Mpac Group plc Annual Report and Accounts 2019
22. Trade and other payables
Current liabilities:
Trade payables
Amounts owed to Group undertakings
Other taxes and social security
Other payables
Accruals and deferred income
Foreign currency derivatives
23. Provisions
Group
Balance at 1 January
Provisions created in the year
Utilised during the year
Unused amounts reversed
Balance at 31 December
Company
Balance at 1 January
Provisions created in the year
Utilised during the year
Disposed (note 31)
Balance at 31 December
Group
Company
2019
£m
11.5
–
0.6
2.4
8.4
–
22.9
2018
£m
5.1
–
0.4
1.9
6.5
0.8
14.7
2019
£m
0.2
22.9
–
0.3
2.5
–
25.9
2019
£m
1.0
0.8
(0.3)
(0.2)
1.3
2019
£m
0.2
0.1
(0.1)
(0.2)
–
2018
£m
0.7
19.0
–
0.7
1.3
0.8
22.5
2018
£m
1.0
1.3
(1.0)
(0.2)
1.1
2018
£m
0.1
0.2
(0.1)
–
0.2
Provisions are based on historical data and a weighting of all possible outcomes against their associated possibilities. Provisions
relate primarily to product warranties. Except for specific identifiable claims, they are generally utilised within one year of the
statement of financial position date.
81
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019
N O T E S T O T H E A C C O U N T S C O N T I N U E D
24. Employee benefits
Defined contribution pension schemes
The Group operates a number of defined contribution pension schemes for employees. Contributions to these schemes are
recognised as an expense in the Consolidated income statement as they fall due.
Defined benefit pension schemes
The Group is responsible for defined benefit pension schemes in the UK and the USA. All schemes are funded by Group
companies as necessary, at rates determined by independent actuaries and as agreed between the trustees of the schemes
and the sponsoring company.
The defined benefit pension schemes are administered by bodies that are legally separate from the Group. The trustees of the
schemes are required by law to act in the interest of the schemes and of all relevant stakeholders in the schemes. The trustees
of the schemes are responsible for the investment policies in respect of the assets of the schemes.
The pension schemes typically expose the Group to certain risks. These include the risk of investment under-performance,
a fall in interest rates, an increase in life expectancy and an increase in inflation.
UK pension scheme
The Group operated one defined benefit pension scheme in the UK in which future accruals ceased in November 2012. The assets
of the scheme are held separately from those of the Company and it is funded by the Company as necessary in order to ensure that
the scheme can meet the expected benefit obligations. The funding policy is to ensure that the assets held by the scheme in the
future are adequate to meet expected liabilities, allowing for future increases in pensions. The only assets of the scheme which are
invested in the Company are an interest in the cumulative preference shares of the Company with an estimated current market
value of £0.2m.
The most recent formal actuarial valuation of the scheme was carried out as at 30 June 2018 using the projected unit credit
method. The market value of the scheme assets at that date was £411.3m and the funding level was 92% of liabilities, which
represented a deficit of £35.2m. The principal terms of the deficit funding agreement between the Company and the Fund’s
Trustees, which is effective until 31 July 2024, but, is subject to reassessment every 3 years are as follows:
» the Company will continue to pay a sum of £1.9m per annum to the Scheme (increasing at 2.1 per cent. per annum) in deficit
recovery payments;
» if underlying operating profit (operating profit before non-underlying items) in any year is in excess of £5.5m, the Company will
pay to the Scheme an amount of 33% of the difference between the annual underlying operating profit and £5.5m, subject to a
cap on underlying operating profit of £10.0m for the purpose of calculating this payment; this part of the agreement will fall away
in 2021 if the funding deficit is below certain levels; and
» payments of dividends by Mpac Group plc will not exceed the value of payments being made to the Scheme in any one year.
The deficit recovery period from 30 June 2018 was estimated to be 6 years and 1 month, which is scheduled to be formally
reassessed following the completion of the actuarial valuation being carried out as at 30 June 2021.
During the year the Company paid deficit recovery contributions of £1.9m (2018: £1.9m). A contribution of £0.1m (2018: £0.1m)
following the receipt of proceeds from the disposal of the I&TM business, being 10% of net proceeds, was also paid.
The Company accounts for pension costs under IAS 19 Employee benefits and the valuation used has been based on detailed
actuarial valuation work carried out as at 30 June 2018, updated by the Company’s actuary to assess the value of the liabilities
of the scheme at 31 December 2019. Scheme assets are stated at their market value at 31 December 2019.
82
Mpac Group plc Annual Report and Accounts 2019 USA pension schemes
In the USA the Group has three defined benefit pension schemes, all of which are closed to future accrual. Formal independent
actuarial valuations of the USA pension schemes were carried out as at 1 January 2017 using the projected unit credit method.
The valuations under IAS 19 at 31 December 2019 have been based on these actuarial valuations, updated for conditions existing
at the year end.
Employer contributions of £0.9m (2018 £1.0m), including £0.6m (2018: £0.7m) as a result of the disposal in 2015 of the assets
of Arista Laboratories and in 2017 the assets of the I&TM business, were paid during the year.
Assumptions
The key financial assumptions used to calculate scheme liabilities and the financing expense on pension scheme balances are
as follows:
Discount rate
Inflation rate
– CPI
– RPI
Increases to pensions in payment
– final salary benefits
– career average benefits
UK (Company)
USA
2019
1.9%
2.2%
3.0%
2.2%
1.9%
2018
2.7%
2.1%
3.2%
2.1%
1.9%
2019
3.0%
2018
4.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
The assumptions relating to longevity underlying the pension liabilities of the defined benefit pension schemes at the statement
of financial position date are based on standard actuarial mortality tables and include an allowance for future improvements in
longevity. The assumptions are equivalent to expecting an individual to live for a number of years as follows:
Current pensioner aged 65 – male
Current pensioner aged 65 – female
Future retiree currently aged 45 upon reaching age 65 – male
Future retiree currently aged 45 upon reaching age 65 – female
UK scheme
USA
schemes
21.2 years
20.5 years
23.5 years
22.5 years
22.5 years
20.7 years
25.0 years
23.1 years
At 31 December 2019, the weighted average duration of the defined benefit obligation in the UK scheme was 15 years
(2018: 15 years) and in the USA schemes was 10 years (2018: 10 years).
Significant actuarial assumptions for the determination of the defined benefit obligations are discount rate, inflation rate
and mortality. The sensitivity analysis below has been determined assuming that all other assumptions are held constant.
Changes in values of pension schemes’ liabilities before tax as at 31 December 2019
0.1% change in discount rate
0.1% change in inflation rate
Change in life expectancy by one year on average
UK scheme
£5.7m
£2.8m
USA
schemes
£0.1m
n/a
£18.2m
£0.5m
83
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
24. Employee benefits continued
Categories of assets and funded status
The fair values of scheme assets were as follows:
UK equities
Overseas equities
Bonds – index linked gilts
Bonds – other
Properties – funds
Properties – directly owned
Absolute return funds
Other
Total fair (bid) value of scheme assets
Present value of defined benefit obligations
Defined benefit asset/(liability)
UK (Company)
2019
£m
1.5
74.6
90.1
64.5
40.0
2.2
116.6
34.1
423.6
(403.2)
20.4
2018
£m
1.3
69.0
98.4
61.7
41.1
2.2
119.2
5.3
398.2
(377.7)
20.5
USA
2019
£m
–
3.9
–
5.9
0.6
–
–
–
10.4
(13.5)
(3.1)
2018
£m
–
5.3
–
9.9
1.1
–
–
–
16.3
(22.5)
(6.2)
Group
2019
£m
1.5
78.5
90.1
70.4
40.6
2.2
116.6
34.1
434.0
(416.7)
17.3
2018
£m
1.3
74.3
98.4
71.6
42.2
2.2
119.2
5.3
414.5
(400.2)
14.3
All equities, bonds, property funds and absolute return funds have quoted prices in active markets. Directly owned properties are
subject to an independent valuation.
Disclosed defined benefit pension income/expense for financial year
A) Components of defined benefit pension income/expense
Net defined benefit pension expense recognised in the Consolidated income statement comprises:
Past service costs/(gains)
Interest expense/(income)
Administration costs
(Income)/expense recognised in income
statement
UK (Company)
USA
Group
2019
£m
–
(0.6)
0.9
2018
£m
7.3
(0.4)
0.7
2019
£m
(1.1)
0.2
0.3
0.3
7.6
(0.6)
2018
£m
–
0.2
0.2
0.4
2019
£m
(1.1)
(0.4)
1.2
2018
£m
7.3
(0.2)
0.9
(0.3)
8.0
The Group and the US pension scheme undertook an exercise during 2019 to provide a number of options to the members of the US
pension scheme. This resulted in a past service gain on settlement of £1.1m.
B) Statements of comprehensive income (SOCI)
The actuarial losses recognised in the SOCI in respect of pensions were £0.3m (2018: gains of £8.3m), comprising actuarial losses
of £1.8m (2018: gains of £8.5m) for the UK defined benefit pension scheme and actuarial gains of £1.5m (2018: losses of £0.2m)
for the USA schemes, all figures before tax.
Actual return on scheme assets
The actual return on scheme assets were gains of £47.2m (2018: £2.2m), comprising gains of £43.9m (2018: £3.2m) for the UK
defined benefit pension scheme and gains of £3.3m (2018: loss of £1.0m) for the USA schemes, all figures before tax.
84
Mpac Group plc Annual Report and Accounts 2019 Reconciliation of the present value of defined benefit obligations
UK (Company)
USA
Present value of defined benefit obligations
at 1 January
Past service cost/(gains)
Interest cost
Actuarial losses/(gains)
– changes in demographic assumptions
– changes in financial assumptions
– experience
Benefit payments
Retranslation
2019
£m
2018
£m
377.7
397.0
–
9.9
46.4
(5.4)
(5.8)
(19.6)
–
7.3
8.9
(21.8)
1.2
6.0
(20.9)
–
2019
£m
22.5
(1.1)
0.9
–
1.0
–
(9.1)
(0.7)
2018
£m
22.9
–
0.8
(0.1)
(1.4)
0.1
(1.5)
1.7
Group
2019
£m
2018
£m
400.2
419.9
(1.1)
10.8
46.4
(4.4)
(5.8)
(28.7)
(0.7)
7.3
9.7
(21.9)
(0.2)
6.1
(22.4)
1.7
Present value of defined benefit obligations
at 31 December
403.2
377.7
13.5
22.5
416.7
400.2
At 31 December 2019 the pensioner population accounted for 57% (2018: 61%) of the UK scheme’s obligations and 88% (2018:
70%) of the USA schemes’ obligations.
Reconciliation of the fair value of scheme assets
UK (Company)
USA
Group
Fair value of scheme assets at 1 January
Interest income
Actuarial gains/(losses)
– return on scheme assets
Company contributions
Administration expenses
Benefit payments
Retranslation
2019
£m
398.2
10.5
33.4
2.0
(0.9)
(19.6)
–
2018
£m
414.6
9.3
(6.1)
2.0
(0.7)
(20.9)
–
Fair value of scheme assets at 31 December
423.6
398.2
Experience gains and losses for the year
2019
£m
16.3
0.6
2.5
0.9
(0.3)
(9.1)
(0.5)
10.4
2018
£m
16.7
0.6
(1.6)
1.0
(0.2)
(1.5)
1.3
16.3
2019
£m
414.5
11.1
35.9
2.9
(1.2)
(28.7)
(0.5)
434.0
2018
£m
431.3
9.3
(7.1)
3.0
(0.9)
(22.4)
1.3
414.5
Fair value of scheme assets
Defined benefit obligations
Net asset/(liability)
Actuarial gains/(losses) on scheme assets
Actuarial (losses)/gains on defined
benefit obligations
Net gain/(loss) recognised in the SOCI during
the year
UK (Company)
USA
Group
2019
£m
423.6
(403.2)
20.4
33.4
2018
£m
398.2
(377.7)
20.5
(6.0)
2019
£m
10.4
(13.5)
(3.1)
2.5
2018
£m
16.3
(22.5)
(6.2)
(1.6)
2019
£m
434.0
(416.7)
17.3
35.9
2018
£m
414.5
(400.2)
14.3
(7.6)
(35.2)
14.5
(1.0)
1.4
(36.2)
15.9
(1.8)
8.5
1.5
(0.2)
(0.3)
8.3
85
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
24. Employee benefits continued
Movements in the net liability/asset of defined benefit pension schemes recognised in the Statements of financial position.
Net asset/(liability) for employee benefits
at 1 January
Expense recognised in the income statement
(see below)
Company contributions
Actuarial (losses)/gains recognised in the SOCI
Retranslation
Net asset/(liability) for employee benefits
at 31 December
UK (Company)
2019
£m
2018
£m
USA
2019
£m
20.5
17.6
(6.2)
(0.3)
2.0
(1.8)
–
(7.6)
2.0
8.5
–
0.5
0.9
1.5
0.2
20.4
20.5
(3.1)
2018
£m
(6.2)
(0.4)
1.0
(0.2)
(0.4)
(6.2)
Group
2019
£m
2018
£m
14.3
11.4
0.2
2.9
(0.3)
0.2
(8.0)
3.0
8.3
(0.4)
17.3
14.3
At the end of the life of the UK defined benefit pension scheme the Company has an unconditional right to a refund and any such
refund would be paid out only on a net of tax basis.
Defined benefit pension schemes income/expense recognised in the Consolidated income statement
The income/expense is recognised in the following line items in the Consolidated income statement:
Administrative expenses
Financial expense/(income)
Net pension expense/(income)
UK (Company)
USA
Group
2019
£m
0.9
(0.6)
0.3
2018
£m
8.0
(0.4)
7.6
2019
£m
(0.8)
0.2
(0.6)
2018
£m
0.2
0.2
0.4
2019
£m
0.1
(0.4)
(0.3)
2018
£m
8.2
(0.2)
8.0
The net pension expense/(income) is included in non-underlying items.
Share-based payments
The Company currently operates a deferred share plan. Own shares are held in trust and granted to plan participants when certain
conditions are met. Further details of the Deferred share plan, including the performance conditions and vesting periods, are in the
Remuneration and Nomination Committee report on page 35 and in this note.
The share awards that were subject to conditional grants during the year were:
1 April 2016
8 June 2017
13 March 2018
1 May 2019
At 1 January
2019
52,400
132,600
85,127
–
270,127
Granted
Lapsed
Exercised
At
31 December
2019
–
–
–
68,816
68,816
–
(52,400)
–
(18,800)
(9,877)
–
113,800
75,250
68,816
–
–
(28,677)
(52,400)
257,866
Granting of all conditional awards and the exercise of such awards are at nil cost to the participant. The share-based compensation
charge for the year amounted to £0.1m (2018 £0.1m).
86
Mpac Group plc Annual Report and Accounts 2019 The fair value of the conditional awards made under the Deferred share plan has been based on the market price of the Company’s
shares at the date of grant, reduced by the assumptions made (for the purposes of this exercise) in respect of the present value of
dividends expected to be paid (at the time of grant) during the vesting period. The fair value of each conditional award is as follows:
Date of award
1 April 2016
8 June 2017
13 March 2018
1 May 2019
Fair value
per share
46.0p
74.0p
178.9p
134.7p
The company also introduced a long term incentive plan ("LTIP") for certain members of its senior management during the year.
The key terms of this are set out in the Remuneration Committee report on page 35.
The total number of options issued under the LTIP was 555,000, at a market value of £1.66 per share, at the date of grant on 13
June 2019 and remained outstanding at the year end. The awards are expected to vest in full, as current and anticipated future
performance is in excess of the upper targets set by the scheme. An expense of £0.3m has been recognised during the year within
administration costs. No shares were forfeited, exercised, expired or exercisable during the period.
25. Capital and reserves
Share capital
Allotted, called up and fully paid
Ordinary shares of 25p each
2019
£m
5.0
2018
£m
5.0
There were 20,171,540 (2018: 20,171,540) ordinary shares in issue at the year end. The holders of the ordinary shares are entitled
to one vote per share at meetings of the Company and to receive dividends as declared from time to time. At the year end an
employee trust held 337,716 of the ordinary shares and it has agreed to waive all dividends and not to exercise voting rights in
respect of these shares. The Company also has in issue 900,000 6% fixed cumulative preference shares of £1 each (see note 20);
these are classified as borrowings.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements
of foreign operations.
Capital redemption reserve
The capital redemption reserve records the historical repurchase of the Company’s own shares.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that have not yet occurred.
Investment in own shares
Included within retained earnings is the carrying value of own shares held in trust for the benefit of employees. These shares are
used to service the obligations of the Company’s Deferred share plan. Further details of the Deferred share plan can be found in
the Remuneration and Nomination Committee report on pages 32 to 40 and on page 82 in note 24.
At 31 December 2019, the employee trust held 337,716 (2018: 347,016) ordinary shares of 25p each, representing 1.7% of the
issued shares (2018: 1.7%), 242,320 of which were subject to conditional grants. The shares held by the trust were purchased
at an aggregate cost of £0.4m (2018: £0.5m). The trust purchased 43,100 additional shares in the year at a cost of £0.1m
(2018: no additional shares).
Included within retained earnings is the charge of £0.3m (2018:£nil) in respect of the LTIP, as disclosed in the remuneration report
on page 32.
87
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
25. Capital and reserves continued
The market value of the shares held by the trust at 31 December 2019 was £0.7m (2018: £0.4m).
Dividends
Dividends to shareholders paid in the period:
2019
£m
–
2018
£m
–
Having considered the trading results for 2019, together with the opportunities for investment in the growth of the Company,
the Board has decided that it is appropriate to recommend a dividend of 1.5p per ordinary share. No dividend was paid in 2018 or
2019. Future dividend payments will be considered by the Board in the context of 2020 trading performance and when the Board
believes it is prudent to do so.
26. Financial risk management
The Group has exposure to credit, liquidity and market risks from its use of financial instruments.
These risks are regularly considered and the impact of these risks on the Group, and how to mitigate them, assessed. The Board
of Directors is responsible for the Group’s system of internal controls and has established risk management policies to identify
and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.
The Audit Committee assists the Board in the discharge of its duty in relation to the maintenance of proper internal controls.
Further details regarding the Audit Committee can be found in its report on pages 28 to 31.
Categories of financial instruments
Financial assets:
Derivative instruments in designated hedge accounting relationships
Derivative instruments measured at fair value through income statement
Financial assets measured at amortised cost
Financial liabilities:
Derivative instruments in designated hedge accounting relationships
Fair value through income statement
Amortised cost
Group
2019
£m
0.3
–
35.3
35.6
–
2.6
18.6
21.2
2018
£m
–
–
40.9
40.9
–
–
15.5
15.5
Company
2019
£m
–
0.4
9.6
10.0
–
2.6
26.4
29.0
2018
£m
0.6
–
19.0
19.6
0.8
–
22.6
23.4
Amortised cost comprises interest-bearing loans and borrowings and trade and other payables, excluding foreign
currency derivatives.
IFRS 7 Financial instruments: disclosures for financial instruments that are measured in the Statements of financial position at
fair value requires disclosure of fair value measurements in the form of a three level fair value hierarchy, by class, for all financial
instruments recognised at fair value. The Group uses the following hierarchy for determining and disclosing the fair value of
financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2:
inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3:
inputs for the asset or liability that are not based on observable market data (unobservable inputs).
At 1 January 2019 and 31 December 2019 the Group held all financial instruments at Level 2.
88
Mpac Group plc Annual Report and Accounts 2019 Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations and arises principally from the Group’s receivables from customers and cash held at financial institutions.
In addition, for the Company, a credit risk exists in respect of amounts owed by Group undertakings.
Trade receivables
The Group ensures that the provision of credit to customers is adequately managed by each individual business in order that the
risk of non-payment or delayed payment is minimised. The Group’s exposure to risk is influenced mainly by the individual
characteristics of each customer, the industry and country in which customers operate. The Group has a diversified base of
customers. In certain years sales to a customer may be more than 5%, although the sales would typically be both original equipment
and service, and to a number of different geographic regions.
The Group has written credit control policies which cover procedures for accepting new customers, setting credit limits, dealing
with overdue amounts and delinquent payers.
An impairment loss provision against trade receivables is created where it is anticipated that the value of trade receivables is not
fully recoverable.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk for the
Group and the Company at 31 December was:
Trade receivables
Amounts owed by Group undertakings
Other receivables
Foreign currency derivatives
Cash and cash equivalents
Group
Company
2019
£m
16.0
–
0.4
0.3
18.9
35.6
2018
£m
12.2
–
0.8
–
27.9
40.9
2019
£m
–
0.5
0.2
0.4
8.9
10.0
2018
£m
1.0
0.5
0.1
0.6
17.4
19.6
The Group applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items
do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed
on an individual basis as the risk depends upon the circumstances of the receivable, including the financial strength of the
counterparty and the terms of the contract. They have been grouped based on the days past due.
Trade receivables are written off (i.e. derecognised) when there is no reasonable expectation of recovery. Failure to make payments
within 180 days from the invoice date and failure to engage with the Group on alternative payment arrangements, amongst others,
are considered indicators of no reasonable expectation of recovery.
89
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
26. Financial risk management continued
Impairment loss provisions
The ageing of trade receivables and the impairment loss provisions for the Group and the Company at 31 December were:
Group
Not past due
Past due up to 30 days
Past due 31–60 days
Past due 61–90 days
Past due more than 91 days
Company
Not past due
Past due up to 30 days
Past due 31–60 days
Past due 61–90 days
Past due more than 91 days
2019
Impairment
loss
provisions
£m
–
–
–
–
–
–
Gross
£m
11.8
2.0
0.3
1.6
0.3
16.0
2019
Impairment
loss
provisions
£m
Company
Gross
£m
–
–
–
–
–
–
–
–
–
–
–
–
2018
Impairment
loss
provisions
£m
–
–
–
–
(0.2)
(0.2)
2018
Impairment
loss
provisions
£m
–
–
–
–
–
–
Total
£m
11.8
2.0
0.3
1.6
0.3
16.0
Gross
£m
7.3
1.7
1.8
0.5
1.1
12.4
Total
£m
Gross
£m
–
–
–
–
–
–
0.9
0.1
–
–
–
1.0
Total
£m
7.3
1.7
1.8
0.5
0.9
12.2
Total
£m
0.9
0.1
–
–
–
1.0
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing liquidity is to hold cash and cash equivalents and maintain undrawn committed facilities at a level sufficient to ensure
that the Group has available funds to meet its liabilities as they become due. Further details of the Group’s treasury policies can be
found in the Financial review on pages 15 to 17.
Contractual maturities of non-derivative financial liabilities
The non-derivative financial liabilities for the Group and the Company at 31 December were:
Group
2019
£m
Company
2018
£m
2019
£m
2018
£m
Current liabilities:
Trade and other payables (excluding derivatives)
22.9
13.9
25.5
21.7
Non-current liabilities:
Interest-bearing loans and borrowings
0.9
0.9
0.9
0.9
The maturities of the interest-bearing loans and borrowings are disclosed in note 20.
Trade and other payables shown as current liabilities are expected to mature within six months of the statement of financial
position date.
The contractual maturities of forward foreign exchange contracts that the Group and Company had committed at 31 December
are shown in the Foreign currency risk section in this note.
90
Mpac Group plc Annual Report and Accounts 2019 Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect the Group’s
income or the value of its holdings of financial instruments. Exposure to interest rate and currency risks arises in the normal course
of the Group’s business. The Group does not trade in financial instruments and enters into derivatives (principally forward foreign
exchange contracts) solely for the purpose of minimising currency exposure on sales or purchases in other than the functional
currencies of its various operations.
The Group’s treasury policies are explained in the Financial review on pages 15 to 17.
Interest rate risk
Cash and cash equivalents
The cash profile at 31 December was:
Group
Currency:
Sterling
Canadian dollar
US dollar
Euro
Company
Currency:
Sterling
Canadian dollar
US dollar
Euro
2019
Cash on
which no
interest
received
£m
–
–
–
–
–
2019
Cash on
which no
interest
received
£m
–
–
–
–
–
Cash at
floating
rates
£m
11.2
2.4
1.0
4.3
18.9
Cash at
floating
rates
£m
8.6
0.1
0.1
0.1
8.9
2018
Cash on
which no
interest
received
£m
–
–
–
–
–
2018
Cash on
which no
interest
received
£m
–
–
–
–
–
Cash at
floating
rates
£m
17.4
2.5
3.7
4.3
27.9
Cash at
floating
rates
£m
17.0
0.2
0.1
0.1
17.4
Total
£m
11.2
2.4
1.0
4.3
18.9
Total
£m
8.6
0.1
0.1
0.1
8.9
All cash surplus to immediate operational requirements is placed on deposit at floating rates of interest.
Interest-bearing loans and borrowings
The profile of interest-bearing loans and borrowings at 31 December was:
Group and Company
Currency:
Sterling
2019
2018
Borrowings
at floating
rates
£m
Borrowings
at fixed rates
£m
–
–
0.9
0.9
Borrowings
at floating
rates
£m
Borrowings
at fixed rates
£m
–
–
0.9
0.9
Total
£m
0.9
0.9
Total
£m
17.4
2.5
3.7
4.3
27.9
Total
£m
17.0
0.2
0.1
0.1
17.4
Total
£m
0.9
0.9
The borrowings at fixed rates in sterling are the fixed cumulative preference shares which are explained in more detail in note 20.
91
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
26. Financial risk management continued
Sensitivity to interest rate risk
If interest rates had been 100 basis points higher/lower throughout the period, net financial income (excluding on pension scheme
balances) for the Group would have increased/decreased by £0.1m (2018: £0.2m). This analysis assumes that all other variables,
in particular foreign currency rates, remain constant and considers the effect of financial instruments with variable interest rates.
The analysis is performed on the same basis as for the year ended 31 December 2018.
Foreign currency risk
The majority of the Group’s operations are outside of the UK, and therefore a significant portion of its business is conducted
overseas in currencies other than sterling. As explained on page 19, foreign currency risk is one of the principal risks and
uncertainties to which the Group is exposed. The Group is exposed to both transaction and translation risk.
Transactions in foreign currency are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the statement of financial position date are translated at the foreign exchange
rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.
The revenues and expenses of foreign operations are translated at an average rate for the period.
The assets and liabilities of foreign operations are translated at foreign exchange rates ruling at the statement of financial position
date and foreign exchange differences are taken directly to the translation reserve.
The following exchange rates (relative to sterling), which are significant to the Group, applied during the period:
US dollar
Canadian dollar
Euro
Average rate
Closing rate
2019
1.28
1.69
1.14
2018
1.33
1.72
1.13
2019
1.32
1.72
1.18
2018
1.26
1.71
1.11
Forward foreign exchange contracts
The Group enters into forward foreign exchange contracts solely for the purpose of minimising currency exposures on sale and
purchase transactions. The Group classifies its forward foreign exchange contracts used for hedging as cash flow hedges and
states them at fair value.
Fair values
The fair value of forward foreign exchange contracts at 31 December was:
Cash flow hedges
Gain
Loss
Group
Company
2019
£m
0.3
–
0.3
2018
£m
–
(0.8)
(0.8)
2019
£m
–
–
–
2018
£m
–
–
–
The fair value is the gain/loss on all open forward foreign exchange contracts at the period end. These amounts are based on the
market values of equivalent instruments at the period end date and all relate to those forward foreign exchange contracts that have
been designated as effective cash flow hedges under IFRS 9 Financial instruments: recognition and measurement.
There were no open forward foreign exchange contracts, as at either 31 December 2019 or 2018, that had been designated as fair
value hedges under IFRS9 Financial instruments: recognition and measurement.
During the period a credit of £1.1m for the Group (2018: £1.0m debit) and £0.1m for the Company (2018: £0.1m debit) was
recognised in the statements of comprehensive income in respect of cash flow hedges.
92
Mpac Group plc Annual Report and Accounts 2019 Contractual maturity date and future cash flows
The contractual maturity date and period when cash flows are expected to occur in relation to open forward foreign exchange
contracts at 31 December were:
2019
Between
six and
twelve
months
£m
Between
twelve and
twenty-four
months
£m
(0.5)
3.6
3.1
–
0.3
0.3
2019
Between
six and
twelve
months
£m
Between
twelve and
twenty-four
months
£m
–
–
–
–
–
–
Less than
six months
£m
(1.9)
11.4
9.5
Less than
six months
£m
–
–
–
Total
£m
(2.4)
15.3
12.9
Less than
six months
£m
(0.5)
11.3
10.8
2018
Between
six and
twelve
months
£m
Between
twelve and
twenty-four
months
£m
–
0.3
0.3
–
9.5
9.5
2018
Less than
six months
£m
Between six
and twelve
months
£m
Between
twelve and
twenty-four
months
£m
–
0.4
0.4
–
–
–
–
–
–
Total
£m
–
–
–
Group
Outflow
Inflow
Company
Outflow
Inflow
The following movements in the cash flow hedge reserve relate to the hedges relating to cash flows from foreign currency
trade receivables.
Group
Opening balance 1 January 2019
Change in fair value of hedging instrument recognised in other comprehensive income (OCI)
Reclassified from OCI to profit or loss
Closing balance at 31 December 2019
No ineffectiveness arose during 2019. The hedging instrument refers to the forward contracts in their entirety, with hedging
on a forward to forward basis.
Total
£m
(0.5)
21.1
20.6
Total
£m
–
0.4
0.4
2019
£m
(0.8)
0.3
0.8
0.3
93
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
26. Financial risk management continued
The effect of hedge accounting on the Group’s financial position and performance is as follows, including the outline timing and
profile of the hedging instruments:
Group
Carrying amount
Notional amount
US$ to Canadian $
Canadian $ to Euro
GB£ to Euro
Hedge ratio
Average forward rates
US$ to Canadian $
Canadian $ to Euro
Change in the fair value of the currency forward (excluding amounts reclassified)
Change in the fair value of the hedged item used to determine hedge effectiveness
Amounts in the cash flow hedge reserve
2019
GBP£0.3m
CA$27.1m
€2.6m
€0.3m
1:1
1US$:1.2929CA$
1CA$:0.679€
£0.3m
£0.3m
£0.3m
No other currency pairs at 31 December 2019 or during the year had a material value to the Group.
Currency profile
The currency profiles at 31 December of cash and cash equivalents and interest-bearing loans and borrowings are shown within the
interest rate risk section in this note.
The main functional currency of the Group is sterling. The following analysis of financial assets and liabilities (excluding net funds/
debt) shows the Group and Company exposure after the effects of forward foreign exchange contracts used to manage
currency exposure.
The amounts shown represent the transactional exposures that give rise to net currency gains and losses which are recognised in
the Consolidated income statement. Such exposures represent the financial assets and liabilities of the Group and the Company
that are not denominated in the functional currency of the business involved.
US dollar
£m
–
2.5
0.3
2.8
2019
Euro
£m
0.2
0.6
–
0.8
Total
£m
US dollar
£m
0.2
3.1
0.3
3.6
0.1
3.6
–
3.7
US dollar
£m
2019
Euro
£m
Total
£m
US dollar
£m
2018
Euro
£m
0.1
0.4
–
0.5
2018
Euro
£m
Total
£m
0.2
4.0
–
4.2
Total
£m
–
–
–
0.1
0.1
0.2
Group
Functional currency:
Sterling
Canadian dollar
Euro
Company
Functional currency:
Sterling
94
Mpac Group plc Annual Report and Accounts 2019 Sensitivity to foreign currency risk
Average exchange rates are used to translate the profits of foreign operations in the Consolidated income statement. If sterling had
been 10% stronger against all foreign currencies during the year, the effect of this on the average exchange rates used to translate
profits would have decreased Group profit for the year by £0.4m (2018: £0.2m). If sterling had been 10% weaker against all foreign
currencies during the year, the effect of this on the average exchange rates used to translate profits would have increased Group
profit for the year by £0.5m (2018: £0.2m).
If sterling had been 10% stronger against all foreign currencies at 31 December 2019, Group equity would have increased by £0.2m
(2018: £0.5m decrease). Conversely, if sterling had been 10% weaker against all foreign currencies at 31 December 2018, Group
equity would have decreased by £0.2m (2018: £0.6m). This analysis assumes that all other variables remain constant.
Fair values
The fair value of borrowings at fixed rates for both the Group and the Company at 31 December 2019 is £0.8m (2018: £0.8m) and
has been calculated by discounting the expected future cash flows at prevailing interest rates.
There are no other significant differences between book and fair values for any of the other financial assets or liabilities included
in either the Group or Company statement of financial position.
Capital management
Capital comprises total equity as shown in the statements of financial position. The Group’s policy is to maintain a strong capital
base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Group
manages its capital structure and makes adjustments to it in light of the 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.
The Group monitors capital through measures of earnings per share (see note 11), return on capital employed (profit for the period
divided by average equity) and tangible net worth (total equity before intangible assets and employee benefits, net of tax). There
were no changes to the Group’s approach to capital management during the year and neither the Company nor any of its
subsidiaries are subject to externally imposed capital requirements.
27. Leases
The Group has initially adopted IFRS 16 Leases from 1 January 2019. The effect of initially applying this standard is to increase both
the assets and liabilities of the Group through the recognition on the balance sheet of the operating leases in respect of rented
properties and vehicles.
The Group has adopted IFRS 16 retrospectively from 1 January 2019 but has not restated comparatives for the 2018 reporting
period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising
from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.
The company was not a party to any operating leases during the period.
95
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
27. Leases continued
Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating
leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments,
discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s incremental
borrowing rate applied to the lease liabilities on 1 January 2019 was 2.5%.
Operating lease commitments disclosed as at 31 December 2018
Discounted using the lessee’s incremental borrowing rate of at the date of initial application
Less short-term and low value leases recognised on a straight-line basis as expense
Lease liability recognised as at 1 January 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
Lease liability recognised as at 1 January 2019
£m
4.2
(0.3)
(0.1)
3.8
0.7
3.1
3.8
At the date of acquisition Lambert held £1.8m of right of use assets, consisting of £1.6m of land & buildings and £0.2m of vehicles,
with the remainder of the additions in the year totalling £0.1m.
The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the balance sheet as at 1 January 2019. There were no onerous lease
contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
The right of use assets relate to the following asset types:
31 December
2019
£m
1 January
2019
£m
4.4
0.1
0.2
4.7
3.5
–
0.3
3.8
31 December
2019
£m
1 January
2019
£m
0.9
2.9
1.6
5.4
0.8
2.7
0.7
4.2
Properties
Plant & Machinery
Vehicles
Total right of use assets
The undiscounted payments under the leases fall due as follows:
Up to one year
One to five years
Over five years
Total undiscounted payments due under leases
96
Mpac Group plc Annual Report and Accounts 2019 The consolidated income statement includes the following amounts relating to leases:
Amortisation of right of use assets – buildings
– plant, machinery and vehicles
Interest expense
Total cash outflow in respect of leases
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
Right of use assets
Lease liabilities
Net impact upon retained earnings
31 December
2019
£m
0.7
0.2
0.1
1.0
31 December
2019
£m
3.8
(3.8)
–
The introduction of IFRS 16 did not have an impact upon the Group’s recognised deferred tax balances.
Impact on segment disclosures and earnings per share
Adjusted EBITDA, segment assets and segment liabilities for 31 December 2019 all increased as a result of the change
in accounting policy. Lease liabilities are now included in segment liabilities. The impact on the segments affected
by the change in policy are:
Americas
EMEA
Asia Pacific
Total
Adjusted
EBITDA
£m
Segment
assets
£m
Segment
liabilities
£m
0.3
0.6
–
0.9
1.7
3.0
–
4.7
(1.7)
(3.1)
–
(4.8)
Earnings per share was unchanged for the year to 31 December 2019 as a result of the adoption of IFRS 16.
Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
» the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
» reliance on previous assessments on whether leases are onerous;
» the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-
term leases;
» the accounting for low value leases as operating costs;
» the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application: and
» the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead,
for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4
Determining whether an arrangement contains a Lease.
97
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019
N O T E S T O T H E A C C O U N T S C O N T I N U E D
28. Capital commitments
Capital investment contracted but not provided for
29. Contingent liabilities
Group
Company
2019
£m
0.1
2018
£m
–
2019
£m
–
2018
£m
–
Group
2019
£m
Company
2018
£m
2019
£m
2018
£m
Contingent liabilities in respect of guarantees and indemnities related to
sales and other contracts
2.3
1.0
2.3
1.0
30. Business combination
On 1 May 2019 Mpac acquired the entire issued share capital of Lambert Automation Limited (“Lambert”), a provider of technology
leading automation solutions to the medical and consumer healthcare sectors, for an initial consideration of £15m (subject to
adjustment for working capital movements) with a further £3.0m subject to Lambert achieving certain earn-out criteria and tax
recoveries, which the Group anticipates will be met in full. It is expected that the acquisition will be materially earnings enhancing.
There were no acquisitions in the year ending 31 December 2018.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration
Cash paid
Contingent consideration (see below)
Total purchase consideration
The assets and liabilities recognised as a result of the acquisition are as follows:
Cash and cash equivalents
Property, plant and equipment
Trade name
Customer relationships
Know-how
Inventories
Receivables
Contract assets
Right of use assets
Right of use liabilities
Payables
Contract liabilities
Deferred tax on intangible assets
Net identifiable assets acquired
Add: goodwill
98
£m
16.8
2.6
19.4
Provisional
fair value
£m
6.2
1.1
1.4
4.2
4.9
0.8
4.9
1.2
1.8
(1.8)
(3.8)
(5.4)
(1.8)
13.7
5.7
19.4
Mpac Group plc Annual Report and Accounts 2019
The goodwill is attributable to Lambert’s strong position and profitability for the pharmaceutical, healthcare and food and beverage
sectors expected to arise after the Group’s acquisition of the new subsidiary. None of the goodwill is expected to be deductible for
tax purposes.
The amortisation of the acquired intangible assets in the period totalled £0.9m and is included in non-underlying items in the
income statement.
Acquisition-related costs
Acquisition-related costs of £0.9m are included in administrative expenses in non-underlying items in the income statement.
Contingent consideration
The contingent consideration arrangement requires the group to pay the former owners of Lambert five times the average EBITDA
of Lambert in excess of £2.5m for three years ending 31 December 2021, up to a maximum payment of £2.5m. There is no minimum
amount payable.
A further £0.5m of consideration is contingent upon certain tax receipts from HMRC. This balance, along with the associated
receivable, are expected to be settled over the next two years.
The fair value of the contingent consideration arrangement of £2.6m was estimated by calculating the present value of the future
expected cash flows. The Group’s forecasts identify that the maximum deferred consideration will be payable. Under IFRS 3, the
company is required to discount the contingent consideration at a rate reflective of the risk of the amounts not falling due. This
results in a discount to the total amount of £0.4m, which is expected to be amortised over the period to which the amounts fall
due through the interest charge. The interest during the period was £0.1m.
Acquired receivables
The fair value of trade and other receivables is £4.9m and includes trade receivables with a fair value of £4.3m. The gross
contractual amount for trade receivables due is £4.4m of which £0.1m is expected to be uncollectible.
Revenue and profit contribution
The acquired business contributed revenues of £16.5m and net profit of £2.3m to the Group for the period from 1 May 2019 to
31 December 2019. If the acquisition had occurred on 1 January 2019, consolidated revenue and consolidated profit after tax
for the year ended 31 December 2019 would have been £96.9m and £6.8m respectively.
Purchase consideration – cashflows
The outflow of cash to acquire Lambert, net of cash acquired, is as follows:
Cash consideration
Less: cash acquired
Net outflow of cash – included in investing activities
2019
£m
16.8
(6.2)
10.6
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
31. Discontinued operations (Company only)
The trade and certain assets of the Company's business based in Coventry were transferred to Mpac Lambert Limited, a wholly
owned subsidiary, on 31 December 2019. This results in the Company identifying this internal reorganisation as a disposal at that
date, although this has no impact upon the Group’s consolidated financial statements.
The assets and liabilities of the Company’s Coventry operation were transferred to the subsidiary at net book value and the value
settled via inter-company indebtedness.
No details on the profit or loss of the operations transferred is presented as the Company has taken advantage of the option not
to publish an income statement.
The consideration received is as follows:
2019
£m
1.4
(1.4)
–
–
–
–
2019
£m
0.5
1.5
0.4
0.1
0.6
3.1
(1.2)
(0.3)
(0.2)
1.4
Consideration received or receivable:
– inter-company debt
Carrying value of net assets transferred
Gain on disposal before tax and translation reserve reclassification
Income tax on gain
Reclassification of foreign currency translation reserve
Gain on sale after income tax
The carrying value of the assets and liabilities as at the date of transfer were:
Property, plant and equipment
Trade and other receivables
Inventories
Contract assets
Cash at bank
Total assets
Trade and other creditors
Intergroup balances
Provisions
Net assets
The employee benefit obligations within the Company were unaffected by this transfer.
There were no discontinued operations in 2018.
100
Mpac Group plc Annual Report and Accounts 2019 32. Related parties
Transactions with key management personnel
The compensation of key management personnel is disclosed in the Remuneration report on pages 34 to 35.
Identity of related parties
The Company has a related party relationship with its subsidiaries (see note 33), directors and the UK and USA defined benefit
pension schemes. In the course of normal operations, related party transactions entered into by the Group have been contracted
on an arm’s-length basis.
Details regarding transactions involving the directors and their remuneration can be found in the Remuneration report
on pages 34 to 35.
The Group recharges the UK defined benefit pension scheme with the costs of administration incurred by the Group. The total
amount recharged in the year to 31 December 2019 was £0.3m (2018: £0.4m).
33. Group entities
All intra-group related party transactions and outstanding balances are eliminated in the preparation of the consolidated financial
statements of the Group and therefore in accordance with IAS 24 Related party disclosures are not disclosed.
Subsidiary undertakings
Details of all subsidiary undertakings are shown below. Principal subsidiary undertakings are shown on page 111. Subsidiary
undertakings are, unless otherwise shown in brackets below, registered in England and Wales. Unless otherwise specified below,
all subsidiaries are 100% owned by the Company.
Principal subsidiary undertakings
Registered office
6500 Kitimat Road, Unit 1, Mississauga, Ontario
LN5 2B8, Canada
Subsidiary undertakings
Mpac Langen, Inc. (Canada)
Edisonstraat 14, 6604 BV Wijchen, The Netherlands
Mpac Langen B.V. (Netherlands)
8 Burn Road, #09-01 Trivex, Singapore 369977
Mpac Langen Pte. Ltd (Singapore)
Station Estate, Station Road, Tadcaster, North Yorkshire,
Mpac Lambert Limited
LS24 9SG
Lambert Automation Limited
Lambert Engineering Group Limited
Lambert Engineering
Holdings Limited
Subsidiary undertakings registered at Mpac Group plc registered office
Arista Laboratories Europe Limited
Mpac Machine Company Limited
Molmac Engineering Limited
Hartsvale Limited
Mpac Machinery Limited
Thrissell Limited
Mpac Corporate Services Limited
Mpac Overseas Holdings Limited
Mpac Group Holdings Limited
Mpac ITCM Limited
Overseas subsidiary undertakings
Registered office
Mpac Tobacco Machinery Limited
Subsidiary undertakings
6500 Kitimat Road, Unit 1, Mississauga, Ontario
1456074 Ontario, Inc. (Canada)
LN5 2B8, Canada
928142 Ontario, Inc. (Canada)
Mpac Corporation (USA)
ITCM North America, Inc. (USA)
Mpac Delaware, Inc. (USA)
Mpac Laboratories, Inc. (USA)
SASIB Corporation of America (USA)
Mpac Machine Company, Inc. (USA)
Mpac Richmond, Inc. (USA)
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T E S T O T H E A C C O U N T S C O N T I N U E D
33. Group entities continued
During the year ended 31 December 2019 the Company received interest income from subsidiary undertakings of £0.1m
(2018: £nil), management fees of £1.3m (2018: £0.7m).and brand fees of £2.4m (2018: £1.6m).
At 31 December 2019 amounts owed by subsidiary undertakings to the Company were £2.2m (2018: £2.0m) and amounts owed
by the Company to subsidiary undertakings were £22.9m (2018: £19.0m). The amounts owed by subsidiary undertakings to the
Company are stated after a provision of £11.7m (2018: £12.0m) representing amounts owed to the Company which are no longer
considered recoverable.
At 31 December 2019 investments in subsidiaries by the Company were £63.8m (2018: £47.4m).
34. Accounting estimates and judgements
The development, selection and disclosure of the Group’s critical accounting policies and estimates, and the application of these
policies and estimates, are considered as part of the remit of the Audit Committee.
Estimates and judgements
Estimates and underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the year in which the
estimates are revised and in any future years affected. The areas involving significant risk resulting in a material adjustment
to the carrying amounts of assets and liabilities within the next financial year are as follows:
Pension accounting
Changes to key assumptions used for calculating the net pension asset/liability of the Group can have a significant impact on the
accounting valuation of the Group’s defined benefit pension schemes. The key assumptions used in calculating the net pension
asset/liability for the Group are disclosed in note 24. The value of the schemes’ liabilities is particularly sensitive to the discount,
inflation and mortality rates used. An analysis of the impact on the net pension asset/liability to changes in these assumptions
is also disclosed in note 24.
Deferred tax
Management have recognised a deferred tax asset of £1.7m (2018: £1.7m) based on historic losses which is expected to be
utilised over the next five year period. The assessment of this utilisation is based on the Group’s latest budget, which is adjusted
for significant non taxable income and expenses, along with specific limits to the utilisation of the tax credits. Further details
of the asset is in note 16.
Revenue recognition
The Group recognises revenue and gross margin on long term contracts over time, in accordance with IFRS 15, based upon the total
number of hours expected to be used on the contract and the number of hours required to complete the contract. Total expected
revenue, the number of hours and cost of materials to complete the contract reflect management’s best estimate of the probable
future benefits and obligations associated with the contract. Obligations on contracts may result in penalties due to late completion
of contractual milestones or unanticipated costs due to project modifications, unexpected conditions or events. Further detail
in respect of revenue recognition is shown in the accounting policies note and note 1.
102
Mpac Group plc Annual Report and Accounts 2019 F I V E Y E A R R EC O R D
Revenue
Underlying operating profit/(loss)1
Non-underlying items
Operating profit/(loss)
Net financing expense
Profit/(Loss) before tax
Taxation
Profit/(Loss) for the period from continuing operations
(Loss)/profit for the period from discontinued operations
Profit/(Loss) for the period
Underlying operating return on sales1
Underlying earnings/(loss) per ordinary share1
Basic earnings/(loss) per ordinary share
Dividends per ordinary share in respect of the year
Intangible assets
Property, plant and equipment and investment property
Inventories
Trade and other receivables (including taxation)
Employee benefits
Trade and other payables (including taxation and provisions)
Cash
Net assets
Net assets per ordinary share
Ordinary shares in issue (000’s)
1 Before non-underlying items
2019
£m
88.8
7.7
(2.4)
5.3
0.1
5.4
0.5
5.9
–
5.9
8.7%
39.5p
29.7p
–
16.3
11.7
7.1
24.0
17.3
(47.8)
28.6
18.9
47.5
235p
2018
£m
58.3
1.4
(9.0)
(7.6)
0.2
(7.4)
1.4
(6.0)
–
(6.0)
2.4%
4.5p
(30.1)p
–
1.0
5.2
3.3
24.9
14.3
(36.0)
12.7
27.9
40.6
201p
2017
£m
53.4
1.3
3.3
4.6
(0.3)
4.3
(1.9)
2.4
(0.8)
1.6
2.4%
4.2p
20.6p
–
0.9
4.8
2.4
22.7
11.4
(29.7)
12.5
30.3
42.8
212p
2016
£m
41.5
(1.2)
(1.7)
(2.9)
(0.2)
(3.1)
0.7
(2.4)
1.8
(0.6)
(3.1)%
(6.0)p
(3.3)p
1.25p
15.2
9.3
13.0
29.3
(2.2)
(30.9)
33.7
1.7
35.4
176p
2015
£m
51.0
2.5
(0.8)
1.7
(0.8)
0.9
0.1
1.0
(5.1)
(4.1)
5.0%
10.8p
(20.9)p
4.0p
14.9
8.8
15.1
22.1
4.0
(26.0)
38.9
(2.3)
36.6
181p
20,172
20,172
20,172
20,172
20,172
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 P R I N C I PA L D I V I S I O N S A N D S U B S I D I A R I E S
The divisions and subsidiary undertakings shown include those which principally affect the profits and net assets of the Group as
at the date of this report. Overseas companies operate and are incorporated in the countries in which they are based. In all cases
the class of shares held is ordinary equity shares (or equivalent) and the proportion held is 100% unless otherwise indicated.
Shares in the UK companies are held directly by Mpac Group plc and those in the other overseas subsidiaries by intermediate
holding companies.
Americas
Mpac Langen, Inc.
6500 Kitimat Road, Unit 1
Mississauga
Ontario L5N 2B8
Canada
Tel: +1 905 670 7200
E-mail: info.americas@mpac-group.com
Europe, Middle East & Africa
Mpac Langen B.V.
Edisonstraat 14
6604 BV Wijchen
The Netherlands
Tel: +31 24 648 6655
E-mail: info.emea@mpac-group.com
Mpac Lambert Limited
13 Westwood Way
Westwood Business Park
Coventry
CV4 8HS
United Kingdom
Tel: +44 (0)2476 421100
E-mail: info.coventry@mpac-group.com
Station Estate
Tadcaster
North Yorkshire
LS24 9SG
United Kingdom
Tel: +44 (0)1937 832921
E-mail: julian.ellis@mpac-group.com
Asia Pacific
Mpac Langen Pte. Ltd
8 Burn Road,
#09–01 Trivex,
Singapore 369977
Tel: +65 63 39 96 66
E-mail: info.asia@mpac-group.com
104
Mpac Group plc Annual Report and Accounts 2019 N O T I C E O F A N N U A L G E N E R A L M E E T I N G
Notice is hereby given that the one hundred and eighth Annual General Meeting (the Meeting) of Mpac Group plc (the Company) will
be held at the Company's offices at 13 Westwood Way, Westwood Business Park, Coventry, CV4 8HS on Wednesday 6 May 2020
at 12 noon to consider and, if thought appropriate, to pass the following resolutions, of which resolutions 1 to 12 will be proposed
as ordinary resolutions and resolutions 13 to 16 will be proposed as special resolutions:
Ordinary resolutions
Report and Accounts
1. To receive the audited annual accounts of the Company for the year ended 31 December 2019 together with the directors’
report and the auditors’ report on those annual accounts.
Dividend
2. To declare a final dividend for the year ended 31 December 2019 of 1.5 pence per ordinary share.
Directors
3. To elect Mrs S A Fowler as a director.
4. To re-elect Mr A J Kitchingman as a director.
5. To re-elect Mr D G Robertson as a director.
6. To re-elect Dr A Steels as a director.
7. To re-elect Mr W C Wilkins as a director.
8. To approve the Remuneration report, excluding the Remuneration Policy, set out on pages 32 to 40 of the Annual Report and
Accounts 2019.
9. To approve the Remuneration Policy, the full text of which is set out on pages 36 to 40 in the Annual Report and Accounts 2019,
which shall take effect from the close of the Meeting.
Auditors
10. To appoint Grant Thornton UK LLP as auditors of the Company to hold office from the conclusion of this Meeting until the
conclusion of the next AGM at which accounts are laid before the Company.
Remuneration of Auditors
11. To authorise the Audit Committee to determine the remuneration of the auditors.
Directors’ authority to allot shares
12. To generally and unconditionally authorise the directors pursuant to and in accordance with Section 551 of the Companies Act
2006 (the Act), in substitution for all previous authorities to the extent unused, to exercise all the powers of the Company
to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company:
a) up to an aggregate nominal amount of £1,680,000 (representing approximately one third of the total ordinary share capital
in issue at 30 March 2020, being the latest date prior to publication of this notice of meeting); and
b) comprising equity securities (as defined in Section 560 (1) of the Act) up to a further aggregate nominal value of £1,680,000
in connection with an offer by way of a rights issue, such authorities to expire at the conclusion of the 2021 AGM or if earlier,
at close of business on 31 July 2021, save that the Company may before such expiry make an offer or agreement which
would or might require shares to be allotted or rights to subscribe for or convert any security into shares to be granted after
the authority ends.
For the purposes of this Resolution, ‘rights issue’ means an offer to:
a) shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
b) holders of other equity securities if this is required by the rights of those securities or, if the directors consider it necessary,
as permitted by the rights of those securities;
to subscribe for further securities by means of the issue of a renounceable letter (or other negotiable document) which may be
traded for a period before payment for the securities is due, but subject in both cases to such exclusions or other arrangements
as the directors consider necessary or appropriate in relation to treasury shares, fractional entitlements, record dates or legal,
regulatory or practical problems in, or under the laws of, any territory.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T I C E O F A N N U A L G E N E R A L M E E T I N G C O N T I N U E D
Special resolutions
Disapplication of pre-emption rights
13. That if resolution 12 is passed, the Board be authorised to allot equity securities (as defined in the Companies Act 2006)
for cash under the authority given by that resolution and/or to sell ordinary shares held by the Company as treasury shares
for cash as if section 561 of the Companies Act 2006 did not apply to any such allotment or sale, such authority to be limited:
a) to allotments for rights issues and other pre-emptive issues; and
b) to the allotment of equity securities or sale of treasury shares (otherwise than under paragraph (a) above) up to a nominal
amount of £252,000, such authority to expire at the conclusion of the 2021 AGM of the Company (or, if earlier, at close of
business on 31 July 2021) but, in each case, prior to its expiry the Company may make offers, and enter into agreements, which
would, or might, require equity securities to be allotted (and treasury shares to be sold) after the authority expires and the Board
may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not expired.
14. That if resolution 12 is passed, the Board be authorised in addition to any authority granted under resolution 13 to allot equity
securities (as defined in the Companies Act 2006) for cash under the authority given by that resolution and/or to sell ordinary
shares held by the Company as treasury shares for cash as if section 561 of the Companies Act 2006 did not apply to any such
allotment or sale, such authority to be:
a)
limited to the allotment of equity securities or sale of treasury shares up to a nominal amount of £252,000; and
b) used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original
transaction) a transaction which the Board of the Company determines to be an acquisition or other capital investment
of a kind contemplated by the Statement of Principles on Dis-applying Pre-Emption Rights most recently published by the
Pre-Emption Group prior to the date of this notice, such authority to expire at the end of the next AGM of the Company
(or, if earlier, at close of business on 31 July 2021) save that, in each case, the Company may before such expiry make offers,
and enter into agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold)
after the authority expires and the Board may allot equity securities (and sell treasury shares) under any such offer
or agreement as if the authority had not expired.
Authority to purchase of own shares
15. That the Company be generally and unconditionally authorised for the purpose of Section 701 of the Act to make market
purchases (as defined in Section 693 of the Act) of ordinary shares of 25 pence each in the capital of the Company (‘ordinary
shares’) provided that:
a) the maximum number of ordinary shares hereby authorised to be purchased is 3,000,000;
b) the minimum price (exclusive of expenses) which may be paid for such ordinary shares is 25 pence per share, being the
nominal amount thereof;
c) the maximum price (exclusive of expenses) which may be paid for such ordinary shares shall be an amount equal to the
higher of: (i) 5% above the average of the middle market quotations for such shares taken from The London Stock Exchange
Daily Official List for the five business days immediately preceding the day on which the purchase is made; and (ii) the price
of the last independent trade of an ordinary share and the highest current independent bid for an ordinary share as derived
from the London Stock Exchange Trading System (SETS); and
d) the authority hereby conferred shall (unless previously renewed or revoked) expire at the end of the 2021 AGM, save that
the Company may before such expiry make a contract or agreement to make a market purchase of its own ordinary shares
which will or may be executed wholly or partly after the expiry of such authority and the Company may purchase such
shares as if the authority conferred hereby had not expired.
Notice of general meetings
16. That a general meeting of the Company, other than annual general meetings of the Company, may be called on not less than
14 clear days’ notice.
By order of the Board
DUNCAN TYLER
Company Secretary
1 April 2020
106
Registered in England and Wales No. 124855
Registered office:
13 Westwood Way
Westwood Business Park
Coventry CV4 8HS
Mpac Group plc Annual Report and Accounts 2019 Notes relating to the notice
The following notes explain your general rights as a shareholder and your right to attend and vote at this Meeting or to appoint
someone else to vote on your behalf.
Entitlement to attend and vote
1. To be entitled to attend and vote at the Meeting (and for the purpose of the determination by the Company of the number
of votes they may cast), shareholders must be registered in the Register of Members of the Company at close of trading
on Monday 4 May 2020, or if the meeting is adjourned, close of business on the day which is two days’ prior to the adjourned
meeting. In each case, changes to the Register of Members after the relevant deadline shall be disregarded in determining
the rights of any person to attend and vote at the Meeting.
Appointment of proxies
2. Shareholders, or their proxies, intending to attend the Meeting in person are requested, if possible, to arrive at the Meeting
venue at least 20 minutes prior to the commencement of the Meeting at 12 noon (UK time) on Wednesday 6 May 2020 so that
their shareholding may be checked against the Company’s Register of Members and attendances recorded.
3. Shareholders are entitled to appoint another person as a proxy to exercise all or part of their rights to attend and to speak and
vote on their behalf at the Meeting. 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 ordinary share or ordinary shares held by that shareholder.
A proxy need not be a shareholder of the Company.
4.
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint
holders appear in the Company’s Register of Members in respect of the joint holding (the first named being the most senior).
5. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the
resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote
(or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting.
6. You can vote either:
» by logging on to www.signalshares.com and following the instructions;
» you may request a hard copy form of proxy directly from the registrars, Link Asset Services , on Tel: +44 (0)371 664 0391.
Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding public holidays in England
and Wales. Alternatively, email Link at shareholderenquiries@linkgroup.co.uk;
» in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the
procedures set out below;
» in order for a proxy appointment to be valid a form of proxy must be completed. In each case the form of proxy must be
received by Link Asset Services at 34 Beckenham Road, Beckenham, Kent, BR3 4ZF by 12 noon on Monday 4 May 2020.
7.
If you return more than one proxy appointment, either by paper or electronic communication, the appointment received last
by the Registrar before the latest time for the receipt of proxies will take precedence. You are advised to read the terms
and conditions of use carefully. Electronic communication facilities are open to all shareholders and those who use them
will not be disadvantaged.
8. The return of a completed form of proxy, electronic filing or any CREST Proxy Instruction (as described in note 11 below) will not
prevent a shareholder from attending the Meeting and voting in person if he/she wishes to do so.
9. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do
so for the Meeting (and any adjournment of the Meeting) by using the procedures described in the CREST Manual (available
from www.euroclear.com/site/public/EUI). CREST Personal Members or other CREST sponsored members, and those CREST
members who have appointed a 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.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T I C E O F A N N U A L G E N E R A L M E E T I N G C O N T I N U E D
Notes relating to the notice continued
10. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a ‘CREST
Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must
contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so
as to be received by the issuer’s agent (ID RA10) by the latest time for receipt of proxy appointments specified above. For this
purpose, the time of receipt will be taken to mean the time (as determined by the timestamp applied to the message by the
CREST application host) from which the issuer’s agent 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.
11. 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 message. Normal system timings and
limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting
service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary
to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST
members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections
of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a
CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
Corporate representatives
12. Any corporation which is a shareholder can appoint one or more corporate representatives who may exercise on its behalf all of its
powers as a shareholder provided that no more than one corporate representative exercises powers in relation to the same shares.
Issued shares and total voting rights
13. As at 30 March 2020 (being the latest practicable business day prior to the publication of this Notice), the Company’s ordinary
issued share capital consists of 20,171,540 ordinary shares, carrying one vote each. Therefore, the total voting rights in the
Company as at 30 March 2020 are 20,171,540.
Questions at the meeting
14. Any shareholder attending the Meeting has the right to ask questions. The Company must cause to be answered any such
question relating to the business being dealt with at the Meeting but no such answer need be given if: (a) to do so would interfere
unduly with the preparation for the Meeting or involve the disclosure of confidential information; (b) the answer has already
been given on a website in the form of an answer to a question; or (c) it is undesirable in the interests of the Company or the
good order of the Meeting that the question be answered.
Documents on display
15. Copies of the Executive Directors’ service contracts and letters of appointment of the Non-Executive Directors may be
inspected during normal business hours at the registered office of the Company on any business day from the date of this
Notice until the conclusion of the Meeting.
Communication
16. You may not use any electronic address (within the meaning of Section 333(4) of the Companies Act 2006) provided in either
this Notice or any related documents (including the form of proxy) to communicate with the Company for any purposes other
than those expressly stated.
Website giving information regarding the meeting
17. A copy of this Notice, and other information required by Section 311A of the Companies Act 2006, can be found on the
Company’s website at www.mpac-group.com.
After the meeting
18. Members will have the opportunity to meet the directors of the Company.
Explanatory notes on the resolutions
Resolutions 1 to 12 are ordinary resolutions; resolutions 13 to 16 are special resolutions. To be passed, ordinary resolutions require
more than 50% of votes cast to be in favour of the resolution whilst special resolutions require at least 75% of the votes cast to be
in favour of the resolution.
108
Mpac Group plc Annual Report and Accounts 2019 Ordinary Resolutions
To receive the Annual Report and Accounts 2019
Resolution 1 is a standard resolution. The Companies Act 2006 requires the directors to lay before the Company in a general
meeting copies of the Company’s annual accounts, and the directors’ report and auditor’s report on those accounts. The Annual
Report and Accounts 2019, which includes this Notice of Annual General Meeting, will be available online at www.mpac-group.com.
Dividend
Resolution 2 deals with the recommendation of the directors that a final dividend of 1.5 pence per ordinary share be paid. If
approved, it is intended that the final dividend will be paid on 15 May 2020 to shareholders on the register of members at close
of business on 17 April 2020.
Election and re-election of directors
In accordance with best practice in corporate governance, all directors are standing for re-election. Resolutions 3 to 7 seek
approval for the election of Mrs S A Fowler and the re-election of the remaining directors.
Mrs Fowler was appointed on 6 March 2020. She is a Fellow of the Institute of Chartered Accountants in England and Wales and formerly
worked as a senior partner within Ernst and Young. Her current positions include non-executive directorships at BHSF Group Limited and
its subsidiary and Saftconsulting Limited. She is also Chair of St Basils, a Birmingham based charity and housing association.
Biographical information for each of the existing directors is provided on page 23 of the Annual Report and Accounts 2019.
The Board has no hesitation in recommending the election or re-election of the directors to shareholders. In making these
recommendations, the Board confirms that it has given careful consideration to the Board’s balance of skills, knowledge and
experience and is satisfied that each of the directors putting themselves forward for election or re-election has sufficient time
to discharge their duties effectively, taking into account their other commitments.
Remuneration report
Resolution 8 seeks shareholders’ approval for the Directors’ Remuneration report, excluding the summary Directors’ Remuneration
Policy which is set out on pages 36 to 40 of the Annual Report and Accounts 2019, for the year ended 31 December 2019. The vote
is advisory only.
Directors’ remuneration policy
The Directors’ Remuneration Policy is contained in the Directors’ Remuneration Report and can be found at pages 36 to 40 of the
Annual Report. The Company’s current Remuneration Policy was last approved by shareholders at the annual general meeting in
2017. Accordingly, shareholders are invited to approve the new Directors’ Remuneration Policy by voting on Resolution 9. The Policy
sets out the Company’s forward looking policy on Directors’ remuneration and is subject to a binding shareholder vote. If Resolution
9 is approved the Remuneration policy will be effective from the close of the Meeting on 6 May 2020. Payments will continue to be
made to directors (in their capacity as directors) in line with their existing contractual arrangements until that date.
Appointment of auditors
The auditors of a company must be appointed or re-appointed at each general meeting at which the accounts are laid.
Resolution 10 seeks approval to appoint Grant Thornton UK LLP as the Company’s auditors until the conclusion of the next general
meeting of the Company at which accounts are laid.
Remuneration of auditors
Resolution 11 seeks consent for the directors to determine the remuneration of the auditors.
Directors’ authority to allot shares
Resolution 12 seeks consent for shareholders to grant the directors authority to allot shares or grant rights to subscribe for or
convert securities into shares, up to a maximum aggregate nominal value of £3,360,000, which is approximately two-thirds of
the nominal value of the issued ordinary share capital of the Company as at 30 March 2020, being the latest practicable date prior
to the publication of this notice. £1,680,000 of this authority is reserved for a fully pre-emptive rights issue. This is the maximum
permitted amount under best practice corporate governance guidelines. The authority will expire at the next Annual General
Meeting of the Company or if earlier, at close of business on 31 July 2021. The directors have no current intention of exercising
such authority and will exercise this power only when they believe that such exercise is in the best interests of the shareholders.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSMpac Group plc Annual Report and Accounts 2019 N O T I C E O F A N N U A L G E N E R A L M E E T I N G C O N T I N U E D
Special resolutions
Disapplication of pre-emption rights
Resolutions 13 and 14 will be proposed as special resolutions, each requiring a majority of 75% of those voting to be in favour.
If the directors wish to allot new shares and other equity securities, or sell treasury shares, for cash (other than in connection
with an employee share scheme), company law requires that these shares are offered first to shareholders in proportion to their
existing holdings.
Resolution 13 deals with the authority of the directors to allot new shares or other equity securities pursuant to the authority given
by resolution 12, or sell treasury shares, for cash without the shares or other equity securities first being offered to shareholders
in proportion to their existing holdings. Such authority shall only be used in connection with a pre-emptive offer, or otherwise,
up to an aggregate nominal amount of £252,000, being approximately 5% of the total issued ordinary share capital of the
Company as at 30 March 2020.
The Pre-Emption Group Statement of Principles supports the annual disapplication of pre-emption rights in respect of allotments
of shares and other equity securities (and sales of treasury shares for cash) representing no more than an additional 5% of issued
ordinary share capital (exclusive of treasury shares), to be used only in connection with an acquisition or specified capital investment.
The Pre-Emption Group’s Statement of Principles defines ‘specified capital investment’ as meaning one or more specific capital
investment related uses for the proceeds of an issuance of equity securities, in respect of which sufficient information regarding
the effect of the transaction on the Company, the assets that are the subject of the transaction and (where appropriate) the profits
attributable to them is made available to shareholders to enable them to reach an assessment of the potential return.
Accordingly, and in line with the template resolutions published by the Pre-Emption Group, resolution 14 seeks to authorise the
directors to allot new shares and other equity securities pursuant to the authority given by resolution 12, or sell treasury shares, for
cash up to a further nominal amount of £252,000, being approximately 5% of the total issued ordinary share capital of the Company
as at 30 March 2020, only in connection with an acquisition or specified capital investment which is announced contemporaneously
with the allotment, or which has taken place in the preceding six-month period and is disclosed in the announcement of the issue. If the
authority given in resolution 14 is used, the Company will publish details of the placing in its next Annual Report. If these resolutions
are passed, the authorities will expire at the end of the next AGM or at close of business on 31 July 2021, whichever is the earlier.
The Board considers the authorities in resolutions 13 and 14 to be appropriate in order to allow the Company flexibility to finance
business opportunities or to conduct a rights issue or other pre-emptive offer without the need to comply with the strict requirements
of the statutory pre-emption provisions. The Board does not intend to issue more than 7.5% of the issued share capital of the
Company for cash on a non pre-emptive basis in any rolling three-year period (other than in connection with an acquisition or specified
capital investment as described in the Pre-Emption Group’s Statement of Principles) without prior consultation with shareholders.
Authority to purchase own shares
Resolution 15 seeks authority for the Company to make market purchases of its own ordinary shares up to a maximum
number of 3,000,000 ordinary shares, representing approximately 15% of the issued ordinary share capital at 30 March
2020. The authority requested would replace a similar authority granted last year and would expire at the end of the 2021
AGM, or if earlier, at close of business on 31 July 2021.
In reaching a decision to purchase ordinary shares, the directors will take account of the Company’s cash resources and capital
and the general effect of such purchase on the Company’s business. The authority would only be exercised by the directors if they
considered it to be in the best interests of the shareholders generally and if the purchase could be expected to result in an increase
in earnings per ordinary share.
Notice of general meetings
Resolution 16 is an annual permission request for general meetings, other than the AGM, to be called on 14 clear days’ notice.
There is no current intention to hold such a meeting but the directors wish to retain the ability to call a meeting on shorter notice if
the circumstances should require it. The Companies (Shareholders’ Rights) Regulations 2009 specify that approval must be sought
from shareholders by special resolution at an annual or subsequent general meeting and the Company would need to make a means
of electronic voting available to all shareholders for any general meeting called on less than 21 clear days’ notice. If passed, the
resolution would remain valid until the end of the 2021 AGM, at which it is intended that a similar resolution will be proposed.
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Mpac Group plc Annual Report and Accounts 2019 S
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Corporate information
Registered office
13 Westwood Way
Westwood Business Park
Coventry
CV4 8HS
Tel: +44 (0)2476 421100
Email: ho@mpac-group.com
Registered number
124855
Secretary
Mr D E Tyler
Auditors
Grant Thornton UK LLP
The Colmore Building
20 Colmore Circus
Birmingham
B4 6AT
Nominated Advisor & Broker
Shore Capital and Corporate Limited
57 St James’s Street
London
SW1A 1LD
Registrars
Link Asset Services
6th Floor
65 Gresham Street
London
EC2V 7NQ
Share price
Available from:
FT Cityline – tel: +44 (0)905 817 1690
Certain national newspapers
Website
Further information is available at www.mpac-group.com
Timetable
Annual General Meeting
Consultancy, design and production
6th May 2020
www.luminous.co.uk
Payment dates for preference dividend
30 June 2020 and 31 December 2020
Half-year announcement
September 2020
Design and production
www.luminous.co.uk
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Mpac Group plc
13 Westwood Way
Westwood Business Park
Coventry CV4 8HS
Tel: +44 (0)2476 421100
Email: ho@mpac-group.com
mpac-group.com