We create automation
ecosystems that enhance
manufacturing to help
businesses adapt and grow
Annual Report and Accounts 2020
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. Our
business is focused on the creation of
manufacturing solutions that make and
package the products millions of people
worldwide depend on.
mpac-group.com
Contents
01 Year at a glance
02 Who we are. What we do
03 Expanding customer objectives
04 Chairman’s introduction
05 Strategy: Our mission sectors and values
06 Strategy: Business model
07 Strategy: Goals and priorities
08 Strategy: Case study
09 Strategy: Switchback acquisition
10 Operating review
15 Financial review
18 Principal risks and uncertainties
22 Chairman’s corporate governance statement
24 Board of Directors
25 Corporate governance report
28 Audit Committee report
30 Remuneration and Nomination Committee report
31 Annual Remuneration report
32 Remuneration policy
36 Directors’ report
39 Statement of Directors’ responsibilities
Independent Auditor’s report
41
51 Consolidated income statement
52 Statements of comprehensive income
53 Statements of changes in equity
55 Statements of financial position
56 Statements of cash flow
57 Accounting policies
63 Notes to the accounts
101 Five-year record
102 Principal divisions and subsidiaries
103 Notice of Annual General Meeting
108 Corporate information
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Annual Report & Accounts 2020
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Year at
a glance
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> Good progress on the Group’s strategic initiatives
> 2020 HY2 revenue 27% above HY1 2020
> Group full year revenue £83.7m (2019: £88.8m)
> Underlying profit before tax of £6.3m (2019: £7.5m)
> Statutory profit before tax of £2.9m (2019: £5.4m)
> Underlying earnings per share of 31.4p (2019: 39.5p)
> Basic earnings per share of 16.3p (2019: 29.7p)
Revenue by sector
Food and beverage
£34.8m
Pharmaceutical
£3.9m
Healthcare
£45.0m
Revenue by region
Americas
£46.7m
Asia
£5.7m
Europe, Middle
East & Africa
£31.3m
Order intake
£83.9m
(2019: £87.6m)
Underlying earnings per share
31.4p
(2019: 39.5p per share)
Revenue
£83.7m
(2019: £88.8m)
Cash
£15.5m
(2019: £18.9m)
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
Who we are
What we do
We support all brands and all locations with our global operations.
Our philosophy is ‘Ingenuity without limits'.
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Who we are
What we do
Ingenuity
without limits
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Mpac is a provider of full-line product manufacturing and packaging
solutions. We serve customers globally in the essential and growing
sectors of healthcare, pharmaceutical and food and beverage, with
engineering and services that increase automation, safety,
sustainability and cost effectiveness.
We are headquartered in the UK and have strategically located
manufacturing and Service locations to provide our customers with
local support and a global reach.
We are One Mpac, with three connected businesses that trade under
the globally respected brand names and product ranges of Lambert,
Langen and Switchback. Lambert specialises in full-line solutions for
the pharmaceutical and healthcare sectors. Langen and Switchback
provide secondary and tertiary packaging solutions for all sectors
in which we operate.
We provide packaging and automation solutions to fast-moving consumer
goods customers, enabling their products to be packaged for distribution to
their consumers ensuring security, quality, sustainability and shelf appeal.
We ensure manufacturing consistency through whole line integration; from
product assembly to primary packaging, cartoning to case packing and
palletisation – designed, delivered and supported globally, while protecting
the wider ecosystem we all live in.
We don’t just build machines however, we create full line automation
ecosystems to develop and optimise manufacturing processes. Our
end-to-end capabilities help our customers thrive in a changing world.
The group leverages its engineering expertise with cutting-edge
manufacturing technologies and proven machine design and supports its
customers with world class service support, delivered locally. We are
a global organisation and can provide support to customers in any region.
Our sectors
Healthcare
We help achieve better patient outcomes through
advanced products, processes and packaging
formats. From contact lenses to wound care
products, we've got it covered.
Pharmaceutical
Food and beverage
We support your pharmaceutical advances
cost effectively, from inhaler assembly to
transdermal patches.
With extensive experience in dealing with powders
to liquids, cereals to confectionary, our packaging
machinery covers a wide range of applications.
21 Corporate governance40 Financial statements
Whole Line
Using limitless ingenuity to
align global manufacturing
> Global whole-line integration
> Streamlining processes and identifying
efficiencies
> Creating opportunities for new products
Whole Life
Maintaining peak overall
equipment effectiveness for
the lifespan of machines
Whole Planet
Helping businesses grow globally
while embracing sustainability
> Next-generation manufacturing for the
> Hands-on global experts providing local
next generation
support
> Maintaining peak OEE over machine
lifespan
> Transformational digital services
> Building efficient machines to optimise
businesses performance and in turn,
reduce the damaging effects on the
environment
> Reducing transportation footprints with
remote service assistance and smaller
carton sizes
Mpac Group plc
Annual Report & Accounts 2020
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Expanding
customer
objectives
"Our end-to-end manufacturing capabilities
help leading food and beverage, healthcare
and pharmaceutical businesses to meet their
expanding objectives in a changing world. We
design and monitor connected machinery
– automation ecosystems – that optimise
our customers' manufacturing processes."
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Mpac Group plc
Annual Report & Accounts 2020
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Chairman’s
introduction
“ 2020 was a year like no
other for Mpac, just as it
has been for the wider
world. As the pandemic
unfolded, the Board
took immediate steps
to protect the welfare
of our employees and
established processes to
mitigate the impact of the
pandemic on the business
and our customers.”
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The Covid-19 pandemic posed
significant unforeseen challenges for all
businesses but through the dedication
and adaptability of our employees,
Mpac was able successfully to address
the main challenges that arose.
During 2020, further progress was
made in executing our long-term
strategy and we have converted
strategic progress into a robust
financial performance. Mpac are
entirely focused on industries
that exhibit long-term growth
characteristics globally. Our investment
proposition remains one of sustained
organic growth augmented by carefully
selected acquisition opportunities.
2020 was the first full year of trading
since the acquisition of Lambert
Automation (‘’Lambert’’) in May 2019
and in September 2020 we completed
the acquisition of Switchback Group
Inc (‘’Switchback’’). Our strategy
remains to focus on the high growth
pharmaceutical, healthcare and food
and beverage sectors, underpinned by
the deployment of a comprehensive
product development roadmap and
a focus on software and platform
developments.
On pages 21 to 27, I discuss corporate
governance and the Board’s activities
during the year.
Summary of results
The resilient performance in the year
is reflected in the order intake for
the Group of £83.9m (2019: £87.6m)
and Group revenues of £83.7m
(2019: £88.8m). Underlying operating
profit was in line with revised market
expectations at £6.5m (2019: £7.7m).
Group cash ended the year at £15.5m
(2019: £18.9m).
Acquisitions
In September 2020, the Group
acquired Switchback for an initial
consideration of £10.2m. Based near
Cleveland, Ohio, USA, Switchback,
which employs approximately 45
staff, is a packaging machinery and
automation solutions specialist,
supplying the food and beverage
and healthcare sectors and is a
compelling fit with Mpac’s strategic
intent of being a market leader in
the provision of full-line packaging
solutions. Switchback has a particular
strength in the high-growth craft
brewing industry, which has been a
resilient area through the Covid-19
challenges and is benefiting from
the shift towards increased use of
recyclables, aluminium cans and
cardboard packaging.
Board changes
I would like to welcome Sara Fowler
to the Board.
Sara joined the Board in March
2020 as a Non-Executive Director
and as Chair of the Remuneration
and Nomination Committee, having
previously been a partner with Ernst
& Young, including seven years as
senior partner for Ernst & Young
in the West Midlands. She was on the
Board of the Compulsory Purchase
Association and Chair of the CBI
West Midlands.
I would also like to take this
opportunity to thank John Davies,
who stepped down from the Board
in March 2020 after nine years as
a Non-Executive Director, for the
service he provided to the Group.
Dividend
Having considered the trading results
for 2020 and the opportunities for
investment in the growth of the
Group, together with the continued
uncertainty surrounding the impact of
the pandemic, the Board has decided
that it is not appropriate to pay a
final dividend. No interim dividend
was paid in 2020. Future dividend
payments will be considered by the
Board in the context of 2021 trading
performance and when the Board
believes it is prudent to do so.
Outlook
The Group operates in a range
of attractive global sectors and
geographic markets which have
demonstrated resilience to the
pandemic, and which are expected to
grow in real terms for the foreseeable
future. After a challenging 2020, I
consider the prospects for the Group
over the short and medium term
to be positive, with the initiatives
put in place by the leadership team
expected to result in a return to
growth in revenue and profit. I look
forward to reporting on the progress
that will be made during 2021.
Signed on behalf of the board.
Andrew Kitchingman
Chairman
29 March 2021
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Andrew Kitchingman
Chairman
Our strategy remains to focus on the high
growth pharmaceutical, healthcare and food
and beverage sectors.
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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.
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
Healthcare
We help achieve better patient
outcomes through advanced
products, processes and packaging
formats. From contact lenses to
wound care products, we've got
it covered.
Pharmaceutical
We support your pharmaceutical
advances cost effectively, from
inhaler assembly to transdermal
patches.
Food and beverage
With extensive experience in dealing
with powders to liquids, cereals
to confectionary, our packaging
machinery covers a wide range
of applications.
Our values
Integrity
Deliver on our promise, respect
and value others.
Excellence
Always striving to be better.
Passionate
Be energised to deliver.
Innovation
Identify a need, think outside of
the box and deliver solutions.
Collaboration
Working together without
boundaries for the collective goal.
Mpac Group plc
Annual Report & Accounts 2020
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Strategy:
Our mission,
sectors and
values
"To create automation ecosystems
that enhance manufacturing to
help businesses to adapt and grow.
Advancing the world with manufacturing
solutions which make a difference."
Mpac purpose statement
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Business model
Business model
Consult
Ecosystems live, breath and evolve,
and so should your automation
ecosystem. That’s why we’re by your
side at every stage, consulting with
you to understand your challenges
and solve your problems before they
occur. Ingenious thinking is personal,
so we take the time to listen to your
needs and what you want from your
machines and products.
Design and build
With your current and future needs
in mind, we develop fresh ideas and
design innovative machines to keep
you ahead of the competition.
Install
We install your new machine at a
time that suits you. To get the most
out of your machine, our effective
employee training reduces start-up
costs and allows your equipment to
reach its target performance quickly.
Monitor
With your permission, our experts
can connect to your control system
to give you a complete review of
your machine performance. By
doing so, we can predict and prevent
problems to ensure consistency
and compliance. We also offer you
actionable insights to maximise your
equipment effectiveness.
Optimise
We make sure your machine
stays up-to-date with the latest
modernisations and automation
upgrades. This ensures minimal
downtime and less risk of serious
damage to your equipment
throughout the lifetime of your lines.
Our bespoke whole-life service
options, with remote monitoring and
servicing, ensure unstoppable OEE
and keeps your machines in prime
condition, year after year.
Mpac Group plc
Annual Report & Accounts 2020
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Strategy:
Business
model
“ We channel limitless
ingenuity to create
and optimise whole-
line manufacturing
ecosystems. With
many parts, in many
countries, our world-
class productivity helps
our clients achieve
more with less.”
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
automation and packaging solutions,
customised to their requirements
using a portfolio of proven modules
augmented with a customer-specific
product package handling solution.
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The implementation of our One
Mpac business model continues to
progress well and includes all sales,
service, and operations functions.
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.
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The capital equipment market is
cyclical by its nature with a high need
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The Group is now able to exploit
synergies, utilising best practice
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operational efficiencies.
This creates a model whereby we can
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An update on our strategic priorities
Going for growth
Service as a business
Operational efficiency
Innovation
People
2020 progress
The Switchback acquisition
was completed, which gives
the Group an extended US
presence and product range
Recruitment of a Chief
Commercial Officer
with global commercial
leadership responsibility
Full solutions capability
established, focusing
on customers in the
healthcare sector
Continued to establish new
customer relationships,
with particular success in
the Americas
2020 progress
Proved our agility to adapt
to Covid-19 with remote
support
Continued roll-out of service
systems enhancements
Development of regional
service management and
extended reach
Launch of Americas
service team supporting
all Group products –
making Service local
2020 progress
Roll-out of Group ERP
system in The Netherlands
successfully completed
Transition onto common
engineering platforms
completed in Canada
Broader integration of global
supply chain
Lambert migration to Group
project management and
CRM tools and systems
2020 progress
Significant progress
made in full-line solution
development targeting the
healthcare sector
Completed the end-of-line
case packing range
Commercial launch of
Industry 4.0 products
Completion of Lambert
standard platform
development
2020 progress
Prioritising employee
health and wellbeing
Development and retention
of critical knowledge
Employee satisfaction
monitoring
Embedded personnel
development plan review
process
Future plans
Cross-selling of the
Switchback product range
into EMEA
Develop customer
opportunities in the Covid
space
Extend commercial footprint
in EMEA
Complete the opening of the
Group showcase facility in
Americas
Future plans
Improve operational
efficiency and lead times
Extend resourcing of
Americas service team and
development of healthcare-
focused business unit
Develop life-cycle ROI
and long-term service
agreement proposition
Enhance Service CRM
system and prospect
pipeline management
Future plans
ERP phased roll-out
continues in Canada, USA
and UK
UK and USA sites to
complete Group migration
to common engineering
systems
Leverage the benefits of
common Group ERP system
Maximise cross business
resource utilisation to
improve operating efficiency
Future plans
Extending suite of Industry
4.0 products
Focus on market led
innovation – healthcare
sector
Virtual exhibitions and live
streams
Develop digital
transformation strategy
Future plans
Creation of Mpac
academy to attract the
best young talent
Focus on internal
communication via new
intranet platform
Investment in employee
development and training
Continued review and
feedback cycle
Achieving our ambitions
In 2020 we extended our strategic priorities to include a focus on
'Innovation' and 'People', driven by our evolution towards a market-led
innovation plan and the need to have the best talent to help us achieve
our strategic goals.
The market and customer demands continue to evolve, with a clear
need for full solutions to their packaging requirements supported by a
comprehensive services proposition to ensure maximised return on their
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
throughout the Mpac sites and a focused product development roadmap
targeted on the attractive growth markets, we will be 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 will be well positioned to support the customer
from prototype to series production.
This capability should be leveraged across our global sales team and into
our global key accounts and prospects.
Service continued to represent a key opportunity based on a substantial
installed base and customers' need for support to increase productivity and
to secure a return on the investment in equipment.
Product innovation and development is key to sustained growth in the
large and attractive markets we operate in. Our new product development
roadmap is focused on the needs of the market and is orientated around
digital-led innovation.
One Mpac business model with a regionally focused, single business entity
model has been implemented. Managed globally but with regional sales,
supported by a global Service business and operations function, Mpac can
provide local support on a global level.
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 & Accounts 2020
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Strategy:
Goals and
priorities
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Annual Report & Accounts 2020
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Strategy:
Case study
Covid-19
Providing a solution to support the battle against Covid-19
The challenge
Why Mpac?
The solution
Benefits
A blue chip contract manufacturer
in the healthcare sector approached
Mpac about increasing production
capacity of a point of care Covid-19
test. Their customer’s product was
critical in the fight against Covid-19
and an upgraded system needed to
be functional within six months to
have an impact on the pandemic.
The test is complex to assemble,
with 42 parts assembled across
multiple machines.
Mpac’s system offers modularity,
connectivity and innovation. It
was these benefits, as well as our
new Diablo platform and strong
reputation, that gave our customer
the confidence to work with a new
supplier on such a critical element
of a time-sensitive project.
Mpac was selected for its fully
automated solution for one of the
critical to quality sub-assemblies.
Mpac's responsiveness and ability to
demonstrate a deep understanding
of the customer's challenge.
Our solution was based on our
recently developed Diablo Midi
system, which perfectly fits the
application. We were able to integrate
a customer specified offline process
by arranging the modular cells into
two separate elements, supporting
the manufacturing flow across the
factory floor and reducing the risk
of user-based error.
Design, build and commissioning
for each cell is run in parallel and we
are using Digital Twin technology to
advance testing of machine code,
further de-risking the commissioning
process. This significant recent
investment in both product and internal
processes enabled us to deliver a
unique production machine within the
requested six-month lead time.
Diablo Midi’s inherent flexibility and
modularity means we can support
our customer and theirs beyond their
initial requirement. A simple increase
in volume may be needed, but more
often customers need to innovate
quickly and introduce new features or
variants to their core product range.
Diablo Midi’s fully decentralised
modular cell system supports this
ambition and gives manufacturers
greater flexibility in their product and
manufacturing strategies in an ever
more dynamic world. This makes
Mpac a great choice as a machinery
supply partner.
Diablo Midi system
42 part assembly
Modular construction
“ Our customer selected the Mpac
system due to the modularity,
connectivity and innovation, which
alongside our reputation, gave them
the confidence to work with a new
supplier for such a critical element
of the project and fight against
the spread of the virus.”
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Business summary and core competencies
Switchback is a provider of packaging machinery and automation solutions to
the food and beverage and healthcare sectors. Established in 2006, it is located
near Cleveland, Ohio, USA, and employs approximately 45 people.
Product range
The product range offered by Switchback includes tray formers, carton
closers, labelling, and four-sided sealed pouching machines. The business is a
market leader in the supply of packaging machinery to the high-growth craft
brewing industry and is benefiting from the shift in this industry towards the
use of recyclables, aluminium cans and cardboard packaging. By leveraging its
diverse product range, the business has benefited from strong growth in the
last five years.
Wider customer base
The range of products offered by Switchback will provide further breadth and
depth to Mpac's cartoning and end-of-line solutions and provides the platform
to build our business further in the USA. We have gained access to a wider
customer base and the opportunity to provide existing customers with a wider
range of productivity solutions, as the industry trends towards higher volumes,
lower mix.
Growth plans
Mpac will continue to support Switchback’s talented team and strategic growth
plans by providing access to Group resources and our global sales and Service
network. This will enable Switchback to leverage growth opportunities in Mpac’s
existing core sectors of healthcare and food and beverage, at the same time
as we work with Switchback to strengthen growth from our existing north
Americas facility in Mississauga, Ontario.
“ The acquisition of Switchback represents another key
stage in the strategic development of Mpac. It increases
our USA footprint and brings a great range of products
and talented employees to our business. Switchback has
demonstrated entrepreneurial growth and the capacity
to be market leaders, through embedded customer
relationships. Switchback’s performance during the
pandemic has been strong with a good orderbook,
demonstrating the high quality of the business.”
Tony Steels
Chief Executive
Global Craft Beer: Market Value (US$m) Forecast, 2019-2029
Global Craft Beer: Market Value (US$m) Forecast, 2019-29
US$76,460.3m
Increase 2019-2029
152,771.0
76,310.7
7.2%
CAGR
2019E
Source: Fact.MR
2029F
Global Craft Beer: Consumption (Mn Litres) Forecast, 2019-29
Global Craft Beer: Consumption (Mn Litres) Forecast, 2019-2029
12,197 Mn Litres
Increase 2019-2029
28,527.3
16,376
5.7%
CAGR
2019E
Source: Fact.MR
2029F
Switchback is a market leader in the supply of packaging machinery to the
high-growth craft brewing industry
Mpac Group plc
Annual Report & Accounts 2020
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Strategy:
Switchback
acquisition
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Annual Report & Accounts 2020
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Operating
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“ I am pleased to present
my report as Chief
Executive of Mpac Group
plc. I am sure that 2020
will be remembered as
an extremely challenging
year for the whole of
society. When I reflect on
how Mpac collectively,
and our employees
individually, responded to
the pandemic, the speed
and agility with which
the Group pivoted to
supporting our customers
alongside the actions taken
to ensure that the business
continued to operate
efficiently, with minimal
disruption, I am proud to
say that I consider 2020 a
successful year for Mpac.”
As we reported at the half year,
the wellbeing of our employees
and their families is our primary
concern. Throughout the year, travel
and social distancing restrictions
have limited the opportunity for
business development, to complete
on-site service work and to install
and commission equipment, the
impact of which was mitigated by our
investment in enabling technologies
to provide remote customer support.
While all sites have continued to
operate, there have been periods of
reduced operational levels to protect
the wellbeing of our employees,
resulting in full-year revenue and
operating profit falling below that
achieved in 2019.
In the second half of 2020, business
development of Original Equipment
("OE") improved significantly, with
revenue 19% above the comparable
period in 2019. This return to
growth contributed towards the
good quality and diverse closing
order book of 2020 (£55.5m), 6%
above the opening 2020 order book
(£52.2m). Service revenues grew to
£19.6m (2019: £19.4m), a particularly
pleasing performance given on-going
travel restrictions hampering the
development of our field service and
installation revenue streams.
We made significant progress in
our key strategic initiatives, with
the broadening of our product
portfolio, which included the launch
of full-line solutions for customers
in the healthcare sector, and the
implementation of new operating
business systems. This contributed
to the Group producing a robust
financial performance and cash
generation, underpinned by a high-
quality order book.
The successful acquisition of
Switchback Group, Inc. (“Switchback”)
in September 2020 was a further
significant milestone for the Group.
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. Switchback, based near
Cleveland, Ohio, USA is a market
leader in the supply of packaging
machinery to the high-growth craft
beverage industry. It is benefiting
from the shift towards recyclables,
aluminium cans, and cardboard
packaging. Critically, the acquisition
also accelerates our expansion into
the Americas market and provides a
physical location in the USA for the
Group to further leverage our Langen
and Lambert brands in the region.
Despite the ongoing travel restrictions
good progress has been made with
the integration of Switchback into
the Group, with the rebranding to
Mpac Switchback complete, the first
commercial synergies with other
Group businesses have been secured
and the business is performing ahead
of management expectations.
The unprecedented impact of the
Covid-19 pandemic during 2020
resulted in a pause to the progress
that we were making in our growth
strategy, however we demonstrated
our continued ability to execute
£83.9m
Overall Group order intake
£55.5m
Order book for 2021
£83.7m
Group revenue
£64.1m
Original Equipment revenue
£19.6m
Service revenue
Revenue by geography
Americas £46.7m
Europe, Middle East & Africa £31.3m
Asia £5.7m
Tony Steels
Chief Executive
21 Corporate governance40 Financial statements
acquisitions alongside our agility to
adapt our resources to accelerate
the use of digital technologies to
engage with our customers and
ensure we continued to provide high
levels of support and service. The
fundamentals remain unchanged
and we believe that Mpac is on
track to meet our long-term
goals by leveraging the resilient
pharmaceutical, healthcare and food
and beverage sectors with our full-line
solution offering and delivering an
enhanced service proposition with our
Industry 4.0 suite of products.
by a comprehensive market-led
development roadmap. Alongside this,
our search for further complementary
acquisition targets continues. The
acquisition of Switchback and a
greater physical presence in the
critical US market represents another
important step in delivering our
strategy, augmented by deploying
our innovation initiatives, which are
focused on developing full solution
product lines with a wider range of
standard modules, for our target
sectors of pharmaceutical, healthcare,
and food and beverage.
Further progress has been made in
developing our range of Industry 4.0
solutions which are designed to offer
customers opportunities to increase
their Overall Equipment Effectiveness
(“OEE”) through automatic control
of the production process. Our
innovation roadmap was designed
to deliver an extensive range of
features and solutions, including OEE
monitoring, predictive maintenance,
video instructions and facilitating
connectivity via multiple devices
through an enhanced Human Machine
Interface. In the absence of physical
trade shows to demonstrate these
solutions, in 2020 we initiated a series
of virtual trade shows, supported by
media campaigns which have been
very well received and allowed us
to connect with a larger number of
customers in a more targeted way.
Management’s focus remains
on delivering organic growth,
extending our commercial reach
to new customers with new
products and services, supported
I am excited about the next phase for
the Group and am extremely pleased
with our accomplishments so far.
Despite the challenging investment
cycle caused by the pandemic, 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 markets.
Trading
The trading performance in 2020
was resilient given the backdrop of
wider market uncertainty and travel
restrictions. Overall order intake for
the Group of £83.9m was down 4% on
2019, a 14% reduction on a like-for-like
basis which excludes the impact of
the Switchback acquisition. The Group
experienced a significant upturn in
order intake in the second half of the
year when travel restrictions began to
be eased prior to the second wave of
the pandemic.
The Group enters 2021 with a
customer diverse order book of
£55.5m, £3.3m above the opening
order book for 2020. We remain
vigilant to project execution risk and
are confident that the 2020 closing
order book can be delivered at forecast
margins. The timing of conversion
of prospects into orders continues
to vary based on our customers’
investment plans and thus remains
difficult to predict. Conversion rates
were stronger in the second half of the
year providing increased confidence
that the impact of delayed customer
investment on the Group has eased,
resulting in the encouraging order
book entering 2021.
Group revenues of £83.7m were down
6% compared with the previous year
(10% below 2019 on a like-for-like
basis). Original Equipment revenue of
£64.1m (2019: £69.4m), supported by
a robust performance in the Americas
and growth in EMEA and the food
and beverage sector, was down 8%
compared to the prior year. Service
revenue grew marginally by 1% to
£19.6m, which is encouraging given
the circumstances.
I am pleased to report underlying
profit before tax for the year of £6.3m
(2019: £7.5m), with a statutory profit
before tax of £2.9m (2019: £5.4m).
Following the acquisition of Switchback
and continued investment in new
product development to support future
growth, the Group retained a cash
position of £15.5m (2019: £18.9m),
providing the financial resources
required to invest in the strategic
initiatives which will deliver profitable
growth in future years.
Strategic developments
Further progress has been made
during 2020 to deliver our five-
year strategic plan. The global
pandemic caused a pause in the
progress we had made delivering our
growth plan. However, we believe
an extension of our US presence
and access to new markets in the
region following the Switchback
acquisition, plus the exciting roll-out
of new products and good progress
on our integrated business systems
project, means Mpac remains on
track to meet our broader strategic
objectives. Furthermore, the growth
opportunities from the markets in
which we operate are aligned to our
long-term goals.
I believe that it is due to the
implementation of our strategic plans
and continued focus on increasing
the scale and diversity of the Group
that the business was able to deliver
a robust level of order intake, revenue,
and underlying profitability during a
challenging year in which customers
in most regions and markets were re-
evaluating their investment decisions.
Restructuring
During the year, the Group took the
necessary restructuring actions
associated with the integration of the
business activities of our Coventry
operation into our Tadcaster site. This
move will deliver annual savings going
forward and improve our customer
experience. The enlarged site has
the greater scale, scope, depth of
knowledge and know-how to support
customers and will help to deliver
profitable growth as we ensure financial
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“ The Group enters 2021 with a customer diverse
order book of £55.5m, marginally above the
opening order book for 2020. We remain
vigilant to project execution risk and are
confident that the 2020 closing order book
can be delivered at forecast margins.”
40 Financial statements21 Corporate governance
Mpac Group plc
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performance across the Group meets
or exceeds expectations. The Group is
committed to ensuring that all aspects
of the organisation support the future
growth of the business and targets
continue to be met.
Acquisition strategy
The Board continues to actively seek
and evaluate potential acquisition
opportunities. The focus is finding
businesses that will enhance our
customer proposition in automation
and packaging solutions, by extending
our product range and our access
to a broader range of customers in
our target markets, adding 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.
Purpose and sustainability
The senior leadership team developed
a purpose statement for Mpac:
‘To create automation ecosystems
that enhance manufacturing,
to help businesses adapt and
grow. Advancing the world with
manufacturing solutions that make a
real difference’.
This statement, together with our
sustainability vision, where 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, will form an integral part
of our strategy in the future. Mpac’s
evolving innovative solutions 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 annual
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 and Service, and across
three regions; Americas, EMEA
and Asia.
Revenue by region was split as follows;
Americas £46.7m (2019: £56.8m),
EMEA £31.3m (2019: £24.8m) and
Asia £5.7m (2019: £7.2m).
Revenue by sector was split as
follows: food and beverage £34.8m
(2019: £19.8m), healthcare £45.0m
(2019: £66.1m) and pharmaceutical
£3.9m (2019: £2.9m).
Individual OE contracts, and to
a lesser extent in 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.
Original Equipment
OE order intake of £62.4m (2019:
£66.2m) was down 6% compared
with the prior year (18% lower on a
like-for-like basis). OE revenues of
£64.1m (2019: £69.4m) were down 8%
compared with the prior year (12% on
a like-for-like basis).
Mpac’s focus on the Covid-19 resilient
pharmaceutical, healthcare and food
and beverage sectors continued to drive
our success, with a strong performance
in the food and beverage sector and
growth over 2019 in EMEA regions.
Revenue generated in the Americas
was £36.2m (2019: £45.8m). In the prior
year Americas revenue included the
impact of a one-off repeat line order
received in 2018 from a customer in
the healthcare sector. Order intake
and revenue in the region in 2020 was
generated from a more diverse and
sustainable customer base.
EMEA revenue in the period was
£23.7m (2019: £17.6m). Revenue in
the region is generated by our
Lambert and Langen product ranges,
which reported growth over the
prior year.
Asia revenue, predominantly
associated with orders from
customers in the food and beverage
sector, was £4.2m (2019: £6.0m). The
region was the first to be impacted
by the pandemic and retained travel
restrictions for the majority of the
calendar year, reducing opportunities
for business development.
Overall order prospects remain
strong, especially from customers
in the healthcare sector, and activity
levels across the OE business
remain high and the business is well
positioned moving into 2021.
Service
Order intake for the Service division was
broadly unchanged in 2020 at £21.5m
(2019: £22.6m). Growth in order intake
in the EMEA region offset a reduction in
order intake in the Americas.
Revenue in 2020 of £19.6m, was
up £0.2m on the prior year, again
driven by growth in EMEA. As with
the trend for OE, Service revenue in
the Americas in 2019 benefited from
activity with one large customer in
the healthcare sector whereas 2020
revenue has been generated from a
diverse customer base.
Americas revenue in the year was
£10.5m compared to £11.0m in 2019.
EMEA revenue in the year was £7.6m,
up £0.4m (2019: £7.2m). Asia revenue
in the year was £1.5m (2019: £1.2m).
Coronavirus
Since the outbreak of the pandemic
and throughout the year, the priority
for Mpac was to secure the health,
safety and wellbeing of our employees
while continuing to provide essential
support for our customers.
The implementation of global travel
restrictions had an impact on the
“ 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%.”
21 Corporate governance40 Financial statements
timing of closing of new OE orders,
on project execution and on-site
service revenue generation. However,
this impact has been partially
mitigated through the ingenuity of
our employees in the use of digital
technology which contributed to
Service revenue growth over the
prior year. Throughout the crisis we
continued to secure new orders and
no orders were cancelled as a result
of the pandemic.
It continues to be difficult to predict
the length and depth of the impact
of the pandemic and therefore
management continue to critically
appraise discretionary spend and
investment plans, while seeking to
protect our talented workforce and
being careful not to compromise
the long-term prospects of the
Group. Early in the pandemic, a ‘Fast
Recovery’ plan was implemented
which helped to ensure that Mpac was
well positioned to take advantage of
opportunities when the market returns
to pre-pandemic levels of activity.
This plan included the launch of a
new website, virtual exhibitions for
customers to demonstrate the range
of newly developed products and
offering customers digital solutions
for remote machine acceptance and
servicing. Cash preservation remained
our primary focus, which helped to
fund the acquisition of Switchback
and to deliver year end cash of
£15.5m, significantly above earlier
management expectations.
Looking forward, we have identified
three risks associated with the
pandemic and with the emergence
of new variants of the virus for which
we believe we have mitigations in
place. First is the risk associated
with weakening customer confidence
leading to delayed OE order intake.
This is mitigated by our presence
in resilient sectors, across a wide
geographic range and a diverse
customer base. The second risk
identified is an outbreak of infection of
the virus at a Group facility, resulting
in production delays while the facility
is deep cleaned and employees
quarantined. Our strict employee
and visitor monitoring protocols
alongside social distancing and
cleaning practices provide confidence
that the impact is sufficiently
mitigated and, due to the nature of
our business, project execution status
can be recovered. The third risk is a
disruption to our supply chain with
demand exceeding supply, coupled
with disruption to transportation.
Our global supply chain strategy
ensures secure alternative means
of supply have been established
for all critical parts.
The Board of Mpac continues to
monitor the situation carefully
across our customer, supplier, and
employee base.
Strategic update
Our strategy focuses on three key
initiatives to drive growth:
Going for Growth – Offering
customers comprehensive
"Automation Ecosystems”
solutions in our target markets.
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 automation and
packaging machinery solutions from
our extensive portfolio of engineered
modules. In 2019, at the ‘mid-point’
of the strategic period, the objectives
were validated with the support of
a third-party assessment of our
approach. At the time, the overall
growth targets were considered to
be accessible and, underpinned by
the execution of our technology and
innovation roadmap, were expected to
accelerate progress in achieving our
strategic aims in the growth sectors
of pharmaceutical, healthcare and
food and beverage. While the impact
from the spread of Covid-19 has
resulted in a pause to the previous
growth trajectory, the medium-term
fundamentals of the markets in which
we operate remain valid.
The acquisition of Switchback adds
both immediate opportunities for
commercial synergies and provides
the Group with a facility in the US from
which Mpac can leverage the Lambert,
Langen and Switchback product range
to local customers. The Switchback
and Lambert acquisitions provide
opportunities 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. During
2020 we recruited a Chief Commercial
Officer to lead this process on a global
basis. Deployment of our commercial
excellence programme to our sales
team will assist in delivering the
commercial synergies and further
training modules aimed at increasing
our win ratio and expanding our
customer base through our
geographic reach.
The Group has undertaken a review
of our market approach and digital
platform customer proposition and as
a result, Mpac launched a new Group
branded website (www.mpac-group.
com) and aligned its commercial
approach to the wider Mpac brand
websites. Further investment in our
online presence will continue in 2021.
Resources have also been deployed
into social media platforms, resulting
in a significant uptick in followers
and lead generation.
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“ Despite the challenges of 2020, we continued
to make significant progress in the execution
of our long-term strategy, and we remain
focused on the growth sectors in which the
Group currently operates.”
40 Financial statements21 Corporate governance
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Innovation remains the key to long
term sustainable growth. During the
year we developed and launched a
full-line solution for automation and
packaging in the healthcare sector,
which is already generating orders.
In the food and beverage sector we
developed equipment to expand
our end of line packaging offering,
alongside innovations focused 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
effectiveness. This requirement
increased during the pandemic as
the need for equipment to run with
less user intervention became more
critical. 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.
In 2020 and due to the pandemic,
the requirement from customers for
digital technology and remote support
offerings increased significantly
and Mpac was able to address this
requirement and offer solutions for
customers which ensured that any
lost ‘on site’ Service revenues were
mitigated with alternative remote
revenue streams. Investment in
enabling technologies to facilitate
remote service support for our
customers ensured that Mpac was
well positioned to respond and adapt
quickly to the pandemic.
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 increased
Service revenue.
Growth of our Service business
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 the exception.
In October 2020, we completed
the first significant milestone of
our project to harmonise our global
Enterprise Resource Planning (“ERP”)
landscape and to leverage the work
previously completed in deploying
common engineering design
platforms to our manufacturing sites
with the successful deployment at our
facility in the Netherlands. This was
followed by deployment to our facility
in Canada in early 2021.
Mpac business model 'One Mpac’
We have operations around the world
and industry-leading technologies.
None of that is possible, of course,
without the abilities 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,
while 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.
Outlook
Despite the challenges of 2020,
we continued to make significant
progress in the execution of our
strategy, and we remain well
positioned, serving the Covid-19
resilient end markets with long-term
growth potential. The pandemic
will take time to be brought under
control and while this process
continues investment decisions
will inevitably come under more
scrutiny as businesses assess the
economic impact.
The prior investments in innovation
and operational excellence combined
with the group’s agility to adapt
ensures we are well placed to
continue our positive progress.
The Group has both the financial
and managerial resource available
to continue to develop the business,
with the prime focus being on organic
growth, leveraged with our global
manufacturing and service reach and
the continued development of new
technology and products alongside
an expanded Service offering to our
customers. We continue to evaluate
potential complementary acquisition
opportunities.
Our rich history of innovative
packaging machinery and automation
solutions align well with customer
demand and we are in an enviable
position to serve our customers with
efficient, connected, and reliable
solutions, delivered via our ‘One Mpac’
business model.
We entered 2021 with a stronger order
book compared to the previous year
and have been successful in further
extending the diversity of customers
and product ranges. 2021 has started
well across all regions and the Group’s
future prospects remain positive.
Tony Steels
Chief Executive
29 March 2021
21 Corporate governance40 Financial statements
“ At the start of the
pandemic we introduced
cost saving and liquidity
management measures
to maximise our resilience
during the crisis and
increase our competitive
advantage when we
emerge from it.“
Revenue and operating results
Group revenue in the year was
£83.7m (2019: £88.8m). Revenue
in the Original Equipment ("OE")
division was £64.1m (2019: £69.4m)
and revenue in the Service division
was £19.6m (2019: £19.4m). Gross
profit was £24.3m (2019: £26.0m)
and underlying selling, distribution
and administration costs were £17.8m
(2019: £18.3m).
Underlying operating profit was
£6.5m (2019: £7.7m). Underlying profit
after tax was £6.3m (2019: £7.8m)
and statutory profit for the period was
£3.3m (2019: £5.9m).
Non-underlying items
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 which were primarily
focused on reshaping and integrating
the UK operations into one facility
with the aim of improving operational
efficiency and reducing overheads.
Interest and taxation
Net finance income was £nil (2019:
£0.1m). Tax on underlying profit before
tax was £nil (2019: £0.3m credit) due
to utilisation of unrecognised deferred
tax balances. The tax credit on the
Group’s profit before tax was £0.4m
(2019: £0.5m).
Dividends
Having considered the trading results
for 2020 and the opportunities for
investment in the growth of the
Group, together with the continued
uncertainty surrounding the impact of
the pandemic, the Board has decided
that it is not appropriate to pay a
final dividend. No interim dividend
was paid in 2020. Future dividend
payments will be considered by the
Board in the context of 2021 trading
performance and when the Board
believes it is prudent to do so.
Cash, treasury and funding activities
Cash at the end of the year was
£15.5m (2019: £18.9m). Net cash
inflow before reorganisation was
£12.8m (2019: £5.1m), after a
decrease in working capital of £7.5m
(2019: £2.1m increase) and defined
benefit pension payments of £3.0m
(2019: £2.9m). Reorganisation and
acquisition costs of £0.9m (2019:
£1.0m) were paid in the year. Net
taxation payments were £0.7m
(2019: £1.0m received). Capital
expenditure on property, plant and
equipment was £1.2m (2019: £1.4m),
capital expenditure on assets under
construction was £nil (2019: £0.6m)
and capitalised product development
expenditure was £1.8m (2019: £0.3m).
£83.7m
Revenue
7.8%
Underlying operating
return on sales
£6.5m
Underlying profit before tax
31.4p
Underlying EPS
16.3p
Basic EPS
Mpac Group plc
Annual Report & Accounts 2020
15
Financial
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40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
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Financial
review
continued
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The acquisition of Switchback
resulted in an immediate net
cash outflow of £9.8m. Deferred
consideration of up to £1.1m is
expected to fall due in equal sums
over the next two years. It is pleasing
to report that the acquired business
has performed well in 2021 and at a
run-rate ahead of the criteria required
for full payment of the deferred
consideration.
The Group entered into a three-year
funding agreement with HSBC in
2019, which provided 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.
The risk associated with the pandemic
and the spread of Covid-19 was the
primary new significant risk that the
Group is exposed to. The mitigation
steps associated with identified risks
are shown on pages 18 to 20. There
were no other 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 contracts) solely for
the purpose of minimising currency
exposures on sales or purchases in
other than the functional currencies
of its various operations.
Reconciliation of underlying profit before tax to profit/(loss) before tax
Underlying profit before tax
Non-underlying items
Defined benefit pension scheme – past service cost GMP equalisation
Defined benefit pension scheme – US pension past service gain
Defined benefit pension scheme – other costs and interest
Reorganisation costs
Acquired intangible asset amortisation – Lambert
Acquisition costs and acquired intangible asset amortisation – Switchback
Provision in respect of discontinued operation
Non-underlying items total
Profit before tax
2020
£m
6.3
(0.2)
–
(0.7)
(0.5)
(1.4)
(0.6)
–
(3.4)
2.9
2019
£m
7.5
–
1.1
(0.8)
(0.3)
(1.9)
–
(0.2)
(2.1)
5.4
Revenue (£m)
Underlying profit before tax (£m)
100
80
60
40
20
0
10
5
0
-5
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Underlying operating return on sales (%)
Underlying EPS (p)
10
5
0
-5
2016
2017
2018
2019
2020
40
30
20
10
0
-10
2016
2017
2018
2019
2020
“ The acquisition of Switchback 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.”
21 Corporate governance40 Financial statements
Prior year adjustments
Following an internal review of
Mpac’s compliance with IFRS 15 and
the FRC’s third thematic review of
IFRS 15, published 24 September
2020, the Group has restated certain
balances previously reported, in
accordance with IAS 8, to align the
treatment of contract assets, contract
liabilities, contract fulfilment assets
and work in progress recognised in
relation to contracts, more closely
to the demands of IFRS 15. These
balances do not change any of the
key metrics used by the Group, with
gross profit, operating profit, profit
before and after tax, earnings per
share, net current assets and
retained earnings remaining
unchanged. These adjustments do
not affect the future anticipated
performance of the Group.
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 2020
and was based on the information
used for the funding valuation work
as at 30 June 2018, updated to reflect
both conditions at the 2020 year end
and the specific requirements of
IAS 19. The smaller US defined
benefit schemes were valued as at
31 December 2020, using actuarial
data as of 1 January 2020, 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 £14.0m (2019:
£20.4m), which is included within
the Group’s and Company’s assets.
The value of the scheme’s assets at
31 December 2020 was £440.9m
(2019: £423.6m) and the value of the
scheme’s liabilities was £426.9m
(2019: £403.2m). 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 £3.0m
(2019: £3.1m), with total assets of
£10.1m (2019: £10.4m).
During the year, the Company made
payments to the UK defined benefit
scheme of £1.9m (2019: £1.9m) in
respect of the deficit recovery plan.
A contribution of £0.8m (2019: £nil),
in accordance with the profit sharing
arrangement in the schedule of
contributions, was also paid. In 2019
£0.1m was paid following the receipt
of proceeds from the disposal of
the I&TM business, being 10% of net
proceeds. Payments of £0.3m (2019:
£0.9m) 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 and 2
months). Further details are shown
in note 24.
Mpac Group plc
Annual Report & Accounts 2020
17
Equity
Group equity at 31 December 2020
was £44.4m (2019: £47.5m). The
movement arises mainly from the
profit for the period of £3.3m, a net
actuarial loss in respect of the Group’s
defined benefit pension schemes of
£6.6m and currency translation losses
on foreign currency net investments
of £0.2m, all figures are stated net of
tax where applicable.
Will Wilkins
Group Finance Director
29 March 2021
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financed, remains bank debt free and has
access to a £10m secured committed revolving
facility which remains undrawn.”
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
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.
18
Risk
Covid-19
Mitigation
2020 Movement
Principal
risks and
uncertainties
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The Group has identified three categories of risk
associated with the initial spread of Covid-19
and the emergence of new variants from the
virus. Firstly, the risk associated with weakening
customer confidence and prolonged investment
decision making driven by wider economic
uncertainty which could result either in projects
being cancelled or delayed. The second element
is the risk of supply chain disruption with demand
for key components exceeding supply coupled
with disruption to transportation. Finally, the risk of
an outbreak at a Group facility which could result
in a production delay whilst the facility was deep
cleaned, and employees were quarantined or are
recovering from illness. The consequences being
that the Group operates at lower productivity
levels during the transition phase.
The Group implemented a series of measures to preserve cash,
reduce discretionary spend and to focus on digital marketing and
innovation so as to provide a shield from the worst commercial
and financial impact of the pandemic. The geographic diversity of
the customer base, coupled with supplying the Covid-19 resilient
markets of healthcare, pharmaceutical and food and beverage
provide a mitigation to the impact from the pandemic.
The Group’s supply chain has been established to ensure there
are several options for all critical parts. The global supply chain
includes a blend of local suppliers alongside low-cost suppliers
to provide flexibility.
The Group continues to focus on protecting our employees' health
and wellbeing by implementing site testing, ensuring appropriate
social distancing regimes are in place and increased hygiene
routines at our plants. This, alongside an operational footprint
established with common engineering and project management
platforms, allows for project execution to be relocated in the event
of resource constraints or Group employees being unavailable to
work due to the pandemic.
Significant increase
The impact of the pandemic is mitigated,
primarily due to the markets served and the
wider geographical nature of our customer base.
However, during 2020 the risk has increased
significantly from both the spread of the virus
and the wider economic impact on customers
investment decision making and, more recently,
from the emergence of new variants which are
either more transmittable or resistant to vaccines.
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 trade disruption
The impact on the Group from the UK leaving the
EU and entering a post-transition trade agreement
is limited to potential disruption of the flow of trade
at ports of entry between the Mpac business in
Tadcaster and customers within the EU, and to a
lesser extent, on trade from the Mpac EU-based
entity and customers within the UK.
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.
The usual market cycles have been disrupted by the pandemic,
with shifts in sector demand and new opportunities being
accelerated. Mpac has benefitted from these disruptions, with
the investment in flexible, connected machinery having been
rapidly applied to new applications as required.
Increasing
The recent events showed that our customers and
suppliers are less affected by economic cycles
than most and the Group has the ability to flex to
the demands of the customer base.
Trade disruption risk is partially mitigated by matching the
locations of customers and production within the Mpac Langen
business and flexible production facilities across three continents,
along with limited reliance upon the UK market.
Specific actions were taken prior to the year end to minimise
any disruption to the supply of parts into the UK, including the
acceleration of delivery schedules and ensuring that, as far as
possible, the UK sites could service all aspects of the UK installed
machine fleet without the physical presence of non-UK staff.
Decreasing
The late conclusion of the Brexit agreements and
the subsequent uncertainty regarding the flow
of goods through ports of entry increase the risk
of unexpected disruption to the Mpac UK and EU
operations. The risk is mitigated by a low volume of
consignments.
21 Corporate governance40 Financial statements
Risk
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 customers' products or
restrictions upon/changes to the methods of
packaging and distribution.
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 that may face a higher degree of political
risk than others.
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.
Loss of a key facility
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.
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.
Mitigation
2020 Movement
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.
Unchanged
The demand for new packaging and innovation in
this area has continued unabated, to the benefit
of the Group.
Mpac Group plc
Annual Report & Accounts 2020
19
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 minimise packaging material usage whilst
maintaining the customer’s product in perfect condition.
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.
Customers – Decreasing
Suppliers – Increasing
The Group continues to enjoy a diverse, blue chip
customer base, so the impact of a loss of a single
customer is limited. The strength of our customer
base has both increased and diversified during
the year, so this risk has decreased. Suppliers,
however, are at greater risk of distress in difficult
or changing market conditions and positive steps
towards additional supplier diversification have
been taken.
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.
Unchanged
Strong contract management processes have
ensured that the Group has broadly maintained
profitability from the ‘as sold’ level through
to completion.
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 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.
Increasing
The Covid pandemic highlighted the potential for
one of the Group’s sites to be temporarily closed
as a result of external circumstances and this
risk continues whilst, although prudent measures
are being taken, there is no certainty that a local
outbreak could be contained whilst maintaining
operations. Appropriate contractual protections
are included in the Group’s contracts to mitigate
the direct financial cost of such an event.
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.
Increased
Volatility in the foreign exchange markets was
greater in 2020 than prior years, in particular in
relation to the US dollar, but the use of hedging
and matching of supply locations to customers
continues to minimise the impact.
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40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
Risk
IT Security
Mitigation
2020 Movement
20
Principal
risks and
uncertainties
continued
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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.
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. Cyber security user
training is employed as a final line of defence.
Unchanged
The Group maintains best practice in this area and
there has been no significant change in the period.
Availability of funding
The banking facilities in place prove insufficient
for the needs of the Group to meet its growth
objectives.
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 2020, the Group holds cash balances of
£15.5m. 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.
Decreasing
The facility remains in place and undrawn, with
the cash balance and operational cash flow
remaining positive in the period. The acquisition
of Switchback in the year was funded from
internal resources.
Global interest rate reductions and government
lending support have increased the availability of
further funding should it be required.
Liabilities of the Group sponsored
defined benefit pension schemes
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
£440.0m at 31 December 2020 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
£451.0m at 31 December 2020, 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 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 that impact
the valuations and funding requirements of the pension schemes
are outside the control of the Group.
Unchanged
The continued falls in the discount rate led to the
funding level of the scheme declining during the
year, though this was largely mitigated by the
investment strategy, but the scheme’s funding
levels were, for the third consecutive year, affected
by regulatory changes, in the current period by
the change in index linked bond returns (from RPI
to CPIH in 2030) and the results of the Lloyds
Banking Group Pensions Trustees Limited v Lloyds
Bank plc GMP equalisation rulings.
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.
Unchanged
No new material claims in the period.
The strategic report was approved by the board and signed by Andrew Kitchingman, Chairman, on 29 March 2021.
21 Corporate governance40 Financial statements
Mpac Group plc
Annual Report & Accounts 2020
21
Corporate
governance
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“ We are committed to
excellence in corporate
governance, and maintain
clear policies and practices
that promote good
corporate governance.”
As Chairman of the Company, it is my responsibility to lead the Board in
upholding high standards of corporate governance throughout the Group. It
therefore gives me pleasure to introduce our governance statement for 2020.
The QCA Corporate Governance Code 2018 (“QCA Code”)
The Board believes that sound governance is fundamental to good business
and has chosen to follow the QCA Code. During 2020, the Company has
complied with the 10 principles set out within the QCA Code, as shown on
page 23.
However, the Board 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, and 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
29 March 2021
Mpac Group plc
Annual Report & Accounts 2020
22
Chairman’s
corporate
governance
statement
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Andrew Kitchingman
Chairman
21 Corporate governance40 Financial statements
Deliver Growth
The Board has collective responsibility for setting the strategic aims and
objectives of the Group. Our strategy is articulated on pages 5 to 9 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.
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.
Build Trust
The Board will continue to monitor its application of the QCA Code and revise
its governance framework as appropriate as the Group evolves.
10. Communicate how the Company is governed and is performing by
maintaining a dialogue with shareholders and other relevant stakeholders.
Mpac Group plc
Annual Report & Accounts 2020
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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
Executive Leadership Team
Chief Executive
Group Finance Director
Chief Commercial Officer
Managing Director – Americas
President – Switchback
Site Director – Wijchen
Managing Director – Lambert
Innovation Director – Langen
Innovation Director – Lambert
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
Andrew Kitchingman FCA
Independent Non-Executive
Chairman
Dr Tony Steels
Chief Executive
Will Wilkins FCCA
Group Finance Director
Sara Fowler
Independent Non-Executive
Director
Doug Robertson
Independent Non-Executive
Director
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Board of
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Appointment:
Andrew Kitchingman joined
the Board on 11 May 2016 as
a Non-Executive Director and
was appointed Chairman of
the Board on 19 April 2018.
Committees:
Member of the Audit
Committee and the
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 and Lon-Pro
Holdings plc. Chairman of
British Board of Agrément
and a member of the
northern fundraising Board of
Marie Curie. He is a treasurer
of Ripon Cathedral.
Appointment:
Tony Steels joined the
Company and was appointed
to the Board as Chief
Executive on 6 June 2016.
Appointment:
Will Wilkins joined the
Mpac Group Board as
Group Finance Director
on 28 June 2018.
Appointment:
Sara Fowler joined the
Mpac Group Board
on 6 March 2020 as a
Non-Executive Director.
Appointment:
Doug Robertson joined
the Mpac Group Board
on 1 November 2018 as a
Non-Executive Director.
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
in 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
Skills and experience:
Tony previously held a
number of senior UK and
international management
positions in advanced
technology and capital
equipment industry, most
recently at Cytec Industries,
Umeco plc and Georg
Fischer AG. He has degrees
in both Engineering and
Management, together with
a PhD in business process
modelling, augmented with
over 30 years, industrial
management experience.
Key strengths:
Capital Equipment
Industry experience
of more than 20 years
Delivery of strategic
transformations and
sustainable profitable
growth
Extensive senior executive
international business
development
Selection and development
of high-performance
leadership teams
Committees:
Chair of the Remuneration
and Nomination Committee
and a member of the Audit
Committee.
Committees:
Chair 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.
Skills and experience:
Sara is a chartered accountant
and former partner with
Ernst & Young (“EY”), a
former practising member
of the Academy of Experts
and a CEDR accredited
mediator. She had been with
EY for 30 years, a partner for
17 years and senior partner for
EY Midlands for seven years
until 30 June 2017. She was on
the Board of the Compulsory
Purchase Association
and Chair of the CBI West
Midlands.
Key strengths:
Extensive HR experience
gained through her roles
at EY and as an accredited
mediator
Extensive financial
experience
Experience of developing
the skills agenda
Other commitments:
Chair of BHSF Group Limited,
Non-Executive Director of
St Basils and a Non-Executive
Director of EY Foundation.
21 Corporate governance40 Financial statements
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Corporate
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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 24. 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 30.
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.
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 11 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.
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.
Audit
Committee
4/4
1/1
3/3
4/4
–
–
Remuneration
and Nomination
Committee
5/5
2/2
3/3
5/5
–
–
Board
11/11
2/3
8/8
11/11
11/11
11/11
Andrew Kitchingman
John Davies1
Sara Fowler2
Doug Robertson
Tony Steels
Will Wilkins
1 Resigned from the Board on 5 March 2020
2 Appointed to the Board on 6 March 2020
40 Financial statements21 Corporate governance
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Corporate
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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;
implementation of strategy;
Covid-19 implications;
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, the majority of the meetings were held virtually, with no Board
meetings held overseas, due to the Covid-19 pandemic. This did not impact the
Directors from undertaking their duties and all Directors participated fully in
the meetings.
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 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 Company’s 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 2020 and the results
discussed by the Board. No substantive actions were taken as a result of the
Board evaluation.
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.
21 Corporate governance40 Financial statements
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.
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/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 they can contact
the Company via the Investors section of our website: www.mpac-group.com/
contact-us/.
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.
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 5 May 2021. The Notice of Annual
General Meeting is set out on pages 103 to 107 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 hard work during such a difficult
year faced with working under restricted conditions during the global pandemic.
Andrew Kitchingman
Chairman
29 March 2021
Mpac Group plc
Annual Report & Accounts 2020
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40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
Current Committee Members
Doug Robertson – Chairman
Andrew Kitchingman
Sara Fowler
28
Audit
Committee
report
The Committee’s members are the independent Non-Executive Directors,
whose biographies are set out on page 24. John Davies stepped down from the
Committee and Sara Fowler was appointed in his place on 6 March 2020.
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, Company Secretary, senior members 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.
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 2021 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 5 May 2021.
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
advisers 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 and it was agreed that the external
auditor will not undertake any non-audit work in the future.
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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.
External financial reporting
The committee reviews all areas of the Group’s external financial reporting. This
year, as a result of the Covid-19 pandemic, there has been particular focus on
judgemental areas such as: going concern; viability; and contract accounting.
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; and
review of the Committee’s Terms of Reference.
“ I am pleased to present
my report as Chairman
of the Audit Committee
for the year ended
31 December 2020.”
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.
The Committee reviewed the need for effectiveness and independence of the
internal audit functions and it was decided to outsource this to BDO LLP.
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.
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 2020 are set out on the following page.
Doug Robertson
Chairman of the Audit Committee
21 Corporate governance40 Financial statements
Significant issue/accounting
judgement identified
How it was addressed
Valuation of contracts
and provisioning
Pension accounting
Acquisition accounting,
including the valuation
of intangible assets
Going concern and
business disruption
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.
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 Group conducts extensive forecasting and
stress testing exercises for multiple scenarios,
including pandemics and Brexit, the results
of which are reviewed regularly by the Board,
including both realistic worst case scenarios
and tests to determine what would be required
to challenge to going concern basis.
Revenue recognition and compliance with IFRS 15
Mpac initiated a review of compliance with IFRS 15 and the FRC’s third thematic
review of IFRS 15, published 24 September 2020. Validated by the external
auditors, the review resulted in revisions to contract assets, contract liabilities,
contract fulfilment assets and work in progress recognised in relation to contracts
to align more closely to the demands of IFRS 15. The adjustment did not change
gross profit, operating profit, earnings per share, net current assets or any of the
key metrics used by the Group.
May
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.
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;
Mpac Group plc
Annual Report & Accounts 2020
29
there is an organisational structure with clearly defined lines of responsibility
and delegation of authority;
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.
Activities during the year
A summary of the Committee’s principal activities in 2020 is set out below.
Month
Principal activities
February
September
November
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Review the draft Annual Report and Accounts 2019 and draft
preliminary results announcement
Consideration of the re-appointment of Grant Thornton UK
LLP as external auditors
Review of results of internal control provided by BDO LLP
Review internal audit plan for the year
Review of the new whistleblowing arrangements
Review of the anti-bribery and corruption controls and training
Consideration of the effectiveness of the external audit
process
Review of the half-year results announcement
Review of external auditor’s memorandum
Review of Going Concern
Review of the principal risks and uncertainties
Internal Control review and update
Consideration of and approval of external audit fee quotation
for 2020
Review and approval of the external audit plan for 2020
Review and approval of a new non-audit work policy
Review of internal controls and risk management systems
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
29 March 2021
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
As Chair 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 Remuneration policy.
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The Remuneration report, on pages 31 to 32, details the amounts earned by
the Directors in respect of the period to 31 December 2020 and is subject to
an advisory shareholder vote. The Remuneration policy, on pages 32 to 35,
was approved by shareholders at the AGM on 6 May 2020 and is effective for
a period of three years from that date.
Remuneration and Nomination Committee
Current Committee Members
Sara Fowler – Chair
Andrew Kitchingman
Doug Robertson
The main items of business considered by the Committee during the year
focused on the following matters:
approving bonus payments to Executive Directors under the Management
Incentive Bonus Scheme 2019, following assessment of 2019 performance
against agreed objectives;
approving the performance criteria for the 2020 Management Incentive
Bonus Scheme;
recommendation of the draft Remuneration policy to be put to shareholders
for their approval at the 2020 AGM;
reviewed the 2019 performance against the LTIP performance target;
approval of Executive Directors’ and certain senior managers salary increases;
reviewed the objectives for the Executive Leadership Team;
succession planning;
The Committee’s members are the independent Non-Executive Directors,
whose biographies are set out on page 24. John Davies stepped down from the
Committee, and as its Chair, on 5 March 2020 and I was appointed a member
and Committee Chair in his place on 6 March 2020.
appointment of a new Non-Executive Director;
reviewed the Committee’s performance evaluation; and
reviewing the Committee’s Terms of Reference.
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 https://mpac-group.com. 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. 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.
Non-Executive Director recruitment and induction
Following the resignation of John Davies, I was appointed a new Non-Executive
Director on 6 March 2020.
The Committee led the process of identifying and recommending a new
independent Non-Executive Director and the process included the following
considerations:
identifying key attributes and skills of the desired candidate, taking into
account the current composition of the Board;
reviewing the shortlist and arranging interviews; and
providing the Board with a recommendation of the preferred candidate.
The Committee unanimously agreed to recommend my appointment as an
independent Non-Executive Director to the Board. The appointment was
approved with effect from 6 March 2020.
An induction process was put in place for me to meet the Executive Directors
and Executive Leadership Team, as well as access to past Board and
Committee papers and minutes. Given the restrictions imposed on travel by
Covid-19, I have visited the UK manufacturing site but have not yet had the
opportunity to visit the overseas sites. This will be done once international travel
restrictions have been eased.
“ I am pleased to
present our report
which is presented
in three sections: the
Remuneration and
Nomination Committee
report, the Remuneration
report and the
Remuneration policy.”
Sara Fowler
Chair of the Remuneration and
Nomination Committee
21 Corporate governance40 Financial statements
Diversity policy
The Group values diversity among its employees. In their day-to-day behaviour,
employees are expected not to discriminate in their relationships with each
other and with customers, suppliers and other business partners, and also to
encourage others to behave in a proper manner.
Employment and promotion opportunities will be offered on the basis of merit
regardless of race, colour, religion, age, sex, sexual orientation, disability and/
or national origin. The Group aims to ensure freedom from harassment and
bullying for all employees. It is the responsibility of each employee to act in non-
discriminatory ways at all times and if an employee sees an example of possible
discrimination, harassment or bullying taking place to bring those concerns to
the attention of the Group’s management.
Covid-19
Following the outbreak of the Covid-19 global pandemic, the Group participated
in the aid provided by the Governments in the jurisdictions in which the Group
operates, including the use of furlough schemes. No pay rises were awarded
during the year, except for the Americas where minimal rises were awarded to
key workers for retention purposes.
Annual Remuneration report
Directors’ total remuneration
The remuneration of the Executive Directors for the years 2020 and 2019 is
made up as follows:
Executive Directors’ remuneration as a single figure
Salary
£000
232
170
All
benefitsa
£000
19
19
Salary
£000
243
172
All
benefitsa
£000
31
18
Short-
term
incentive
schemeb
£000
108
75
Short-
term
incentive
schemeb
£000
293
215
Deferred
share
planc
£000
-
-
Deferred
share
planc
£000
48
45
Pensiond
£000
57
18
Total
£000
416
282
Pensiond
£000
56
17
Total
£000
671
467
2020
T Steels
W C Wilkins
2019
T Steels
W C Wilkins
a Benefits include:
Dr Steels and Mr Wilkins – car allowance payments, income replacement insurance and
private medical cover.
b The performance criteria for the short-term incentive scheme is described in the
Remuneration policy on page 32.
c 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.
d 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 are
the amounts contributed by the Company into the Company’s Personal Pension Plan on
his account.
The remuneration of the Non-Executive Directors for the years 2020 and 2019
is made up as follows:
Mpac Group plc
Annual Report & Accounts 2020
Non-Executive Directors’ remuneration as a single figure
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2020
All taxable
benefits
£000
–
–
Fees
£000
73
49
39
9
–
–
Total
£000
73
49
39
9
2019
All taxable
benefits
£000
–
–
Fees
£000
76
51
–
51
–
–
Total
£000
76
51
–
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A J Kitchingman
D G Robertson
S A Fowler
(appointed
6 March 2020)
J L Davies
(resigned
5 March 2020)
Directors’ interests in shares
The beneficial interests of Directors holding office at 31 December 2020 and
persons connected with them in the ordinary shares of the Company (excluding
share options) were as follows:
T Steels
A J Kitchingman
W C Wilkins
Held at
1 January
2020
18,650
13,133
-
Acquired in
the year
60,314
-
3,139
Held at
31 December
2020
78,964
13,133
3,139
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 2020 and 29 March 2021.
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
W C Wilkins
W C Wilkins
Date of award
1 May 2019
13 March 2018
1 May 2019
13 March 2018
Basis
of award
(% of salary)
20.0%
45.0%
30.0%
Number
of shares
35,409
58,811
33,407
7,713
Face value
at grant
(£000)
48
105
45
14
Mr Wilkins’ shares awarded on 13 March 2018 were awarded whilst he was an
employee, but not a Director, of the Company.
On 9 September 2020, Dr Steels exercised his 2017 award over 113,800 shares.
53,486 shares were sold to settle his tax liabilities and the balance of 60,314
shares was kept.
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.
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
Long Term Incentive Plan
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:
Remuneration policy
This part of the Remuneration and Nomination Committee’s report sets out the
Remuneration policy which was approved by shareholders at the Annual General
Meeting on 6 May 2020, and will be effective until no later than 6 May 2023.
32
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T Steels
W C Wilkins
Date of award
12 June 2019
12 June 2019
Face
value at
grant
(£000)
% of
salary
End of
three-year
performance
period
349
199
143% 31 Dec 2021
111% 31 Dec 2021
Number
of shares
210,000
120,000
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.
Sara Fowler
Chair of the Remuneration and Nomination Committee
29 March 2021
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.
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 (“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.
21 Corporate governance40 Financial statements
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.
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.
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.
Mpac Group plc
Annual Report & Accounts 2020
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Mpac Group plc
Annual Report & Accounts 2020
Future Remuneration policy table
The following table provides a summary of the key components of the remuneration package for Directors:
34
Salary
Purpose and link to strategy
Operation
Opportunity
Remuneration
and
Nomination
Committee
report
continued
This is a fixed element of the Executive Directors’ remuneration and is intended to be competitive and attract, retain
and motivate.
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.
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Benefits
Purpose and link to strategy
Operation
Opportunity
The benefits provided to the Executive Directors are intended to be competitive and attract and retain the right calibre
of candidate.
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.
Short-term incentive scheme
Purpose and link to strategy
Operation
Opportunity
Performance metrics
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.
Maximum of 120% of salary.
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.
21 Corporate governance40 Financial statements
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.
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.
Mpac Group plc
Annual Report & Accounts 2020
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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.
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
Reporting requirements
The following information is provided in other appropriate sections and is
included in this Directors’ report by reference and so is deemed to be part of it:
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.
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Information
Strategic report;
Corporate Governance:
Corporate Governance report;
Statement of Directors’
Responsibilities.
Reported
Pages 1 to 20.
Pages 21 to 39.
Directors' Remuneration Report
Future development and events
occurring after the balance sheet date
Pages 31 to 32.
Details can be found in the Strategic
Report on pages 1 to 20.
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 51 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 1 to 20. The Directors have considered the trading outlook,
including the preparation of profit, balance sheet and cash flow forecasts,
for the Group for a 24-month period ending 31 December 2022, its financial
resources including its cash resources and access to borrowings, as set out in
note 20 to the accounts on page 75, 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 77 to 82. These forecasts have been sensitised to cover
a range of credible downside scenarios, including the potential future impacts
of the pandemic and the conclusions remained unchanged. "Reverse stress
tests", where scenarios were run to determine the full extent of the Group's
resilience to downside risks, did not challenge the Group's conclusions under
any plausible scenario. Performance subsequent to the year end suggests the
forecasts remain appropriate. 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.
Directors
Biographical details of the Directors currently serving on the Board and their
dates of appointment are set out on page 24.
The Directors who served during the year are as follows:
Executive Directors
Tony Steels
Will Wilkins
Non-Executive Directors
Andrew Kitchingman
John Davies1
Sara Fowler2
Doug Robertson
1 Resigned from the Board on 5 March 2020
2 Appointed to the Board on 6 March 2020
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.
The Company maintained Directors’ and Officers’ Liability Insurance cover
throughout 2020. 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 2020 are
shown on page 31 in the Remuneration report. There are no shareholding
requirements for Directors.
Substantial shareholdings
At 23 March 2021, the Company had been notified, or is aware of, the following
interests in the issued ordinary share capital of the Company:
Schroder Investment Management Limited
Hargreaves Lansdown
Interactive Investor
Mr G V L Oury
Number of
ordinary shares
4,448,152
2,414,816
1,522,751
1,286,870
% of issued
ordinary shares
22.0%
12.0%
7.6%
6.4%
Results and dividends
The Group’s profit for the year was £3.3m (31 December 2019: £5.9m profit).
Having considered the trading results for 2020 and the opportunities for
investment in the growth of the Group, together with the continued uncertainty
surrounding the impact of the pandemic, the Board has decided that it is not
appropriate to pay a final dividend. An interim dividend was not paid during
2020 (2019: none).
Dividends on the 6% preference shares are due for payment on 30 June and
31 December in each year and in 2020 amounted to £0.1m (2019: £0.1m).
Research and development
Group policy is to retain and enhance its market position through the design
and development of specialist machinery 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 2020, net of third-party income, amounted to £1.7m (2019: £1.1m), of
which £1.1m (2019: £0.8m) was charged to the consolidated income statement
and £0.6m (2019: £0.3m) was capitalised and included in development costs.
Share capital
At 31 December 2020, the Company’s issued share capital was £5,042,885
divided into 20,171,540 ordinary shares of £0.25 each and 900,000 preference
shares of £1.00 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 2020
Annual General Meeting and this authority expires at the end of the 2021 AGM.
While this authority was not used during the year, 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.
21 Corporate governance40 Financial statements
Resolution 13, 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 5% 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 1 March 2021 it held 277,402 shares. The trustee has agreed
to waive all dividends and not to exercise voting rights in respect of shares
representing 1.4% of the issued share capital.
Information about the Company’s share capital is given in note 25 to the
accounts on page 83.
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.
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 5 May 2021. Notice of the
meeting can be found on pages 103 to 107.
Political donations
The Company made no political donations during the year to 31 December
2020.
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 to the accounts
on pages 84 to 90.
Procurement
The Group recognises and actively develops its relationships with its suppliers
and works closely with them to ensure that the relationships are productive
for all parties. The Group’s policy is to pay suppliers in line with its standard
terms except where alternative arrangements have been agreed in advance
with individual suppliers. The Group took the positive decision to maintain its
payment policies throughout the Covid-affected months of the period. The
Group does not follow any external procurement or payment code. The Group’s
trade creditor days outstanding at the year end were 46.1 .
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.
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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.
Ethics policy
The Group’s Ethics policy was reviewed, updated and re-issued in January
2020. 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.
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 the use of resources at sustainable levels.
Annual quantity of emissions
In accordance with the Companies Act, Mpac Group plc is committed to
reporting emissions for the Group on an annual basis as set out below.
Emissions are measured as tonnes of CO2 equivalent from the Group’s metered
purchases of electricity and fuel consumed in the activities of the Group for
which it is responsible; an intensity ratio has also been included. Additionally,
a measure of the CO2 emitted by travel in the Group has been included,
representing the emissions from Group-operated vehicles and from business-
related flights taken by the Group’s employees.
Purchased electricity
Combustion of fuel
Travel
KWH
intensity
(per
employee)a
2,254
3,837
MWH
1,032
1,757
CO2
intensity
(kg per
employee)a
526
705
525
CO2
(tonnes)
241
323
240
a Calculated using average number of employees in the year.
The Group has undertaken multiple actions in the year to improve energy
efficiency. The initial designs and ongoing evolution of the Group’s products
are designed to operate as energy efficiently as possible, delivering lower
operating costs to the customer and cutting waste at every opportunity,
especially in respect of energy use. The Group also sought to reduce internal
energy intensity, including that used to provide a productive work environment.
In particular, new buildings and refurbishments are reviewed for their energy
efficiency and the assessment of such projects are based upon on their whole
life costs, including energy use.
Section 172 of the Companies Act 2006
Disclosures related to s172 of the Companies Act 2006 require a specific
reference to how the Board promotes the success of the Company for the
benefit of its members as a whole.
40 Financial statements21 Corporate governance
Mpac Group plc
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Directors'
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continued
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Mpac Group plc takes decisions for the long term, and the Group aims to
uphold the highest standards of business 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 5) and this report sets out more detail on how we manage our
relationships with them.
Long-term consequences
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 stakeholders in
the long term.
Our corporate governance and management framework on pages 21 to 39,
together with the strategy update on page 7, provide more details.
Our people
The Board considers the interests of the Group’s employees when making
decisions and page 7 sets out how we involve employees.
Engaging and retaining the right skills across the Group is fundamental to the
Company’s strategy and to deliver the long-term success of the Company.
Key interests include:
Career development and training;
Engagement;
Health and safety; and
Wellbeing.
The Company conducts employee surveys, the results of which are fed back to
the Board for its review and engagement.
Covid-19
During the Covid-19 global pandemic, the Board’s priority has been the safety
and wellbeing of our colleagues. Given that we are a manufacturing business,
where we have been able to do so under local government regulations and
travel restrictions, it has been necessary to keep our manufacturing sites open.
Where possible, those colleagues who can work from home have been doing so.
We have taken all possible steps to keep our sites secure and undertake regular
testing for colleagues who work there. Those working on site wear personal
protective equipment, such as face coverings, when moving about the site, or
when in proximity to one another.
There have been a small number of instances where colleagues have tested
positive for the virus. In those circumstances, those working nearby the
affected colleague were tested and sent home while waiting for the results.
Those areas where the colleagues worked were deep cleaned and, where
necessary, the site itself was closed and deep cleaned as a whole before
re-opening. Those colleagues who were unable to work during those times
remained on full pay.
We did make use of the support provided by the Governments in those
jurisdictions in which we operate and we accessed circa £2.4m of Covid-19
support as a result. Access to government funds ensured that the Group was
able to support colleagues who were furloughed and to retain highly skilled, key
workers in order to provide on-going support to the essential healthcare, food
and beverage sectors.
Stakeholders, customers, suppliers and others
The operating review, on pages 10 to 14, discusses the need to foster the
business’s external relationships. Our procurement policy, including payments
to our creditors, is included on page 37. The Group took the positive decision
to maintain its payment policies throughout the Covid-19 affected months
of the year.
Where our service teams could not visit sites in person due to travel restrictions
imposed by Covid-19, we utilised a mixture of remote support and augmented
reality headsets to provide remote training and services for our clients, ensuring
that their production lines kept working.
Community and environment
The operating review, on pages 10 to 14, discusses these issues, along with the
environmental reporting within the Directors’ report on page 37.
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, reasonable
efforts are being made to minimise waste arising from its operations, to recycle
materials wherever possible and to consider methods of design or operation
that minimises waste. The Group aims both to reduce its costs by this means
and to promote good practice in use of resources at sustainable levels.
High standards of business conduct and reputation
The corporate governance report, on pages 25 to 27, with specific consideration
of business ethics on page 27. The Group’s revised Ethics policy, issued in
January 2020, can be found on the Group’s website at https://mpac-group.com/
group-policies/.
The need to act fairly between members
The Board, acting in good faith, always acts fairly between members when
making decision in the long-term interest of the Company. Details of the
Company’s mission and values can be found on page 5.
The Strategic report on pages 1 to 20 and Directors’ report on pages 21 to 39
are hereby approved by the Board of Directors.
By Order of the Board
Prism Cosec Limited
Company Secretary
29 March 2021
21 Corporate governance40 Financial statements
The Directors are responsible for preparing the Annual Report and the Group
and parent company financial statements in accordance with applicable law
and regulations.
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.
Mpac Group plc
Annual Report & Accounts 2020
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 accounting standards in
conformity with the requirements of the Companies Act 2006 and applicable
law and have elected to prepare the parent company financial statements on
the same basis.
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
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:
Tony Steels
Chief Executive
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable, relevant and reliable;
Will Wilkins
Group Finance Director
state whether they have been prepared in accordance with international
accounting standards;
29 March 2021
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.
39
Statement
of Directors’
responsibilities
in respect of the annual
report and the financial
statements
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Annual Report & Accounts 2020
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Independent Auditor’s report
to the members of Mpac Group plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Mpac Group plc (the ‘Parent
Company’ or ‘Company’) and its subsidiaries (the ‘Group’) for the year ended
31 December 2020 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
accounting standards in conformity with the requirements of the Companies
Act 2006 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 2020 and
of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006;
the Parent Company financial statements have been properly prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 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.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the Directors’ use
of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the Group’s and the Parent Company’s
ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our report to the related disclosures
in the financial statements or, if such disclosures are inadequate, to modify the
auditor’s opinion. Our conclusions are based on the audit evidence obtained up
to the date of our report. However, future events or conditions may cause the
Group or the Parent Company to cease to continue as a going concern.
A description of our evaluation of management’s assessment of the ability
to continue to adopt the going concern basis of accounting, and the key
observations arising with respect to that evaluation is included in the Key Audit
Matters section of our report.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the Group’s and the Parent Company’s ability to
continue as a going concern for a period of at least twelve months from when
the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the Directors’ use
of the going concern basis of accounting in the preparation of the financial
statements is appropriate.
The responsibilities of the Directors with respect to going concern are
described in the ‘Responsibilities of Directors for the financial statements’
section of this report.
Our approach to the audit
Overview of our audit approach
Materiality
Key audit
matters
Scoping
Overall materiality:
Group: £323,000, which represents approximately 5% of the Group’s
underlying profit before tax.
Parent Company: £242,000, which represents 1% of total assets, restricted
to 75% of Group materiality.
Key audit matters were identified as improper revenue recognition and
accounting for open contracts, the acquisition accounting for Switchback
Group, Inc. including accuracy of intangibles, the accuracy of defined
benefit pension liabilities and going concern.
Our auditor’s report for the year ended 31 December 2019 included no
key audit matters that have not been reported as key audit matters in our
current year’s report.
We performed an audit of the financial information using component
materiality (‘full scope audit’) on the financial statements of components
in the United Kingdom and the Netherlands and a Grant Thornton member
firm performed a full scope audit over the significant component in Canada.
We performed specified audit procedures on the financial information of
the components in the United States of America and performed analytical
procedures over the components in Singapore and Mpac Overseas Holdings
Limited in the UK.
We issued Group instructions to the component auditor in respect of their
full scope audit of the significant component.
The components where we performed full scope audit procedures represented
94% of consolidated revenue, 93% of consolidated total assets and 96% of
consolidated underlying profit before tax.
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
42
Independent Auditor’s report continued
Independent Auditor’s report continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
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.
Description
Audit response
Key audit
matters
Disclosures
Our results
In the graph below, we have presented the key audit matters and significant risks relevant to the audit.
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High
Low
Management
override of controls
Improper revenue
recognition and
accounting for
open contracts
Accuracy of
defined benefit
pension liabilities
Acquisition accounting for
Switchback Group, Inc.
including accuracy of
intangibles
Going concern
Accuracy of
hedge accounting
Low
Extent of management judgment
High
Key audit matter
Significant risk
21 Corporate governance40 Financial statements
Key audit matter – Group
How our scope addressed the matter – Group
Improper revenue recognition and accounting for open contracts
We identified improper revenue recognition and accounting for open contracts
as one of the most significant assessed risks of material misstatement due to
fraud or error.
A significant proportion of the revenue of the Group is derived through the sale
of machinery, recognised through long term contract accounting. Long term
contract accounting involves a high degree of subjectivity and is susceptible
to the risk of material misstatement. Contracts that remain open at the year
end are most susceptible to manipulation by management where there is an
incentive to meet performance targets.
We therefore identified improper revenue recognition and accounting for open
contracts as a significant risk, which was one of the most significant assessed
risks of material misstatements.
Relevant disclosures in the Annual Report and Accounts 2020
Financial statements: Note 1, Revenue and operating segments
In responding to the key audit matter, we performed the following audit
procedures:
assessing and testing revenue recognition policies to check these are
reasonable and applied correctly and consistently;
documenting our understanding of the Group’s processes and controls
over revenue recognition and performing walkthroughs on these controls to
confirm they are designed effectively;
for a sample of open contracts at the end of financial year 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’,
agreeing inputs to supporting documentation such as contract terms, supplier
invoices and timesheets and reperforming management’s calculations,
challenging management’s assumptions and assertions underpinning their
forecast for the contract’s future performance with reference to supporting
evidence, such as forecasts and post year end contract performance;
investigating the recoverability of contract assets and receivables by
reference to post year end collection;
assessing management’s ability to forecast by comparing the forecast margin
and labour hours at the inception of the contract against the current forecast
margin and corroborating any significant movement in margin; and
examining those contracts identified as being at risk of incurring future
losses during the remaining life of the contract, challenging management’s
assumptions and assertions relating to the future results of those contracts
by reference to supporting evidence, such as forecasts and post year end
contract performance.
Our results
Based on our audit work, we found that the assumptions and judgements used
in management’s application of the Group’s open contract accounting were
appropriate. We found no material errors in the underlying calculations for the
contract samples we have tested.
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Independent Auditor’s report continued
Independent Auditor’s report continued
Key audit matter – Group
How our scope addressed the matter – Group
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Acquisition accounting for Switchback Group, Inc. including accuracy of intangibles
We identified the acquisition accounting for Switchback Group, Inc. including
accuracy of intangibles as one of the most significant assessed risks of material
misstatement due to error.
During the year, the Group acquired the entire share capital of Switchback
Group, Inc for an initial purchase consideration of $13.3m with additional earn-
out consideration of $2m.
The impact of the acquisition is significant to the financial statements as well
requiring a high level of judgement in determining the appropriate accounting
treatment and high level of estimation in determining the fair value of the
consideration and certain assets acquired and liabilities assumed. We therefore
identified the acquisition accounting, including the accuracy of acquired
intangibles, as a significant risk, which was one of the most significant assessed
risks of material misstatement.
Goodwill of £7.9m and intangible assets of £2.6m were recognised as a result
of the business combination entered into.
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.
The intangible assets are valued using discounted cash flow forecasts, which
require judgement by management around key assumptions such as revenue
growth, discount rates, brand royalty rates, customer attrition 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 management,
particularly in respect to estimating the value in use of assets acquired.
Relevant disclosures in the Annual Report and Accounts 2020
Financial statements: note 12, Intangible assets and note 30, Business
combinations and deferred consideration
In responding to the key audit matter, we performed the following audit
procedures:
assessing whether the accounting policies adopted by the management are
in accordance with the requirements of IFRS 3 ‘Business Combinations’ and
IAS 38 ‘Intangible Assets’;
obtaining an understanding of the acquisition through review of legal
agreements and discussion with management;
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 the completeness and accuracy of the data used in the intangible
asset valuation by agreeing this data to pertinent supporting documentation
such as long-term growth forecasts;
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 check
whether these are in accordance with IAS 38 and IFRS 3.
Our results
Based on our audit work, we found that the assumptions and judgements
used in management’s accounting treatment of the Switchback Group, Inc.
acquisition were reasonable. We also note that the accuracy of goodwill and
intangibles is not materially misstated. We found no material errors in the
underlying calculations.
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How our scope addressed the matter – Group
Accuracy of the defined benefit pension liabilities
We identified accuracy of the gross defined benefit pension liabilities as one of
the most significant assessed risks of material misstatement due to error.
The Group operates defined benefit pension schemes in the UK and US that
provide benefits to a number of current and former employees. At 31 December
2020, the net defined benefit asset was £11.0 million. The total fair (bid) value
of scheme assets and present value of defined benefit obligations which form
the net defined benefit asset amount to £451.0 million and £440.0 million
respectively.
The valuation of the pension liabilities 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.
Relevant disclosures in the Annual Report and Accounts 2020
Financial statements: note 24, Employee benefits
Going concern
We identified Going concern as one of the most significant assessed risks of
material misstatement due to fraud or error.
Covid-19 is one of the most significant economic events currently faced by
the UK, and at the date of this report, its effects are subject to unprecedented
levels of uncertainty. This event could adversely impact the future trading
performance of the Group including, but not limited to, the following factors:
Decline in future orders
Issues with supply chain
Shutdown of operations
As such, this increases the extent of judgement and estimation uncertainty
associated with the Directors’ decision to adopt the going concern basis of
accounting in the preparation of the financial statements.
Relevant disclosures in the Annual Report and Accounts 2020
Financial statements: Accounting policies, Going concern
In responding to the key audit matter, we performed the following audit
procedures:
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;
testing the accuracy of underlying membership data used by the Group’s
actuary for the purpose of calculating the scheme liabilities; and
assessing disclosures made in the financial statements to determine
compliance with IAS 19.
Our results
Based on our audit work, we found the valuation methodologies to be balanced
and consistent with the expectation of our internal actuarial expert. 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.
In responding to the key audit matter, we performed the following audit
procedures:
obtaining management’s base case forecasts and calculations covering the
period to December 2022. We assessed how these forecasts were compiled
and challenged the accuracy of management’s forecasts, including the effects
arising from macro-economic uncertainties such as Brexit and Covid-19;
assessing the reliability of management’s forecasting by comparing the
accuracy of actual financial performance to forecast information obtained in
the prior period;
obtaining management’s most severe downside scenario to assess the
potential impact of Covid-19. We evaluated and challenged the assumptions
applied, primarily including a reduction in revenues and a reduction in margin
covering the period to December 2022. We also assessed and challenged
management on the cost-cutting assumptions applied in this scenario and
mitigating actions available to management. We corroborated management’s
explanations to relevant documentation;
performing sensitivity analysis on key inputs to determine the impact of
reasonably possible movements;
evaluating the results of the reverse stress tests performed by management;
assessing the adequacy of the going concern disclosures included within the
Accounting Policies of the Financial Statements.
Our results
Based on the procedures performed, we have identified no issues regarding
management’s assessment of the impact of Covid-19 on liquidity requirements,
order book and KPIs. We have nothing to report in addition to that stated in the
‘Conclusions relating to going concern’ section of our report.
40 Financial statements21 Corporate governance
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Independent Auditor’s report continued
Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of
uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report.
Materiality was determined as follows:
Materiality measure
Group
Parent Company
Materiality for financial statements as a whole We define materiality as the magnitude of misstatement in the financial statements that, individually or in the
aggregate, could reasonably be expected to influence the economic decisions of the users of these financial
statements. We use materiality in determining the nature, timing and extent of our audit work.
Materiality threshold
£323,000 which represents approximately 5% of
underlying Group profit before tax.
£242,000 which is 1% of total assets restricted to 75%
of Group materiality.
Significant judgements made by auditor in
determining the materiality
Significant revisions of materiality threshold
that was made as the audit progressed
In determining materiality, we considered this
benchmark as the most appropriate because this
is a key performance measure used by the Board
of Directors to report to investors of the financial
performance of the Group.
Materiality for the current year is lower than the level
that we determined for the year ended 31 December
2019 to reflect a decrease in the current period of the
Group’s underlying profit before tax.
We calculated materiality during the planning stage
of the audit. During the course of our audit, we
re-assessed initial materiality based on the Group’s
underlying profit before tax for the year ended
31 December 2020 and adjusted materiality for the
final position.
In determining materiality, we considered this
benchmark as the most appropriate as we consider
that it reflects the Company’s status as a non-trading
holding Company.
Materiality for the current year is lower than the level
that we determined for the year ended 31 December
2019 to reflect the Company’s decreased total assets
in the current period.
We calculated materiality during the planning stage
of the audit. During the course of our audit, we re-
assessed initial materiality based on Group’s total
assets for the year ended 31 December 2020
and adjusted materiality for the final position.
Performance materiality used to drive
the extent of our testing
We set performance materiality at an amount less than materiality for the financial statements as a whole
to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a whole.
Performance materiality threshold
£242,000 which is approximately 75% of financial
statement materiality.
£181,500 which is 75% of financial statement
materiality.
Significant judgements made by auditor in
determining the performance materiality
Significant revision of performance
materiality threshold that was made as
the audit progressed
In determining materiality, we selected a higher
percentage of performance materiality on the basis
that the Group has no prior going concern issues,
has stable business activities and few misstatements
(corrected and uncorrected) were identified in the
prior audit.
In determining materiality, we selected a higher
percentage of performance materiality on the basis
that the Company has no prior going concern issues,
has stable business activities, few misstatements
(corrected and uncorrected) were identified in the
prior audit.
We calculated performance materiality during the
planning stage of the audit and then during the
course of our audit, we re-assessed initial materiality
based on Group’s underlying profit before tax for
the year ended 31 December 2020 and adjusted
materiality for the final position.
We calculated performance materiality during the
planning stage of the audit and then during the course
of our audit, we re-assessed initial materiality based on
Group’s total assets for the year ended 31 December
2020 and adjusted materiality for the final position.
21 Corporate governance40 Financial statements
Materiality measure
Specific materiality
Group
Parent Company
We determine specific materiality for one or more particular classes of transactions, account balances or
disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole
could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
Specific materiality threshold
We determined a lower level of specific materiality for
the following areas:
We determined a lower level of specific materiality for
the following areas:
Communication of misstatements to the
audit committee
Threshold for communication
Directors’ remuneration
Directors’ remuneration
Related party transactions outside the normal
course of the business
Related party transactions outside the normal course
of the business
We determine a threshold for reporting unadjusted differences to the audit committee.
£16,150 and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
£12,100 and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements.
Overall materiality – Group
Overall materiality – Parent Company
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Underlying profit
before tax
£6,300,000
FSM
£323,000
5%
PM
£242,000
75%
TFPUM
£81,000
25%
Total assets
£100,900,000
FSM*
£242,000
0.2%
PM
£181,500
75%
TFPUM
£60,500
25%
FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements
Note: *FSM of the Parent Company is capped at 75% of Group FSM.
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Independent Auditor’s report continued
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the
Group and its environment, including Group wide controls, and assessing
the risk of material misstatement at a Group level. We have also obtained an
understanding of the financial reporting and consolidation process.
The components of the Group were evaluated by the Group audit team
based on a measure of materiality, considering each as a percentage of key
benchmarks including total assets, revenue and profit before tax (’PBT’),
to assess the significance of the component to determine the planned
audit response.
A full scope audit approach for all components evaluated as significant was
determined based on their relative materiality to the Group and our assessment
of the audit risk. For significant components requiring a full scope approach, we
or the component auditors evaluated the controls over the financial reporting
system identified as part of our risk assessment, reviewed the appropriateness
of the financial statement production process and addressed critical accounting
matters. For all significant risks identified, we documented our understanding
of management’s process for evaluating the applicable risk and assessed the
design effectiveness of relevant controls. We undertook substantive testing on
significant transactions and material account balances.
In order to address the audit risks identified during our planning procedures, the
Group audit team performed a full scope audit on the financial information of
the Company and of significant components in the United Kingdom and in the
Netherlands. A Grant Thornton member firm in the Netherlands performed the
full scope audit in prior year. Our component auditors performed a full scope
audit on the financial information of the significant component in Canada. We
also determined that specified procedures were to be carried out by the Group
audit team in respect of the component entities based in the United States of
America where significant risks of material misstatement had been identified.
The remaining operations of the Group were subjected to analytical procedures
with a focus on the audit risks identified above and the significance to the
Group’s balances.
The components that were subject to full scope audit procedures totalled
93% of total assets, 94% of consolidated revenues and 96% of consolidated
profit before tax whilst the component that was subject to specific scope
audit procedures and specified audit procedures totaled 6% of total assets,
4% of consolidated revenues and 3% of consolidated underlying profit
before tax.
Detailed audit instructions were issued to the component auditor of the
significant component in Canada. The instructions highlighted the significant
risks to be addressed through the audit procedures and detailed the information
that we required to be reported to the Group audit team. The Group audit team
conducted a review of the work performed by the component auditor, and
communicated with the component auditor throughout the planning, fieldwork
and concluding stages of the Group audit.
Audit approach
Full scope audit
Specified audit procedures
Analytical procedures
No. of
components
% coverage
Total assets
% coverage
Revenue
% coverage
PBT
4
2
2
93
6
1
94
4
2
96
3
1
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.
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.
21 Corporate governance40 Financial statements
Matter 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, 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.
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/auditors responsibilities. This description forms part of our auditor’s report.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities, including
fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk
that material misstatements in the financial statements may not be detected,
even though the audit is properly planned and performed in accordance with
the ISAs (UK).
The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below:
We enquired of management and the audit committee, concerning the
Group’s policies and procedures relating to:
• the identification, evaluation and compliance with laws and regulations;
• the detection and response to the risks of fraud; and
• the establishment of internal controls to mitigate risks related to fraud or
non-compliance with laws and regulations.
We enquired of management and the audit committee, whether they were
aware of any instances of non-compliance with laws and regulations or
whether they had any knowledge of actual, suspected or alleged fraud.
We corroborated the results of our enquires to relevant supporting
documentation.
We obtained an understanding of the legal and regulatory frameworks that
are applicable to the Group and determined that the most significant are
those that relate to the reporting frameworks (IFRS, Companies Act 2006,
the QCA Corporate Governance Code, AIM Rules for Companies), and the
relevant tax compliance regulations in the jurisdictions in which the
Company operates.
In addition, we concluded that there are certain significant laws and
regulations that may have an effect on the determination of the amounts
and disclosures in the financial statements and those laws and regulations
relating to health and safety, employee matters, environmental, and bribery
and corruption practices.
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Independent Auditor’s report continued
We assessed the appropriateness of the collective competence and
capabilities of the engagement team included consideration of the
engagement team’s:
• understanding of, and practical experience with audit engagements
of a similar nature and complexity through appropriate training and
participation;
In assessing the potential risks of material misstatement, we obtained an
understanding of:
the entity’s operations, including the nature of its revenue sources, products
and services and of its objectives and strategies to understand the classes of
transactions, account balances, expected financial statement disclosures and
business risks that may result in risks of material misstatement;
• knowledge of the industry in which the client operates;
the applicable statutory provisions;
• understanding of the legal and regulatory requirements specific to the
entity/regulated entity including:
– the provisions of the applicable legislation
– the regulators rules and related guidance, including guidance issued
by relevant authorities that interprets those rules
– the applicable statutory provisions
We reviewed the financial statement disclosures and testing to supporting
documentation to assess compliance with provisions of relevant laws and
regulations described as having a direct effect on the financial statements.
We performed analytical procedures to identify and unusual or unexpected
relationships that may indicate risks of material misstatement due to fraud.
We reviewed the minutes of meetings of those charged with governance.
We challenged assumptions and judgments made by management in its
significant accounting estimates, in particular in relation to the revenue
recognition for open contracts, impairment assessment on goodwill and
intangible assets, recoverability of deferred tax assets and accuracy of
defined benefit pension liabilities.
In addressing the risk of fraud through management override of controls,
we tested and evaluated the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business.
the entity’s control environment, including the policies and procedures
implemented to comply with the requirements of its regulator, including
the adequacy of the training to inform staff of the relevant legislation, rules
and other regulations of the regulator, the adequacy of procedures for
authorisation of transactions, internal review procedures over the entity’s
compliance with regulatory requirements, the authority of, and resources
available to the compliance officer and procedures to ensure that possible
breaches of requirements are appropriately investigated and reported.
For components at which audit procedures were performed, we requested the
component auditor to report to us instances of non-compliance with laws and
regulations that gave rise to a risk of material misstatement of the Group financial
statements. No such matters were identified by the component auditor.
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
29 March 2021
21 Corporate governance40 Financial statements
Consolidated income statement
for the year ended 31 December 2020
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Other operating expenses
Operating profit/(loss)
Financial income
Financial expenses
Net financing income/(expense)
Profit/(loss) before tax
Taxation
Profit/(loss) for the period
Earnings/(loss) per ordinary share
Basic
Diluted
Note
1
3
1,4
8
8
9
11
11
Underlying
£m
83.7
(59.4)
24.3
(6.8)
(9.9)
(1.1)
6.5
–
(0.2)
(0.2)
6.3
–
6.3
2020
Non-underlying
£m
–
–
–
–
(3.6)
–
(3.6)
0.3
(0.1)
0.2
(3.4)
0.4
(3.0)
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
2019
Non-underlying
£m
–
–
–
–
(2.4)
–
(2.4)
0.4
(0.1)
0.3
(2.1)
0.2
(1.9)
Total
£m
83.7
(59.4)
24.3
(6.8)
(13.5)
(1.1)
2.9
0.3
(0.3)
–
2.9
0.4
3.3
16.3p
16.2p
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
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Mpac Group plc
Annual Report & Accounts 2020
Statements of comprehensive income
for the year ended 31 December 2020
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
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
Other comprehensive (expense)/income for the period
Total comprehensive (expense)/income for the period
Note
24
9
26
Group
2020
£m
3.3
(8.8)
2.2
(6.6)
(0.5)
0.5
–
(6.6)
(3.3)
2019
£m
5.9
(0.3)
0.1
(0.2)
(0.1)
1.1
1.0
0.8
6.7
Company
2020
£m
(2.1)
(8.5)
2.2
(6.3)
–
–
–
(6.3)
(8.4)
2019
£m
0.2
(1.8)
0.1
(1.7)
–
0.1
0.1
(1.6)
(1.4)
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Statements of changes in equity
for the year ended 31 December 2020
Balance at 1 January 2019
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
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 2020
Note
24
24
25
Share
capital
£m
5.0
–
Share
premium
£m
26.0
–
Translation
reserve
£m
1.1
–
Group
Capital
redemption
reserve
£m
3.9
–
Hedging
reserve
£m
(0.8)
–
Retained
earnings
£m
5.4
5.9
–
–
–
–
–
5.0
–
–
–
–
–
–
5.0
–
–
–
–
–
26.0
–
–
–
–
–
–
26.0
(0.1)
(0.1)
–
–
–
1.0
–
(0.5)
(0.5)
–
–
–
0.5
–
–
–
–
–
3.9
–
–
–
–
–
–
3.9
1.1
1.1
–
–
–
0.3
–
0.5
0.5
–
–
–
0.8
(0.2)
5.7
0.3
(0.1)
0.2
11.3
3.3
(6.6)
(3.3)
0.4
(0.2)
0.2
8.2
Total
equity
£m
40.6
5.9
0.8
6.7
0.3
(0.1)
0.2
47.5
3.3
(6.6)
(3.3)
0.4
(0.2)
0.2
44.4
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Statements of changes in equity continued
Balance at 1 January 2019
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
Loss 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 2020
Note
24
24
25
Share
capital
£m
5.0
–
Share
premium
£m
26.0
–
Translation
reserve
£m
–
–
Company
Capital
redemption
reserve
£m
3.9
–
Hedging
reserve
£m
(0.1)
–
Retained
earnings
£m
29.2
0.2
–
–
–
–
–
5.0
–
–
–
–
–
–
5.0
–
–
–
–
–
26.0
–
–
–
–
–
–
26.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.9
–
–
–
–
–
–
3.9
0.1
0.1
–
–
–
–
–
–
–
–
–
–
–
(1.7)
(1.5)
0.3
(0.1)
0.2
27.9
(2.1)
(6.3)
(8.4)
0.4
(0.2)
0.2
19.7
Total
equity
£m
64.0
0.2
(1.6)
(1.4)
0.3
(0.1)
0.2
62.8
(2.1)
(6.3)
(8.4)
0.4
(0.2)
0.2
54.6
21 Corporate governance40 Financial statements
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Statements of financial position
as at 31 December 2020
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Right-of-use assets
Investments
Amounts owed by group undertakings
Employee benefits
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Cash and cash equivalents
Current liabilities
Lease liabilities
Trade and other payables
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
*see note 35, including 31 December 2018 statement of financial position.
Note
Group
2020
£m
2019 - Restated*
£m
Company
2020
£m
12
13
14
27
15
24
16
17
19
10
21
27
22
10
23
20
24
16
27
30
1
25
27.4
5.1
0.8
4.0
–
–
14.0
1.8
53.1
3.5
32.2
0.8
15.5
52.0
(0.8)
(41.1)
(0.4)
(1.4)
(43.7)
8.3
61.4
(0.9)
(3.0)
(6.8)
(3.4)
(2.9)
(17.0)
44.4
5.0
26.0
5.2
8.2
44.4
16.9
5.6
0.8
4.7
–
–
20.4
1.7
50.1
3.2
28.0
0.4
18.9
50.5
(0.9)
(30.9)
(0.7)
(1.3)
(33.8)
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
1.7
1.6
0.8
–
63.8
11.0
14.0
–
92.9
–
4.6
–
3.4
8.0
–
(38.1)
–
–
(38.1)
(30.1)
62.8
(0.9)
–
(4.9)
–
(2.4)
(8.2)
54.6
5.0
26.0
3.9
19.7
54.6
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
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 loss for the year was £2.1m (2019: £0.2m profit). These financial statements were approved by the Directors on
29 March 2021 and signed on their behalf by:
Tony Steels
Director
Registered number: 124855
Will Wilkins
Director
40 Financial statements21 Corporate governance
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Statements of cash flow
for the year ended 31 December 2020
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Operating activities
Operating profit/(loss)
Non-underlying items included in operating profit
Amortisation of internally developed intangible assets
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
Acquisition and reorganisation costs paid
Cash flows from operations
Taxation received/(paid)
Cash flows from/(used in) operating activities
Investing activities
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
Loans to subsidiaries
Payment of deferred consideration
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
2020
£m
2019 - Restated
£m
Company
2020
£m
2.9
3.6
0.3
1.1
0.4
(3.0)
0.2
(1.7)
(0.6)
4.1
0.1
5.4
12.8
(0.9)
11.9
(0.7)
11.2
0.2
(1.8)
–
(1.2)
–
(9.8)
–
(0.5)
(13.1)
(0.2)
(0.2)
(0.9)
(1.3)
(3.2)
18.9
(0.2)
15.5
5.3
2.4
0.2
1.9
0.3
(2.9)
(0.2)
(2.4)
4.7
2.8
0.4
(7.4)
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
(0.7)
0.9
0.1
0.1
0.4
(2.7)
–
–
(1.6)
11.7
–
–
8.2
(0.1)
8.1
0.1
8.2
0.1
(1.2)
–
(0.1)
–
–
(11.7)
(0.5)
(13.4)
(0.1)
(0.2)
–
(0.3)
(5.5)
8.9
–
3.4
2019
£m
(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
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Accounting policies
The significant accounting policies 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 accounting standards in conformity with the requirements of the
Companies Act 2006.
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 international
accounting standards 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 2019 financial statements. No new
accounting standards have been adopted in the year. A number of amendments
to accounting standards became effective during the period, but did not have
a material impact on the Group’s accounting policies.
The Group’s accounting policy for business combinations has also been
included following the acquisition of Lambert on 1 May 2019 and Switchback
on 9 September 2020.
IFRS 16 Leases
The Group leases various factories, equipment and cars. Rental contracts are
typically made for fixed periods of three to five 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.
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.
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.
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 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.
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Accounting policies continued
Accounting policies continued
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 10 to 14, 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 2022, 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 page 75, 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 77 to 82. 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.
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.
Intra-group balances and any unrealised gains and losses or income and
expenses arising from intra-group 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
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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
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.
Annual impairment reviews of goodwill are undertaken and are determined
from value in use calculations for each cash generating unit (CGU) using cash
flow projections based on the latest five-year plan approved by the Board. The
key assumptions for the value in use calculations are those regarding discount
rates, growth rates and expected changes to selling prices and direct costs
during the period and are consistent with external sources of information and
the Board's view of long term growth. Cash flows beyond the period of the
projections are extrapolated at growth rates which do not exceed those used in
the five-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 12% (2019: 10%).
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.
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.
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.
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Accounting policies continued
Accounting policies continued
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 and the only variable consideration
within Mpac contracts are 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.
With the exception of the supply of spare parts, installation services and certain
other service based contracts, all of Mpac's contracts are accounted for over
time. Supply of spare parts and installation services are recognised once the
supply or service is complete. Those recognised over time satisfy the third
criteria, above.
For each performance obligation to be recognised over time, the Group
recognises revenue using an input method, based on labour hours incurred
in the period. Labour hours have been selected as the most faithful depiction
of progress (and hence the transfer of goods and services) as this most
accurately reflects how Mpac provides value to the customer. Mpac delivers
innovative, efficient, and technically robust solutions, with the time allocated
to projects of Mpac engineers and technicians being the main driver to
bring projects to fruition. Material costs incurred are not considered to be
proportionate to the group’s progress in satisfying progress on contracts for
which revenue is recognised over time and therefore revenue in respect of
materials is recognised at an amount equal to the cost of good used to satisfy
the performance obligation. Material costs are recognised on contracts as
incurred. 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 labour hours 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 does not typically incur costs to obtain contracts that it would not
have incurred had the contracts not been awarded, such as sales commission.
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 IFRS 15.95 and are recognised as contract fulfilment
assets providing they:
are not within the scope of other standards;
relate directly to a contract (or an anticipated contract);
generate or enhance resources that will be used in satisfying performance
obligations in the future; and
are expected to be recovered from the customer.
Contract fulfilment assets are expensed at the point the corresponding revenue
is recognised.
Where assets have been recognised in respect of costs to fulfil a contract,
these are tested for impairment under IFRS 15.
Contract assets
A contract asset is a right to consideration conditional on something other than
the passage of time. Contract assets are tested for impairment under IFRS 9.
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.
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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.
Where contracts include more than one performance obligation, the transaction
price is allocated on a relative stand-alone selling price basis. The stand-alone
selling price is determined based on the observable price of a good or service
when the Group sells that good or service separately in similar circumstances
and to similar customers.
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. Inventories are stated at the lower of cost, including
all relevant overhead expenditure, and net realisable value.
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.
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.
Financial instruments
IFRS 9 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 acquisition 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 and other receivables and contract assets
The Group makes use of a simplified approach in accounting for trade and 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.
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.
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.
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Accounting policies continued
Accounting policies continued
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.
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.
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.
Errors
Where errors are discovered in respect of prior periods, adjustments are
made in accordance with IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors and revised statements are presented as required.
Where adjustments are made, the heading at the top of the note will state
‘Restated’ and a separate note detailing the nature, amount of correction and a
reconciliation between the balances provided. Where appropriate, a statement
of financial position for the opening position will be presented.
Government grants
Grants from the government are recognised at their fair value where there is a
reasonable assurance that the grant will be received and the group will comply
with all attached conditions. Government grants relating to costs are deferred
and recognised in profit or loss over the period necessary to match them
with the costs that they are intended to compensate. The Group benefitted
from a number of Covid-related grants in the course of 2020 including the
'Coronavirus Job Retention Scheme' in the UK and the equivalent schemes
in the countries in which it operates. No deferred amounts remained at
31 December 2020 (31 December 2019: £nil).
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.
21 Corporate governance40 Financial statements
Notes to the accounts
1. Revenue and operating segments
All revenue information is prepared in accordance with the Group accounting policies shown on pages 57 to 62.
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 12
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 10 to 14.
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
2020
£m
3.9
37.7
34.8
7.3
83.7
23.4
60.3
83.7
2019
£m
2.9
62.5
19.8
3.6
88.8
25.5
63.3
88.8
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.
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Notes to the accounts continued
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
Operating profit/(loss)
Net financing income
Profit/(loss) before tax
Americas
EMEA
Asia
Total
Unallocated net assets
Total net assets
OE
£m
36.2
23.7
4.2
64.1
15.3
2020
Service
£m
10.5
7.6
1.5
19.6
9.0
Segment
assets
28.2
30.7
0.5
59.4
2020
Segment
liabilities
(20.7)
(26.6)
(0.2)
(47.5)
Total
£m
46.7
31.3
5.7
83.7
24.3
(17.8)
6.5
(3.6)
2.9
–
2.9
Segment
net assets
7.5
4.1
0.3
11.9
32.5
44.4
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
Segment
assets
16.4
25.6
0.5
42.5
2019
Segment
liabilities
(12.4)
(23.0)
(0.2)
(35.6)
Total
£m
56.8
24.8
7.2
88.8
26.0
(18.3)
7.7
(2.4)
5.3
0.1
5.4
Segment
net assets
4.0
2.6
0.3
6.9
40.6
47.5
21 Corporate governance40 Financial statements
1. Revenue and operating segments continued
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 and USA
Rest of the world
By location of customer
2020
£m
9.7
19.2
2.8
34.5
12.3
5.2
83.7
2020
%
12
23
3
41
15
6
100
2019
£m
10.1
13.7
1.1
52.0
4.6
7.3
88.8
By location of assets
2020
£m
37.0
13.2
2.9
53.1
2019
%
11
16
1
59
5
8
100
2019
£m
42.0
3.3
3.1
48.4
2. Major customers
In 2020, the Group generated 24.5% (2019: 45.9%) of revenue from two customers. The most significant customer accounted for 14.8% (2019: 35.6%) 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)
2020
£m
1.1
2019
£m
0.8
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Notes to the accounts continued
4. Operating profit
Operating profit is arrived at after charging:
Amortisation of intangible assets
Depreciation of owned and leased assets
Cost of inventories recognised as an expense
Government grants
Audit fees paid to the current auditor (Company £0.1m; 2019: £0.1m)
Other fees paid to the current auditor
– tax compliance (Company £0.1m; 2019: £0.1m)
– tax advisory (Company £nil; 2019: £nil)
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
Deferred tax on pension scheme past service costs
Amortisation of deferred tax arising on acquisition
Total non-underlying expense after tax
2020
£m
1.9
1.1
38.3
2.4
0.3
0.1
–
2020
£m
(0.4)
(1.6)
–
(0.2)
(0.9)
–
(0.5)
(3.6)
(0.1)
0.3
(3.4)
0.1
0.3
(3.0)
2019
£m
1.1
0.9
40.0
–
0.2
0.1
–
2019
£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)
The Group uses alternative performance measures (“APMs”), 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 APMs 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. No Covid-related items are considered non-underlying.
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6. Employee information
The number of people employed by the Group was:
Americas
EMEA
Asia Pacific
Head Office (including Non-Executive Directors and pension scheme administrators)
Total
The number of people employed by the Company in EMEA was:
Employment costs were:
Wages and salaries
Social security costs
Employee benefits
– defined contribution schemes
– equity-settled share-based transactions
Period end
2020
132
316
13
15
476
Period end
2020
15
Group
2020
20.7
3.0
1.8
0.4
25.9
2019
89
355
12
15
471
2019
15
2019
19.6
3.0
1.3
0.4
24.3
Average
2020
103
327
13
15
458
Average
2020
15
Company
2020
1.3
0.3
0.2
0.4
2.2
2019
83
291
12
15
401
2019
51
2019
3.3
0.4
0.6
0.4
4.7
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 31), 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 30 to 35.
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
2020
£m
–
0.3
0.3
(0.1)
(0.1)
(0.1)
(0.3)
–
2019
£m
–
0.4
0.4
(0.1)
(0.1)
(0.1)
(0.3)
0.1
Net interest received on pension scheme balances and interest on deferred consideration is included in non-underlying items.
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Notes to the accounts continued
9. Taxation
Tax credit:
Current tax
Deferred tax
Total
Included within the total taxation is a tax credit of £0.4m (2019: £0.2m) 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% (2019: 19.00%)
Research & development tax credits
Deferred tax movements on acquired intangible asset amortisation
Deferred tax movements on pension payments
Change in recognised deferred tax assets
Change in unrecognised deferred tax assets
Foreign tax charged at higher rates than UK corporation tax rate
Total credit
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£m
0.6
(1.0)
(0.4)
2020
£m
2.9
0.6
(0.1)
–
–
(0.1)
(1.1)
0.3
(0.4)
2019
£m
(0.3)
(0.2)
(0.5)
2019
£m
5.4
1.0
(0.8)
(0.2)
0.5
–
(1.1)
0.1
(0.5)
The main rate of UK corporation tax is 19% 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 on items in other comprehensive (expense)/income
Arising from actuarial losses
2020
£m
2.2
2019
£m
0.1
10. Current tax assets and liabilities
Current tax assets of £0.8m (2019: £0.4m) and current tax liabilities of £0.4m (2019: £0.7m) for the Group, and current tax assets of £nil (2019: £nil) for the
Company, represent the amount of income taxes recoverable and payable in respect of current and prior periods.
21 Corporate governance40 Financial statements
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 £3.3m (2019: £5.9m) 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 £3.3m (2019: £5.9m) 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 £3.3m (2019: £5.9m). 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
2020
19,955,307
135,254
20,090,561
2019
19,968,000
178,256
20,146,256
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 31.4p (2019: 39.5p) in respect of underlying earnings per share and 31.2p (2019: 39.2p) 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
£6.3m (2019: £7.8m) which is calculated as follows:
Profit for the period
Non-underlying items (net of tax)
Underlying profit for the period
2020
£m
3.3
3.0
6.3
2019
£m
5.9
1.9
7.8
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Notes to the accounts continued
12. Intangible assets
Cost:
Balance at 1 January 2019
Additions
Disposals
Retranslation
Balance at 31 December 2019
Additions
Disposals
Reclassification
Retranslation
Balance at 31 December 2020
Amortisation and impairment losses:
Balance at 1 January 2019
Amortisation for the period
Disposals
Retranslation
Balance at 31 December 2019
Amortisation for the period
Disposals
Reclassification
Retranslation
Balance at 31 December 2020
Carrying amounts:
At 31 December 2019
At 31 December 2020
Group
Acquired
intangible
assets
£m
Product
develop-
ment
£m
Software
develop-
ment
£m
Assets
under
construction
£m
Goodwill
£m
–
5.7
–
–
5.7
7.9
–
–
(0.4)
13.2
–
–
–
–
–
–
–
–
–
–
–
10.5
–
–
10.5
2.6
–
–
–
13.1
–
0.9
–
–
0.9
1.6
–
–
–
2.5
5.7
13.2
9.6
10.6
4.0
0.3
–
(0.2)
4.1
0.6
–
–
0.1
4.8
3.0
0.2
–
(0.1)
3.1
0.2
–
–
0.1
3.4
1.0
1.4
–
–
–
–
–
1.2
–
1.6
–
2.8
–
–
–
–
–
0.1
–
0.5
–
0.6
–
2.2
–
0.6
–
–
0.6
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
Total
£m
4.0
17.1
–
(0.2)
20.9
12.3
–
1.0
(0.3)
33.9
3.0
1.1
–
(0.1)
4.0
1.9
–
0.5
0.1
6.5
16.9
27.4
Company
Product
develop-
ment
£m
Software
develop-
ment
£m
Assets
under
construction
£m
0.5
–
(0.5)
–
–
–
–
–
–
–
0.4
–
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.2
–
0.6
–
1.8
–
–
–
–
–
0.1
–
–
–
0.1
–
1.7
–
0.6
–
–
0.6
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
Total
£m
0.5
0.6
(0.5)
–
0.6
1.2
–
–
–
1.8
0.4
–
(0.4)
–
–
0.1
–
–
–
0.1
0.6
1.7
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.
The carrying amounts of goodwill are £5.7m in respect of Mpac Lambert (acquired in 2019) and £7.9m in respect of Switchback Group (acquired in 2020). The
Group tests goodwill at least semi-annually for impairment or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the goodwill have been determined based on value in use calculations, using cash flow projections from the Group's mid-range
plan. These assumptions have been prudently sensitised (as per Investments - note 15) to demonstrate that realistic changes do not generate a requirement for
impairment and the Group does not consider it probable that any reasonable changes to the key assumptions would result in an impairment to any of the goodwill
balances. Goodwill comprises intangible assets that do not qualify for separate recognition, in particular the existing workforce. None of the goodwill is expected to
be tax-deductible.
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13. Property, plant and equipment
Group
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
vehicles
£m
Cost:
Balance at 1 January 2019
Additions
Disposals
Retranslation
Balance at 31 December 2019
Additions
Disposals
Reclassification
Retranslation
Balance at 31 December 2020
Depreciation:
Balance at 1 January 2019
Charge for the period
Disposals
Retranslation
Balance at 31 December 2019
Additions
Disposals
Reclassification
Retranslation
Balance at 31 December 2020
Carrying amounts:
At 31 December 2019
At 31 December 2020
3.1
1.0
–
–
4.1
0.1
–
–
–
4.2
1.3
0.1
–
–
1.4
0.1
–
–
–
1.5
2.7
2.7
3.0
0.4
(0.4)
(0.1)
2.9
0.5
(0.3)
–
–
3.1
1.5
0.3
(0.2)
(0.1)
1.5
0.3
(0.2)
–
–
1.6
1.4
1.5
5.1
1.0
–
(0.2)
5.9
0.6
(0.4)
(1.0)
0.1
5.2
4.0
0.5
–
(0.1)
4.4
0.7
(0.3)
(0.5)
–
4.3
1.5
0.9
Company
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
vehicles
£m
2.6
–
–
–
2.6
–
–
–
–
2.6
0.9
0.1
–
–
1.0
0.1
–
–
–
1.1
1.6
1.5
0.3
–
(0.3)
–
–
–
–
–
–
–
0.3
–
(0.3)
–
–
–
–
–
–
–
–
–
1.2
0.1
(0.8)
–
0.5
0.1
(0.4)
–
–
0.2
1.0
–
(0.6)
–
0.4
–
(0.3)
–
–
0.1
0.1
0.1
Total
£m
11.2
2.4
(0.4)
(0.3)
12.9
1.2
(0.7)
(1.0)
0.1
12.5
6.8
0.9
(0.2)
(0.2)
7.3
1.1
(0.5)
(0.5)
–
7.4
5.6
5.1
Included within additions are the tangible assets acquired through business combinations, as set out in note 30.
14. Investment property
Balance at 1 January 2019 and 31 December 2019
Balance at 31 December 2020
Group
2020
£m
0.8
0.8
2019
£m
0.8
0.8
Company
2020
£m
0.8
0.8
Total
£m
4.1
0.1
(1.1)
–
3.1
0.1
(0.4)
–
–
2.8
2.2
0.1
(0.9)
–
1.4
0.1
(0.3)
–
–
1.2
1.7
1.6
2019
£m
0.8
0.8
Investment property is shown at cost. The fair value of the investment property at 31 December 2020 is £1.1m (2019: £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.
40 Financial statements21 Corporate governance
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Annual Report & Accounts 2020
Notes to the accounts continued
72
15. Investments
Cost of shares in subsidiaries
Balance at 1 January
Acquisition of investment
Balance at 31 December
The Company’s subsidiary undertakings are shown in note 33.
2020
£m
63.8
–
63.8
2019
£m
47.4
16.4
63.8
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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 entity using cash flow
projections based on the latest five-year plan approved by the Board. The key assumptions for the value in use calculations are those regarding discount rates,
growth rates and expected changes to selling prices and direct costs during the period and are consistent with external sources of information and the Board's
view of long term growth. Cash flows beyond the period of the projections are extrapolated at growth rates which do not exceed those used in the five-year plan.
The discount rates used vary by country between 8% and 11%, predominantly due to differences in the local tax position and risk free interest rates. No growth is
forecast beyond the five-year forecast period.
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, either individually or combined, 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
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
2020
£m
–
1.8
–
1.8
1.8
Assets
2020
£m
–
–
–
2019
£m
–
1.7
–
1.7
1.7
2019
£m
–
–
–
2020
£m
(4.9)
–
(1.9)
(6.8)
(6.8)
Liabilities
2020
£m
(4.9)
(4.9)
(4.9)
2019
£m
(7.2)
–
(1.6)
(8.8)
(8.8)
2019
£m
(7.2)
(7.2)
(7.2)
Net
2020
£m
(4.9)
1.8
(1.9)
(5.0)
(5.0)
Net
2020
£m
(4.9)
(4.9)
(4.9)
2019
£m
(7.2)
1.7
(1.6)
(7.1)
(7.1)
2019
£m
(7.2)
(7.2)
(7.2)
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.
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16. Deferred tax assets and liabilities continued
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 £5.3m of unrecognised deferred tax assets (2019: £5.8m) 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
Corporation tax losses
Investment tax credits
Acquired intangible assets
Balance at
1 January
2020
£m
(7.2)
0.4
1.3
(1.6)
(7.1)
Recognised in
profit or loss
£m
0.1
0.7
–
0.2
1.0
Investment tax
credits utilised
–
–
(0.6)
–
(0.6)
Recognised
in other
comprehensive
income/(expense)
£m
2.2
–
–
–
2.2
Recorded on
acquisition
£m
–
–
–
(0.5)
(0.5)
The brought forward tax losses balance at 1 January 2020 has been disaggregated between tax losses and investment tax credits.
Group
Employee benefits
Tax losses
Acquired intangible assets
Company
Employee benefits
Company
Employee benefits
Balance at
1 January
2019
£m
(7.3)
1.7
–
(5.6)
Recognised in
profit or loss
£m
–
–
0.2
0.2
Recognised
in other
comprehensive
income/(expense)
£m
0.1
–
–
0.1
Recorded on
acquisition
£m
–
–
(1.8)
(1.8)
Balance at
1 January
2020
£m
(7.2)
(7.2)
Balance at
1 January
2019
£m
(7.3)
(7.3)
Recognised in
profit or loss
£m
0.1
0.1
Recognised
in other
comprehensive
income/(expense)
£m
2.2
2.2
Recognised in
profit or loss
£m
–
–
Recognised
in other
comprehensive
income/(expense)
£m
0.1
0.1
Group
2020
£m
0.6
4.7
5.3
2019
£m
1.5
4.3
5.8
Balance at
31 December
2020
£m
(4.9)
1.1
0.7
(1.9)
(5.0)
Balance at
31 December
2019
£m
(7.2)
1.7
(1.6)
(7.1)
Balance at
31 December
2020
£m
(4.9)
(4.9)
Balance at
31 December
2019
£m
(7.2)
(7.2)
40 Financial statements21 Corporate governance
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Annual Report & Accounts 2020
74
Notes to the accounts continued
17. Inventories
Work in progress
Finished goods
Group
2020
£m
0.9
2.6
3.5
2019 - Restated
£m
1.1
2.1
3.2
Company
2020
£m
–
–
–
An amount of £0.1m (2019: £nil) has been charged in the year in respect of inventory write-downs.
18. Contract assets & liabilities; contract fulfilment assets
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers traded over time.
Receivables, which are included in ‘Trade and other receivables’
Contract assets
Contract liabilities
Group
2020
£m
6.8
8.5
(18.2)
2019 - Restated
£m
7.9
6.4
(11.7)
2019
£m
–
–
–
2019
£m
–
–
–
Company
2020
£m
–
–
–
Company
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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
Contract
Assets
–
–
(6.4)
8.5
Contract
Liabilities
Contract
Assets
Contract
Liabilities
11.7
(18.2)
–
–
–
–
–
–
–
–
–
–
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.
Contract fulfilment assets
These assets are recognised under paragraph 95 of IFRS 15 in respect of expenditure incurred which will satisfy future performance obligations. These were
previously included in work-in-progress.
Contract fulfilment assets
Group
2020
£m
1.0
2019 - Restated
£m
1.2
Company
2020
£m
–
2019
£m
–
21 Corporate governance40 Financial statements
19. Trade and other receivables
Current assets:
Contract assets and contract fulfilment assets - see note 18
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
2020
£m
2019 - restated
£m
Company
2020
£m
9.5
13.4
–
0.9
7.8
0.6
32.2
Group
2020
£m
0.9
0.9
7.6
16.0
–
0.4
3.7
0.3
28.0
2019
£m
0.9
0.9
–
–
3.2
0.1
0.6
0.7
4.6
Company
2020
£m
0.9
0.9
2019
£m
–
–
2.2
0.2
0.4
0.4
3.2
2019
£m
0.9
0.9
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 (2019: £0.1m).
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Notes to the accounts continued
21. Reconciliation of net cash flow to movement in net funds
Group
Company
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
Movement in lease liabilities under 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
22. Trade and other payables
Current liabilities:
Contract liabilities - see note 18
Trade payables
Amounts owed to Group undertakings
Other taxes and social security
Other payables
Accruals and deferred income
Foreign currency derivatives
2020
£m
(3.2)
(3.2)
(0.2)
(3.4)
13.2
0.6
10.4
15.5
(0.9)
(4.2)
10.4
2019
£m
(8.8)
(8.8)
(0.2)
(9.0)
27.0
(4.8)
13.2
18.9
(0.9)
(4.8)
13.2
2020
£m
(5.5)
(5.5)
–
(5.5)
8.0
–
2.5
3.4
(0.9)
–
2.5
Group
2020
£m
2019 - Restated
£m
Company
2020
£m
18.2
13.1
–
0.8
3.3
5.6
0.1
41.1
11.7
11.5
–
0.6
2.4
4.7
–
30.9
–
0.5
34.3
–
0.4
2.2
0.7
38.1
2019
£m
(8.5)
(8.5)
–
(8.5)
17.4
–
8.9
8.9
(0.9)
–
8.0
2019
£m
–
0.2
22.9
–
0.3
2.5
–
25.9
21 Corporate governance40 Financial statements
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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
2020
£m
1.3
1.2
(0.6)
(0.5)
1.4
2020
£m
–
0.1
(0.1)
–
–
2019
£m
1.0
0.8
(0.3)
(0.2)
1.3
2019
£m
0.2
0.1
(0.1)
(0.2)
–
Provisions are based on historical data and a weighting of all possible outcomes against their associated possibilities. Group 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.
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 three 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.
40 Financial statements21 Corporate governance
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Notes to the accounts continued
24. Employee benefits continued
The deficit recovery period from 30 June 2018 was estimated to be six years and one 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 (2019: £1.9m). A contribution of £0.8m (2019:£nil), in accordance with the profit sharing
arrangement in the schedule of contributions, was also paid. In 2019 £0.1m was paid following the receipt of proceeds from the disposal of the I&TM business,
being 10% of net proceeds.
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 2020. Scheme assets are stated at their
market value at 31 December 2020.
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 2020 using the projected unit credit method. The valuations under IAS 19 at 31 December 2020 have been
based on these actuarial valuations, updated for conditions existing at the year end.
Employer contributions of £0.3m (2019: £0.9m, including £0.6m 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)
2020
1.4%
2.4%
2.9%
2.4%
2.0%
2019
1.9%
2.2%
3.0%
2.2%
1.9%
USA
2020
2.1%
n/a
n/a
n/a
n/a
2019
3.0%
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 retirees currently aged 45 upon reaching age 65 – male
Future retirees currently aged 45 upon reaching age 65 – female
UK scheme
21.3 years
23.6 years
22.6 years
25.1 years
USA schemes
20.4 years
22.3 years
20.5 years
22.8 years
At 31 December 2020, the weighted average duration of the defined benefit obligation in the UK scheme was 15 years (2019: 15 years) and in the USA schemes
was 10 years (2019: 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 2020
0.1% change in discount rate
0.1% change in inflation rate
Change in life expectancy by one year on average
UK scheme
£6.4m
£3.0m
£19.6m
USA schemes
£0.1m
n/a
£0.5m
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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)
2020
£m
1.3
47.4
136.8
64.2
35.5
2.2
120.4
33.1
440.9
426.9
14.0
2019
£m
1.5
74.6
90.1
64.5
40.0
2.2
116.6
34.1
423.6
(403.2)
20.4
USA
Group
2020
£m
–
3.1
–
6.4
0.6
–
–
–
10.1
13.1
(3.0)
2019
£m
–
3.9
–
5.9
0.6
–
–
–
10.4
(13.5)
(3.1)
2020
£m
1.3
50.5
136.8
70.6
36.1
2.2
120.4
33.1
451.0
440.0
11.0
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)
2020
£m
0.2
(0.4)
0.8
0.6
2019
£m
–
(0.6)
0.9
0.3
USA
Group
2020
£m
–
0.1
0.1
0.2
2019
£m
(1.1)
0.2
0.3
(0.6)
2020
£m
0.2
(0.3)
0.9
0.8
2019
£m
1.5
78.5
90.1
70.4
40.6
2.2
116.6
34.1
434.0
(416.7)
17.3
2019
£m
(1.1)
(0.4)
1.2
(0.3)
Past service costs of £0.2m have been recognised in respect of the November 2020 ruling in relation to GMP equalisation.
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 £8.8m (2019: losses of £0.3m), comprising actuarial losses of £8.5m (2019: losses of
£1.8m) for the UK defined benefit pension scheme and actuarial losses of £0.3m (2019: gains of £1.5m) for the USA schemes, all figures before tax.
Actual return on scheme assets
The actual return on scheme assets were gains of £36.4m (2019: £47.2m), comprising gains of £35.4m (2019: £43.9m) for the UK defined benefit pension scheme
and gains of £1.0m (2019: gains of £3.3m) for the USA schemes, all figures before tax.
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
Notes to the accounts continued
80
24. Employee benefits continued
Reconciliation of the present value of defined benefit obligations
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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
Present value of defined benefit
obligations at 31 December
UK (Company)
2020
£m
403.2
0.2
7.5
0.9
38.5
(3.4)
(20.0)
–
2019
£m
377.7
–
9.9
(5.4)
46.4
(5.8)
(19.6)
–
426.9
403.2
USA
2020
£m
13.5
–
0.4
–
0.9
–
(1.2)
(0.5)
13.1
2019
£m
22.5
(1.1)
0.9
–
1.0
–
(9.1)
(0.7)
13.5
Group
2020
£m
416.7
0.2
7.9
0.9
39.4
(3.4)
(21.2)
(0.5)
440.0
At 31 December 2020, the pensioner population accounted for 54% (2019: 57%) of the UK scheme’s obligations and 87% (2019: 88%) of the USA
schemes’ obligations.
Reconciliation of the fair value of scheme assets
Fair value of scheme assets at 1 January
Interest income
Actuarial gains/(losses)
– return on scheme assets
Company contributions
Administration expenses
Benefit payments
Retranslation
Fair value of scheme assets at
31 December
UK (Company)
2020
£m
423.6
7.9
27.5
2.7
(0.8)
(20.0)
0.0
2019
£m
398.2
10.5
33.4
2.0
(0.9)
(19.6)
–
440.9
423.6
USA
Group
2020
£m
10.4
0.3
0.7
0.3
(0.1)
(1.2)
(0.3)
10.1
2019
£m
16.3
0.6
2.5
0.9
(0.3)
(9.1)
(0.5)
10.4
2020
£m
434.0
8.2
28.2
3.0
(0.9)
(21.2)
(0.3)
451.0
434.0
2019
£m
400.2
(1.1)
10.8
(5.4)
47.4
(5.8)
(28.7)
(0.7)
416.7
2019
£m
414.5
11.1
35.9
2.9
(1.2)
(28.7)
(0.5)
21 Corporate governance40 Financial statements
USA
Group
Mpac Group plc
Annual Report & Accounts 2020
81
24. Employee benefits continued
Experience gains and losses for the year
Fair value of scheme assets
Defined benefit obligations
Net asset/(liability)
UK (Company)
2020
£m
440.9
(426.9)
14.0
Actuarial gains/(losses) on scheme assets
Actuarial (losses)/gains on defined benefit
obligations
Net gain/(loss) recognised in the SOCI
during the year
27.5
(36.0)
(8.5)
2019
£m
423.6
(403.2)
20.4
33.4
(35.2)
(1.8)
2020
£m
10.1
(13.1)
(3.0)
0.7
(1.0)
(0.3)
2019
£m
10.4
(13.5)
(3.1)
2.5
(1.0)
1.5
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)
2020
£m
20.4
(0.6)
2.7
(8.5)
0.0
14.0
2019
£m
20.5
(0.3)
2.0
(1.8)
–
20.4
USA
2020
£m
(3.1)
(0.2)
0.3
(0.3)
0.3
(3.0)
2019
£m
(6.2)
0.5
0.9
1.5
0.2
(3.1)
2020
£m
451.0
440.0
11.0
28.2
(37.0)
(8.8)
Group
2020
£m
17.3
(0.8)
3.0
(8.8)
0.3
11.0
2019
£m
434.0
(416.7)
17.3
35.9
(36.2)
(0.3)
2019
£m
14.3
0.2
2.9
(0.3)
0.2
17.3
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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)
2020
£m
1.0
(0.4)
0.6
2019
£m
0.9
(0.6)
0.3
USA
2020
£m
0.1
0.1
0.2
2019
£m
(0.8)
0.2
(0.6)
Group
2020
£m
1.1
(0.3)
0.8
2019
£m
0.1
(0.4)
(0.3)
The net pension expense/(income) is included in non-underlying items.
40 Financial statements21 Corporate governance
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Annual Report & Accounts 2020
82
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Notes to the accounts continued
24. Employee benefits continued
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 31 and in this note.
The share awards that were subject to conditional grants during the year were:
8 June 2017
13 March 2018
1 May 2019
At 1 January
2020
113,800
75,250
68,816
257,866
Granted
–
–
–
–
Lapsed
–
(1,816)
–
(1,816)
Exercised
(113,800)
–
–
(113,800)
At 31 December
2020
–
73,434
68,816
142,250
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 (2019: £0.1m).
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
8 June 2017
13 March 2018
1 May 2019
Fair value
per share
74.0p
178.9p
134.7p
The company also introduced a Long Term incentive plan (“LTIP”) for certain members of its senior management during 2019. The key terms of this are set out in
the Remuneration Committee report on page 32 and were unchanged throughout the year. No additional incentives were issued in 2020.
The total number of shares conditionally granted 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 (2019: £0.3m) within administration costs. No shares were forfeited, exercised, expired
or exercisable during the period.
21 Corporate governance40 Financial statements
25. Capital and reserves
Share capital
Allotted, called up and fully paid
Ordinary shares of 25p each
Mpac Group plc
Annual Report & Accounts 2020
83
2020
£m
5.0
2019
£m
5.0
There were 20,171,540 (2019: 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 277,402 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 page 31
and on page 82 in note 24.
At 31 December 2020, the employee trust held 277,402 (2019: 337,716)] ordinary shares of 25p each, representing 1.4% of the issued shares (2019: 1.7%), 142,250 of
which were subject to conditional grants. The shares held by the trust were purchased at an aggregate cost of £0.4m (2019: £0.4m). The trust purchased 53,486
additional shares in the year at a cost of £0.2m (2019: £0.1m).
Included within retained earnings is the charge of £0.4m (2019: £0.3m) in respect of the LTIP, as disclosed in the Remuneration report on page 32.
The market value of the shares held by the trust at 31 December 2020 was £1.2m (2019: £0.7m).
Dividends
Dividends to shareholders paid in the period:
2020
£m
–
2019
£m
–
Having considered the trading results for 2020 and the opportunities for investment in the growth of the Group, together with the continued uncertainty
surrounding the impact of the pandemic, the Board has decided that it is not appropriate to pay a final dividend. No interim dividend was paid in 2020. Future
dividend payments will be considered by the Board in the context of 2021 trading performance and when the Board believes it is prudent to do so.
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40 Financial statements21 Corporate governance
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Annual Report & Accounts 2020
84
Notes to the accounts continued
26. Financial risk management
The Group has exposure to credit, liquidity and market risks from its use of financial instruments.
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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 29.
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
2020
£m
2019 - Restated
£m
Company
2020
£m
0.6
–
29.8
30.4
0.1
3.5
22.9
26.5
0.3
–
35.3
35.6
–
2.6
19.5
22.1
–
0.7
17.7
18.4
0.7
2.4
38.3
41.4
2019
£m
–
0.4
9.6
10.0
–
2.6
26.4
29.0
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 2020 and 31 December 2020, the Group held all financial instruments at Level 2, apart from the contingent consideration, details of which are set out
in Note 30.
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 and contract assets
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. No impairments
due to credit losses on contract assets have ever been experienced and none are predicted.
21 Corporate governance40 Financial statements
26. Financial risk management continued
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
2020
£m
13.4
–
0.9
0.6
15.5
30.4
2019
£m
16.1
–
0.4
0.3
18.9
35.7
2020
£m
–
14.2
0.1
0.7
3.4
18.4
2019
£m
–
0.5
0.2
0.4
8.9
10.0
Mpac Group plc
Annual Report & Accounts 2020
85
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.
Impairment loss provisions
The ageing of trade receivables and the impairment loss provisions for the Group at 31 December were:
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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
2020
Impairment
loss provisions
£m
–
–
–
–
–
–
Gross
£m
7.4
3.7
1.2
0.6
0.5
13.4
Total
£m
7.4
3.7
1.2
0.6
0.5
13.4
2019
Impairment
loss provisions
£m
–
–
–
–
–
–
Gross
£m
11.8
2.0
0.3
1.6
0.3
16.0
Total
£m
11.8
2.0
0.3
1.6
0.3
16.0
40 Financial statements21 Corporate governance
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Annual Report & Accounts 2020
86
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Notes to the accounts continued
26. Financial risk management continued
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:
Current liabilities:
Trade and other payables (excluding derivatives)
Non-current liabilities:
Interest-bearing loans and borrowings
Group
2020
£m
2019 - Restated
£m
22.0
0.9
18.5
0.9
Company
2020
£m
37.4
0.9
2019
£m
25.5
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.
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.
21 Corporate governance40 Financial statements
Mpac Group plc
Annual Report & Accounts 2020
87
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26. Financial risk management continued
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
Cash at
floating
rates
£m
2020
Cash on which
no interest
received
£m
5.4
3.2
4.1
2.8
15.5
–
–
–
–
–
Cash at
floating
rates
£m
2020
Cash on which
no interest
received
£m
3.2
0.2
–
–
3.4
–
–
–
–
–
Total
£m
5.4
3.2
4.1
2.8
15.5
Total
£m
3.2
0.2
–
–
3.4
Cash at
floating
rates
£m
2019
Cash on which
no interest
received
£m
11.2
2.4
1.0
4.3
18.9
–
–
–
–
–
Cash at
floating
rates
£m
2019
Cash on which
no interest
received
£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
Borrowings at
floating rates
£m
2020
Borrowings at
fixed rates
£m
–
–
0.9
0.9
Borrowings at
floating rates
£m
2019
Borrowings at
fixed rates
£m
–
–
0.9
0.9
Total
£m
0.9
0.9
Total
£m
11.2
2.4
1.0
4.3
18.9
Total
£m
8.6
0.1
0.1
0.1
8.9
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.
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 (2019: £0.1m). 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 2019.
40 Financial statements21 Corporate governance
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Annual Report & Accounts 2020
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Notes to the accounts continued
26. Financial risk management continued
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
2020
1.29
1.72
1.13
2019
1.28
1.69
1.14
Closing rate
2020
1.37
1.74
1.12
2019
1.32
1.72
1.18
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
2020
£m
0.8
–
0.8
2019
£m
0.3
–
0.3
Company
2020
£m
–
–
–
2019
£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 2020 or 2019, that had been designated as fair value hedges under IFRS 9
Financial instruments: recognition and measurement.
During the period, a credit of £0.5m for the Group (2019: £1.1m credit) and £nil for the Company (2019: £0.1m credit) was recognised in the statements of
comprehensive income in respect of cash flow hedges.
21 Corporate governance40 Financial statements
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26. Financial risk management continued
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:
Group
Outflow
Inflow
Company
Outflow
Inflow
Less than
6 months
£m
(5.6)
13.5
7.9
Less than
6 months
£m
–
–
–
2020
Between
6 and 12
months
£m
(1.6)
5.4
3.8
2020
Between
6 and 12
months
£m
–
–
–
Between
12 and 24
months
£m
–
–
–
Between
12 and 24
months
£m
–
–
–
Less than
6 months
£m
(1.9)
11.4
9.5
Less than
6 months
£m
–
–
–
2019
Between
6 and 12
months
£m
(0.5)
3.6
3.1
2019
Between
6 and 12
months
£m
–
–
–
Between
12 and 24
months
£m
–
0.3
0.3
Between
12 and 24
months
£m
–
–
–
Total
£m
(7.2)
18.9
11.7
Total
£m
–
–
–
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 2020
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 2020
Total
£m
(2.4)
15.3
12.9
Total
£m
–
–
–
2020
£m
0.3
0.8
(0.3)
0.8
No ineffectiveness arose during 2020. The hedging instrument refers to the forward contracts in their entirety, with hedging on a forward to forward basis.
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 dollar to Canadian dollar
Canadian dollar to euro
GBP to euro
Hedge ratio
Average forward rates
US dollar to Canadian dollar
Canadian dollar 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
No other currency pairs at 31 December 2020 or during the year had a material value to the Group.
2020
GBP£0.6m
CA$32.9m
€7.3m
€0.4m
1:1
1US$:1.3235CA$
1CA$:0.641€
£0.8m
£0.8m
£0.8m
40 Financial statements21 Corporate governance
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Notes to the accounts continued
26. Financial risk management continued
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.
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Functional currency:
Sterling
Canadian dollar
Euro
Company
Functional currency:
Sterling
2020
2019
US dollar
£m
0.1
2.0
0.1
2.2
US dollar
£m
11.0
Euro
£m
0.1
–
–
0.1
Euro
£m
–
2020
Total
£m
0.2
2.0
0.1
2.3
Total
£m
11.0
US dollar
£m
–
2.5
0.3
2.8
US dollar
£m
–
Euro
£m
0.2
0.6
–
0.8
Euro
£m
–
2019
Total
£m
0.2
3.1
0.3
3.6
Total
£m
–
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 (2019: £0.4m). 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 (2019: £0.5m).
If sterling had been 10% stronger against all foreign currencies at 31 December 2020, Group equity would have increased by £1.1m (2019: £0.2m increase).
Conversely, if sterling had been 10% weaker against all foreign currencies at 31 December 20, Group equity would have decreased by £1.3m (2019: £0.2m
decrease). 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 2020 is £0.8m (2019: £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.
21 Corporate governance40 Financial statements
27. Leases
The right-of-use assets held at the balance sheet date relates to the following asset types:
Properties
Plant and machinery
Vehicles
Total right-of-use assets
The additions to the right-of-use assets in the year were:
Properties
Plant and machinery
Vehicles
Total right-of-use asset additions
The 'cost' of the assets (the value at which they were originally recognised) is:
Properties
Plant and machinery
Vehicles
Total undiscounted payments due under leases
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
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
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2020
£m
3.7
0.1
0.2
4.0
31 December
2020
£m
–
0.1
0.2
0.3
31 December
2020
£m
5.1
0.1
0.6
5.8
31 December
2020
£m
0.9
2.6
1.1
4.6
31 December
2019
£m
4.4
0.1
0.2
4.7
31 December
2019
£m
1.6
0.1
0.2
1.9
31 December
2019
£m
5.0
0.1
0.4
5.5
31 December
2019
£m
0.9
2.9
1.6
5.4
31 December
2020
£m
31 December
2019
£m
0.7
0.2
0.1
1.0
0.7
0.2
0.1
1.0
40 Financial statements21 Corporate governance
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Notes to the accounts continued
27. Leases continued
The Group 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 company was not a party to any operating leases during the period.
IFRS 16 Adoption 1 January 2019
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%.
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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 and 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 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
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:
Group
Americas
EMEA
Asia Pacific
Total
Earnings per share was unchanged for the year to 31 December 2019 as a result of the adoption of IFRS 16.
Adjusted
EBITDA
£m
0.3
0.6
–
0.9
Segment
assets
£m
1.7
3.0
–
4.7
Segment
liabilities
£m
(1.7)
(3.1)
–
(4.8)
21 Corporate governance40 Financial statements
27. Leases continued
Practical expedients applied
In applying IFRS 16 for the first time, the Group 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.
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Annual Report & Accounts 2020
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28. Capital commitments
Capital investment contracted but not provided for
29. Contingent liabilities
Contingent liabilities in respect of guarantees and indemnities
related to sales and other contracts
30. Business combinations and deferred consideration
Group
2020
£m
0.1
Group
2020
£m
1.9
2019
£m
0.1
2019
£m
2.3
Company
2020
£m
–
Company
2020
£m
1.9
2019
£m
–
2019
£m
2.3
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2020
On 9 September 2020 Mpac acquired the entire issued share capital of Switchback Group Inc. ("Switchback"), a provider of technology leading packaging
equipment to the food and beverage and consumer healthcare sectors, for an initial consideration of US$13.3m (£10.2m) (subject to adjustment for working capital
movements, which have been settled in 2021 at US$0.3m (£0.2m)) with a further US$2.0m (£1.6m) subject to Switchback achieving certain earn-out criteria, which
the Group anticipates will be met in full. It is expected that the acquisition will be immediately earnings enhancing.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration
Cash paid on acquisition
Working capital adjustment (paid in 2021)
Contingent consideration (see below)
Total purchase consideration
£m
10.2
0.2
1.1
11.5
40 Financial statements21 Corporate governance
Mpac Group plc
Annual Report & Accounts 2020
Notes to the accounts continued
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30. Business combination (continued)
The assets and liabilities recognised as a result of the acquisition are as follows:
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Cash and cash equivalents
Property, plant and equipment
Brand
Customer relationships
Machine designs
Order backlog
Inventories
Receivables
Contract assets
Payables
Contract liabilities
Deferred tax on intangible assets
Net identifiable assets acquired
Add: goodwill
Provisional
fair value
£m
0.4
0.1
0.6
0.7
1.1
0.2
0.4
1.4
0.3
(0.3)
(0.8)
(0.5)
3.6
7.9
11.5
The goodwill is attributable to Switchback's strong position and profitability in the healthcare and food and beverage sectors, particularly within brewing, 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 in relation to Switchback totalled £0.3m and is included in non-underlying items in the
income statement.
Acquisition-related costs
Acquisition-related costs of £0.4m 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 Switchback up to US$1m (£0.7m) in each of the next two years, with a
minimum payment of US$0.5m if Switchback's annual adjusted EBITDA is at least $1.1m and 50% of the excess over US$1.1m, up to $2.1m.
There is no minimum amount payable.
The fair value of the contingent consideration arrangement of £1.1m 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 £0.1m, 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 £nil. The deferred consideration payable to ongoing employees of
Switchback is £0.3m, which is treated as additional remuneration and not included in the valuation of deferred consideration under IFRS3.
Acquired receivables
The fair value of trade and other receivables is £1.4m and includes trade receivables with a fair value of £1.4m. The gross contractual amount for trade receivables
due is £1.4m which is expected to be collectible in full.
Revenue and profit contribution
The acquired business contributed revenues of £3.3m and net profit of £0.6m to the Group for the period from 9 September 2020 to 31 December 2020. If the
acquisition had occurred on 1 January 2020, consolidated revenue and consolidated profit after tax for the year ended 31 December 2020 would have been £91.3m
and £4.4m respectively.
21 Corporate governance40 Financial statements
30. Business combination (continued)
Purchase consideration – cash flows
The outflow of cash to acquire Switchback, net of cash acquired, is as follows:
Cash consideration
Less: cash acquired
Net outflow of cash – included in investing activities
Mpac Group plc
Annual Report & Accounts 2020
95
2020
£m
10.2
(0.4)
9.8
Business combination – 2019
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.
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, anticipated to be settled in the first half of 2022. There is no minimum amount
payable.
A further £0.5m of consideration is contingent upon certain tax receipts from HMRC. This balance has been settled in 2020.
The fair value of the remaining contingent consideration arrangement of £2.3m 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 remaining discount to the total amount of £0.2m, 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.
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.
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:
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
2019
£m
1.4
(1.4)
–
–
–
–
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Notes to the accounts continued
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
2019
£m
0.5
1.5
0.4
0.1
0.6
3.1
(1.2)
(0.3)
(0.2)
1.4
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The employee benefit obligations within the Company were unaffected by this transfer.
32. Related parties
Transactions with key management personnel
The compensation of key management personnel is disclosed in the Remuneration report on pages 30 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 31 to 33.
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 2020 was £0.2m (2019: £0.3m).
21 Corporate governance40 Financial statements
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 108. 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.
Mpac Group plc
Annual Report & Accounts 2020
97
Principal subsidiary undertakings
Registered office
6500 Kitimat Road, Unit 1, Mississauga, Ontario LN5 2B8, Canada
Edisonstraat 14, 6604 BV Wijchen, The Netherlands
8 Burn Road, #09-01 Trivex, Singapore 369977
Station Estate, Tadcaster, North Yorkshire, LS24 9SG
3778 Timberlake Drive, Richfield, OH 44286, USA
Subsidiary undertakings registered at Mpac Group plc registered office
Arista Laboratories Europe Limited
Hartsvale Limited
Mpac Corporate Services Limited
Mpac ITCM Limited
Overseas subsidiary undertakings
Registered office
6500 Kitimat Road, Unit 1, Mississauga, Ontario LN5 2B8, Canada
Subsidiary undertakings
Mpac Langen, Inc. (Canada)
Mpac Langen B.V. (Netherlands)
Mpac Langen Pte. Ltd (Singapore)
Mpac Lambert Limited (UK)
Mpac Switchback Inc. (USA)
Mpac Machine Company Limited
Mpac Machinery Limited
Mpac Overseas Holdings Limited
Mpac Tobacco Machinery Limited
Subsidiary undertakings
1456074 Ontario, Inc. (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)
Molmac Engineering Limited
Thrissell Limited
Mpac Group Holdings Limited
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During the year ended 31 December 2020, the Company received interest income from subsidiary undertakings of £nil (2019: £0.1m), management fees of £1.7m
(2019: £1.3m) and brand fees of £2.7m (2019: £2.4m).
At 31 December 2020, amounts owed by subsidiary undertakings to the Company were £14.2m (2019: £2.2m) and amounts owed by the Company to subsidiary
undertakings were £34.3m (2019: £22.9m). The amounts owed by subsidiary undertakings to the Company are stated after a provision of £12.2m (2019: £11.7m)
representing amounts owed to the Company which are no longer considered recoverable.
At 31 December 2020, investments in subsidiaries by the Company were £63.8m (2019: £63.8m).
40 Financial statements21 Corporate governance
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Notes to the accounts continued
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 £1.8m (2019: £1.7m) based on historic losses which is expected to be utilised over the next year. 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. Labour hours have been selected as the most faithful depiction of progress
(and hence the transfer of goods and services) as this most accurately reflects how Mpac provides value to the customer. Mpac delivers innovative, efficient, and
technically robust solutions, with the time allocated to projects of Mpac engineers and technicians being the main driver to bring projects to fruition. 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.
Labour hours have been selected as the most faithful depiction of progress (and hence the transfer of goods and services) as this most accurately reflects how
Mpac provides value to the customer. Mpac delivers innovative, efficient, and technically robust solutions, with the time allocated to projects of Mpac engineers
and technicians being the main driver to bring projects to fruition. Material costs incurred are not considered to be proportionate to the group’s progress in
satisfying progress on contracts for which revenue is recognised over time and therefore revenue in respect of materials is recognised at an amount equal to the
cost of good used to satisfy the performance obligation.
Valuation of intangible assets
The fair value of these assets are determined by cost (where this can be objectively measured) or by discounting estimated future net cash flows generated by the
asset where no active market for the asset exists and where these are acquired as part of a business acquisition. These are assessed based upon management
forecasts for each acquisition. Key assumptions will vary between acquisitions, but include revenue forecasts, margin assumptions, discount rates, royalty rates
and customer attrition, with the use of costs where possible, including for the development of machine designs. The valuation of intangibles, especially those
made in relation to acquisitions (see note 30), can be highly sensitive to these assumptions with any changes having the potential to materially change the
valuation of the assets acquired.
21 Corporate governance40 Financial statements
35. Prior period adjustment
Following an internal review of Mpac’s compliance with certain technical details of IFRS 15 and the FRC’s third thematic review of IFRS 15, published 24 September
2020, the Group has restated certain balances previously reported, in accordance with IAS 8, to align the treatment of contract assets, contract liabilities, contract
fulfilment assets and work in progress recognised in relation to contracts more closely to the demands of IFRS 15. The Group has not received any communication
from the FRC on this or any other matter. These balances do not change any of the key metrics used by the Group, with gross profit, operating profit, profit
before and after tax, earnings per share, net current assets and retained earnings remaining unchanged. These adjustments do not affect the future anticipated
performance of the Group.
The effect of the adjustments results in a slight timing difference to the recognition of revenue and cost of sales in equal amounts in the income statement. The
effect in 2019 was reviewed and found to be immaterial (£1.8m) so no restatement of the 2019 income statement has been presented. There is no impact upon
gross profit or any other key metric as a result of these adjustments in the income statement under any circumstances.
The adjustments made are:
Detailed account (Statement of
financial position heading)
Work in progress (Inventories)
Contract assets (Trade & other receivables)
Contract fulfilment asset (Trade & other
receivables)
Contract liabilities (Trade & other payables)
Prepayments and accrued income (Trade &
other receivables)
Accruals and deferred income (Trade & other
payables)
Effect on current assets and statement
of financial position total
2019 as reported
£m
5.0
4.7
–
(5.8)
0.5
(8.4)
Adjustment
£m
(3.9)
1.7
1.2
(5.9)
3.2
3.7
–
2019 Restated
£m
2018 as reported
£m
Adjustment
£m
1.1
6.4
1.2
(11.7)
3.7
(4.7)
1.7
5.5
–
(11.6)
3.9
(6.5)
(0.9)
(1.2)
1.0
(2.5)
1.8
1.8
–
2018 Restated
£m
0.8
4.3
1.0
(14.1)
5.7
(4.7)
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Notes to the accounts continued
35. Prior period adjustment (continued)
As required by IAS 8, the restated 31 December 2018 statement of financial position for the Group is:
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Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Employee benefits
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Contract assets
Current tax assets
Cash and cash equivalents
Current 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
Net assets
Equity
Issued capital
Share premium
Reserves
Retained earnings
Total equity
Original
2018
£m
Adjustments
£m
Restated
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
1.0
4.4
0.8
20.5
1.7
28.4
2.4
19.7
4.3
0.8
27.9
55.1
(12.9)
(14.1)
(0.4)
(1.1)
(28.5)
26.6
55.0
(0.9)
(6.2)
(7.3)
(14.4)
40.6
5.0
26.0
4.2
5.4
40.6
–
(0.9)
2.8
(1.2)
0.7
1.8
(2.5)
(0.7)
–
–
–
–
21 Corporate governance40 Financial statements
Five-year record
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 share1
Basic earnings/(loss) per share
Dividends per ordinary share in respect of the year
Intangible assets
Property, plant and equipment and investment property
Inventories (2018/19 restated)
Trade and other receivables (including taxation) (2018/19 restated)
Employee benefits
Trade and other payables (including taxation and provisions)
(2018/19 restated)
Cash
Net assets
1. Before non-underlying items
2020
£m
83.7
6.5
(3.6)
2.9
–
2.9
0.4
3.3
–
3.3
7.8%
31.4p
16.3p
–
27.4
9.9
3.5
34.8
11.0
(57.7)
28.9
15.5
44.4
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
3.2
30.2
17.3
(50.1)
28.6
18.9
47.5
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
2.4
26.5
14.3
(36.7)
12.7
27.9
40.6
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
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
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Principal divisions and subsidiaries
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.
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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
Mpac Switchback Group
3778 Timberlake Drive
Richmond
OH 44286
USA
Tel: +1 330 523 5200
E-mail: info.switchback@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
Station Estate
Tadcaster
North Yorkshire
LS24 9SG
United Kingdom
Tel: +44 (0)1937 832921
E-mail: sales.emea@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
21 Corporate governance40 Financial statements
Notice of Annual General Meeting
Notice is hereby given that the 109th Annual General Meeting (the "Meeting")
of Mpac Group plc (the Company) will be held at Mpac Lambert, Station Estate,
Tadcaster, LS24 9SG on Wednesday 5 May 2021 at 12 noon to consider and,
if thought appropriate, to pass the following resolutions, of which resolutions
1 to 10 will be proposed as ordinary resolutions and resolutions 11 to 14 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 2020 together with the Directors’ report and the auditors’
report on those annual accounts.
Directors
2. To re-elect Mrs S A Fowler as a Director.
3. To re-elect Mr A J Kitchingman as a Director.
4. To re-elect Mr D G Robertson as a Director.
5. To re-elect Dr A Steels as a Director.
6. To re-elect Mr W C Wilkins as a Director.
7. To approve the Remuneration report, excluding the Remuneration Policy,
set out on pages 31 to 32 of the Annual Report and Accounts 2020.
Auditors
8. 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
9. To authorise the Audit Committee to determine the remuneration of
the auditors.
Directors’ authority to allot shares
10. 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
1 March 2021, 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 2022 AGM or if earlier, at close of business on
5 August 2022, 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.
Special resolutions
Disapplication of pre-emption rights
11. That if resolution 11 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 2022 AGM of
the Company (or, if earlier, at close of business on 5 August 2022) 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.
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Notice of Annual General Meeting continued
Notice of Annual General Meeting continued
d) the authority hereby conferred shall (unless previously renewed or
revoked) expire at the end of the 2022 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
14. 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
PRISM COSEC LIMITED
Company Secretary
1 April 2021
Registered in England and Wales No.
124855
Registered office:
13 Westwood Way
Westwood Business Park
Coventry
CV4 8HS
12. That if resolution 11 is passed, the Board be authorised in addition to any
authority granted under resolution 12 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 5 August 2022) 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
13. 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
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Covid-19 and contingencies
Our preference had been to welcome shareholders in person to our 2021
AGM, particularly given the constraints we faced in 2020 due to the Covid-19
pandemic. However, at present Government guidelines prohibit shareholders
from attending the AGM in person. We are therefore proposing to hold the AGM
with the minimum attendance required to form a quorum. Shareholders will not
be permitted to attend the AGM in person but can be represented by the Chair
of the meeting acting as their proxy.
Should Government guidelines change, and shareholders be able to attend the
AGM in person, we will advise this via the Company’s website, www.mpac-
group.com, and via a Regulatory Information Service.
Notes relating to the notice
The following notes explain your general rights as a shareholder and your
right to vote at this Meeting or to appoint someone else to vote
on your behalf.
Entitlement to attend and vote
1. To be entitled to 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 3 May 2021, 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 are entitled to appoint another person as a proxy to
exercise all or part of their rights to 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.
3. 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).
4. A vote withheld is not a vote in law, which means that the vote will not be
counted in the calculation of votes for or against the resolution. If no voting
indication is given, your proxy will vote or abstain from voting at his or her
discretion. Your proxy will vote (or abstain from voting) as he or she thinks
fit in relation to any other matter which is put before the Meeting.
5. 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 are charged at
the standard geographic rate and will vary by provider. 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
Group at 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL
by 12 noon on Monday 3 May 2021.
6. 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.
7. 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.
8. 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.
9. 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.
10. If you are an institutional investor you may be able to appoint a proxy
electronically via the Proxymity platform. For further information regarding
Proxymity, please go to www.proxymity.io. Your proxy must be lodged by 12
noon on Monday 3 May 2021 in order to be considered valid. Before you can
appoint a proxy via this process you will need to have agreed to Proxymity’s
associated terms and conditions. It is important that you read these
carefully as you will be bound by them and they will govern the electronic
appointment of your proxy.
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Notice of Annual General Meeting continued
Notice of Annual General Meeting continued
Corporate representatives
11. 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
12. As 1 March 2021 (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 1 March 2021 are 20,171,540.
Questions
13. We always welcome questions from our shareholders and we request that
shareholders submit their questions to the Board before the AGM. We will
ensure that answers to questions are placed on the Company's website.
You can submit questions up until 5pm on 4 May 2021 by emailing them to
cosec@mpac-group.com
Communication
14 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
15. 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.
Explanatory notes on the resolutions
Resolutions 1 to 11 are ordinary resolutions; resolutions 12 to 15 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.
Ordinary Resolutions
To receive the Annual Report and Accounts 2020
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 2021, which includes
this Notice of Annual General Meeting, will be available online at
www.mpac-group.com.
Election and re-election of Directors
In accordance with best practice in corporate governance, all Directors are
standing for re-election. Resolutions 2 to 6 seek approval for the re-election of
the Directors.
Biographical information for each of the existing Directors is provided on page
24 of the Annual Report and Accounts 2020.
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 7 seeks shareholders’ approval for the Directors’ Remuneration report
which is set out on pages 31 to 32 of the Annual Report and Accounts 2020, for
the year ended 31 December 2020. The vote is advisory only.
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 8 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 9 seeks consent for the Directors to determine the remuneration
of the auditors.
Directors’ authority to allot shares
Resolution 10 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 1 March 2021, 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
5 August 2022. 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.
21 Corporate governance40 Financial statements
Special resolutions
Disapplication of pre-emption rights
Resolutions 11 and 12 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 11 deals with the authority of the Directors to allot new shares or
other equity securities pursuant to the authority given by resolution 10, 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 1 March 2021.
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 12 seeks to authorise the Directors to allot new
shares and other equity securities pursuant to the authority given by resolution
10, 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 1 March 2021, 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 12 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 5 August 2022, whichever is the earlier.
The Board considers the authorities in resolutions 11 and 12 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 13 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 1 March
2021. The authority requested would replace a similar authority granted last
year and would expire at the end of the 2022 AGM, or if earlier,
at close of business on 5 August 2022.
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 14 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
2022 AGM, at which it is intended that a similar resolution will be proposed.
Mpac Group plc
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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
Prism Cosec Limited
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 Group
10th Floor, Central Square
29 Wellington Street
Leeds
LS1 4DL
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
5th May 2021
Payment dates for preference dividend
30 June 2021 and 31 December 2021
Half-year announcement
September 2021
21 Corporate governance40 Financial statements
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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