Mpac Group plc Annual Report and Accounts 2022
Mpac Group plc Annual Report and Accounts 2022
Making a difference
Making a difference
We create packaging and
We create packaging and
automation ecosystems that
automation ecosystems that
enhance manufacturing to help
enhance manufacturing to help
businesses adapt and grow
businesses adapt and grow
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.
Contents
01 Year at a glance
02 Who we are and what we do
03 Automation Ecosystems
04 Chairman’s introduction
05 Strategy: Our mission, sectors and values
06 Strategy: Business model
07 Strategy: Goals and priorities
09 Operating review
14 Financial review
17 Principal risks and uncertainties
22 Section 172 statement
24 Chairman’s corporate governance statement
26 Board of Directors
28 Corporate governance report
32 Audit Committee report
36 Remuneration and Nomination Committee report
37 Annual Remuneration report
40 Remuneration policy
45 Directors’ report
47 Statement of Directors’ responsibilities
Independent Auditor’s report
49
56 Consolidated income statement
57 Statement of comprehensive income
58 Statements of changes in equity
60 Statements of financial position
61 Statements of cash flow
62 Accounting policies
69 Notes to the accounts
101 Five-year record
102 Principal divisions and subsidiaries
103 Notice of Annual General Meeting
110 Corporate information
mpac-group.com
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Year at a glance
Mpac Group plc
Annual Report & Accounts 2022
Further good progress on the Group’s strategic initiatives
2022 order intake of £83.8m (2021: £117.9m)
Group full year revenue £97.7m (2021: £94.3m)
Underlying profit before tax of £3.5m (2021: £8.6m)
Statutory profit before tax of £0.2m (2021: £8.2m)
Underlying earnings per share of 13.3p (2021: 39.7p)
Basic loss per share of 2.2p (2021: earnings of 39.1p)
ORDER INTAKE
REVENUE
£83.8m
(2021: £117.9m)
£97.7m
(2021: £94.3m)
UNDERLYING EARNINGS PER SHARE
BASIC LOSS PER SHARE
13.3p
(2021: 39.7p per share)
2.2p
(2021: Earnings of 39.1p)
PROFIT BEFORE TAX
NET ASSETS
£0.2m
(2021: £8.2m)
£62.2m
(2021: £65.4m)
Revenue by sector
Food and beverage
£45.7m
Clean Energy
£11.1m
Healthcare
£30.1m
Other
£10.8m
Revenue by region
Americas
£52.8m
Asia
£7.4m
Europe, Middle
East & Africa
£37.5m
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Mpac Group plc
Mpac Group plc
Mpac Group plc
Annual Report & Accounts 2022
Annual Report & Accounts 2022
Annual Report & Accounts 2022
Who we are and what we do
We support all brands and all locations with our global operations
Our philosophy is ‘Ingenuity without limits'
Mpac is a provider of full-line product manufacturing and packaging solutions.
We serve customers globally in the essential and growing sectors of healthcare, clean
energy, food and beverage, with engineering and services that increase automation,
safety, sustainability and cost effectiveness.
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 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 four 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 healthcare and clean energy sectors.
Langen and Switchback provide secondary and tertiary packaging solutions for all
sectors in which we operate.
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.
Food and beverage
With extensive experience in dealing with
powders to liquids, cereals to confectionary,
our packaging machinery covers a wide range
of applications.
Clean energy
We are developing battery cell assembly
processes based upon 24M technology to
provide high speed at a lower unit cost to
customers in the sector.
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23 Corporate governance02 Strategic report48 Financial statements
Automation ecosystems
WHOLE LINE
Using limitless ingenuity to align
global manufacturing
WHOLE LIFE
Maintaining peak overall equipment
effectiveness for the lifespan of machines
WHOLE PLANET
Helping businesses grow globally
while embracing sustainability
Global whole-line integration
Hands-on global experts providing local support
Streamlining processes and identifying efficiencies
Maintaining peak OEE over machine lifespan
Creating opportunities for new products
Transformational digital services
Next-generation manufacturing for the
next generation
Building efficient machines to optimise
businesses performance and in turn, reduce
the impact on the environment
Reducing transportation footprints with remote
service assistance and smaller carton sizes
WHOLE LINE, WHOLE LIFE, WHOLE PLANET
Mpac’s offer to customers has been shaped by delivering against these three pillars. The result is Automation Ecosystems
Mpac Group plc
Annual Report & Accounts 2022
3
ONE MPAC
All our products and services operating as ‘One Mpac’ to deliver Automation Ecosystems
Product line specialty
Product line specialty
Product line specialty
Focus on clean energy and healthcare sector
device assembly and automation
Cutting-edge factory automation platforms and
transformational technologies
Manufacturing site in EMEA, serving customers in
EMEA, Americas and APAC
Exceptional customer service support
Market leading secondary and end-of-line
packaging solutions for food and beverage and
healthcare sectors
Flexible engineered modular assemblies to support
customers’ requirements
Secondary and end-of-line packaging solutions for
food and beverage and healthcare sectors
Cartoners, Trayformers, Carton Closers,
Case Erectors and Case Packers, and Labelling
machines
Manufacturing sites in EMEA and Americas,
serving customers in EMEA, Americas and APAC
Manufacturing site in Americas, serving
customers in EMEA and Americas
Global Service support offering
Integrated Group Service supporting
customers globally
Assembly
Assembly
Filling &
Filling &
Dosing
Dosing
Primary
packaging
Product handling
Product handling
and infeed
and infeed
Cartoning
Cartoning
Tray forming
Tray forming
Case packing
Case packing
Palletising
Palletising
MPAC CUBE
We’ve folded the many sides of our automation service and support together to form the ‘Mpac Cube’
Propelling production goals through Connectivity, Productivity and Sustainability
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48 Financial statements23 Corporate governance02 Strategic report
Mpac Group plc
Mpac Group plc
Annual Report & Accounts 2022
Annual Report & Accounts 2022
Chairman’s introduction
Further good progress has been
made against our long term strategic
objectives of focusing upon the
growth potential from the Food and
Beverage and Healthcare sectors.
Alongside these initiatives the Group
has established the foundations to
access the future potential from
the emerging clean energy battery
production sector by supporting the
battery cell assembly development
line for FREYR Battery. While the
scale of the opportunity remains
uncertain, the development work
completed in 2022 provides the
Group with the best possible access
to the market for the cell assembly
technology within our scope.
Considerable progress has also been
made in developing our Service
businesses alongside mitigation of
operational challenges, underpinned
by the prior roll out of common ERP
and business systems across the
Group. Our investment proposition
remains one of organic growth,
augmented by carefully selected
acquisitions.
Our strategy remains to focus on
the high growth Healthcare and
Food & Beverage sectors, driven by
innovation and a focus on software
and platform developments to ensure
operational leverage.
On pages 24 to 31 I discuss corporate
governance and the Board’s activities
during the year.
Summary of results
The impact of wider economic
uncertainty and the disruption to
supply chains in 2022 is reflected
in the financial results for the year.
Order intake for the Group of £83.8m
(2021: £117.9m) and Group revenues
of £97.7m (2021: £94.3m). Underlying
operating profit before tax was above
revised market expectations at £3.9m
(2021: £8.8m) and underlying profit
before tax was in line with revised
market expectations at £3.5m (2021:
£8.6m). Statutory profit before tax
was £0.2m (2021: £8.2m). Group net
debt ended the year at £4.7m
(2021: net cash £13.6m).
Acquisitions
In September 2020, the Group
acquired Switchback for £11.5m.
During 2022, Switchback has been
further integrated into the Americas
region and the wider Group. The Group
was pleased to settle the final tranche
of deferred consideration of £0.8m,
associated with the satisfaction of
stretching performance targets in the
year to 30 September 2022, which was
paid in October 2022.
Board changes
I would like to welcome Adam Holland
to the Board as Chief Operating Officer.
Adam joined the Board in November
2022 and brings with him extensive
experience of senior executive and
business leadership roles in the
engineering and service sectors.
These include General Manager at
JCB Service and Managing Director
at JCB Power Products, having
previously held senior leadership
roles in the Energy, Oil and Gas and
Aerospace sectors.
Dividend
Having considered the trading results
for 2022 and the opportunities for
investment in the growth of the
Group, the Board has decided that it is
not appropriate to pay a final dividend.
No interim dividend was paid in
2022. Future dividend payments will
be considered by the Board in the
context of 2023 trading performance
and made when the Board believes it
is prudent to do so.
Outlook
The Group operates in a range
of attractive growth sectors and
geographic markets and has
continued to demonstrate an ability
to grow recurring Service revenue.
The order book remains robust,
providing good coverage over 2023
revenue, and I consider the prospects
for the Group over the medium term
remain strong, as the sales and profit
growth initiatives established by
the leadership team take hold. I look
forward to reporting on the progress
that will be made during 2023.
Andrew Kitchingman
Chairman
22 March 2023
ANDREW KITCHINGMAN
CHAIRMAN
“ I am pleased to report that
measures implemented
to mitigate the impact of
supply chain disruption
resulted in an improved
financial performance in
the second half of the
year and supported by
the prior implementation
of strategic initiatives, we
anticipate that the Group
is in a position to return
to profitable growth and
an improved financial
performance in 2023.”
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Strategy: Our mission, sectors and values
Our mission
To be a global leader of high-speed packaging and
automation solutions focused on attractive growth
markets enhanced by a world-class service offer
programme 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 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.
Our sectors
Healthcare
Supporting healthcare industries
as diverse as contact lenses, facial
tissues and dentifrice. Mpac supplies
innovative first-of-a-kind machinery
as well as standard packing and
testing equipment.
Food and beverage
Providing innovative solutions for
secondary and end-of-line packaging.
Cartoning and case packing of bags,
stick packs, pouches, flow wrapped
products, bottles and more, to our
customers’ requirements.
Clean energy
Developing partnerships and
solutions offering innovative scalable
manufacturing approach for lithium
battery production line, while reducing
the unit cost.
Mpac Group plc
Annual Report & Accounts 2022
5
“ 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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Customer focused, responsive and flexible
through operational excellence.
Address our customers’ unmet needs by
leveraging market leading technology and
innovation.
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Mpac Group plc
Mpac Group plc
Annual Report & Accounts 2022
Annual Report & Accounts 2022
Strategy: Business model
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The ‘One Mpac’ business model ensures
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.
The implementation of our ‘One Mpac’
business model incorporates sales,
service, and operations functions.
Common processes are all monitored
and controlled by effective project
management. Service support is
provided through the life of the product
at the customers’ sites.
The capital equipment market is cyclical
by its nature with a high need for
responsiveness and flexibility to adapt to
customer demands and lead time needs,
seizing the opportunities as they arise.
The Group is able to exploit synergies,
utilising best practice across the sites
and a shared services resource in order
to improve the operational efficiencies.
This creates a model whereby we can
increase utilisation with the ability to
expand capacity with increased
demand and reduce capacity in periods
of lower demand.
What we do
We design, develop software, precision
engineer and manufacture high speed
packaging solutions, first-of-a-kind
machinery and high specification
automation, secondary packing
equipment and end-of-line robotics with
integrated testing solutions. We do not
just build machines; 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.
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.
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.
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Consult
Ecosystems live, breathe
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.
23 Corporate governance02 Strategic report48 Financial statements Mpac Group plc
Annual Report & Accounts 2022
7
Strategy: Goals and priorities
Going for
growth
Service as
a business
Operational
efficiency
2022 progress
Products
One Mpac
Future plans
Global
Innovation
New customer relationships
developed in EMEA and
Americas
Cross selling of Switchback and
Langen product ranges
Key account management and
product line development
Develop and augment clean
energy proposition
One Mpac
Americas
Mpac Cube
Systems
Integration of regional Service
teams to provide seamless
support
Expansion of Americas
healthcare service team
Subscription based revenue
from Mpac Cube product
offering
Drive to enhanced customer
responsiveness
One Mpac
One Mpac
One Mpac
Americas
Progress standardised machine
design and modular build
programme
Leverage common global
supply chain
Secure coverage of supply
constrained key electrical
components
ERP and business systems
blueprint deployment in
Cleveland
Innovation
Products
Products
Technology
Americas
Cardboard tray erector to
support drive for sustainability
Extension of additional features
for case packing and cartoning
product range
Develop next generation
cartoning capabilities
Extend Switchback product line
offering for Food and Beverage
and Healthcare markets
People
Skills
Knowledge
Skills
Skills
Graduation of first year Mpac
Academy participants to
develop future leaders
Investment in employee
development and training
Focus on resourcing local site
leadership team
Continued investment in Mpac
Academy
Achieving our ambitions
The market and our 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, supported
by 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
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 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.
Mpac provides local support on a
global level, delivered via our region
commercial teams, supported by a
global service and operations functions.
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.
48 Financial statements23 Corporate governance02 Strategic report
Mpac Group plc
Mpac Group plc
Annual Report & Accounts 2022
Annual Report & Accounts 2022
We make a difference through...
Encouraging inspiration
“ Our people are the heart of Mpac, and the Mpac
Academy ensures the next generation of leaders
have the skills to succeed.”
TONY STEELS – CEO
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The Mpac Academy programme was created with a focus on developing the
future leaders of Mpac.
Each year, a select group of high-performing individuals across all of the
Mpac global sites, who are operating in a managerial capacity and
deemed to have the potential to progress to a senior level position within
the company, will be nominated and invited to participate.
This important initiative was officially launched in early 2022 with the
graduation week hosted at the Tadcaster, UK site in December.
As part of the programme, the participants collectively worked on a business
case and presented to the Executive Leadership Team.
The inaugural class will now become coaches and mentors for the Class
of 2023.
Programme Overview
Workshops and Training Modules
Dedicated mentors for each
participant
Inspirational speakers
Site visit to Mississauga and UK
Various group exercises
Coaching & Mentoring cohort for
Class of 2023
Support training and development
within the business
Influential Leadership
Developing and delivering strategic
objectives
Self-awareness and assessment
of leadership style
Motivating your team to become a
high-performing team
Finance for the non financial manager
Operating review
TONY STEELS
CHIEF EXECUTIVE
“ Mpac, as a team, once
again demonstrated
agility to implement
mitigations to deliver a
second half recovery, faced
with increased macro-
economic uncertainty and
unprecedented volatility
in the global supply chain
which impacted both the
lead time of customers’
order placement and
caused operational
challenges. The Group
responded dynamically
to continue to meet
customer expectations
again, increasing service
revenue. The Group ended
2022 with a strong closing
order book and a healthy
prospect pipeline, providing
an encouraging outlook
for 2023.”
In 2022 the Group continued to
make progress in the development
of casting and unit cell assembly
equipment for the battery cell
production line at the FREYR Battery
(“FREYR”) Customer Qualification
Plant in Norway. During H2, changes
agreed with FREYR have resulted in
a revised plan for delivery of the line
in Q1 2023, and commissioning in Q2
2023. In September 2022, the Group
announced a framework agreement
for the supply of assembly equipment
to the production lines intended by
FREYR to follow-on from the initial
Qualification Plant.
2022 was a milestone year for Mpac
with the first graduates from our
Mpac Academy, aimed at developing
future leaders for the Group. Mpac
was at the Pack Expo trade show in
Chicago for the first time as a truly
integrated business offering sales
and service throughout the Americas
through unified teams.
Introduction
In recent years the Group has made
substantial progress in its strategic
plans to deliver growth from the
resilient food and beverage and
healthcare markets, which have
attractive long term growth drivers.
However, well documented short-
term operational challenges caused
by macro-economic headwinds
and volatile global supply chains
resulted in lower order intake,
reduced operational efficiency and
extended project build time frames
during 2022. Against this backdrop,
the Group was successfully able to
implement a range of pro-active
mitigation measures which drove an
improved financial performance in
the second half of the year. These
included securing stock, establishing
alternative sources of electronic
component supply; increased focus
on reliable planning data from our
ERP system, close management of
our supply chain, negotiating price
increases, and implementing cost
saving initiatives. It is also thanks to
the dedication and resourcefulness
of our employees that our customers’
expectations have broadly continued
to be met during this challenging
period for Mpac.
£83.8m
Overall Group order intake
(2021: £117.9m)
£67.2m
Order book for 2023
(2021: £78.4m)
£97.7m
Group revenue
(2021: £94.3m)
£74.6m
Original Equipment revenue
(2021: £74.1m)
£23.1m
Service revenue
(2021: £20.2m)
Revenue by geography
Americas £52.8m
Europe, Middle East & Africa £37.5m
Asia £7.4m
Mpac Group plc
Annual Report & Accounts 2022
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Mpac Group plc
Annual Report & Accounts 2022
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We make a difference through...
Product innovation
“ Mpac designs, manufactures and supports automation
solutions needed to bring life-saving products to market.”
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Mpac was selected by a leading healthcare customer who
simplifies and improves diabetes management around the
world, as the preferred supplier for multiple packaging
automation lines for their innovative medical device.
Customer requirement
To automatically package a medical device into vertical cartons.
Verify and track each individual device production data, including
batch, lot and product information.
Verify and insert instructions for use into each carton, along with
the device.
Laser print and verify the production data as noted.
Close and seal the cartons, then automatically package them into
a shipper case, applying production data information on the exterior
of the shipping case.
Support the solution across its global manufacturing base.
Mpac solution
A proven track record at providing robotic infeed and applications to
handle incoming devices.
Developed a vertical continuous cartoner (VCC), capable of reliably
forming, handling and sealing cartons.
Implemented multiple machine vision verification systems to validate
device product data, including batch, lot and product information.
Developed line communication protocol software to handle the data
exchange between the packaging equipment and customer database.
Global footprint providing local Service support aligned to the customer’s
manufacturing locations.
Operating review continued
Our search for further complementary
acquisition targets continues.
However, the focus of management
remains on delivering organic growth
and extending our commercial
reach to new customers with new
products and services, supported
by a comprehensive, market-led
development roadmap.
The business fundamentals of Mpac
remain strong and the business has
again demonstrated resilience in
managing short term operational
challenges. The Board is excited about
the next phase for the Group, given
our strong position in the growing
healthcare and food & beverage
sectors, we remain on track to meet
our long-term strategic objectives.
Supply chain
Disruption to the supply of critical,
customer-specified chip based
electronic components continues;
however, the Group has been proactive
in implementing mitigation measures
described above. Parts delays
extended project build times, resulting
in increased levels of working capital,
which was funded with a combination
of free cash and borrowing against
existing committed bank facilities. The
increase in working capital is expected
to unwind as the backlog of projects
are largely cleared in H1 2023.
Strategic update
Our strategy focuses on three key
initiatives to drive growth:
Going for Growth – Offering
comprehensive “Automation
Ecosystems” in our target sectors,
driven by understanding customer
needs and providing innovative
solutions;
Make Service a Business –
A comprehensive portfolio of service
products to maximise customers’
return on investment; and
Operational Efficiency – Operational
excellence and flexible supply chains,
increasing responsiveness to our
customers.
Going for Growth
Our goal remains to grow Group
revenue at a double-digit rate year
on year. The overall addressable
end market is substantial and
growing, though macro-economic
uncertainty has impacted the timing
of customer investment, extending
decision-making cycles. However, the
fundamentals of the markets in
which we operate remain strong.
During 2022 we further consolidated
and focused our regional sales
structure through extensive training
and sales tools, supporting cross
selling and delivering a wider range
of machines to new and existing
customers. Our One Mpac model was
reinforced with significant investment
in trade shows, most notably the
flagship Chicago packaging exhibition,
Pack Expo, in September, resulting in
a significant uptick in both followers
and lead generation.
Innovation remains the key to
long term sustainable growth. We
have made significant progress in
2022 developing technologies to
support our solutions for the clean
energy sector in collaboration with
24M and FREYR. Furthermore,
we have launched additional
products marketed under the Mpac
Cube brand, which incorporates
innovations focused on improved
machine performance and digital
enhancements as well as further
Industry 4.0 enabled technology.
Our recently launched case packing
solutions have now become a key
product to offer our customers
in combination with other Mpac
solutions.
Make Service a Business
Service continues to grow year on
year supported by investments in
innovation and building resources
located in the regions our customers
operate. Mpac Cube was further
developed during the year,
incorporating our service installation
and commissioning, spare parts, site
service and training, together with
retrofits and upgrades. In addition,
a suite of digital products is now
available to provide customers with
advanced engineering, information
management, connected services
and machine insights, ensuring
our customers can fully embrace
Industry 4.0.
Our goal is to generate 30% of our
revenue from these services and we
are well on track to meet this target.
In 2022 we also enhanced our Service
model in the Americas, developing the
Americas healthcare service business
unit, which provides proactive and
responsive technical support specific
to the installed machine base. This
remains a key focus as we enter 2023.
We make sure your machine stays up to date
with the latest modernisations.
Our bespoke whole life service options
ensure unstoppable OEE and keeps your
machines in prime condition.
Mpac Group plc
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Mpac Group plc
Annual Report & Accounts 2022
Annual Report & Accounts 2022
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We make a difference through...
Helping businesses adapt
“ In our tireless search for a global automation partner that met
our challenging requirements, no other premium manufacturer
stood out as clearly as Mpac Group”
GASPARE GUARRASI – CHIEF OPERATING OFFICER
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Mpac were selected by Tattooed Chef, a leading plant-based
food company offering a broad portfolio of innovative plant-based
food products that include ready-to-cook meal bowls, acai and
smoothie bowls. The first Mpac solution cartons, case packs and
palletizes Organic Acai Smoothie Bowls, with the second line
dedicated to packaging their other signature ready-to-cook bowls.
Tattooed Chef requirement
Trusted supplier for a long-term partnership.
Holistic approach for a true automation solution for end of line.
Full automation within a smaller than desirable footprint.
Top load cartoning with challenging rate requirements and collation.
Mpac solution
5-step approach commencing with consultation.
Turnkey solution within desired areas.
Strong collaboration with a strong focus on the customer’s requirement.
Solution: LRC-400 top load cartoner, raised Solano top load case
packer and an LRC-600 palletizing solution – accommodating
a variety of carton and case sizes with load patterns.
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Operating review continued
Operational Efficiency
Our goal is to be a flexible
organisation which can respond
with agility to our customers’ needs,
leveraging our global internal
resources as one. Short term
operational challenges in 2022
highlighted the benefits of the prior
investment in business systems
which played a key part in mitigating
the impact for the full year.
Our global ERP and business systems
blueprint implemented in our facilities
in the Netherlands, Canada and the
UK, will be rolled out to our facility in
the US during 2023.
We are proud to have completed
the inaugural year of our Mpac
Academy and will look to extend this
in 2023 with a graduate development
programme, to include recent
graduates, aimed at enlarging our
graduate intake across all disciplines
in the Group and providing them with
a broad base of training, to support
their career and future development
with Mpac.
Environmental, Social & Governance
Outlook
We are fully committed to improving
our Environmental, Social &
Governance (‘’ESG’’) performance in
all areas. Sustainability is at the core
of the Mpac business model. Our
engineered automation and packaging
solutions provide customers with
sustainable and environmentally
sound equipment that support the
global megatrends of reductions in
packaging, particularly single-use
plastics, reduced waste and increase
overall equipment effectiveness.
Our end-to-end capabilities help
our customers to achieve their
sustainability goals.
Acquisition strategy and update
The Board continues to seek and
evaluate potential acquisition
opportunities, the focus of which is to
find 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 key market sectors. Several
opportunities are currently under
evaluation and further updates will
be provided as appropriate.
The Group has a strong order book
and prospect pipeline and continues
to focus on meeting customer
commitments.
Economic conditions of rising
energy costs, higher interest rates,
skilled labour shortages and
ongoing semi-conductor supply
constraints are expected to continue
from 2022 into 2023, setting the
context for customer investments
and decision-making.
The measures implemented
to respond to the short-term
operational challenges of increasing
inflation and supply chain disruption
in 2022 have placed the Group in
a good position to successfully
manage any ongoing disruption.
The Group remains focused on
executing its long-term strategy of
delivering OE and Service growth
at improved margins, increasingly
through our digital services customer
offering, together with increased
operational efficiencies.
We continue to work with our
customer, FREYR, to develop and
build a clean energy casting and unit
cell assembly line and, while timelines
have been extended, this project has
the potential to open the clean energy
sector to Mpac. Delivering the initial
development line and establishing
Mpac’s position as a trusted
partner to provide battery assembly
automation in this exciting and rapidly
developing market will be a focus for
the Group in 2023.
The Board believes the Group’s long
term prospects are positive and the
new financial year has started in
line with its expectations. Whilst the
macro-economic and geopolitical
uncertainty looks likely to continue,
Mpac is well positioned to meet its
strategic objectives.
Tony Steels
Chief Executive
22 March 2023
With your current and future needs in mind,
we develop fresh ideas and design innovative
machines.
Mpac was selected by a leading healthcare
customer who simplifies and improves
diabetes management around the world.
Mpac Group plc
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Mpac Group plc
Annual Report & Accounts 2022
Annual Report & Accounts 2022
Financial review
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WILL WILKINS
GROUP FINANCE DIRECTOR
“ Investment in working
capital to manage and
mitigate the impact of the
supply chain crisis on the
Group was successful in
securing revised project
build timeframes and is
expected to unwind in the
first half of 2023.’’
Revenue and operating results
Group revenues of £97.7m (2021:
£94.3m) represent an increase of 4%
compared to the previous year. OE
revenue remained broadly level at
£74.6m (2021: £74.1m), underpinned
largely by growth in EMEA and from
the clean energy sector. Services
revenue grew by 14% to £23.1m (2021:
£20.2m), driven predominantly by
growth in the Americas and Asia
Pacific. The rate of revenue growth
in all regions was impacted by
lengthening supply chain lead times
and operational inefficiencies from
erratic supplies of key electronic
components.
Overall order intake for the Group fell
by 29% to £83.8m (2021: £117.9m),
due primarily to the impact of
lengthening customer investment
decision making in the light of a more
challenging economic outlook.
The closing 2022 order book reduced
to £67.2m (2021: £78.4m), albeit with
increased customer diversification.
The value of the closing order book,
whilst below the prior year, continues
to provide good coverage over the
forecast 2023 revenue. We remain
vigilant to project execution risk and
the impact on operational efficiency
of supply chain disruption.
The Group was significantly impacted
by the supply chain crisis in 2022,
which resulted in a reduction in
market profit guidance, announced in
July 2022. Pleasingly, the measures
that we implemented have been
successful and the Group reported a
full year underlying operating profit
of £3.9m, ahead of revised market
guidance. Extended project build
times led to an increase in the volume
of partially complete projects at
the year end and resulted in higher
working capital. After the cost of
debt to fund the increase in working
capital, underlying profit before tax
for the year of £3.5m was in line with
revised market guidance.
We manage the business in two parts,
OE and Service and across three
regions, Americas, EMEA and Asia.
Revenue by region was Americas
£52.8m (2021: £63.3m), EMEA
£37.5m (2021: £26.7m) and Asia
£7.4m (2021: £4.3m).
Revenue by sector was food &
beverage £45.7m (2021: £45.3m),
healthcare £30.1m (2021: £29.2m),
clean energy £11.1m (2021: £2.6m) and
other £10.8m (2021: £17.2m).
Individual OE contracts, and to a lesser
extent the Service business, can be
large. Accordingly, a few significant
orders can have a disproportionate
impact on the growth rates seen in
individual sectors and regions from
year to year.
Key Performance Indicators
The Group uses a range of
measures to monitor progress
against its strategic and financial
plans. The key performance
indicators are presented below:
£83.8m
Overall Group order intake
(2021: £117.9m)
£97.7m
Revenue
(2021: £94.3m)
£3.5m
Underlying profit before tax
(2021: £8.6m)
3.6%
Underlying PBT return on sales
(2021: 9.3%)
13.3p
Underlying EPS
(2021: 39.7p)
Statutory Key Performance Indicators
The statutory measures relating to the underlying Key Performance Indicators above are as follows:
£0.2m
Profit before tax
(2021: £8.2m)
0.2%
PBT return on sales
(2021: 8.7%)
-2.2p
Basic EPS
(2021: 39.1p)
Mpac Group plc
Annual Report & Accounts 2022
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2022
£m
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(0.8)
(0.3)
(0.6)
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(1.6)
–
–
(3.3)
0.2
2021
£m
8.6
(1.0)
(0.4)
–
2.4
(1.6)
(0.1)
0.3
(0.4)
8.2
Original Equipment
Reconciliation of underlying profit before tax to profit before tax
Underlying profit before tax
Non-underlying items
Defined benefit pension scheme – other costs and interest
Acquisition costs
Reorganisation costs
Release of deferred consideration
Acquired intangible asset amortisation
Deferred consideration interest
Profit on disposal of Coventry facility
Non-underlying items total
Profit before tax
OE order intake of £57.2m (2021:
£96.0m) was 40% below the prior year
due to customer orders being brought
forward to 2021. OE revenues of
£74.6m (2021: £74.1m) were in line with
the prior year.
OE revenue generated in the Americas
region was 23% below the prior year at
£40.9m (2021: £53.4m). The decrease
in revenue was primarily driven by
supply chain delays impacting project
deliveries in the food & beverage
sector.
In EMEA, OE revenue in the year
was £27.8m (2021: £17.4m) with the
increase due primarily to the growth
within the clean energy sector in
2022. OE revenue in Asia was £5.9m
(2021: £3.3m).
Service
Order intake for the Service division
was 21% above 2021 at £26.6m (2021:
£21.9m). Service revenue of £23.1m
(2021: £20.2m) was 14% above the
prior year.
Service revenue in the Americas
showed strong growth at £11.9m
compared to £9.9m in 2021, with
the increase being driven largely by
the healthcare and food & beverage
sectors. EMEA revenue in the year was
£9.7m compared to £9.3m in 2021.
Asia revenue in the year was £1.5m
compared to £1.0m in 2021.
Revenue (£m)
Underlying profit before tax (£m)
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60
40
20
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2019
2020
2021
2022
2018
2019
2020
2021
2022
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Net assets (£m)
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2019
2020
2021
2022
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40
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2019
2020
2021
2022
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Mpac Group plc
Annual Report & Accounts 2022
Annual Report & Accounts 2022
Financial review continued
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Operating results
Gross profit was £24.4m (2021:
£28.9m) and underlying selling,
distribution and administration costs
were £20.5m (2021: £20.1m).
Underlying operating profit was
£3.9m (2021: £8.8m). Underlying
profit after tax was £2.7m (2021:
£7.9m) and statutory loss for the year
was £0.4m (2021: profit of £7.8m).
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, acquisition-related items,
reorganisation costs and property
transactions 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.
Net financing income was £0.2m
(2021: expense of £0.1m). Tax on
underlying profit before tax was
£0.8m (2021: £0.7m). The tax charge
on the Group’s profit before tax was
£0.6m (2021: £0.4m).
Dividends
Having considered the opportunities
for investment in the growth of the
Group, the Board has decided that it is
not appropriate to pay a final dividend.
No interim dividend was paid in
2022. Future dividend payments will
be considered by the Board in the
context of future growth opportunities
and when the Board believes it is
prudent to do so.
Cash, treasury and funding activities
Cash at the end of the year was
£4.2m (2021: £14.5m), after £8.0m
of borrowings were drawn during
the year. Net cash outflow before
reorganisation was £12.8m (2021:
inflow of £0.8m), after an increase
in working capital of £17.7m (2021:
£8.2m) and defined benefit pension
payments of £2.1m (2021: £2.6m).
Reorganisation and acquisition costs
of £0.8m (2021: £0.3m) were paid
in the year. Net taxation payments
were £0.4m (2021: £0.1m). Capital
expenditure on property, plant and
equipment was £1.0m (2021: £1.5m),
and capitalised product development
expenditure was £1.4m (2021: £0.2m).
Net current assets at the end of the
year were £12.2m (2021: £12.5m)
and net assets at the year end were
£62.2m (2021: £65.4m).
Deferred consideration of £0.8m
in respect of the acquisition of
Switchback in 2020, following the
satisfaction of certain performance
targets in the year to 30 September
2022, was paid in October 2022. The
two-year performance criteria relating
to the purchase of Switchback in
2020 has now concluded with the
deferred consideration paid in full.
The Group entered into a three-year
funding agreement with HSBC in
2022, which provides the Group with
a £20.0m revolving credit facility to
support future growth. This facility
also provides a number of other
opportunities to 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 Group utilised £8.0m of this
facility in the year.
There were no significant changes
during 2022 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
currencies other than the functional
currencies of its various operations.
Working Capital
The global supply chain crisis
resulted in delays to project builds
and more OE projects at the design
and assembly stage of completion
than at the start of the year. This
change delayed the achievement
of completion milestones, delaying
invoicing to customers.
This build-up of contract assets
peaked in the fourth quarter of 2022
following the supply of certain key
electrical components. At the same
time, order intake in the second half
of 2022 was weighted towards the
end of the year, which broadly did
not allow for sufficient time for the
collection of customer deposits before
the year end. This combination of
factors led to an increase in working
capital which we expect to largely
unwind in the first half of 2023.
Pension schemes
The Group is responsible for defined
benefit pension schemes in the UK
and the US, 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 2022
and was based on the information
used for the funding valuation work
as at 30 June 2021, updated to reflect
both conditions at the 2022 year end
and the specific requirements of IAS
19. The smaller US defined benefit
schemes were valued as at
31 December 2022, using actuarial
data as of 1 January 2022, 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 £31.5m (2021:
£35.7m) which is included within
the Group’s assets. The value of the
scheme’s assets at 31 December 2022
was £311.2m (2021: £453.1m) and the
value of the scheme’s liabilities was
£279.7m (2021: £417.4m). Despite the
unprecedented volatility in financial
markets around the world in 2022,
the scheme’s protection strategies,
notably its use of Liability Driven
Investments, ensured that the surplus
was protected.
The IAS 19 valuations of the US
pension schemes showed an
aggregated net deficit of £2.1m
(2021: £2.5m) with total assets of
£8.1m (2021: £9.9m).
During the year the Company made
payments to the UK defined benefit
scheme of £2.0m (2021: £2.3m).
The UK scheme’s triennial valuation
as at 30 June 2021 was completed
in the year, with the reported deficit
reducing to £28.4m (30 June 2018:
£35.2m). The contributions remained
at the same level, but the recovery
period reduced to four years and six
months (30 June 2018: 6 years
1 month).
Equity
Group equity at 31 December 2022
was £62.2m (2021: £65.4m). The
movement arises mainly from the loss
for the year of £0.4m, a net actuarial
loss in respect of the Group’s defined
benefit pension schemes of £3.7m
and changes in the fair value of cash
flow hedges of £1.3m; all figures are
stated net of tax where applicable.
Will Wilkins
Group Finance Director
22 March 2023
Principal risks and uncertainties
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.
Mpac Group plc
Annual Report & Accounts 2022
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Risk
SUPPLY CHAIN
Timely, efficient supply of parts and purchased
components is critical to our ability to deliver to
our customers. Manufacturing and supply chain
continuity is exposed to external events that
could have significant adverse consequences,
including natural catastrophes, civil or political
unrest, changes in regulatory conditions, terrorist
attacks and disease pandemics – this applies to
our own manufacturing sites and those of our
key suppliers. The inability to deliver products/
solutions to customers would impact financial
performance and our reputation.
POLITICAL, ECONOMIC AND MARKET CYCLES
The Group is potentially affected by global political
and local economic cycles and changes in a
number of industrial sectors, including Healthcare
and Food and Beverage industries. Such potential
changes include those arising as a consequence
of governmental activities, such as escalating
political tensions, regulation and taxation or as a
consequence of competitive developments within
the packaging machinery market.
Mitigation
2022 Movement
Increasing
Extending lead times for the supply of customer
specified electrical components resulted in
reduced operational efficiency and delayed
project execution. The impact was compounded
by increases in the price of materials and
components impacting overall project margins.
Supply chain disruption is expected to continue
into 2023. Alternative sources of supply,
engineering rework and closer management of the
supply chain, alongside increased stock holding,
have partially mitigated the impact.
Increasing
The ongoing events in Ukraine demonstrate that
political tensions can have a direct impact on the
security of supply chains and underlying rates of
commodity, energy and material cost inflation and
global interest rates, all of which impact customer
investment decision making.
Business continuity recovery plans are in place. We have
undertaken mitigation plans for sole-source suppliers,
sub-contractors and service providers to identify and
qualify alternative sources of supply where appropriate.
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 heightened
global political volatility, with shifts in sector demand and new
opportunities being accelerated. Mpac has benefited from new
opportunities and sought to mitigate the impacts where possible,
including those from energy insecurity.
In respect of mitigating against the impact of political unrest, Mpac
maintained a wide and diverse customer and supplier base which
is not dependent upon any one jurisdiction.
In respect of mitigating against the impact of competitive
disruption, the Group actively monitors (via publicly available
information) and responds to both product and competitor
innovation, as well as seeking opportunities for acquisitions where
aligned to its strategic objectives.
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Principal risks and uncertainties continued
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 customer’s products or restrictions upon/
changes to the methods of packaging and
distribution.
The Group may also be affected by changes
in regulations affecting its manufacturing and
distribution processes, especially in areas such as
health and safety and environmental compliance.
LOSS OF TRADING PARTNERS
The Group faces the general risk of trading
partners, including both customers and suppliers,
ceasing to operate; the loss of any such partner
could have an adverse effect on the Group’s
operating results and financial condition, including
potentially affecting the viability of a subsidiary
company. A number of customers operate in
countries which may face a higher degree of
political risk than others.
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.
Mitigation
2022 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 daily, provides some mitigation against
sudden change.
The Group has extensive knowledge and experience in designing
machines to accept all kinds of products and packaging materials,
including those with the lowest environmental impact and
machines designed to minimise packaging material usage whilst
maintaining the customer’s product in perfect condition.
The Group’s operations are closely monitored by internal
processes, emergent risk reviews and ongoing risk assessments
to ensure both regulatory compliance and a safe working
environment.
Unchanged
The demand for new packaging and innovation in
this area has continued unabated, to the benefit of
the Group.
No new regulatory challenges have emerged in
2022, though the expanding range of customers
supplied has added to the site regulatory
compliance requirements.
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 – Unchanged
Suppliers – Increasing
The group continues to have 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. 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.
Increasing
Although the Group is now pursuing larger projects
than usual, especially in the Clean Energy sector
(with Freyr and others), it utilises strong contract
management processes which have ensured that
the Group has partially mitigated and contained
the risks from cost over-runs and delays.
Mpac Group plc
Mpac Group plc
Annual Report & Accounts 2022
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Mitigation
2022 Movement
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.
IT SECURITY
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 if a site or its region were unable to function for a
period of time.
Unchanged
Experience following the Covid pandemic has
shown that, in the regions in which the Group’s
sites are based, considerable efforts have
been made to rapidly respond without causing
whole-site closures.
Appropriate contractual protections continue to be
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 currencies other than the functional currencies of its operations.
Unchanged
Volatility in the foreign exchange markets has
been exceptionally high in 2022 but the use of
hedging, short quote validity periods and matching
of supply locations to customers continues to
minimise the impact.
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 interdependence 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.
A third party expert review of Mpac IT security and
systems was recently completed, highlighting no
significant areas of concern.
AVAILABILITY OF FUNDING
The banking facilities in place prove insufficient
for the needs of the Group to meet its growth
objectives.
The Group has access to a £20.0m revolving credit facility with
HSBC committed to July 2023, of which £8.0m is currently drawn
and the Group holds cash balances of £4.2m.
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.
Unchanged
The committed HSBC facility plus available free
cash provide the Group with adequate funding
to meet its longer term strategic objectives and
operating capital requirements.
Mpac Group plc
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Mpac Group plc
Annual Report & Accounts 2022
Annual Report & Accounts 2022
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Principal risks and uncertainties continued
Risk
Mitigation
2022 Movement
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
£289.9m at 31 December 2022 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
£319.3m at 31 December 2022, 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 £2.0m per annum in respect
of deficit funding following an actuarial funding
valuation as at 30 June 2021. The UK scheme is
subject to a full actuarial funding valuation as at
30 June 2024 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.
ETHICAL BREACHES
The Group operates in highly regulated markets
requiring strict adherence to laws with risk areas
including Bribery & Corruption, International Trade
Laws, Human Rights, Modern Slavery and General
Data Protection Regulation.
Ethics or compliance breaches could cause harm
to the Group’s reputation, financial performance,
customer relationships and internal morale.
The Group and the pension schemes implement liability reduction
strategies where such opportunities exist, and the Group maintains
regular dialogue with its pension advisors on such matters. Regular
meetings are held with the trustee of the UK pension scheme,
to input into their asset investment decisions and to apprise the
trustee of the progress of the Group to help inform them in making
decisions which may impact the scheme funding requirements.
In particular, the Group and the trustees of the schemes have an
active programme of risk mitigation for the schemes, including
seeking to match investments to the underlying liabilities and
to provide options for the membership which can benefit both
themselves and the schemes. However, many factors which
impact the valuations and funding requirements of the pension
schemes are outside the control of the Group.
Decreasing
The extreme market volatility seen during 2022
tested the strategies employed by the scheme and
demonstrated the effectiveness of the liability and
volatility mitigation measures, which have been
further derisked to largely eliminate interest and
inflation risk. The scheme did not seek additional
short term funding at any time and was able to
meet the funding requirements of its strategies
throughout the year.
The pension schemes remain at the risk of being
affected by regulatory changes.
The Group has a comprehensive risk management and review
process, including contract risk management, which is aimed at
minimising the risk of such claims arising because 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.
A Group-wide ethics policy, which is reviewed by the Board
annually sets out the principles that the Board expects all
businesses and employees within the Group to adhere to.
Unchanged
No concerns raised in the year.
23 Corporate governance02 Strategic report48 Financial statements Mpac Group plc
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Annual Report & Accounts 2022
Annual Report & Accounts 2022
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Risk
Mitigation
2022 Movement
CONTRACTUAL OBLIGATIONS
The Group could fail to deliver contracted solutions
and/or fail in our contractual execution due to
delays or breaches by our suppliers or other
counterparties. Production delays, quality and
warranty issues could all cause unexpected losses
and could potentially lead to breach of contract
and expenses due to disputes and claims.
This could lead to loss of customers and
reputational damage within the industry alongside
loss of revenue and profit due to higher costs,
liquidated damages and/or other penalties.
SUSTAINABILITY AND CLIMATE CHANGE
The Group’s operations and strategies could be
deemed by stakeholders and potential investors
to fail to comply with national and international
targets on climate change reduction. This could
lead to issues with trading and employment and
financial penalties.
COVID-19
The Group has identified three categories of risk
associated with the spread of COVID-19. Firstly,
the risk associated with customer confidence and
investment decision making which can directly
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 would result in a production
stoppage whilst the facility was deep cleaned,
and employees were quarantined.
Contracts are managed and delivered by programme management
teams that regularly review risks and take appropriate action,
including extensive validation processes, assessments of execution
risks and tight focus upon both contract and change management.
Increasing
Stresses on global supply chains drives
increased risk.
Significant and higher-risk contracts are subject to an enhanced
review and approval process throughout the Group, including
appropriate contract risk management processes prior to
acceptance.
The diversified nature of the Group mitigates exposure to
single contracts.
Expanded range of products and applications
increases the risk of product delays and/or
quality issues.
The Group’s products and strategy naturally lend themselves to
be well placed environmentally. We partner with our customers to
drive their packaging solutions in a more environmentally friendly
manner, and consequently help them reduce emissions.
The Group implemented a series of measures to preserve cash,
reduce discretionary spend and to focus on digital marketing and
innovation 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, 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 employee’s health and
wellbeing by implementing appropriate social distancing regimes
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.
Increasing
The global focus on Environmental, Social and
Governance issues is increasing. The global focus
on Environmental, Social and Governmental issues
is increasing. Mpac is a low generator of emissions
and waste, with the greatest potential impact
of the Group to reduce emissions being in the
production of operationally and energy efficient
machinery.
Decreasing
All employees have returned to work and
project execution activity has returned to
pre-pandemic levels.
Travel restrictions have eased, reducing the
restrictions on completion of on-site service work
and on installing and commissioning of equipment.
Lengthening supply chain lead times due to
increase in global demand as economies recover
from the pandemic has become a significant
headwind to the timing of revenue development
and is captured as a separate risk.
48 Financial statements23 Corporate governance02 Strategic report
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Mpac Group plc
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Section 172 statement
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Section 172 of the Companies Act 2006 (“S172”) requires Mpac’s Directors to act in good faith and in the way that they consider to be most likely to promote the
success of the Company for the benefit of its members as a whole and, in doing so, to have regard to the interests of other stakeholders. The Directors should
also consider the desirability of maintaining high standards of business conduct, the need to act fairly between members of the Company and the likely long-term
consequences of their decisions.
In the table below, we set out our key stakeholder groups and how we engage with each of them. Each type of engagement is designed to foster effective and
mutually beneficial relationships so that we continue to work effectively with our stakeholders.
Stakeholder group
How we engage
EMPLOYEES
As at 31 December 2022,
we employed 458 people in
the Group, based in the UK,
Canada, the United States,
the Netherlands, Singapore
and Thailand.
Our employees bring a broad
range of experience, expertise
and perspective to Mpac that
contributes to the delivery
of our strategic objectives.
The Board recognises
that employees are the
cornerstone of the business.
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.
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.
The Board is updated at each Board meeting on health and safety matters. Recent years have seen few incidents, and those that have
occurred have been relatively minor in nature. In order to ensure that complacency does not set in, the Board has taken steps to place
increased focus on pro-active measures. Learnings from local incidents on one site are increasingly applied globally at all sites. Increased
emphasis is placed on anticipation of risks and preventative measures. These include local procedural risk reviews, and full independent site
health and safety audits undertaken by third parties at the request of the Board from time-to-time and where necessary.
SUPPLIERS
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 does not follow any external procurement or payment code. The Group’s trade creditor days outstanding at the
year-end were 69.
During 2022 there have been supply chain issues which have led to delays in deliveries of raw materials and electronic chips which have had an
effect on production schedules and have restricted output. This has been challenging to the Group and the procurement teams have worked
closely with the Group’s various suppliers to manage those delays and to expedite deliveries where possible. As 2023 progresses, we still see the
supply chain as being an area of concern and the Board receives regular update from the Executive Directors on this.
CUSTOMERS
The Group has good relationships with its customers, some of whom are long-standing. The supply chain issues encountered by the businesses
have had an effect on the delivery of projects to some of our customers. In those cases, we work closely with the customers to inform them of the
delays and agree revised delivery timelines.
Customers do change their specifications mid-project on occasions, which does result in the production timetable having to be amended to reflect
the changes.
We continue to keep our customers informed of the progress of their projects with regular meetings and discussions.
COMMUNITIES
We believe that business should be a force for good in the communities in which we operate. We aim to support and inspire our employees to
make a difference in their communities.
The responsibility for community engagement is devolved to the local business units. The Group encourages employees to be involved in
charitable, educational or other social pursuits which contribute to the local community, provided they do not interfere with the performance
of the employee’s duties.
Further details on the Company’s strategy and long-term decisions are set out in the Chairman’s introduction and Operating review. Further details of our
stakeholder engagement, including the impact of the Company’s operations on the environment, are set out in the Directors’ Report on pages 45 to 46.
Ethics policy
The Group’s Ethics policy is reviewed annually and updated as necessary. The policy, which is distributed to every Group employee and is available to view on the
Group’s website at www.mpac-group.com, sets out the values which Mpac seeks to encourage and certain principles governing the way it does business.
The strategic report was approved by the Board and signed by Andrew Kitchingman, Chairman, on 22 March 2023.
23 Corporate governance02 Strategic report48 Financial statements Mpac Group plc
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Chairman’s corporate governance statement
As Chairman of the Company, I have pleasure in presenting the corporate
governance statement for 2022.
The QCA Corporate Governance Code 2018 (“QCA Code”)
Sound governance is fundamental to ensuring that a Company is run effectively
and responsibly, which assists in a Company’s long-term success. Accordingly,
the Board has chosen to follow the QCA Code since 2018.
Because corporate governance is not a static process, there is a need to ensure
that policies and practices are kept under review to ensure that the Company
meets the required standards, while also ensuring that these are in line with the
growth and overall strategic plan for the Company.
The Board considers that the policies, procedures and relevant systems,
which have been implemented to date, have given us a firm foundation for our
governance structure.
The Company believes that during 2022 it has complied with the 10 principles
set out within the QCA Code as shown on the opposite page.
Andrew Kitchingman
Chairman
22 March 2023
ANDREW KITCHINGMAN
CHAIRMAN
“ We are committed to
excellence in corporate
governance, and maintain
clear policies and practices
that promote good
corporate governance.”
23 Corporate governance48 Financial statements
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Principles of the QCA Code
Deliver Growth
How the Company has complied
1. Establish a strategy and business model which promote long-term value
for shareholders.
The strategic aims and objectives of the Group are set by the Board. The
strategy is set out on pages 5 to 7 and on the Group’s website.
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.
When implementing the Group’s strategic aims, the Board takes into account
expectations of the Company’s shareholders and also its wider stakeholders
and social responsibilities.
4. Embed effective risk management, considering both opportunities and
threats, throughout the organisation.
The responsibility for the Group’s internal control and risk management
systems also falls under the Board’s remit.
The risks faced by the Group are regularly reviewed by the Board, which
ensures that the mitigation strategies in place are the most effective and
appropriate for the Group’s operations.
Dynamic Management Framework
5. Maintain the Board as a well-functioning, balanced team led by the
Chairman.
In my role as Chairman, I regularly consider the operation of the Board as a
whole and the performance of the Directors individually.
6. Ensure that between them the Directors have the necessary up-to-date
experience, skills and capabilities.
Directors attend seminars from time to time as appropriate to assist with
training.
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.
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 are on merit, but with due consideration to the
need for diversity on the Board. Such appointments are 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 attend the
Group’s offices and other Group events. With a relatively small employee base,
such interactions mean it is relatively straightforward for the Board to promote
and assess the desired corporate culture.
Build Trust
10. Communicate how the Company is governed and is performing by
maintaining a dialogue with shareholders and other relevant stakeholders
The application of the QCA Code is monitored by the Board which will revise its
governance framework as necessary as the Group evolves.
The Board recognises the importance of maintaining regular dialogue with
institutional shareholders to ensure that the Group’s strategy is communicated
and to understand the expectations of our shareholders.
48 Financial statements23 Corporate governance
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Board of Directors
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Andrew Kitchingman FCA
Independent Non-Executive Chairman
Adam Holland
Chief Operating Officer
Sara Fowler
Independent Non-Executive Director
Doug Robertson
Independent Non-Executive Director
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Appointment: Douglas Robertson
joined the Mpac Group Board on
1 November 2018 as a Non-Executive
Director.
Committees: Chair of the Audit
Committee and member of the
Remuneration and Nomination
Committee.
Skills and experience: Douglas is a Fellow
of the Institute of Chartered Accountants
in England and Wales and 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 both HSS Hire Group plc
and Zotefoams plc.
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, Trustee of Northern Aldborough
Festival, Chairman of British Board of
Agrément and a member of the northern
fundraising Board of Marie Curie. He is
a treasurer of Ripon Cathedral.
Dr Tony Steels
Chief Executive
Appointment: Tony Steels joined
the Company and was appointed to
the Board as Chief Executive on
6 June 2016.
Skills and experience: Tony previously
held a number of senior UK and
international management positions
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
Appointment: Adam Holland joined the
Mpac Group Board as Chief Operating
Officer on 1 November 2022.
Skills and experience: Adam is a
Chartered Engineer and Physicist and
former senior executive at JCB. Adam
Joined JCB in 2016, initially as General
Manager at JCB Service providing
leadership and revenue growth for the
multinational division before taking
over as Managing Director at JCB
Power Products Ltd, responsible for the
production sites in the UK, India, and
a global distribution network focused
on sales growth in the US and Europe.
Most recently Adam led a programme
to drive a structural reduction in product
cost across JCB Group in the role of
Commercial Director, Group Purchasing.
Prior to joining JCB, Adam held senior
business leadership roles in the Energy,
Oil & Gas, and Aerospace sectors as
Vice President at Siemens and Rolls
Royce, and in Space and Defence at
AEA Technology plc.
Key strengths:
Extensive Commercial and Operational
experience gained from roles based in
both the UK and internationally
Proven track record in business
development
Will Wilkins
Group Finance Director
Appointment: Will Wilkins joined the
Mpac Group Board as Group Finance
Director on 28 June 2018.
Skills and experience: Will is a Chartered
Certified Accountant and, prior to his
appointment, he held a variety of senior
positions with the Company, including
Group Financial Controller and Group
Operations Director. He previously held
a senior financial position at BSH Home
Appliances and began his career at
Grant Thornton in 1992.
Key strengths:
Extensive experience 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
Appointment: Sara Fowler joined the
Mpac Group Board on 6 March 2020 as
a Non-Executive Director.
Committees: Chair of the Remuneration
and Nomination Committee and a
member of the Audit Committee.
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.
Matthew Taylor
Independent Non-Executive Director
Appointment: Matthew Taylor joined the
Mpac Group Board on 21 October 2021
as a Non-Executive Director.
Committees: Member of the Audit
Committee and the Remuneration and
Nomination Committee.
Skills and experience: Matthew has
over 20 years of Executive and Board
of Directors experience within the
automotive, steel and manufacturing
sectors across the world, including
Belgium, the UK and Hong Kong. He
has previously held several executive
level roles including CEO of J C Bamford
Excavators, CEO of Edwards Vacuum
and more recently, he held the role of
CEO of Bekaert SA until 2020.
Key strengths:
Extensive senior executive experience
Steel and Manufacturing experience
of over 20 years
Strong experience of good corporate
governance
Other commitments: Non-Executive
Director at both Surface Transforms plc
and Strip Tinning Holdings plc.
23 Corporate governance48 Financial statements
Mpac Group plc
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3
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Left to right: Matthew Taylor, Doug Robertson, Sara Fowler, Adam Holland, Andrew Kitchingman, Dr Tony Steels, Will Wilkins.
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Annual Report & Accounts 2022
Corporate governance report
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Board meetings
The Board has an established schedule of meetings throughout the year,
with additional meetings convened when required. The Board addresses
several recurring items at each Board meeting, including strategic, operational
(including health & safety) and financial performance updates. The Directors
maintain a dialogue between Board meetings on a variety of matters.
The table below sets out the attendance record of individual Directors at the
Board meetings held during 2022:
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, together with details of the recruitment process for Adam Holland,
may be found on pages 36 to 44. 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.
Directors
A J Kitchingman
Dr A Steels
W C Wilkins
A P Holland (joined the Board on 1 November 2022)
S A Fowler
D G Robertson
M G R Taylor*
*Mr Taylor was unable to attend one meeting due to illness.
Board
9/9
9/9
9/9
2/2
9/9
9/9
8/9
Composition and independence of the Board
The Board currently consists of seven Directors: the Non-Executive Chairman,
three Executive Directors and three Non-Executive Directors. However, for
the majority of the year it was six Directors, only two of whom were Executive
Directors. All the Non-Executive Directors are considered independent. Details
of each Director’s experience and background are given in their biographies
on page 26. Their skills and experience are relevant and cover areas including
financial management and control, capital raising, capital goods industries,
banking, engineering, strategic planning, business development, mergers and
acquisitions and international management.
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 sets 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.
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 Operating Officer
Innovation Director
Regional Director – Americas
Regional Director – EMEA
The Board delegates certain responsibilities to its Committees, so that it can operate efficiently and give an appropriate level of attention and consideration to
relevant matters. The Company has an Audit Committee and a combined Remuneration and Nomination Committee, both of which operate within a scope and
remit defined by specific terms of reference determined by the Board. The Annual Report includes a report from each of these Committees and describes the
work each Committee has undertaken during the year. 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.
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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 nine 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.
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;
dividend strategy;
review and approval of budget;
review against strategy;
implementation of strategy;
going concern and cash flow;
material customer proposals;
consideration of banking arrangements;
investor relations;
acquisitions and integration;
review of corporate governance and Group policies;
review of AGM business;
outcomes from the Board evaluation process; and
briefings and review of conflicts of interest.
During the year, the majority of the meetings were held virtually and in-person,
with no Board meetings held overseas. This did not impact the Directors from
undertaking their duties and all Directors participated fully in the meetings.
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.
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Corporate governance report continued
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.
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 2022 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 17 to 21.
Internal control and risk management procedures can only provide reasonable
and not absolute assurance against material misstatement. The internal control
procedures were in place throughout the financial year and up to the date of
approval of this report.
Financial and business reporting
The Board seeks to present a fair, balanced and understandable assessment of
the Group’s position and prospects in all half-year, final and any other ad-hoc
reports, and other information as may be required from time to time. The Board
receives a number of reports, including those from the Audit Committee, to
enable it to monitor and clearly understand the Group’s financial position.
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, 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.
23 Corporate governance48 Financial statements
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.
Annual General Meeting (AGM)
All shareholders are encouraged to attend the 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 17 May 2023. The Notice of Annual General
Meeting is set out on pages 103 to 109 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.
Mpac Group plc
Annual Report & Accounts 2022
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Andrew Kitchingman
Chairman
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“ I am pleased to present
my report as Chair of
the Audit Committee
for the year ended
31 December 2022.”
Audit committee report
The Committee met four times during 2022 and the following served as
members during the year.
Committee member
Meeting attendance
D Robertson – Chair
A Kitchingman*
S Fowler
M Taylor
4/4
3/4
4/4
4/4
*Mr Kitchingman missed one meeting due to illness.
The following regularly attend meetings:
the Executive Directors
the Group Financial Controller
DOUG ROBERTSON
CHAIR OF THE AUDIT COMMITTEE
Chair’s letter
Dear Shareholders,
I am pleased to present my report as Chair of the Audit Committee for the year
ended 31 December 2022. In this Report I have sought to provide investors
and other stakeholders with an understanding of the approach that the Audit
Committee (the “Committee”) has taken to provide assurance over the 2022
Annual Report and Accounts. The Directors’ responsibility statement in respect
of the Annual Report can be found on page 47.
The Committee has continued to play a key role within the Group’s governance
framework to support the Board in matters relating to financial reporting,
internal control and risk management. It has focused on ensuring that the
interests of the shareholders are properly protected in relation to the Group’s
financial reporting and internal control and challenging the decisions and
approach taken by management relating to the content, judgements and
disclosures within the Company’s financial statements.
The Board directs the Committee to advise on whether the Annual Report is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company’s position and performance, business
model and strategy.
The Committee receives reports from management covering the key areas of
estimation and judgement underpinning the financial statements and ensures
that the related disclosures reflect supporting information. It challenges
management to explain and justify their interpretation. The Committee is
supported in this by the external auditors who present their findings to the
shareholders in the Independent Auditor's Report.
The Committee is responsible for ensuring that the relationships between
management, the external auditors and the Committee are appropriate and
provides information on how the Committee assesses the independence of the
external auditors in the Audit Committee Report.
As Chair I strive to ensure that the Committee’s agenda is kept under review
and aware of relevant developments. An evaluation of the Committee's
performance has been undertaken in respect of 2022 and the results discussed
by the Committee. No substantive actions were required as a result of the
Committee evaluation.
representatives from the external auditors, PKF Littlejohn LLP (PKF)
representatives from BDO, who provide independent support to the Internal
Audit function on a co-sourced basis
Other members of the management team may also be asked to attend
meetings for discussion on specific issues. The Committee also meets with the
external auditors at least twice each year without management being present
and the Chair also has private meetings with the audit partners at least twice
per year.
The Committee is authorised to seek legal or other independent professional
advice as it sees fit but has not done so during the year.
The qualifications of Committee members are outlined in the Directors’
biographies on page 26. The members of the Committee are all independent
non-executive directors. The Board is satisfied that the Committee has
competence relevant to the sectors in which the Group operates and its
members have an appropriate level of experience in corporate and financial
matters and are financially literate. The Chair is a Fellow of the Institute of
Chartered Accountants of England and Wales. He previously served as Group
Finance Director of SIG plc until he retired from the role. The Board is satisfied
that he has recent and relevant financial experience as required by the Code.
Main responsibilities of the Committee
Reviewing the financial statements and announcements relating to the
financial performance of the Company, including reporting to the Board on
the significant issues considered by the Committee in relation to the financial
statements and how these were addressed;
Reviewing the scope and results of the annual audit and reporting to the
Board on the effectiveness of the audit process and how the independence
and objectivity of the auditors have been safeguarded;
Reviewing the scope, remit and effectiveness of the internal audit function
and the Group’s internal control and risk management systems;
Reviewing significant legal and regulatory matters;
Overseeing the Company’s relations with the external auditor;
Douglas Robertson
Chair of the Audit Committee
23 Corporate governance48 Financial statements
Policies for non-audit services and engagement of former employees of the
external auditor
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Mpac Group plc
Annual Report & Accounts 2022
The Committee has in place policies that are reviewed annually relating to the
employment of former employees of the external auditor and the engagement
of the auditor, or advisers related to the auditor, on non-audit services which
provide that the external auditor will not undertake any non-audit related work
other than tax compliance 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 auditor.
Financial reporting
The primary role of the Committee in relation to financial reporting is to review
with both management and the external auditors, and report to the Board the
appropriateness of, the annual and half-year financial statements, considering
amongst other matters:
Clarity of the disclosures and compliance with financial reporting standards
and relevant financial and governance reporting requirements;
Areas in which significant judgements have been applied, including
discussions on such matters undertaken with the external auditors; and
Whether the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company’s performance, business model and strategy.
In addition to the above, the Committee supports the Board in completing
its assessment of the adoption of the going concern basis of preparing the
financial statements. The Committee performed a robust review of the process
and underlying assessment of the Group’s longer-term prospects made by
management. These included:
The review period and its alignment with the Group’s strategic plans;
The assessment of the prospects of the Group after consideration of the
Group’s principal risks, current financial position, and ability to generate cash;
and
The modelling of the financial impact of additional key scenarios which
encompass the potential impact of crystallisation of one or more of the
principal risks.
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Reviewing matters associated with the appointment, terms, remuneration,
independence, objectivity and effectiveness of the external audit process and
reviewing the scope and results of the audit;
Reporting to the Board on how the Committee has discharged its
responsibilities; and
An assessment of the risk management process including the identification
of key risks and the monitoring and mitigation thereof.
Terms of Reference for the Audit Committee can be found on
www.mpac-group.com
Activities during the year
A summary of the Committee’s principal activities in 2022 is set out below:
Review the draft Annual Report and Accounts 2021 and draft preliminary
results announcement
Undertaking an audit tender and the subsequent appointment of PKF
Littlejohn LLP as external auditor
Review of results of internal control support procedures provided by BDO LLP
Review internal audit plan for the year
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
Internal Control review and update
Consideration of and approval of external audit fee quotation for 2022
Review and approval of the external audit plan for 2022
Review and approval of the non-audit work policy
Review of internal controls and risk management systems
Review of whistleblowing arrangements
Review of anti-bribery and corruption policy and procedures
Review of Group principal risks and uncertainties
External auditor
The Committee undertook a full audit tender during 2022, led by the Audit
Committee Chair and Group Finance Director. They met with a number of audit
firms, including the auditor at that time, and recommended to the Committee
as a whole that PKF be appointed as the new auditor to the Group. The
Committee, in turn, proposed that PKF be appointed and this was approved by
the Board. The Committee monitors the relationship with PKF to ensure that
auditor independence and objectivity are maintained.
The Committee assesses auditor independence by obtaining assurances
from PKF that all partners and staff involved are independent of any links to
Mpac and confirmation that all partners and staff comply with their ethics and
independence policies and procedures which are fully consistent with the FRC’s
Ethical Standard.
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Significant issues considered by the Committee
The Committee reviews accounting papers prepared by management that
provide details of significant financial reporting issues, together with reports
from the external auditor prepared in conjunction with the interim and
full-year results.
The significant issues considered by the Committee in respect of the period
ended 31 December 2022 are set out on the following table.
Significant issue/accounting
judgement identified
How it was dealt with
Revenue recognition, the
application of IFRS 15,
and accounting for the
significant judgements
around open contracts
Impairment of goodwill
Pension accounting
Capitalisation of internally
developed 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 always valued appropriately.
The Group conducts extensive forecasting and
stress testing exercises to review the carrying
value of goodwill in line with the strategic plans to
ensure that the values are supportable.
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.
Detailed reviews of assets developed internally
are undertaken internally by the group, including
engineering, commercial and innovations staff, to
ensure capitalisation occurs where the criteria in
IAS38 are met.
The Group conducts extensive forecasting and
stress testing exercises for multiple scenarios,
including the global supply chain crisis, 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 the going concern basis.
Assessing the annual report
The Committee has the responsibility to assess whether the Annual Report,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for the shareholders to assess the Group’s position on
performance, business model and strategy.
The Committee made this assessment by:
Reviewing key messages proposed for the Annual Report;
Reviewing copies of the Annual Report at various stages during the drafting
process to ensure the key messages were being followed and were aligned
with the Company’s position, performance and strategy being pursued and
that the narrative sections of the Annual Report were consistent with the
financial statements;
Ensuring that all key events and issues that had been reported to the Board
in the executive Board reports during the year had been appropriately
referenced or reflected within the Annual Report;
Reviewing how alternative performance measures were used in the Annual
Report, ensuring completeness and accuracy of definitions, consistency
of use, relevance to users of the Annual Report and balance with statutory
metrics; and
Considering reports produced by both management and the external auditors
on principal matters and judgements in areas underpinning the financial
statements.
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 the Chair as required.
The Committee reviewed the need for effectiveness and independence of the
internal audit functions, and, during the year, BDO LLP was engaged to provide
independent support to the internal audit function on a co-sourced basis.
Internal audit reports are produced following a site visit and completion of an
internal control questionnaire, providing details of how the internal controls
are being followed and what areas, if any, need improving and amending as
appropriate.
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;
23 Corporate governance48 Financial statements
Whistleblowing
The Group has in place a Whistleblowing policy which details 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 2022, there were no
reported incidents.
The Audit Committee Report was approved by the Committee at its meeting
held on 16 March 2023.
Douglas Robertson
Chair of the Audit Committee
22 March 2023
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There is a comprehensive system of planning, budgeting, reporting and
monitoring. This includes monthly management reporting and monitoring of
performance and forecasts. Monthly reviews are embedded in the internal
control process and cover each principal site. Monthly reviews require the
Executive Leadership Team to consider, among other things, business
development, financial performance against budget and forecast, health and
safety and capital expenditure proposals, as well as a review of longer-term
business development and all other aspects of the business. In addition,
quarterly business reviews are carried out at each principal site and are
attended by the executive directors and local management teams
as appropriate;
There is an organisational structure with clearly defined lines of responsibility
and delegation of authority;
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 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.
Group IT systems and controls review
The Board commissioned an independent review by specialist consultants of
the Group’s IT systems and controls to:
Assess the resilience and security of the systems and control environment;
and
Assess the capability of the IT infrastructure to meet the strategic growth
ambitions of the Board.
The Committee considered the findings of the review. No significant issues
emerged from the exercise and the Committee monitored the implementation
of the minor improvements recommended.
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Remuneration and Nomination Committee report
“ I am pleased to present
the Committee’s report
which is presented
in four sections: the
Committee Report, the
Nomination Report, the
Remuneration Report and
the Remuneration Policy.”
Duties and Terms of Reference
The duties of the Committee are as set out in its Terms of Reference which is
available on the Company’s website at www.mpac-group.com.
The Committee deals with all aspects of remuneration of the Executive
Directors and certain senior managers, and in identifying and nominating
members of the Board.
The Committee undertook the following main items of business during the year:
appointed a new Executive Director and determined their remuneration;
reviewed the structure of the Long-Term Incentive Plan for 2023 awards onwards;
reviewed the performance of the executive management incentive scheme
against their 2021 objectives and approved bonus payments;
approved executive management pay increases;
SARA FOWLER
CHAIR OF THE REMUNERATION
AND NOMINATION COMMITTEE
As Chair of the Remuneration and Nomination Committee ("the Committee"),
I am pleased to present the Committee’s report, which is presented in four
sections: the Committee Report, the Nomination Report, the Remuneration
Report and the Remuneration Policy.
set 2022 objectives and performance metrics for the executive management
incentive scheme;
reviewed the 2021 performance against the Long-Term Incentive Plan
performance target;
The Nomination report below details the appointment of Adam Holland as a
new Executive Director in November 2022.
succession planning; and
reviewed the Committee’s Performance Evaluation.
The Remuneration report, on pages 36 to 44, details the amounts earned by
the Directors in respect of the period to 31 December 2022 and is subject to
an advisory shareholder vote. The Remuneration policy, on pages 37 to 39, was
approved by shareholders at the Annual General Meeting on 6 May 2020 and is
effective for a period of three years from that date.
Committee Evaluation
An evaluation of the Committee's performance has been undertaken in respect
of 2022 and the results discussed by the Committee. No substantive actions
were taken as a result of the Committee evaluation.
Committee report
Committee Composition and Meetings
Sara Fowler – Chair
Andrew Kitchingman
Douglas Robertson
Matthew Taylor
The Committee’s members are the independent Non-Executive Directors,
whose biographies are set out on page 26.
Nomination report
Appointment of Adam Holland
As part of the Committee’s discussion on Board succession planning, it was
agreed that an additional executive Director be appointed to the newly created
role of Chief Operating Officer. The role would be to assist Dr Steels in the day-
to-day management of the Company and to manage specific projects.
Odgers Berndtson was appointed as the external recruitment agency to assist
the Committee in identifying a suitable candidate. The process included the
following considerations:
The terms of reference of the Committee requires that it meets at least twice a
year. During 2022, the Committee met three times and the table below sets out
the attendance record of each member of the Committee:
identifying key attributes and skills of the desired candidate, taking into
account relevant commercial and operational experience gained while
working in the engineering sector;
Meeting attendance
reviewing the shortlist and arranging interviews; and
Member
Sara Fowler
Andrew Kitchingman
Douglas Robertson
Matthew Taylor
3/3
3/3
3/3
2/3*
* Matthew Taylor missed one meeting due to illness.
Additionally the Chief Executive, a representative of Prism Cosec Limited, our
Company Secretary, and KPMG LLP, as the Company’s remuneration adviser,
are invited to attend meetings as necessary. Each of them has confidential
access to me at other times as required.
providing the Board with a recommendation of the preferred candidate.
The preferred candidates met with each member of the Board and after due
consideration and discussion, the Committee unanimously recommended the
appointment of Adam Holland as Chief Operating Officer and as an executive
Director to the Board. The appointment was approved with effect from
1 November 2022.
Adam has extensive commercial and operational experience gained from
roles based in both the UK and internationally and has a proven track record
in business development. He joins from JCB where he has held various senior
executive positions. Joining in 2016, initially as General Manager at JCB Service
providing leadership and revenue growth for the multinational division before
taking over as Managing Director at JCB Power Products Ltd, responsible for
23 Corporate governance48 Financial statements
the production sites in the UK, India, and a global distribution network focused
on sales growth in the US and Europe. Most recently Adam led a programme
to drive a structural reduction in product cost across JCB Group in the role of
Commercial Director, Group Purchasing.
Prior to joining JCB, Adam held senior business leadership roles in the Energy,
Oil & Gas, and Aerospace sectors as Vice President at Siemens and Rolls
Royce, and in Space and Defence at AEA Technology plc.
Upon a review of base salaries for Dr Steels and Mr Wilkins, it was noted
that neither Director had received a pay increase for a number of years and
they took a pay cut during 2020 for a period of time due to the pandemic.
On comparison to their peers, both salaries were below the median level.
Accordingly, Dr Steels’ base salary was increased to £300,000 and Mr Wilkins’
base salary was increased to £205,000, both with effect from 1 April 2022.
These levels are still below the median level when compared to their peers.
Adam is a Chartered Engineer and Physicist, and the appointment will provide
bandwidth, additional skills and experience to the executive leadership of the Group.
The 2022 bonus payments were at the discretion of the Committee.
Accordingly, a 10% discretionary bonus was awarded to Dr Steels and Mr
Wilkins.
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.
Mr Holland's contract includes a guaranteed bonus of £90,000 in April 2023 in
recognition of the bonus foregone upon departure from his former employer.
The remuneration of the Non-Executive Directors for the years 2022 and 2021
is made up as follows:
Mpac Group plc
Annual Report & Accounts 2022
37
Employment and promotion opportunities will be offered on the basis of merit
regardless of race, colour, religion, age, gender, 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.
2022 Remuneration report
Directors’ total remuneration
The remuneration of the Executive Directors for the years 2022 and 2021 is
made up as follows:
Executive Directors’ remuneration as a single figure (audited)
Salary
£000
All
benefitsa
£000
Short-
term
incentive
schemeb
£000
Gains
on share
optionsc
£000
Pensiond
£000
Total
£000
287
199
42
18
19
3
30
21
–
924
590
–
69
48
2
1,328
877
47
Salary
£000
248
182
All
benefitsa
£000
20
19
Short-
term
incentive
schemeb
£000
140
99
Gains
on share
optionsc
£000
322
42
Pensiond
£000
63
18
Total
£000
793
360
T Steels
W C Wilkins
M G R Taylor
A J Kitchingman
2022
T Steels
W C Wilkins
A P Hollande
2021
T Steels
W C Wilkins
Non-Executive Directors’ remuneration as a single figure (audited)
2022
All taxable
benefits
£000
–
–
–
–
Fees
£000
81
54
54
53
Total
£000
81
54
54
53
2021
All taxable
benefits
£000
–
–
–
–
Fees
£000
78
52
52
8
Total
£000
78
52
52
8
A J Kitchingman
D G Robertson
S A Fowler
M G R Taylor
Following a review of fees for the Chairman and the Non-Executive Directors,
the fees were increased by 5% with effect from 1 April 2022. Thereafter, the
fees would increase annually at the same level as the average employee
increase.
Directors’ interests in shares (unaudited)
The beneficial interests of Directors holding office at 31 December 2022 and
persons connected with them in the ordinary shares of the Company (excluding
share options) were as follows:
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1 January
2022
110,134
7,227
–
13,133
Acquired in
the year
117,839
74,154
18,000
–
Held at
31 December
2022
227,973
81,381
18,000
13,133
a Benefits include: Executive Directors – car allowance payments, income replacement
insurance and private medical cover.
b The performance criteria for the short-term incentive scheme is described in the
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 2022 and 16 March 2023.
Remuneration policy on page 43.
c The amounts represent the gains on the awards exercised during 2022 for the performance
period 2019 to 2021.
d The values are the amounts contributed by the Company into the Company’s Personal
Pension Plans for the Executive Directors.
e Appointed to the Board on 1 November 2022.
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Incentive scheme – Deferred share plan (audited)
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
W C Wilkins
Date of award
1 May 2019
1 May 2019
Exercise date
11 May 2022
11 May 2022
Number of
shares exercised
35,409
33,407
Face value
at exercise (£)
166,422
157,012
Awards are made following the achievement of personal objectives linked to long-term strategic initiatives. The awards vested three years after the date of grant
and the price of the Company’s shares on the day of exercise was 470 pence per ordinary share.
No award under the Deferred share plan was made in 2022.
Long Term Incentive Plan (audited)
Conditional grants under the LTIP are now made on an annual basis rather than every three years. Details of conditional grants of Mpac Group plc ordinary shares
under the LTIP for each Director who held office during the year and who is eligible to participate in the plan are as follows:
T Steels
W C Wilkins
End of
three-year
performance
period
31 Dec 2021
31 Dec 2024
31 Dec 2021
31 Dec 2024
Date of award
12 June 2019
10 June 2022
12 June 2019
10 June 2022
Number of shares
Face value
at grant (£000)
% of salary
210,000
96,552
120,000
37,548
349
418
199
162
143%
139%
111%
79%
Lapsed
17,248
–
9,856
–
Exercised
192,752
–
110,144
–
Balance
–
96,552
–
37,548
Face value of awards at the 2019 and 2022 dates of grant are calculated based on the closing share price of 166p and 432.5p per ordinary share respectively.
For the 2019 award, which vested in 2022, the performance conditions are shown in the table below and resulted in 91.8% of the award vesting.
Metric
ESP
Weighting
70%
ROCE
30%
Total
100%
Performance condition
Cumulative Underlying EPS to exceed 115p over the
three-year period to vest in full. Vesting is reduced to
20% on a pro-rata basis if cumulative Underlying EPS is
85p over the three-year period and is reduced to nil if it
fails to reach 85p
Average ROCE to exceed 30% over the three-year period
to vest in full. Vesting is reduced to 20% on a pro-rata
basis if average ROCE is 20% over the three-year period
and is reduced to nil if it fails to reach 20%
Threshold
target
85p
Stretch
target
115p
Actual
110.6p
% Vesting
61.8%
20%
30%
34.15%
30.0%
91.8%
23 Corporate governance48 Financial statements
For the 2022 award, the performance metrics selected reflect underlying business performance. 70% of the award of shares is based on cumulative EPS
performance over a three-year period. 30% of the award of shares is based on average 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 140p. 100% of the award is made if EPS is equal to or exceeds 180p. Between these two points,
allocation will be on a straight-line basis pro rata. If EPS is below 140p, 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 30%. 100% of the award is made if ROCE equals or exceeds 40%. Between these two points, allocation will
be on a straight-line basis pro rata. If ROCE is below 30%, no award will be made in respect of ROCE.
Metric
EPS
Weighting
70%
ROCE
30%
Total
100%
Performance condition
Cumulative Underlying EPS to exceed 180p over the three-year
period to vest in full. Vesting is reduced to 20% on a pro-rata basis
if cumulative Underlying EPS is 140p over the three-year period
and is reduced to nil if it fails to reach 140p
Average ROCE to exceed 40% over the three-year period to vest in
full. Vesting is reduced to 20% on a pro-rata basis if average ROCE
is 30% over the three-year period and is reduced to nil if it fails to
reach 30%
Threshold target
140p
Stretch target
180p
30%
40%
On 16 March 2023, the share price was £2.90 and this has been used to estimate the value of shares vesting.
T Steels
W C Wilkins
Grant date
10 June 2022
10 June 2022
Vest date
31 December 2024
31 December 2024
Number of
shares at grant
Estimated number
of shares to vest
Estimated value £
96,552
37,548
–
–
–
–
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. There is currently no minimum shareholding requirement for Executive Directors.
Sara Fowler
Chair of the Remuneration and Nomination Committee
22 March 2023
Mpac Group plc
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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.
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”)
An 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 140p. 100% of the
award is made if EPS is equal to or exceeds 180p. Between these two points,
allocation will be on a straight-line basis pro rata. If EPS is below 140p, 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 30%. 100% of the award
is made if ROCE equals or exceeds 40%. Between these two points, allocation
will be on a straight-line basis pro rata.
If ROCE is below 30%, no award will be made in respect of ROCE.
An award granted under the LTIP in the form of a conditional right giving
the participant a right to acquire ordinary shares in the Company if certain
conditions are met. Awards were made covering a three-year period. Awards
will normally vest following the end of the three-year performance period, once
it is determined whether and to what extent the performance conditions have
been achieved. Awards will normally remain subject to a holding period of two
years commencing on the vesting date. Standard malus, clawback and leaver
provisions apply.
iv. Pensions
Directors may choose to join the Mpac Group Personal Pension Plan, which is a
defined contribution scheme. Additionally, life assurance and income protection
policies are put in place for the Executive Directors.
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, with Mr Wilkins on 22 June 2018 and with Mr Holland 17 July 2022.
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.
23 Corporate governance48 Financial statements
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.
Mpac Group plc
Annual Report & Accounts 2022
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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.
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Future Remuneration policy table
The following table provides a summary of the key components of the remuneration package for Directors:
Salary
Purpose and link to strategy
Operation
Opportunity
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.
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.
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23 Corporate governance48 Financial statements
Short-term incentive scheme
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Long Term Incentive Plan (“LTIP”)
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.
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 rolling 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 140p. 100% of the award is made if EPS is equal to or
exceeds 180p. Between these two points, allocation will be on a straight-line basis pro rata. If EPS is below 140p 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 30%. 100% of the award is made if ROCE equals or exceeds 40%. Between these two points, allocation will be
on a straight-line basis pro rata. If ROCE is below 30%, no award will be made in respect of ROCE.
Mpac Group plc
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Remuneration and Nomination Committee report continued
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.
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Non-Executive Directors’ fees
Purpose and link to strategy
To attract and retain Non-Executive Directors of the right calibre.
Operation
The fees of Non-Executive Directors are determined by the Board based upon comparable market levels. The Non-
Executive Directors do not participate in the Company’s incentive schemes and nor do they receive any benefits or
pension contributions.
Statement of consideration of employment conditions elsewhere in the Group
The Group applies the same key principles to setting remuneration for its employees as those applied to the Directors’ remuneration. In setting salaries and
benefits each business considers the need to retain and incentivise key employees and the impact such policy has on the continued success of the Group.
23 Corporate governance48 Financial statements
Mpac Group plc
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Directors’ report
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:
Information
Strategic report
Directors' Remuneration Report
Future development and events
occurring after the balance sheet date
Reported
Pages 4 to 21.
Pages 37 to 39.
Details can be found in the Strategic
Report on pages 9 to 13.
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 56 and in its related notes. The Group has overseas subsidiaries.
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 4 to 21 in particular the Outlook section on page 13. 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 2024, its financial resources including its cash
resources and access to borrowings, as set out in note 20 to the accounts on
page 81, 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
83 to 87. 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 26.
The Directors who served during the year are as follows:
Executive Directors
Tony Steels
Will Wilkins
Adam Holland1
Non-Executive Directors
Andrew Kitchingman
Sara Fowler
Douglas Robertson
Matthew Taylor
1 Appointed to the Board on 1 November 2022.
The Company’s approach to the appointment and replacement of Directors is
governed by its Articles of Association (together with relevant legislation) and
takes into consideration any recommendations of the QCA Code.
Subject to any restrictions in its Articles of Association and the Companies
Act 2006, the Directors may exercise any powers which are not reserved for
exercise by the shareholders.
The Company maintained Directors’ and Officers’ Liability Insurance cover
throughout 2022. 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, together with the
Directors’ Service Contracts, will be available for inspection at the AGM.
Directors and Directors’ interests
Directors’ interests in the Company’s shares as at 31 December 2022 are shown
on page 37. There are no shareholding requirements for Directors.
Substantial shareholdings
At 16 March 2023, 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
Mr G V L Oury
Number of
ordinary shares
4,368,152
1,095,000
% of issued
ordinary shares
21.33%
5.35%
Results and dividends
The Group’s loss for the year was £0.4m (31 December 2021: £7.8m profit). The
Board has decided to not pay a final dividend. An interim dividend was not paid
during 2022 (2021: none).
Dividends on the 6% preference shares are due for payment on 30 June and
31 December in each year and in 2022 amounted to £0.1m (2021: £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 2022, net of third-party income, amounted to £1.7m (2021: £1.1m), of
which £0.5m (2021: £0.9m) was charged to the consolidated income statement
and £1.2m (2021: £0.2m) was capitalised and included in development costs.
Share capital
At 31 December 2022, the Company’s issued share capital was £5,118,606
divided into 20,474,424 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 2,017,154 ordinary shares for cancellation was granted at the 2022 Annual
General Meeting and this authority expires at the end of the 2023 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.
Resolution 14, 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 2,047,422 ordinary shares representing approximately 10% of the
issued ordinary share capital at the date of the notice convening the Annual
General Meeting.
48 Financial statements23 Corporate governance
Mpac Group plc
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Directors’ report continued
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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 16 March 2023 it held no shares. The trustee has agreed to waive
all dividends and not to exercise voting rights in respect of shares representing
0% of the issued share capital.
Information about the Company’s share capital is given in note 25 to the
accounts on page 89.
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 resigned as statutory auditor with effect from 23 June
2022. Following a competitive tender process, the Company appointed PKF
Littlejohn LLP as its new statutory auditor and a resolution to approve their
appointment will be proposed at the forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting will take place on 17 May 2023. Notice of the
meeting can be found on pages 103 to 109.
Political donations
The Company made no political donations during the year 31 December 2022.
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 90 to 96.
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 2006, Mpac Group plc is committed to
reporting emissions for the Group on an annual basis as set out in the following
tables. 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. The methodologies used for the
calculation of the emissions are as follows. The emissions in relation to electricity
and gas have been calculated by the multiplication of the metered usage by the
emissions level provided by the supplier, or, where this is not available, by publicly
available equivalents. In the case of transport, emissions are calculated based on
the distances travelled multiplied by known emissions levels of the vehicles or,
where this is not available, from equivalent publicly available data.
Globally
Purchased electricity
Combustion of fuel
Travel
UK only
Purchased electricity
Combustion of fuel
Travel
2021 comparative
Globally
Purchased electricity
Combustion of fuel
Travel
UK only
Purchased electricity
Combustion of fuel
Travel
KWH
intensity
(per
employee)a
3,333
3,529
MWH
1,543
1,634
KWH
intensity
(per
MWH
employee)a
441
488
2,791
3089
CO2
intensity
(kg per
employee)a
778
648
1,147
CO2
intensity
(kg per
employee)a
652
570
715
CO2
(tonnes)
360
300
531
CO2
(tonnes)
103
90
113
KWH
intensity
(per
MWH
employee)a
1,389
2,129
2,955
4,513
KWH
intensity
(per
MWH
employee)a
327
1,030
1,994
6,280
CO2
intensity
(kg per
employee)a
689
830
555
CO2
(tonnes)
324
390
261
CO2
intensity
(kg per
employee)a
463
1,152
140
CO2
(tonnes)
76
189
33
a Calculated using average number of employees in the year.
Energy efficiency
The Group continues to focus on reducing energy consumption and carbon
emissions and reviews have been undertaken and recommendations
implemented. Reviews of new and evolving technologies form an integral part
of a continuous operational review programme.
Employee and other stakeholder engagement
Details of the Group's arrangements for engaging with employees, suppliers
and customers are required to be disclosed in this Directors' report and are set
out under the s.172 statement on page 22. Such information is incorporated into
this Directors report by reference and is deemed to form part of this report.
Prism Cosec Limited
Company Secretary
22 March 2023
23 Corporate governance48 Financial statements
Statement of Directors’ responsibilities
in respect of the annual report and the financial statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law the Directors have prepared the financial
statements in accordance with UK-adopted international accounting standards.
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
and profit or loss of the Company and Group for that period. In preparing these
financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable UK-adopted international accounting standards have
been followed, subject to any material departures disclosed and explained in
the financial statements; and
prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Group and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the Group
and Company and enable them to ensure that the financial statements comply
with the Companies Act 2006. They are also responsible for safeguarding the
assets of the Group and Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
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.
In the case of each Director in office at the date the Directors’ report is approved:
so far as the Director is aware, there is no relevant audit information of which
the Group’s and parent Company’s auditors are unaware; and
they have taken all the steps that they ought to have taken as a Director in
order to make themselves aware of any relevant audit information and to
establish that the Group’s and parent Company’s auditors are aware of that
information.
This Responsibility statement was approved by the Board on 22 March 2023
and is signed on its behalf by:
Tony Steels
Chief Executive
Will Wilkins
Group Finance Director
22 March 2023
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Financial
statements
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Independent Auditor’s report
to the members of Mpac Group plc
Opinion
We have audited the financial statements of Mpac Group plc (the ‘parent
company’) and its subsidiaries (the ‘group’) for the year ended 31 December
2022 which comprise the Consolidated Income Statement, the Consolidated
Statement of Comprehensive Income, the Consolidated and Parent
Company Statements of Changes in Equity, the Consolidated and Parent
Company Statements of Financial Position, the Consolidated and Parent
Company Statements of Cash Flows and notes to the financial statements,
including significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and UK-adopted
international accounting standards 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 2022 and
of the group’s loss for the year then ended;
the group financial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
the parent company financial statements have been properly prepared in
accordance with UK-adopted international accounting standards 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
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
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. Our evaluation of the directors’ assessment of the
group and parent company’s ability to continue to adopt the going concern
basis of accounting included the procedures as noted 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 or 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.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Our application of materiality
The scope of our audit was influenced by our application of materiality. The
quantitative and qualitative thresholds for materiality determine the scope
of our audit and the nature, timing and extent of our audit procedures. We
determined materiality for the financial statements to be:
Entity
Group
Parent company
Materiality
£’000
950
625
Performance
materiality
£’000
570 (60%)
375 (60%)
Triviality
threshold
£’000
47 (5%)
31 (5%)
The benchmark for group materiality was selected as 1% of revenue in the year.
Revenue was deemed to be the most appropriate metric for group materiality
as revenue growth and expansion is a key performance indicator. Revenue was
considered to be more appropriate than the profit/loss in the year due to the
fluctuation in this metric from previous years.
The benchmark selected for the parent company materiality was 1% of the
net asset value, as the parent company is not revenue generating, the
significant balances in the financial statements are the investments in the
trading subsidiaries.
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing
of account balances, classes of transactions and disclosures. Given 2022 was
our first year as auditors and the trading difficulties encountered by the group
in the year, we have concluded that 60% of materiality is appropriate to set
performance materiality for both the group and parent company.
While materiality for the group financial statements as a whole was set at
£950,000, each significant component of the group was audited to an overall
materiality ranging between £440,000 and £560,000, with performance
materiality set at 60%.
We applied the concept of materiality in planning and performing our audit and
in evaluating the effects of misstatement.
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Independent Auditor’s report continued
Our approach to the audit
Our audit is risk based and is designed to focus our efforts on the areas
at greatest risk of material misstatement, aspects subject to significant
management judgement as well as greatest complexity, risk and size.
As part of designing our audit, we determined materiality, as above, and
assessed the risk of material misstatement in the financial statements. In
particular, we looked at areas involving significant accounting estimates and
judgement by the directors and considered future events that are inherently
uncertain. These areas of estimate and judgement included:
Revenue recognition over time on long term contracts;
Carrying value and impairment assessment of intangible assets, including
goodwill and acquired intangibles;
Capitalisation of internally generated research and development intangibles;
Pension asset/liability calculation and assumptions used thereon; and
Recognition of deferred tax assets based on historic losses within the group.
We also addressed the risk of management override of internal controls,
including among other matters consideration of whether there was evidence
of bias that represented a risk of material misstatement due to fraud.
A full scope audit was completed on the financial information of all of the
group’s significant operating subsidiaries by PKF Littlejohn LLP and no
component auditors were engaged.
The key audit matters and how these were addressed are outlined below.
Key audit matters
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters 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.
High
Likelihood
Low
Potential
financial
statement
impact
High
Low
Carrying value of
goodwill and acquired
intangible assets
Revenue recognition
and accounting for
long term contracts
Accuracy of defined
benefit pension
liabilities and
scheme valuation
Going concern
Capitalisation of
internally generated
product development
intangible assets
Low
Magnitude
High
Management
override of controls
Improper revenue
recognition and
judgements made
on open contracts
Accuracy
of defined
benefit pension
liabilities
Going concern
Impairment of
goodwill (Mpac
Lambert CGU)
Accuracy of
hedge accounting
Low
Extent of management judgement
High
Key audit matter
Significant risk
Other risk
23 Corporate governance48 Financial statements
Key audit matter
How our scope addressed the matter
Going Concern (Accounting policies section of the annual report)
The group has recorded a loss for the period and has £8m of
borrowings repayable within one year.
The results for the year could be an early indicator of adverse future
trading performance of the group resulting in, but not limited to, the
following factors:
Decline in future orders;
Issues with supply chain causing delay in completing customer
orders and increases in working capital tied up in customer contract
assets; and
Inflationary costs.
These factors could have an adverse impact on the group’s revenues
and profit, which 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 and as a result, going concern has been assessed as a key
audit matter.
Our work in this area included:
Obtaining management’s base case forecasts and calculations covering the period to
December 2024, and documenting our understanding of the process to prepare the
forecasts;
Testing the mathematical accuracy of the model and challenging management on the
accuracy of calculations, cash inflows and outflows as well as any anticipated effect
of further macro-economic disruptions;
Assessing the reasonableness of the cash flow forecast by analysing management’s
historical forecasting accuracy;
Evaluating the reasonableness of the forecast with reference to the post year end
financial performance and orderbook;
Testing the accuracy of the orderbook used in management’s base case forecast and
corroborating a sample of orders to supporting contracts or other proof of order;
Re-performing management’s sensitivity analysis to determine the impact of
changes in assumptions and reviewing reasonableness of the scenarios, including
the available headroom under each;
Assessing the continued availability of debt facilities through the going concern
period and reviewing the underlying terms including covenants and examination of
executed agreements;
Recalculating covenants during the going concern period to ensure ongoing
compliance; and
Assessing management’s going concern disclosures and whether these are in line
with UK-adopted international accounting standards.
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Independent Auditor’s report continued
Independent Auditor’s report continued
Key audit matter
How our scope addressed the matter
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Revenue recognition and accounting for long term contracts
(Note 1 and Note 18)
The group generates significant revenue through entering into contracts
with customers to design, engineer and manufacture machinery and
packaging solutions. The majority of revenue is recognised over time.
The group adopts an inputs based method for recognising contract
revenue by estimating total labour hours at the outset of a contract.
Revenue is then recognised over the life of the contract based on total
labour hours incurred as a percentage of total expected hours.
In applying this method, management judgement and estimation is
required, and there is a risk that revenue is not being recognised in
accordance with IFRS 15 Revenue from Contracts with Customers.
This includes the risk that contract assets and liabilities, and contract
fulfilment assets, at the year end are not accurate or complete.
Carrying value of goodwill and acquired intangible assets (Note 12)
The group holds significant goodwill and acquired intangible assets
arising from historic acquisitions. When carrying out the goodwill
impairment review, determining the recoverable amount for the
smallest identifiable group of assets that generates cash flows that are
largely independent of the cash flows from other assets or group of
assets (cash-generating unit (“CGU”)) requires management to make
judgements over several key inputs in the models for predicting future
revenue/future cash flow levels (discounted cash flow models).
Due to the high level of estimation uncertainty present in the
impairment test and the sensitivity of small changes to the
assumptions on the net present value of the assets in management’s
model, we identified the valuation of acquired intangibles and goodwill
as a key audit matter.
Our audit work in this area included the following:
Obtaining an understanding of the information systems and related controls relevant
to each material income stream;
Evaluating the appropriateness of the information system used to record labour hours;
Evaluating management’s revenue recognition policy in line with IFRS 15, specifically
ensuring that performance obligations are met prior to revenue being recognised and
that revenue over time as well as revenue at a point in time is recognised in line with
the group’s accounting policy as well as IFRS 15;
Challenging management’s assumptions used in forecasting contract margin/
profitability as well as percentage of completion by reference to post year end
performance and historic evidence for a sample of revenue contracts open at year end;
Testing a sample of closed contracts and assessing management’s historic
forecasting accuracy on a contract by contract basis by reviewing expected labour
hours and margins at contract inception to actual margins at completion;
Substantive testing contract labour hours included in the revenue recognition
calculation, agreeing amounts to timesheets and other supporting information to test
the revenue and profit recognised.
Reviewing contract margins for indicators of any potential loss making contracts and
discussing with management whether these are onerous contracts as per IAS 37.
Testing year-end adjustments to revenue as well as the associated contract assets &
contract liabilities recognised and to ensure these are recognised in accordance with
the stated accounting policies; and
Testing the recoverability of contract assets at year end with reference to post year
end contract performance and customer payments.
Our audit work in this area included the following:
Obtaining management’s impairment papers and value in use calculations along with
related workings to support the value in use of each cash generating unit;
Testing the mathematical accuracy of the value in use calculations, as well as
challenging key assumptions used in the preparation of the discounted cash-
flow model, including the discount rate, growth rate, expected revenue (based
on orderbook) as well as capital expenditure planned. Specialists within the audit
team were used to assess for reasonableness the assumptions which significantly
influence the value in use;
Reviewing management’s identification of each CGU to ensure that it is consistent
with the associated goodwill and intangible asset and whether the discount rates are
reasonable for each CGU;
Assessing the accuracy of historic forecasts to actual results to evaluate
management’s ability to forecast the CGU’s future cash flows;
Considering the reasonableness of cash flows included in the calculation through
comparison with current year performance and historic trends. We also confirmed
the consistency of the model with that being used to assess going concern;
Performing a range of plausible sensitivities on key assumptions to determine potential
impact on value in use in the event of an adverse movement in assumptions; and
Reviewing the disclosures in the financial statements in relation to the intangible
assets and associated estimates.
23 Corporate governance48 Financial statements
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Key audit matter
How our scope addressed the matter
Accuracy of defined benefit pension liabilities and
scheme valuation (Note 24)
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 2022 the group’s net defined benefit asset was £29.4m
on an IAS 19 basis (2021: £33.2m). The total fair value of scheme assets
and present value of defined benefit obligations which form the net
defined benefit asset amounted to £311.2m (£453.1m) and £279.7m
(£417.4m), respectively.
IAS 19 Employee Benefits describes the recognition and measurement
of defined benefit pension schemes.
The valuation of these schemes at year end involve complex
judgements and assumptions.
Variations in these key assumptions such as discount rates or mortality
rates have the ability to significantly influence the net asset/liability
position of these schemes, and as such the scheme valuation is
considered as a key audit matter.
Capitalisation of internally generated product development
intangible assets (Note 12)
During the prior year, the group signed a framework agreement for a
three-year period exclusive supply of casting and unit cell assembly
equipment for a battery production line.
In relation to the agreement and under IAS 38 Intangible Assets, the
group has capitalised the engineering time in development of the new
product, which gave rise to an intangible asset.
Management have assessed that the development has future economic
benefit, outside of the existing contract, deriving from the sale of
battery production equipment to a wider energy storage and electric
vehicle client base.
Due to the degree of judgment inherent in capitalising the costs
resulting from the uncertainty of the project’s technical success, as well
as the economic and commercial feasibility, we have considered this
area as a key audit matter.
Our audit work in this area included the following:
Documenting our understanding of the processes surrounding the valuation of
pension scheme assets and defined benefit obligations;
Obtaining the actuarial report prepared by management’s expert and assessed the
scope of their work, competence and independence;
Using an 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;
Reconciling the pension balances disclosed within the financial statements to
management’s actuarial report;
Reviewing funding agreements between the pension trustees and the group,
including the latest triennial review performed in June 2021 and corroborated deficit
reduction payments with the fund;
Testing a sample of the pension scheme assets to underlying documentation to
confirm ownership and valuation at the reporting date;
Reviewing disclosures relating to pension assets & liabilities to ensure that they are
in line with IAS 19 ‘Employee Benefits’.
Our audit work in this area included:
Obtaining an understanding of the group’s policy of capitalising development costs
and ensuring eligibility with the requirements of IAS 38;
Obtaining management’s assessment on development costs capitalised and challenging
management on the suitability with reference to the criteria set out in IAS 38;
Reviewing the signed framework agreement and reviewing the terms of the contract
to ensure the ownership of the design rights to the assembly line are held buy the
group;
Discussions with the clean energy sales team and innovations team to understand
and evaluate the projects economic and technical feasibility;
Challenging management as to the timing of the capitalisation commencement and
finishing dates, agreeing their assertions to supporting documentation;
Substantively testing a sample of costs capitalised to supporting documents such as
invoices and timesheets; and
Reviewing the appropriateness of the useful life of the internally generated intangible
assets and reviewing the group’s disclosures in the financial statements and ensure
its in line with the requirements of IAS 38.
48 Financial statements23 Corporate governance
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Independent Auditor’s report continued
Independent Auditor’s report continued
Other information
The other information comprises the information included in the annual
report, other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information contained
within the annual report. Our opinion on the group and parent company
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. 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 course of 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 this gives rise to a
material misstatement in the financial statements themselves. 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.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the
financial year for which the financial statements are prepared is consistent
with the financial statements; and
the strategic report and the directors’ report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent
company and their environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors’ report.
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
As explained more fully in the statement of directors’ responsibilities,
the directors are responsible for the preparation of the group and parent
company 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 group and parent company financial statements, the
directors are responsible for assessing the group 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.
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. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
We obtained an understanding of the group and parent company and the
sector in which they operate to identify laws and regulations that could
reasonably be expected to have a direct effect on the financial statements.
We obtained our understanding in this regard through discussions with
management, and our expertise of the sector.
We determined the principal laws and regulations relevant to the group and
parent company in this regard to be those arising from the Companies Act
2006, UK-adopted international accounting standards, the AIM Rules for
Companies, as well as local laws and regulations in the jurisdiction in which
the group and parent company operate.
23 Corporate governance48 Financial statements
We designed our audit procedures to ensure the audit team considered
whether there were any indications of non-compliance by the group and
parent company with those laws and regulations. These procedures included,
but were not limited to:
– conducting enquiries of management regarding potential instances of non-
compliance;
– reviewing RNS announcements;
– reviewing legal and professional fees ledger accounts;
– using local experts in the USA and the Netherlands to report on the good
standing of the subsidiaries; and
– reviewing board minutes and other correspondence from management.
We also identified the risks of material misstatement of the financial
statements due to fraud. We considered, in addition to the non-rebuttable
presumption of a risk of fraud arising from management override of controls,
whether key management judgements could include management bias was
identified in relation to:
– the recognition of revenue and contract assets/liabilities in relation to the
long-term contracts with customers;
– the carrying value of the intangible assets (goodwill and acquired intangible
as well as internally generated intangibles); and
– the valuation of the pension assets/liabilities.
We addressed these as outlined in the Key audit matters section above. The
potential for management bias also existed in the recognition of deferred tax
assets, valuation of the hedging arrangements and share-based payments
recognised in the year and audit procedures were performed in this regard to
recalculate the balances with reference to the underlying agreements.
As in all of our audits, we addressed the risk of fraud arising from management
override of controls by performing audit procedures which included, but
were not limited to: the testing of journals; reviewing accounting estimates
for evidence of bias; and evaluating the business rationale of any significant
transactions that are unusual or outside the normal course of business.
Compliance with laws and regulations at the subsidiary level was ensured
through enquiry of management, communication with local specialists and
review of correspondence for any instances of non-compliance.
Because of the inherent limitations of an audit, there is a risk that we will not
detect all irregularities, including those leading to a material misstatement
in the financial statements or non-compliance with regulation. This risk
increases the more that compliance with a law or regulation is removed from
the events and transactions reflected in the financial statements, as we will
be less likely to become aware of instances of non-compliance. The risk is
also greater regarding irregularities occurring due to fraud rather than error,
as fraud involves intentional concealment, forgery, collusion, omission or
misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone, other than the company and the company’s
members as a body, for our audit work, for this report, or for the opinions we
have formed.
Mark Ling
(Senior Statutory Auditor)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
22 March 2023
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Mpac Group plc
Annual Report & Accounts 2022
Consolidated income statement
for the year ended 31 December 2022
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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
(Loss)/earnings per ordinary share
Basic
Diluted
Note
1
4,5
3
1,4
8
8
9
11
11
Underlying
£m
97.7
(73.3)
24.4
(8.1)
(11.9)
(0.5)
3.9
–
(0.4)
(0.4)
3.5
(0.8)
2.7
2022
Non-underlying
£m
–
–
–
–
(3.9)
–
(3.9)
0.6
–
0.6
(3.3)
0.2
(3.1)
Underlying
£m
94.3
(65.4)
28.9
(6.8)
(12.4)
(0.9)
8.8
–
(0.2)
(0.2)
8.6
(0.7)
7.9
2021
Non-underlying
£m
–
–
–
–
(0.5)
–
(0.5)
0.2
(0.1)
0.1
(0.4)
0.3
(0.1)
Total
£m
97.7
(73.3)
24.4
(8.1)
(15.8)
(0.5)
–
0.6
(0.4)
0.2
0.2
(0.6)
(0.4)
(2.2)p
(2.2)p
Total
£m
94.3
(65.4)
28.9
(6.8)
(12.9)
(0.9)
8.3
0.2
(0.3)
(0.1)
8.2
(0.4)
7.8
39.1p
38.1p
23 Corporate governance48 Financial statements
Statement of comprehensive income
for the year ended 31 December 2022
Profit/(loss) for the period
Other comprehensive (expense)/income
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
Reclassified to income statement from hedge reserve
Other comprehensive (expense)/income for the period
Total comprehensive (expense)/income for the period
Note
24
9
26
26
Group
2022
£m
(0.4)
(5.0)
1.3
(3.7)
2.1
(1.3)
–
0.8
(2.9)
(3.3)
2021
£m
7.8
20.7
(7.9)
12.8
(0.2)
(1.0)
(0.3)
(1.5)
11.3
19.1
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Mpac Group plc
Annual Report & Accounts 2022
Statements of changes in equity
for the year ended 31 December 2022
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Balance at 1 January 2021
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 2021
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 2022
Note
24
24
25
Share
capital
£m
5.0
–
Share
premium
£m
26.0
–
Translation
reserve
£m
0.5
–
Group
Capital
redemption
reserve
£m
3.9
–
Hedging
reserve
£m
0.8
–
Retained
earnings
£m
10.0
7.8
–
–
–
–
–
5.0
–
–
–
–
0.1
0.1
5.1
–
–
–
–
–
26.0
–
–
–
–
–
–
26.0
(0.2)
(0.2)
–
–
–
0.3
–
2.1
2.1
–
–
–
2.4
–
–
–
–
–
3.9
–
–
–
–
–
–
3.9
(1.3)
(1.3)
–
–
–
(0.5)
–
(1.3)
(1.3)
–
–
–
(1.8)
12.8
20.6
0.3
(0.2)
0.1
30.7
(0.4)
(3.7)
(4.1)
0.1
(0.1)
–
26.6
Total
equity
£m
46.2
7.8
11.3
19.1
0.3
(0.2)
0.1
65.4
(0.4)
(2.9)
(3.3)
0.1
–
0.1
62.2
23 Corporate governance48 Financial statements
Balance at 1 January 2021
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 2021
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 2022
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
–
–
Retained
earnings
£m
19.7
2.4
–
–
–
–
–
5.0
–
–
–
–
0.1
0.1
5.1
–
–
–
–
–
26.0
–
–
–
–
–
–
26.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.9
–
–
–
–
–
–
3.9
–
–
–
–
–
–
–
–
–
–
–
–
–
12.3
14.7
0.3
(0.2)
0.1
34.5
0.6
(3.3)
(2.7)
0.1
(0.1)
–
31.8
Total
equity
£m
54.6
2.4
12.3
14.7
0.3
(0.2)
0.1
69.4
0.6
(3.3)
(2.7)
0.1
–
0.1
66.8
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Annual Report & Accounts 2022
Statements of financial position
as at 31 December 2022
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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
Interest-bearing loans and borrowings
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
Net assets
Equity
Issued capital
Share premium
Reserves
Retained earnings
Total equity
Note
Group
2022
£m
12
13
14
27
15
15
24
16
17
19
10
21
27
20
22
10
23
20
24
16
27
1
25
25.4
4.0
0.8
5.0
–
–
31.5
1.3
68.0
9.6
47.3
0.6
4.2
61.7
(1.4)
(8.0)
(39.0)
(0.1)
(1.0)
(49.5)
12.2
80.2
(0.9)
(2.1)
(11.1)
(3.9)
(18.0)
62.2
5.1
26.0
2.1
29.0
62.2
2021
£m
25.3
4.0
0.8
5.8
–
–
35.7
1.4
73.0
5.5
34.5
0.6
14.5
55.1
(1.8)
–
(39.5)
(0.7)
(0.6)
(42.6)
12.5
85.5
(0.9)
(2.5)
(12.5)
(4.2)
(20.1)
65.4
5.0
26.0
3.7
30.7
65.4
Company
2022
£m
1.1
0.1
0.8
–
63.8
25.6
31.5
–
122.9
–
8.0
–
(0.3)
7.7
–
(8.0)
(43.9)
–
–
(51.9)
(44.2)
78.7
(0.9)
–
(11.0)
–
(11.9)
66.8
5.1
26.0
3.9
31.8
66.8
2021
£m
1.3
0.2
0.8
–
63.8
14.2
35.7
–
116.0
–
4.7
–
4.0
8.7
–
(41.9)
–
–
(41.9)
(33.2)
82.8
(0.9)
–
(12.5)
–
(13.4)
69.4
5.0
26.0
3.9
34.5
69.4
The parent company has taken the exemption conferred by s.408 of the Companies Act 2006 not to publish the income statement of the parent company with
these consolidated accounts. The parent company profit for the year was £0.6m (2021: £2.4m loss). These financial statements were approved by the Directors
on 22 March 2023 and signed on their behalf by:
Tony Steels
Director
Registered number: 124855
Will Wilkins
Director
23 Corporate governance48 Financial statements
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Statements of cash flow
for the year ended 31 December 2022
Operating activities
Operating profit/(loss)
Non-underlying items included in operating profit
Amortisation of internally developed intangible assets
Depreciation
Profit on sale of property, plant and equipment
Other non-cash items
Pension payments
Working capital movements:
– increase in inventories
– increase in contract assets
– (increase)/decrease in trade and other receivables
– increase/(decrease) in trade and other payables
– increase/(decrease) in provisions
– decrease in contract liabilities
Cash flows from continuing operations before reorganisation
Acquisition and reorganisation costs paid
Cash flows from operations
Taxation (paid)/received
Cash flows from/(used in) operating activities
Investing activities
Proceeds from sale of property, plant and equipment
Capitalised development expenditure
Acquisition of property, plant and equipment
Loans to subsidiaries
Payment of deferred consideration
Cash flows used in investing activities
Financing activities
Interest paid
Purchase of own shares
Proceeds from borrowings
Principal elements of lease payments
Cash flows used in financing activities
Net (decrease)/increase 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
Cash and cash equivalents as at 31 December comprise:
Cash at bank and in hand
Bank overdrafts
Note
5
12
13,27
13
24
12
13
21
Group
2022
£m
–
3.9
0.9
2.0
–
0.2
(2.1)
(3.7)
(5.9)
(6.3)
1.7
0.5
(4.0)
(12.8)
(0.8)
(13.6)
(0.4)
(14.0)
–
(1.4)
(1.0)
–
(0.8)
(3.2)
(0.3)
–
8.0
(1.1)
6.6
(10.6)
14.5
0.3
4.2
Group
2022
£m
4.5
(0.3)
4.2
2021
£m
8.3
0.5
0.6
1.8
0.1
0.3
(2.6)
(2.2)
(4.4)
1.0
(1.1)
(0.8)
(0.7)
0.8
(0.3)
0.5
(0.1)
0.4
2.0
(0.2)
(1.5)
–
(0.6)
(0.3)
(0.3)
(0.2)
–
(0.9)
(1.4)
(1.3)
15.5
0.3
14.5
2021
£m
14.5
–
14.5
Company
2022
£m
(0.3)
1.4
0.3
0.1
–
0.1
(2.0)
–
–
(2.7)
0.9
–
–
(2.2)
(0.3)
(2.5)
–
(2.5)
–
–
–
(10.6)
–
(10.6)
(0.3)
–
8.0
–
7.7
(5.4)
4.0
1.1
(0.3)
Company
2022
£m
–
(0.3)
(0.3)
2021
£m
1.6
(1.5)
0.4
0.1
–
0.3
(2.3)
–
–
–
3.7
–
–
2.3
(0.2)
2.1
–
2.1
1.8
–
(0.1)
(3.0)
–
(1.3)
–
(0.2)
–
–
(0.2)
0.6
3.4
–
4.0
2021
£m
4.0
–
4.0
48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
Accounting policies
62
The significant accounting policies as set out below apply to both the Group
and Company financial statements, as appropriate.
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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).
The financial reporting framework that has been applied in the preparation
of the financial statements is applicable law and UK-adopted international
accounting standards and, as regards the Parent Company financial
statements, as applied in accordance with the provisions 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 2021 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.
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. An assessment of
how likely it is for the option to extend the lease to be exercised is performed
and if it is determined that the lessee is reasonably certain to exercise the
option then the term covered by the option is included in the lease term.
Leases are recognised as a right-of-use asset and a corresponding liability
at the lease commencement date. 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 year 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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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 the income statement.
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 the
income statement. 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. The Group elects to include
costs relating to the defined benefit pension scheme in non-underlying as there
is only one active employee of the Group in the scheme, so the costs would be
immaterial to the Group should the scheme not exist.
Accordingly, the Group uses alternative performance measures (“APMs”), in
addition to those reported under IFRS, as management believe these measures
enable the users of these financial statements to better assess the underlying
trading performance of the Group. The APMs used include underlying operating
profit, underlying profit before tax and underlying earnings per share.
A full breakdown of non-underlying items is provided in note 5 to the financial
statements, and a reconciliation of underlying profit back to the closest IFRS
measure is provided as part of note 11, which also includes a reconciliation of
underlying EPS back to its closest IFRS measure.
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 9 to 13, Financial review on pages 14 to 16 and in the Principal
risks and uncertainties on pages 17 to 21.
The Directors have considered the trading outlook of the Group and Company
for a 24 month period ending 31 December 2024, its financial position, including
its cash resources and access to borrowings, as set out in the Financial review
on pages 14 to 16 and in note 20 to the accounts on page 81, 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 83 to 87. Having made due
enquiries, the Directors have a reasonable expectation that the Group and
Company has adequate resources to continue in operational existence for the
foreseeable future.
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.
48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
Accounting policies continued
Accounting policies continued
64
The excess of the:
consideration transferred;
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amount of any non-controlling interest in the acquired entity; and
acquisition-date fair value of any previous equity interest in the
acquired entity.
Over the fair value of the net identifiable assets acquired is recorded as
goodwill. Where settlement of any part of cash consideration is deferred, the
amounts payable in the future are discounted to their present value as at the
date of exchange. The discount rate used is the entity’s incremental borrowing
rate, being the rate at which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
Contingent consideration is classified as a financial liability. Amounts classified
as a financial liability are subsequently remeasured to fair value with changes in
fair value recognised in profit or loss.
Foreign currency
Transactions in foreign currencies are translated at the foreign exchange
rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the statement of financial position date
are translated at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date
of the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated at foreign exchange rates
ruling at the date the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on consolidation, are translated at foreign exchange rates
ruling at the statement of financial position date.
The revenues and expenses of foreign operations are translated at an average
rate for the year 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 three-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 that do not exceed
the long-term average growth rate for the relevant countries. 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 between 12.7% to
13.9%, dependent on the CGU being assessed (2021: 12.4% to 16.4%).
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 ten 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 indicators of impairment at least annually and any impairment is
charged to the income statement.
The estimated useful economic lives of the Group's intangible assets are as follows:
Acquired intangible assets – 8 to 10 years
– 3 to 10 years
Product development
– 5 years
Software development
23 Corporate governance48 Financial statements
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Annual Report & Accounts 2022
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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:
Freehold land
– nil
Freehold buildings
– 3% on cost or deemed cost
Leasehold property
– over life of lease
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.
The useful lives and residual value of the Group's fixed assets are reviewed at
least annually.
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 over its estimated useful life. Where the expected residual value exceeds
cost no depreciation is provided. Investment property is valued annually for
monitoring purposes only.
Investments
Investments in subsidiary undertakings are held at cost less provision for
any impairment in value. The carrying value of investments in subsidiary
undertakings are reviewed at least annually for indicators of impairment.
Revenue and contracts
Revenue
Revenue represents income derived from contracts for the provision of goods
and services by the Group and its subsidiary undertakings to customers in
exchange for consideration in the ordinary course of the Group’s activities.
Revenue is recognised in the Consolidated Income Statement when the
performance obligations in the contract with the customer are met.
Performance obligations
A proportion of the Group’s contracts recognised over time comprise a
variety of promises within the contracts, including, but not limited to, design
and engineering, procurement, machinery testing, delivery, installation and
commissioning 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).
It is the Group’s judgement that the vast majority of promises included within
contracts to customers are not distinct because a customer cannot benefit
from certain promises being fulfilled without others; therefore, promises are
bundled into set performance obligations. For the majority of contracts,
design, procurement, engineering and manufacture are considered to be
one performance obligation, installation and commissioning are considered
to be one performance obligation and after sales contracts are generally
negotiated and entered into at a later date and considered to be a separable
performance obligation.
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 normally 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. If an observable price is not available,
the stand-alone selling price is determined based on an expected cost plus
margin approach.
Transaction price
At the start of the contract, the total transaction price is estimated as the
amount of consideration to which the Group expects to be entitled in exchange
for transferring the promised goods and services to the customer, excluding
sales taxes. The transaction price does not include estimates of consideration
resulting from contract modifications, such as change orders, until they have
been approved by the parties to the contract.
The transaction price is calculated after taking into account variable
consideration. Variable consideration includes, but is not limited to rebates
and penalties.
In determining the transaction price, variable consideration linked to potential
penalties or rebates arising under the terms of a contract is included only to
the extent it is highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur when the uncertainty associated
with the variable consideration is subsequently resolved. Variable consideration
is estimated using the “most likely amount” method.
Product warranties are included as part of the standard terms and conditions of
the majority of contracts; however, are not sold separately and; therefore, do not
constitute a separate performance obligation. Product warranty provisions are
accounted for based on historical data and a weighting of all possible outcomes
against their associated possibilities.
48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
Accounting policies continued
Accounting policies continued
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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.
23 Corporate governance48 Financial statements
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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. Short-term deposits all have a maturity of less than 3 months
from the date of acquisition.
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 measured at fair value through profit or loss. Changes
in fair value are included in the income statement unless the instrument is
included in a cash flow hedge.
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.
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.
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.
48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
Accounting policies continued
Accounting policies continued
68
Share-based payments
The Group has applied the requirements of IFRS 2 Share- based payments.
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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.
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 benefited from a
number of Covid-related grants in the course of 2021 including the ‘Coronavirus
Job Retention Scheme’ in the UK and the equivalent schemes in the countries
in which it operates. No deferred amounts remain.
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.
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.
23 Corporate governance48 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 62 to 68.
The following is a description of the principal activities, separated by reportable segments, from which the Group generates its revenue. The Board identifies the
reportable segments as the ones for which it regularly reviews financial information to assess their performance and make decisions around strategy and resource
allocation.
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 4 to 12
months but may be up to 36 months. The contracts are accounted for over time unless the installation and commissioning consideration of the contact is a distinct
performance obligation that 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 9 to 13.
In the following table, revenue is disaggregated by primary geographical market, major product lines, sector and timing of revenue recognition.
Disaggregation of revenue
Sector
Clean Energy
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
2022
£m
11.1
30.1
45.7
10.8
97.7
24.3
73.4
97.7
2021
£m
2.6
29.2
45.3
17.2
94.3
19.3
75.0
94.3
The Group disaggregates revenue of 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.
Mpac Group plc
Annual Report & Accounts 2022
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Annual Report & Accounts 2022
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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/(expense)
Profit/(loss) before tax
Americas
EMEA
Asia
Total
Unallocated net assets
Total net assets
OE
£m
40.9
27.8
5.9
74.6
14.5
2022
Service
£m
11.9
9.7
1.5
23.1
9.9
Segment
assets
28.4
46.3
0.6
75.3
2022
Segment
liabilities
(18.0)
(46.1)
(0.2)
(64.3)
Total
£m
52.8
37.5
7.4
97.7
24.4
(20.5)
3.9
(3.9)
–
0.2
0.2
Segment
net assets
10.4
0.2
0.4
11.0
51.2
62.2
OE
£m
53.4
17.4
3.3
74.1
20.3
2021
Service
£m
9.9
9.3
1.0
20.2
8.6
Segment
assets
35.1
28.7
0.5
64.3
2021
Segment
liabilities
(20.4)
(25.2)
(0.3)
(45.9)
Total
£m
63.3
26.7
4.3
94.3
28.9
(20.1)
8.8
(0.5)
8.3
(0.1)
8.2
Segment
net assets
14.7
3.5
0.2
18.4
47.0
65.4
23 Corporate governance48 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
2022
£m
9.2
26.7
1.6
45.8
7.0
7.4
97.7
By location of customer
2022
%
9
27
2
47
7
8
100
2021
£m
7.7
17.2
0.7
56.9
7.2
4.6
94.3
By location of assets
2022
£m
53.2
6.7
8.1
68.0
2021
%
8
18
1
61
7
5
100
2021
£m
50.1
15.7
5.8
71.6
2. Major customers
In 2022, the Group generated 22.9% (2021: 16.7%) of revenue from two customers. The most significant customer accounted for 11.4% (2021: 10.0%) 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)
2022
£m
0.5
2021
£m
0.9
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Annual Report & Accounts 2022
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48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
Notes to the accounts continued
72
4. Operating profit
2022
£m
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Operating profit is arrived at after charging/(crediting):
Amortisation of software and product development (Note 12)
Depreciation of owned assets (Note 13)
Depreciation of right of use assets (Note 27)
Employee benefits (Company £1.9m; 2021: £2.1m) (Note 6)
Cost of inventories recognised as an expense
Government grants
(Profit)/loss on sale of fixed assets (Note 13)
Distribution and transport costs
Operating lease charges
Sales, marketing and office expenses
Product development expensed
Administrative expenses
Non-underlying release of deferred contingent consideration (Note 5)
Non-underlying amortisation of acquired intangible assets (Note 12)
Non-underlying profit on sales of fixed assets (Note 5)
Other non-underlying items (Note 5)
Fees payable to the Company’s auditor for the audit of the Company’s annual Financial Statements
Fees payable to the Company’s auditor and its associates for the audit of the Company’s subsidiaries pursuant to legislation
Other fees paid to the current auditor
– audit related assurance services*
– taxation compliance services**
* Audit related assurance services include £30,000 (2021: £31,000) for the review of the half-year report.
** Taxation compliance services were performed by the previous auditor at a cost of £22,000 in 2021. The current auditor does not provide non-audit services to the Group.
0.9
0.9
1.1
30.1
40.1
–
–
1.7
1.2
6.4
0.5
11.9
–
1.6
–
2.3
0.1
0.3
–
–
5. Non-underlying items
Non-underlying items
Acquisition costs
Reorganisation costs
Amortisation of acquired intangible assets
Profit on disposal of Coventry facility
Defined benefit pension schemes administration costs
Release of deferred contingent consideration
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 costs
Total non-underlying expense after tax
2022
£m
(0.3)
(0.6)
(1.6)
–
(1.4)
–
(3.9)
–
0.6
(3.3)
0.2
(3.1)
2021
£m
0.6
0.9
0.9
29.0
32.0
(0.4)
0.1
1.3
1.0
5.5
0.9
13.3
(2.4)
1.6
(0.3)
1.6
0.1
0.3
–
–
2021
£m
(0.4)
–
(1.6)
0.3
(1.2)
2.4
(0.5)
(0.1)
0.2
(0.4)
0.3
(0.1)
23 Corporate governance48 Financial statements
Mpac Group plc
Annual Report & Accounts 2022
73
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5. Non-underlying items continued
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.
6. Employee information
The number of people employed by the Group was:
Americas
EMEA
Asia Pacific
Head Office
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
2022
131
297
13
17
458
Period end
2022
17
Group
2022
24.7
3.4
1.9
0.1
30.1
2021
147
302
13
14
476
2021
14
2021
23.8
3.2
1.7
0.3
29.0
Average
2022
142
292
13
17
464
Average
2022
17
Company
2022
1.4
0.3
0.2
0.1
2.0
2021
139
302
13
12
466
2021
12
2021
1.4
0.2
0.2
0.3
2.1
The costs of the defined benefit pension schemes are disclosed in note 24.
£1.1m of employment costs were capitalised in the year in relation to product development, see note 12 for more information.
7. Emoluments of Directors and interests in shares
Information on the emoluments of the Directors (page 37), 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 37 to 39.
48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
74
Notes to the accounts continued
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
Interest on borrowings
Lease interest (IFRS 16)
Net financing income
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Net interest received on pension scheme balances and interest on deferred consideration is included in non-underlying items.
9. Taxation
Tax charge/(credit):
Current tax
Deferred tax
Total
Included within the total taxation is a tax credit of £0.2m (2021: £0.2m) attributable to the non-underlying items set out in note 5.
Reconciliation of effective tax rate
Profit before tax
Income tax using the UK corporation tax rate of 25.00% (2021: 19.00%)
Research & development tax credits
Deferred tax movements on acquired intangible asset amortisation from increased future tax rate
Non-taxable release of deferred contingent consideration
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 charge/(credit)
2022
£m
–
0.6
0.6
(0.1)
–
(0.2)
(0.1)
(0.4)
0.2
2022
£m
0.3
0.3
0.6
2022
£m
0.2
–
–
–
–
(0.2)
–
–
0.8
0.6
2021
£m
–
0.2
0.2
(0.1)
(0.1)
–
(0.1)
(0.3)
(0.1)
2021
£m
0.4
–
0.4
2021
£m
8.2
1.5
(0.5)
0.4
(0.4)
(0.3)
(0.4)
(0.3)
0.4
0.4
The main rate of UK corporation tax is 25% (2021: 19%) as enacted in the Finance Act 2022. 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.
23 Corporate governance48 Financial statements
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Annual Report & Accounts 2022
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9. Taxation continued
Factors that may affect future tax charges
The Finance Act 2021 increased the main rate of corporation tax to 25% from 1 April 2023. Closing deferred tax balances have therefore been valued at 25% (2021:
25%) except for deferred tax on the UK defined benefit pension scheme asset, which has been valued at 35%.
Deferred tax charge/(credit) on items in other comprehensive (expense)/income
Arising from actuarial gains/(losses)
2022
£m
(1.3)
2021
£m
7.9
10. Current tax assets and liabilities
Current tax assets of £0.6m (2021: £0.6m) and current tax liabilities of £0.1m (2021: £0.7m) for the Group, and current tax assets of £nil (2021: £nil) for the
Company, represent the amount of income taxes recoverable and payable in respect of current and prior periods.
11. Earnings per share
Basic earnings/(loss) per ordinary share
The calculation of basic earnings/(loss) per ordinary share is based upon the loss for the year of £0.4m (2021: profit of £7.8m) 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 per ordinary share
The calculation of diluted earnings per ordinary share is based upon the loss for the year of £0.4m (2021: profit of £7.8m) and the diluted weighted average number
of ordinary shares in issue during the year. The calculation of diluted earnings per ordinary share from continuing activities is based upon the loss for the period
from continuing activities of £0.4m (2021: profit of £7.8m). 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. Where a loss is made in a period, the basic and diluted loss per share will be equal.
Weighted average number of ordinary shares (non-diluted) at 31 December
Effect of own shares and shares conditionally granted under the LTIP
Weighted average number of ordinary shares (diluted) at 31 December
2022
20,261,505
41,304
20,302,809
2021
19,920,895
531,118
20,452,013
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 13.3p (2021: 39.7p) in respect of underlying earnings per share and 13.3p (2021: 38.6p) 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
£2.7m (2021: £7.9m) which is calculated as follows:
(Loss) / Profit for the period
Non-underlying items (net of tax)
Underlying profit for the period
2022
£m
(0.4)
3.1
2.7
2021
£m
7.8
0.1
7.9
48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
Notes to the accounts continued
76
12. Intangible assets
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Cost:
Balance at 1 January 2021
Additions
Disposals
Reclassification
Retranslation
Balance at 31 December 2021
Additions
Disposals
Reclassification
Retranslation
Balance at 31 December 2022
Amortisation and impairment losses:
Balance at 1 January 2021
Amortisation for the period
Disposals
Reclassification
Retranslation
Balance at 31 December 2021
Amortisation for the period
Disposals
Reclassification
Retranslation
Balance at 31 December 2022
Carrying amounts:
At 31 December 2021
At 31 December 2022
Group
Acquired
intangible
assets
£m
Product
develop-
ment
£m
Software
develop-
ment
£m
Assets
under
construction
£m
Goodwill
£m
13.2
–
–
–
–
13.2
–
–
–
–
13.2
–
–
–
–
–
–
–
–
–
–
–
13.2
13.2
13.1
–
–
–
–
13.1
–
–
–
1.1
14.2
2.5
1.6
–
–
–
4.1
1.6
–
–
–
5.7
9.0
8.5
4.8
0.2
(1.2)
–
–
3.8
1.2
–
–
0.3
5.3
3.4
0.2
(1.2)
–
0.1
2.5
0.6
–
–
0.2
3.3
1.3
2.0
2.8
–
–
–
–
2.8
0.2
–
0.2
–
3.2
0.6
0.4
–
–
–
1.0
0.3
–
0.2
–
1.5
1.8
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Software
develop-
ment
£m
Company
Assets
under
construction
£m
Total
£m
1.8
–
–
–
–
1.8
0.1
–
–
–
1.9
0.1
0.4
–
–
–
0.5
0.3
–
–
–
0.8
1.3
1.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.8
–
–
–
–
1.8
0.1
–
–
–
1.9
0.1
0.4
–
–
–
0.5
0.3
–
–
–
0.8
1.3
1.1
Total
£m
33.9
0.2
(1.2)
–
–
32.9
1.4
–
0.2
1.4
35.9
6.5
2.2
(1.2)
–
0.1
7.6
2.5
–
0.2
0.2
10.5
25.3
25.4
The amortisation for development costs is included in cost of sales in the consolidated income statement.
The carrying amounts of goodwill are £5.7m (2021: £5.7m) in respect of Mpac Lambert (acquired in 2019) and £7.5m (2021: £7.5m) in respect of Switchback Group
(acquired in 2020). The Group tests goodwill at least 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, the key assumptions included within this mid-range plan that affect the value in use calculations are revenue growth, margin growth and working capital
requirements. These assumptions have been sensitised (as per Investments – note 15) as part of current year testing.
The discount and growth rates within these assumptions are estimated using a pre-tax weighted-average cost of capital (“WACC”) that are indicative of current
market assessments of the time value of money, based on risks specific to the market in which the Group operates. The primary reasons for differences in the
rates between the CGUs are the differences in underlying risk-free rates and cost of debt across the geographical regions in which the Group’s CGUs are located.
23 Corporate governance48 Financial statements
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12. Intangible assets continued
The calculation uses pre-tax cash flow projections from the 3 year mid-range plan for the period ending 31st December 2025. At the end of the discrete budget
period, a terminal value is calculated based on terminal growth rate assumptions for each CGU. The WACC and terminal growth rates assessed for each CGU are
15.4% & 2.0% for the UK and 15.2% & 2.0% for the Americas, respectively.
13. Property, plant and equipment
Cost:
Balance at 1 January 2021
Additions
Disposals
Retranslation
Balance at 31 December 2021
Additions
Disposals
Reclassification
Retranslation
Balance at 31 December 2022
Depreciation:
Balance at 1 January 2021
Charge for the period
Reclassification
Balance at 31 December 2021
Charge for the period
Disposals
Reclassification
Retranslation
Balance at 31 December 2022
Carrying amounts:
At 31 December 2021
At 31 December 2022
14. Investment property
Group
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
vehicles
£m
4.2
0.5
(2.8)
–
1.9
0.1
–
–
0.1
2.1
1.5
0.1
(1.4)
0.2
0.1
–
–
–
0.3
1.7
1.8
3.1
0.1
(0.3)
–
2.9
0.4
(0.1)
0.3
0.1
3.6
1.6
0.2
(0.3)
1.5
0.3
–
–
0.1
1.9
1.4
1.7
5.2
0.9
(1.4)
(0.1)
4.6
0.4
–
(0.5)
–
4.5
4.3
0.6
(1.2)
3.7
0.5
–
(0.2)
–
4.0
0.9
0.5
Company
Fixtures,
fittings and
vehicles
£m
Land and
buildings
£m
2.6
–
(2.6)
–
–
–
–
–
–
–
1.1
–
(1.1)
–
–
–
–
–
–
–
–
0.2
0.2
–
–
0.4
–
–
–
–
0.4
0.1
0.1
–
0.2
0.1
–
–
–
0.3
0.2
0.1
Total
£m
12.5
1.5
(4.5)
(0.1)
9.4
0.9
(0.1)
(0.2)
0.2
10.2
7.4
0.9
(2.9)
5.4
0.9
–
(0.2)
0.1
6.2
4.0
4.0
Balance at 1 January 2021 and 31 December 2021
Balance at 31 December 2022
Group
2022
£m
0.8
0.8
2021
£m
0.8
0.8
Company
2022
£m
0.8
0.8
Total
£m
2.8
0.2
(2.6)
–
0.4
–
–
–
–
0.4
1.2
0.1
(1.1)
0.2
0.1
–
–
–
0.3
0.2
0.1
2021
£m
0.8
0.8
Investment property is shown at cost. The fair value of the investment property at 31 December 2021 is £1.2m (2021: £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.
48 Financial statements23 Corporate governance
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Annual Report & Accounts 2022
Notes to the accounts continued
78
15. Investments
Cost of shares in subsidiaries
Balance at 1 January
Movement in year
Balance at 31 December
The Company’s subsidiary undertakings are shown in note 32.
2022
£m
63.8
–
63.8
2021
£m
63.8
–
63.8
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Impairment review of investments
The Group tests the carrying value of investments at least annually or more frequently if there are indications that the value might be impaired.
The recoverable amounts of the carrying value have been determined based on value in use calculations, using cash flow projections from the Group’s mid-range plan,
the key assumptions included within this mid-range plan that affect the value in use calculations are revenue growth, margin growth and working capital requirements.
These assumptions have been prudently sensitised as part of current year testing. The discount and growth rates within these assumptions are estimated using a pre-tax
weighted-average cost of capital (“WACC”) that are indicative of current market assessments of the time value of money, based on risks specific to the market in which
the Group operates. The primary reasons for differences in the rates between the investments are the differences in underlying risk-free rates and cost of debt across
the geographical regions in which the Group’s investments are located. The calculation uses pre-tax cash flow projections from the 3 year mid-range plan for the period
ending 31st December 2025. At the end of the discrete budget period, a terminal value is calculated based on terminal growth rate assumptions for each investment.
The WACC and terminal growth rates assessed for each investment are 15.4% & 2.0% for the UK and 15.2% & 2.0% for the Americas, respectively.
Amounts owed by Group undertakings
Amounts owed by Group undertakings for the Company are not repayable within 12 months of the year end of these financial statements.
A rate of interest of 3.75% has been charged on the loans, resulting in an interest receivable of £0.4m in the year for the Company.
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
2022
£m
–
3.1
–
3.1
3.1
Assets
2022
£m
–
–
–
2021
£m
–
3.4
–
3.4
3.4
2021
£m
–
–
–
2022
£m
(11.1)
–
(1.8)
(12.9)
(12.9)
Liabilities
2022
£m
(11.1)
(11.1)
(11.1)
2021
£m
(12.5)
–
(2.0)
(14.5)
(14.5)
2021
£m
(12.5)
(12.5)
(12.5)
Net
2022
£m
(11.1)
1.3
–
(9.8)
(9.8)
Net
2022
£m
(11.1)
(11.1)
(11.1)
2021
£m
(12.5)
1.4
–
(11.1)
(11.1)
2021
£m
(12.5)
(12.5)
(12.5)
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.
23 Corporate governance48 Financial statements
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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 £9.5m of unrecognised deferred tax assets (2021: £3.1m) and the Company had £3.7m of unrecognised deferred tax assets (2021: £2.1m) 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
Group
Employee benefits
Tax losses
Investment tax credits
Acquired intangible assets
Company
Employee benefits
Company
Employee benefits
Group
2022
£m
–
9.5
9.5
2021
£m
–
3.1
3.1
Balance at
1 January
2022
£m
(12.5)
2.9
0.5
(2.0)
(11.1)
Balance at
1 January
2021
£m
(4.9)
2.9
0.7
(1.9)
(3.2)
Recognised in
profit or loss
£m
Investment tax
credits utilised
Recognised
in other
comprehensive
income/(expense)
£m
Retranslation of
foreign differences
£m
Balance at
31 December
2022
£m
0.2
(0.2)
–
0.2
0.2
–
–
(0.3)
–
(0.3)
1.2
–
–
–
1.2
–
0.2
–
–
0.2
Recognised in
profit or loss
£m
0.3
–
–
(0.1)
0.2
Investment tax
credits utilised
–
–
(0.2)
–
(0.2)
Recognised
in other
comprehensive
income/(expense)
£m
(7.9)
–
–
–
(7.9)
Recorded on
acquisition
£m
–
–
–
–
–
Balance at
1 January
2022
£m
(12.5)
(12.5)
Balance at
1 January
2021
£m
(4.9)
(4.9)
Recognised in
profit or loss
£m
0.2
0.2
Recognised in
profit or loss
£m
0.3
0.3
Recognised
in other
comprehensive
income/(expense)
£m
1.3
1.3
Recognised
in other
comprehensive
income/(expense)
£m
(7.9)
(7.9)
(11.1)
2.9
0.2
(1.8)
(9.8)
Balance at
31 December
2021
£m
(12.5)
2.9
0.5
(2.0)
(11.1)
Balance at
31 December
2022
£m
(11.1)
(11.1)
Balance at
31 December
2021
£m
(12.5)
(12.5)
48 Financial statements23 Corporate governance
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Annual Report & Accounts 2022
Notes to the accounts continued
80
17. Inventories
Work in progress and raw materials
Finished goods
Group
2022
£m
2.9
6.7
9.6
2021
£m
0.6
4.9
5.5
Company
2022
£m
–
–
–
2021
£m
–
–
–
2021
£m
–
–
–
An amount of £nil (2021: £0.5m) 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
2022
£m
12.9
18.2
(14.5)
2021
£m
11.4
12.7
(17.5)
Company
2022
£m
–
–
–
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
Contract
liabilities
Company
Contract
assets
Contract
liabilities
–
–
(12.7)
18.2
17.5
(14.5)
–
–
–
–
–
–
–
–
–
–
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.
Contract fulfilment assets
Group
2022
£m
2.0
2021
£m
0.8
Company
2022
£m
–
2021
£m
–
23 Corporate governance48 Financial statements
19. Trade and other receivables
Current assets:
Contract assets – see note 18
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
Current liabilities:
Repayable in less than one year
Non-current liabilities:
Repayable between one and five years
Repayable in more than five years
Group
2022
£m
18.2
2.0
17.7
–
1.6
7.7
0.1
47.3
Group
2022
£m
8.0
–
0.9
8.9
2021
£m
12.7
0.8
15.1
–
1.2
4.5
0.2
34.5
2021
£m
–
–
0.9
0.9
Company
2022
£m
–
–
–
3.7
0.1
2.1
2.1
8.0
Company
2022
£m
8.0
–
0.9
8.9
2021
£m
–
–
–
3.0
–
0.7
1.0
4.7
2021
£m
–
–
0.9
0.9
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An interest rate of 2% above the HSBC base rate is charged on the above loan repayable in less than one year, generating an expense of £0.2m (2021: £nil) that has
been recognised as part of the underlying finance expense in the income statement.
An interest rate of 6% is charged on the above loan repayable in more than five years, generating an expense of £0.1m (2021: £0.1m) that has been recognised as
part of the underlying finance expense in the income statement.
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 (2021: £0.1m).
48 Financial statements23 Corporate governance
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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 interest-bearing loans and borrowings:
Revolving credit facility
Movement in lease liabilities under IFRS 16:
Non-cash movement
Cash movement
Closing net funds
Analysis of net funds:
Cash and cash equivalents – Current assets
Interest-bearing loans and borrowings – Current liabilities
Interest-bearing loans and borrowings – Non current liabilities
Lease liabilities
Closing net (debt)/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
23. Provisions
Group
Balance at 1 January
Provisions created in the year
Utilised during the year
Unused amounts reversed
Balance at 31 December
2022
£m
(10.6)
(10.6)
0.3
(10.3)
7.6
(8.0)
(0.5)
1.2
(10.0)
4.2
(8.0)
(0.9)
(5.3)
(10.0)
Group
2022
£m
14.5
15.3
–
1.2
3.8
3.6
0.6
39.0
2021
£m
(1.3)
(1.3)
0.3
(1.0)
10.4
–
(2.8)
1.0
7.6
14.5
–
(0.9)
(6.0)
7.6
2021
£m
17.5
12.8
–
0.7
2.6
5.1
0.8
39.5
2022
£m
(5.4)
(5.4)
1.1
(4.3)
3.1
(8.0)
–
–
(9.2)
(0.3)
(8.0)
(0.9)
–
(9.2)
Company
2022
£m
–
0.6
39.3
–
2.0
1.3
0.7
43.9
2022
£m
0.6
0.5
(0.1)
–
1.0
2021
£m
0.6
0.6
–
0.6
2.5
–
–
–
3.1
4.0
–
(0.9)
–
3.1
2021
£m
–
0.8
37.8
–
0.6
1.7
1.0
41.9
2021
£m
1.4
0.3
(0.4)
(0.7)
0.6
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.
23 Corporate governance48 Financial statements
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 2021 using the projected unit credit method. The market value of the
scheme assets at that date was £431.4m and the funding level was 94% of liabilities, which represented a deficit of £28.4m. The principal terms of the deficit
funding agreement between the Company and the Fund’s Trustees, which is effective until 31 December 2035, but is subject to reassessment every three years
are that the Company will continue to pay a sum of £2.0m per annum to the scheme (increasing at 2.1 per cent. per annum) in deficit recovery payments.
The funding agreement focuses the scheme and the company on achieving a funding level which should permit the scheme to achieve risk transfer to an
alternative arrangement which the company would not be liable for the performance of. Based on annual tests, once the funding level on a technical provisions
basis reaches 103%, contributions will be redirected to an escrow account which can only be used by the scheme to either enable risk transfer or remedy a future
deficit arising and would be returned to the company should risk transfer be achieved without the funds being required. Should the funding level reach 110% of
technical provisions (including the value of the escrow account), contributions cease.
The deficit recovery period from 30 June 2021 was estimated to be four years and six months, which is scheduled to be formally reassessed following the
completion of the actuarial valuation being carried out as at 30 June 2024.
During the year, the Company paid deficit recovery contributions of £2.0m (2021: £1.9m). A contribution of £nil (2021: £0.4m), in accordance with the profit sharing
arrangement in the schedule of contributions, was also paid.
The Company accounts for pension costs under IAS 19 Employee benefits and the valuation used has been based on detailed actuarial valuation work carried out
as at 30 June 2021, updated by the Company’s actuary to assess the value of the liabilities of the scheme at 31 December 2022. Scheme assets are stated at their
market value at 31 December 2022.
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48 Financial statements23 Corporate governance
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Annual Report & Accounts 2022
84
Notes to the accounts continued
24. Employee benefits continued
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 2022 using the projected unit credit method. The valuations under IAS 19 at 31 December 2022 have been based
on these actuarial valuations, updated for conditions existing at the year end.
Employer contributions of £0.2m (2021: £0.3m) 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:
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Discount rate
Inflation rate
– CPI
– RPI
Increases to pensions in payment
– final salary benefits
– career average benefits
UK (Company)
2022
4.8%
2.8%
3.3%
2.8%
2.1%
2021
1.8%
2.9%
3.4%
2.9%
2.2%
USA
2022
5.0%
n/a
n/a
n/a
n/a
2021
2.5%
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
21.8 years
24.4 years
23.0 years
25.8 years
USA schemes
20.5 years
22.5 years
20.7 years
23.1 years
At 31 December 2022, the weighted average duration of the defined benefit obligation in the UK scheme was 12 years (2021: 14 years) and in the USA schemes was
8 years (2021: 9 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 2022
0.25% change in discount rate
0.1% change in inflation rate
Change in life expectancy by one year on average
UK scheme
£7.9m
£6.7m
£12.2m
USA schemes
£0.2m
n/a
£0.3m
23 Corporate governance48 Financial statements
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Annual Report & Accounts 2022
85
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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)
2022
£m
–
8.2
79.3
106.3
28.7
2.3
12.6
73.8
311.2
279.7
31.5
2021
£m
1.5
56.5
153.3
37.8
35.0
2.2
122.7
44.1
453.1
417.4
35.7
USA
Group
2022
£m
–
2.7
–
5.4
–
–
–
–
8.1
10.2
(2.1)
2021
£m
–
3.1
–
6.8
–
–
–
–
9.9
12.4
(2.5)
2022
£m
–
10.9
79.3
111.7
28.7
2.3
12.6
73.8
319.3
289.9
29.4
2021
£m
1.5
59.6
153.3
44.6
35.0
2.2
122.7
44.1
463.0
429.8
33.2
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)
2022
£m
–
(0.7)
1.1
0.4
2021
£m
–
(0.2)
1.0
0.8
USA
Group
2022
£m
–
0.1
0.3
0.4
2021
£m
–
0.1
0.2
0.3
2022
£m
–
(0.6)
1.4
0.8
2021
£m
–
(0.1)
1.2
1.1
The net pension expense/(income) is included in non-underlying items.
B) Statements of comprehensive income (“SOCI”)
The actuarial losses recognised in the SOCI in respect of pensions were £5.3m (2021: gains of £20.7m), comprising actuarial losses of £5.8m (2021: gain of £20.2m)
for the UK defined benefit pension scheme and actuarial gains of £0.8m (2021: £0.5m) for the USA schemes, all figures before tax.
Actual return on scheme assets
The actual return on scheme assets were losses of £129.5m (2021: gain of £30.2m), comprising losses of £130.3m (2021: gains of £29.7m) for the UK defined
benefit pension scheme and losses of £1.9m (2021: gains of £0.5m) for the USA schemes, all figures before tax.
48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
Notes to the accounts continued
86
24. Employee benefits continued
Reconciliation of the present value of defined benefit obligations
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
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)
2022
£m
417.4
–
7.4
1.1
(131.1)
5.3
(20.4)
–
279.7
UK (Company)
2022
£m
453.1
8.0
(130.4)
2.0
(1.1)
(20.4)
–
311.2
2021
£m
426.9
–
5.8
7.7
(1.7)
(2.6)
(18.7)
–
417.4
2021
£m
440.9
6.1
23.6
2.3
(1.0)
(18.8)
–
453.1
USA
2022
£m
12.4
–
0.3
–
(3.0)
–
(1.0)
1.5
10.2
USA
2022
£m
9.9
0.2
(2.2)
0.2
(0.2)
(1.0)
1.2
8.1
2021
£m
13.1
–
0.3
–
(0.2)
–
(1.0)
0.2
12.4
2021
£m
10.1
0.2
0.3
0.3
(0.2)
(0.9)
0.1
9.9
Group
2022
£m
429.8
–
7.7
1.1
(135.2)
5.3
(21.4)
1.5
288.8
Group
2022
£m
463.0
8.2
(132.6)
2.2
(1.3)
(21.4)
1.2
319.3
2021
£m
440.0
–
6.1
7.7
(1.9)
(2.6)
(19.7)
0.2
429.8
2021
£m
451.0
6.3
23.9
2.6
(1.2)
(19.7)
0.1
463.0
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23 Corporate governance48 Financial statements
USA
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Annual Report & Accounts 2022
87
24. Employee benefits continued
Experience gains and losses for the year
Fair value of scheme assets
Defined benefit obligations
Net asset/(liability)
Actuarial gains/(losses) on scheme assets
Actuarial (losses)/gains on defined
benefit obligations
Net gain/(loss) recognised in the SOCI
during the year
UK (Company)
2022
£m
311.2
(279.7)
31.5
(130.4)
124.7
(5.7)
2021
£m
453.1
(417.4)
35.7
23.6
(3.4)
20.2
2022
£m
8.1
(10.2)
(2.1)
(2.2)
2.9
0.7
2021
£m
9.9
(12.4)
(2.5)
0.3
0.2
0.5
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 above)
Company contributions
Actuarial (losses)/gains recognised in
the SOCI
Retranslation
Net asset/(liability) for employee benefits
at 31 December
UK (Company)
2022
£m
35.7
(0.5)
2.0
(5.7)
–
31.5
2021
£m
14.0
(0.8)
2.3
20.2
–
35.7
USA
2022
£m
(2.5)
(0.3)
0.2
0.7
(0.2)
(2.1)
2021
£m
(3.0)
(0.3)
0.3
0.5
–
(2.5)
2022
£m
319.3
(289.9)
29.4
(132.6)
127.6
(5.0)
Group
2022
£m
33.2
(0.8)
2.2
(5.0)
(0.2)
29.4
2021
£m
463.0
(429.8)
33.2
23.9
(3.2)
20.7
2021
£m
11.0
(1.1)
2.6
20.7
–
33.2
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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.
48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
88
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Notes to the accounts continued
24. Employee benefits continued
Share-based payments
The Company currently operates a deferred share plan, though no options are currently outstanding under it. 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 38 and in this note.
The share awards that were subject to conditional grants during the year were:
13 March 2018
1 May 2019
At 1 January
2022
–
68,816
68,816
Granted
–
–
–
Lapsed
–
–
–
Exercised
–
68,816
68,816
At 31 December
2022
–
–
–
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 £nil (2021: £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
1 May 2019
Fair value
per share
134.7p
The company introduced a Long Term Incentive Plan (“LTIP”) for certain members of its senior management during 2019, which vested in 2022. In 2022, a revised
LTIP arrangement commenced, based upon updated targets but retaining the same structure. Awards are anticipated to be made annually. The key terms of both
plans are set out in the Remuneration and Nomination Committee report on pages 38 to 39 and were unchanged since inception.
The total number of shares conditionally granted under the 2022 LTIP was 187,740, at a market value of £4.33 per share, at the date of grant on 10 June 2022 and
remained outstanding at the year end. An expense of £nil has been recognised during the year (2021: £0.2m) within administration costs. No shares were forfeited,
exercised, expired or exercisable during the period.
23 Corporate governance48 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 2022
89
2022
£m
5.1
2021
£m
5.0
There were 20,474,424 (2021: 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 none of the ordinary shares and it has agreed
to waive all dividends and not to exercise voting rights in respect of any future shares it owns. The Company also has in issue 900,000 6% fixed cumulative
preference shares of £1 each (see note 20); these are classified as borrowings.
The 302,884 newly issued shares in the year were issued at nil value to enable the settlement of the LTIP awards.
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 38
and on page 88 in note 24.
At 31 December 2022, the employee trust held no (2021: 242,144) ordinary shares of 25p each, representing 0.0% of the issued shares (2021: 1.2%), as all shares
were used to settle the vesting awards under the LTIP. The shares held by the trust at 31 December 2022 were purchased at an aggregate cost of £nil (2021:
£0.5m). The trust purchased 38,176 additional shares in the year at a cost of £0.2m (2021: £0.2m).
Included within retained earnings is the charge of £0.1m (2021: £0.3m) in respect of the share-based payments, as disclosed in the Remuneration report on
page 38.
The market value of the shares held by the trust at 31 December 2022 was £nil (2021: £1.2m).
Dividends
Dividends to shareholders paid in the period:
2022
£m
–
2021
£m
–
Having considered the trading results for 2022 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 2022. Future
dividend payments will be considered by the Board in the context of 2023 trading performance and when the Board believes it is prudent to do so.
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48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
Notes to the accounts continued
90
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 32 to 35.
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
2022
£m
0.1
–
23.4
23.5
0.6
–
38.1
38.7
2021
£m
0.2
–
30.8
31.0
0.8
0.6
27.4
28.8
Company
2022
£m
–
2.1
22.6
24.7
–
0.7
43.9
44.6
2021
£m
–
1.0
21.2
22.2
–
1.0
41.9
42.9
Financial assets measured at amortised cost comprises cash and cash equivalents and trade and other receivables, excluding foreign currency derivatives.
Financial liabilities at amortised cost comprises interest-bearing loans and borrowings, lease liabilities, trade payables, other payables and accruals.
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 2022 and 31 December 2022, derivative instruments in designated hedge relationships have been identified as Level 2.
Derivative instruments in designated hedge relationships
The Group has relied on analysis from third party specialists for complex valuations of forward exchange contracts. Valuation techniques have utilised observable
forward exchange rates corresponding to the maturity of the contract. The effects of non-observable inputs are not significant to this type of financial instrument.
23 Corporate governance48 Financial statements
26. Financial risk management continued
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.
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
2022
£m
17.7
–
1.5
0.1
4.2
23.5
2021
£m
15.1
–
1.2
0.2
14.5
31.0
2022
£m
–
22.6
–
2.1
–
24.7
2021
£m
–
17.2
–
1.0
4.0
22.2
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.
Mpac Group plc
Annual Report & Accounts 2022
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48 Financial statements23 Corporate governance
Mpac Group plc
Annual Report & Accounts 2022
92
Notes to the accounts continued
26. Financial risk management continued
Credit loss provisions
The ageing of trade receivables and the expected credit 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
2022
Credit
loss provisions
£m
–
–
–
–
–
–
Gross
£m
10.5
3.7
1.6
0.6
1.3
17.7
Total
£m
10.5
3.7
1.6
0.6
1.3
17.7
2021
Credit
loss provisions
£m
–
–
–
–
–
–
Gross
£m
9.8
4.5
0.5
0.1
0.2
15.1
Total
£m
9.8
4.5
0.5
0.1
0.2
15.1
The only receivable balances held by the Company are amounts owed by Group undertakings and expected credit losses arising are not considered to be material.
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 14 to 16.
Contractual maturities of non-derivative financial liabilities
The non-derivative financial liabilities for the Group and the Company at 31 December were:
Current liabilities:
Interest-bearing loans and borrowings
Trade and other payables (excluding derivatives)
Lease liabilities
Non-current liabilities:
Interest-bearing loans and borrowings
Lease liabilities
Group
2022
£m
8.0
23.9
1.4
0.9
3.9
2021
£m
–
20.5
1.8
0.9
4.2
Company
2022
£m
8.0
35.0
–
0.9
–
2021
£m
–
41.0
–
0.9
–
Interest rates of 6% and 2% above the HSBC base rate are charged on the above interest-bearing loans, generating an expense of £0.3m (2021: £0.1m). The loans
relate to preference shares and the revolving credit facility drawdown. The preference share loan has no fixed maturity, the revolving credit facility is due to be
repaid in less than one year.
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. The contractual maturity of lease liabilities is disclosed in note 27.
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 14 to 16.
23 Corporate governance48 Financial statements
Mpac Group plc
Annual Report & Accounts 2022
93
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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
2022
Cash on which
no interest
received
£m
0.1
1.6
1.0
1.5
4.2
Cash at
floating
rates
£m
(0.3)
–
–
–
(0.3)
–
–
–
–
–
2022
Cash on which
no interest
received
£m
–
–
–
–
–
Total
£m
0.1
1.6
1.0
1.5
4.2
Total
£m
(0.3)
–
–
–
(0.3)
Cash at
floating
rates
£m
2021
Cash on which
no interest
received
£m
6.0
4.1
1.3
3.1
14.5
–
–
–
–
–
Cash at
floating
rates
£m
2021
Cash on which
no interest
received
£m
3.9
0.1
–
–
4.0
–
–
–
–
–
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
2022
Borrowings at
fixed rates
£m
8.0
8.0
0.9
0.9
Borrowings at
floating rates
£m
2021
Borrowings at
fixed rates
£m
–
–
0.9
0.9
Total
£m
8.9
8.9
Total
£m
6.0
4.1
1.3
3.1
14.5
Total
£m
3.9
0.1
–
–
4.0
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.
The average rate of interest on the Group’s operating lease liabilities is 3.3%, details of the contractual maturity of the leases can be found in note 27.
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 decreased/increased by £0.1m (2021: increased/decreased by £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 2021.
48 Financial statements23 Corporate governance
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Annual Report & Accounts 2022
94
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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
2022
1.24
1.62
1.17
2021
1.37
1.72
1.16
Closing rate
2022
1.21
1.64
1.13
2021
1.35
1.72
1.19
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
2022
£m
–
(1.8)
(1.8)
2021
£m
–
(0.5)
(0.5)
Company
2022
£m
–
–
–
2021
£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 2022 or 2021, that had been designated as fair value hedges under IFRS 9
Financial instruments: recognition and measurement.
During the period, a debit of £1.3m for the Group (2021: £1.3m debit) and £nil for the Company (2021: £nil) was recognised in the statements of comprehensive
income in respect of cash flow hedges.
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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
–
11.0
11.0
Less than
6 months
£m
–
–
–
2022
Between
6 and 12
months
£m
–
2.9
2.9
2022
Between
6 and 12
months
£m
–
–
–
Between
12 and 24
months
£m
–
–
–
Between
12 and 24
months
£m
–
–
–
Less than
6 months
£m
(4.7)
24.5
19.8
Less than
6 months
£m
–
–
–
2021
Between
6 and 12
months
£m
(0.7)
8.3
7.6
2021
Between
6 and 12
months
£m
–
–
–
Between
12 and 24
months
£m
–
–
–
Between
12 and 24
months
£m
–
–
–
Total
£m
–
13.9
13.9
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 2022
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 2022
Total
£m
(5.4)
32.8
27.4
Total
£m
–
–
–
2022
£m
(0.5)
(1.4)
0.1
(1.8)
Ineffectiveness arose during 2022 on forward contracts where the hedging instrument, in this case the sales order, was cancelled by the customer. The
ineffectiveness amounted to a gain of less than £0.1m and has been recognised in the Income Statement.
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
GBP to US dollar
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 2022 or during the year had a material value to the Group.
2022
GBP£1.4m
CA$70.9m
€9.0m
€0.7m
$18.8m
1:1
1US$:1.2879CA$
1CA$:0.7148€
(£1.3m)
(£1.3m)
(£1.8m)
48 Financial statements23 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 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
US dollar
£m
–
3.3
–
3.3
US dollar
£m
11.2
2022
2022
Euro
£m
–
1.9
–
1.9
Euro
£m
1.0
Total
£m
–
5.2
–
5.2
Total
£m
12.2
US dollar
£m
2021
Euro
£m
–
1.5
–
1.5
US dollar
£m
12.7
–
–
–
–
Euro
£m
–
2021
Total
£m
–
1.5
–
1.5
Total
£m
12.7
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 increased Group loss for the year by £0.1m
(2021: £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 decreased Group loss for the year by £0.1m (2021: £0.5m).
If sterling had been 10% stronger against all foreign currencies at 31 December 2022, Group equity would have decreased by £3.2m (2021: £0.6m increase).
Conversely, if sterling had been 10% weaker against all foreign currencies at 31 December 2022, Group equity would have increased by £3.5m (2021: £0.7m
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 2022 is £8.8m (2021: £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.
23 Corporate governance48 Financial statements
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27. Leases
The right-of-use assets held at the balance sheet date relates to the following asset types:
Land & buildings
£m
Plant & machinery
£m
Motor vehicles
£m
Total
£m
Group
Cost
Balance at 1 January 2021
Additions
Disposals
Transfers
Balance at 31 December 2021
Additions
Disposals
Transfers
FX Translation
Balance at 31 December 2022
Depreciation
Balance at 1 January 2021
Charge for the period
Disposals
Transfers
Balance at 31 December 2021
Charge for the period
Disposals
Transfers
FX Translation
Balance at 31 December 2022
NBV of ROU assets 2021
NBV of ROU assets 2022
Lease liabilities
Opening liability
Additions
Disposals
Payments made
Interest charge
Effect of movements in foreign exchange rates
Closing liability
Amounts falling due after more than one year
Amounts falling due in less than one year
5.0
2.4
–
–
7.4
–
–
–
0.4
7.8
1.3
0.8
–
–
2.1
1.0
–
–
0.1
3.2
5.3
4.6
0.1
–
–
–
0.1
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
0.1
0.1
0.6
0.3
–
–
0.9
–
–
–
–
0.9
0.4
0.1
–
–
0.5
0.1
–
–
–
0.6
0.4
0.3
5.7
2.7
–
–
8.4
–
–
–
0.4
8.8
1.7
0.9
–
–
2.6
1.1
–
–
0.1
3.8
5.8
5.0
31 December
2022
£m
(6.0)
–
–
1.2
(0.1)
(0.4)
(5.3)
(3.9)
(1.4)
31 December
2021
£m
(4.2)
(2.7)
–
0.9
(0.1)
0.1
(6.0)
(4.2)
(1.8)
The Group took advantage of the exemptions available not to capitalise short-term leases with a duration of less than 12 months or leases of low-value assets.
These leases have been treated as off-balance-sheet operating leases. There was no expense relating to either of these types of lease in the year (2021: £nil).
48 Financial statements23 Corporate governance
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Annual Report & Accounts 2022
Notes to the accounts continued
98
27. Leases continued
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
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
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31 December
2022
£m
0.9
3.4
1.5
5.8
31 December
2021
£m
1.2
3.6
1.8
6.6
Company
2022
£m
–
Company
2022
£m
5.3
2021
£m
–
2021
£m
3.7
Group
2022
£m
–
Group
2022
£m
5.3
2021
£m
–
2021
£m
3.7
30. Deferred contingent consideration
Switchback Group Inc
Deferred consideration in respect of the acquisition of Switchback of £0.8m, following the satisfaction of certain performance targets in the year to 30 September
2022, was paid in October 2022. The two-year performance criteria relating to the purchase of Switchback in 2020 has now concluded with the deferred
consideration paid in full. The deferred consideration paid to ongoing employees of Switchback is £0.2m, which has been treated as additional remuneration and
not included in the valuation of deferred consideration under IFRS3.
Reconciliation of movement in contingent earn-out consideration
Contingent earn-out liabilities as at 31 December 2020
Payments made during period
Unwinding of present value
Other fair value adjustments
Business acquisitions
Released to income statement
Contingent earn-out liabilities as at 31 December 2021
Payments made during period
Unwinding of present value
Other fair value adjustments
Business acquisitions
Released to income statement
Contingent earn-out liabilities as at 31 December 2022
Group
£m
3.5
(0.6)
0.1
–
–
(2.4)
0.6
(0.6)
–
–
–
–
–
Company
£m
2.4
–
–
–
–
(2.4)
–
–
–
–
–
–
–
23 Corporate governance48 Financial statements
31. Related parties
Transactions with key management personnel
The compensation of key management personnel is disclosed in the Remuneration report on pages 37 to 39. Key management personnel comprise the Executive
Directors only:
Short-term employment benefits
Share based payments
Total key management personnel compensation
31 December
2022
£m
0.1
0.1
0.2
31 December
2021
£m
0.8
0.2
1.0
Mpac Group plc
Annual Report & Accounts 2022
99
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 37 to 39.
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 2022 was £0.1m (2021: £0.1m).
32. 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. 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.
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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
5638 Transportation Blvd., Garfield Heights, OH 44125, 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
Molmac Engineering Limited
Thrissell Limited
Mpac Group Holdings Limited
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 USA, Inc. (USA)
Mpac Richmond, Inc. (USA)
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Notes to the accounts continued
32. Group entities continued
During the year ended 31 December 2022, the Company received interest income from subsidiary undertakings of £0.4m (2021: £0.5m), management fees of
£2.1m (2021: £2.3m) and brand fees of £3.4m (2021: £3.0m).
At 31 December 2022, amounts owed by subsidiary undertakings to the Company were £25.3m (2021: £17.2m) and amounts owed by the Company to subsidiary
undertakings were £39.2m (2021: £37.8m) and are unsecured. The amounts owed by subsidiary undertakings to the Company are stated after a provision of
£13.9m (2021: £12.5m) representing amounts owed to the Company which are no longer considered recoverable.
At 31 December 2022, investments in subsidiaries by the Company were £63.8m (2021: £63.8m).
33. 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:
Significant judgements
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. 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.
Capitalisation of development costs
The Group capitalises costs for product development projects. Initial capitalisation of costs is based on management’s judgement that technological and economic
feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model, and all
other recognition criteria within IAS 38 can be demonstrated. In determining the amounts to be capitalised, management makes assumptions regarding the expected
future cash generation of the project, discount rates to be applied and the expected period of benefits. During the year, the Group capitalised the development costs of
a novel battery cell assembly line of £1.0m in addition to a number of smaller projects. The net book value of capitalised development costs was £2.0m (2021: £1.3m).
Areas of significant estimation
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 £3.1m (2021: £3.4m) based on historic losses and investment tax credits. 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.
Impairment of goodwill
The Group considers whether intangible assets and/or goodwill are impaired. Where an indication of impairment is identified the estimation of recoverable value
requires assessment of the recoverable value of the cash generating units ("CGUs"). Determining whether goodwill balances are impaired requires an estimation
of the value in use of the CGUs to which the value has been allocated. The value in use calculation requires the Group to estimate the future cash flows anticipated
to arise from the CGUs and to apply a reasonable discount rate in order to calculate present value. The Group is required to perform an impairment review to
determine whether the carrying value of goodwill balances are less than the recoverable amount annually. The recoverable amount is based on a calculation of
expected future cash flows, which include estimates of future performance. Details of assumptions used in the review of goodwill balances are detailed in note 12.
23 Corporate governance48 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
Trade and other receivables (including taxation)
Employee benefits
Trade and other payables (including taxation and provisions)
Cash
Net assets
1. Before non-underlying items
2022
£m
97.7
3.9
(3.9)
–
0.2
0.2
(0.6)
(0.4)
–
(0.4)
4.0%
13.3p
(2.2)p
–
25.4
9.8
9.6
49.2
29.4
(65.4)
58.0
4.2
62.2
2021
£m
94.3
8.8
(0.5)
8.3
(0.1)
8.2
(0.4)
7.8
–
7.8
9.3%
39.7p
39.1p
–
25.3
10.6
5.5
36.5
33.2
(60.2)
50.9
14.5
65.4
2020
£m
83.7
6.5
(3.6)
2.9
–
2.9
1.3
4.2
–
4.2
7.8%
31.4p
20.8p
–
27.4
9.9
3.5
36.6
11.0
(57.7)
30.7
15.5
46.2
2019
£m
88.8
7.7
(2.4)
5.3
0.1
5.4
1.4
6.8
–
6.8
8.7%
39.5p
29.7p
–
16.3
11.7
3.2
31.1
17.3
(50.1)
29.5
18.9
48.4
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
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Annual Report & Accounts 2022
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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
5638 Transportation Blvd
Garfield Heights
OH 44125
USA
Tel: +1 216 290 6040
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
23 Corporate governance48 Financial statements
Notice of Annual General Meeting
Notice is hereby given that the 111th Annual General Meeting (the “Meeting”)
of Mpac Group plc (the Company) will be held at the offices of Hudson Sandler
LLP, 25 Charterhouse Square, Barbican, London, EC1M 6AE on Wednesday
17 May 2023 at 12 noon, to consider and, if thought appropriate, to pass the
following resolutions, of which resolutions 1 to 11 will be proposed as ordinary
resolutions and resolutions 12 to 15 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 2022 together with the Directors’ report and the auditors’
report on those annual accounts.
b) comprising equity securities (as defined in Section 560 (1) of the Act)
up to a further aggregate nominal value of £1,706,031 in connection
with an offer by way of a rights issue, such authorities to expire at the
conclusion of the 2024 AGM or if earlier, at close of business 17 August
2024, 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
2. To approve the Remuneration report, excluding the Remuneration Policy, set
b) holders of other equity securities if this is required by the rights of those
out on pages 37 to 39 of the Annual Report and Accounts 2022.
Directors
3. To re-elect Mrs S A Fowler as a Director.
4. To re-elect Mr A J Kitchingman as a Director.
5. To re-elect Mr D G Robertson as a Director.
6. To re-elect Mr M G R Taylor as a Director.
7. To re-elect Mr W C Wilkins as a Director.
8. To elect Mr A P Holland as a Director
Auditors
9. To appoint PKF Littlejohn LLP as auditors of the Company to hold office
from the conclusion of this Meeting until the conclusion of the next general
meeting at which accounts are laid before the Company.
10. To authorise the Audit Committee to determine the remuneration of
the auditors.
Directors’ authority to allot shares
11. 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 £1,706,031 (representing
approximately one third of the total ordinary share capital in issue at 16
March 2023, being the latest date prior to publication of this notice of
meeting); and
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
12. That if resolution 11 is passed, the Board be authorised to allot equity
securities (as defined in the Act) 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 Act 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
£511,860;
such authority to expire at the conclusion of the 2024 AGM of the Company
(or, if earlier, at close of business on 17 August 2024) 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
13. That if resolution 11 is passed, the Board be authorised in addition to any
authority granted under resolution 13 to allot equity securities (as defined
in the Act) 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 Act did not apply to any such allotment or sale,
such authority to be limited to the allotment of equity securities or sale
of treasury shares up to a nominal amount of £511,860 such authority to
be used only for the purposes of financing (or refinancing, if the authority
is to be used within 1 month after the original transaction) a transaction
which the Board of the Company determines to be either an acquisition or
a specified capital investment of a kind contemplated by the Statement of
Principles on Disapplying 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 2024 AGM of the Company (or, if
earlier, at close of business on 17 August 2024) 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
14. 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:
d) the authority hereby conferred shall (unless previously renewed or
revoked) expire at the end of the 2024 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.
Adoption of new Articles of Association
15. That:
a) the Articles of Association of the company be amended by deleting all
the provisions of the company’s Memorandum of Association which,
by virtue of section 28 of the Act, are to be treated as provisions of the
company’s Articles of Association; and
b) the Articles of Association produced to the meeting, and initialled by the
Chairman for the purpose of identification, be adopted as the Articles of
Association of the company in substitution for, and to the exclusion of,
all existing Articles of Association of the Company.
By order of the Board
PRISM COSEC LIMITED
Company Secretary
Registered in England and Wales No.
124855
a) the maximum number of ordinary shares hereby authorised to be
22 March 2023
purchased is 2,047,422;
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
Registered office:
Station Estate
Station Road
Tadcaster
North Yorkshire
LS24 9SG
23 Corporate governance48 Financial statements
Explanatory Notes Relating to 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 2022
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 2022, which includes
this Notice of Annual General Meeting, will be available online at
www.mpac-group.com.
Remuneration Report
Resolution 2 seeks shareholders’ approval for the Directors’ Remuneration report
which is set out on pages 37 to 39 of the Annual Report and Accounts 2022, for
the year ended 31 December 2022. The vote is advisory only.
Election and re-election of Directors
In accordance with best practice in corporate governance, all Directors are
standing for re-election. Resolutions 3 to 7 seek approval for the re-election of
the Directors who served during the year. Resolution 8 concerns the election
of Mr Holland as he was appointed a Director of the Company since the 2022
AGM. Dr Steels will be standing down as a Director of the Company with effect
from 17 May 2023 and will therefore not be standing for re-election at the AGM.
Biographical information for each of the Directors is provided on page 26 of the
Annual Report and Accounts 2022.
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.
Auditors
The auditors of a company must be appointed or re-appointed at each general
meeting at which the accounts are laid.
Resolution 9 seeks approval to appoint PKF Littlejohn LLP, who were appointed as
auditors to the Company following the resignation of Grant Thornton UK LLP from
this office on 23 June 2022, as the Company’s auditors until the conclusion of the
next general meeting of the Company at which accounts are laid.
Resolution 10 seeks consent for the Audit Committee to determine the
remuneration of the auditors.
Directors’ authority to allot shares
Resolution 11 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 £3,412,062, which is approximately
two-thirds of the nominal value of the issued ordinary share capital of the
Company as at 16 March 2023, being the latest practicable date prior to the
publication of this notice.
£1,706,031 of this authority is reserved for a fully pre-emptive rights issue
only which 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 17 August 2024. 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.
Special resolutions
Disapplication of pre-emption rights
Resolutions 12 and 13 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 12 deals with the authority of the Directors to allot new shares
or other equity securities pursuant to the authority given by resolution 11, 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 £511,860, being approximately
10% of the total issued ordinary share capital of the Company
as at 16 March 2023.
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Notice of Annual General Meeting continued
Notice of Annual General Meeting continued
The Pre-Emption Group Statement of Principles 2022 issued on 4 November
2022 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 10% 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 13 seeks to authorise the Directors to allot
new shares and other equity securities pursuant to the authority given
by resolution 11, or sell treasury shares, for cash up to a further nominal
amount of £511,860, being approximately 10% of the total issued ordinary
share capital of the Company as at 16 March 2023, 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 13 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 2024 AGM or at close
of business on 17 August 2024, whichever is the earlier.
The Board considers the authorities in resolutions 12 and 13 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.
Authority to purchase own shares
Resolution 14 seeks authority for the Company to make market purchases of
its own ordinary shares up to a maximum number of 2,047,442 ordinary shares,
representing approximately 10% of the issued ordinary share capital at 16
March 2023. The authority requested would replace a similar authority granted
last year and would expire at the end of the 2024 AGM, or if earlier, at close of
business on 17 August 2024.
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.
Adoption of new Articles of Association: Resolution 15
The current Memorandum of Association and Articles of Association (the
“Current Articles”) of Mpac Group plc (the “Company”) were adopted at the
annual general meeting held on 24 April 2009 and contain references to
legislation that no longer apply. Accordingly, the Directors are recommending
that new Articles of Association are adopted at the 2023 Annual General Meeting
(“AGM”) to remove those provisions which no longer apply and to update certain
other provisions to reflect current best practice (the “New Articles”).
A copy of the New Articles and a marked up copy of the New Articles compared
to the Current Articles will be available for inspection during normal working
hours at the Company’s registered office at Station Estate, Station Road,
Tadcaster, North Yorkshire LS24 9SG and on the Company’s website at www.
mpac-group.com from the date of this notice up until the AGM. A copy will also
be available 15 minutes prior to, and during, the AGM.
This note explains the major changes which are being proposed in the
New Articles.
To reflect current legislation
By virtue of section 28 of the Companies Act 2006, all provisions in the
Memorandum of Association are being deleted and treated as being provisions
of the Articles of Association.
References to the Companies Act 1985 have been either removed or replaced
with the equivalent reference in the Companies Act 2006.
The provision allowing the Company to increase its share capital by way of
ordinary resolution has been removed as the company is no longer required to
have an authorised share capital in accordance with the Companies Act 2006.
The Current Articles provide that there is no requirement for special notice to
be given of any resolution to re-appoint a director who has attained the age of
70. As the upper age limit for directors no longer applies, this requirement has
been deleted from the Current Articles.
23 Corporate governance48 Financial statements
Preference shares
The Company currently has ordinary shares of 25p each and 6 per cent.
cumulative preference shares of £1 each (the “Preference Shares”) in issue. The
rights attaching to the Preference Shares have been inadvertently omitted from
the Current Articles. The New Articles therefore contain the relevant rights in
relation to the Preference Shares as last noted in the articles of association of
the Company approved in 1994.
Authority to allot securities and dis-application of pre-emption rights
The provisions relating to the authority to allot relevant securities and to dis-
apply pre-emption rights have been removed as these are no longer required to
be in the Articles to be effective.
Registration of the transfer of shares
The provision relating to the right of the Board to refuse the registration of
certificated shares has been amended to reflect current legislation and the
provision allowing the Company to suspend the registration of the transfer of
shares has been deleted as companies are no longer permitted to suspend
such transfers.
Proceedings at general meetings
The New Articles permit the Company to convene and hold hybrid shareholder
meetings, whereby facilities are provided for attendance both in person and
electronically. The New Articles do not provide for purely electronic meetings to
be convened. The provisions relating to meetings in multiple physical locations
or ‘satellite meetings’ have also been included to reflect current practice and
technology, in particular that such attendees count towards the quorum and
may exercise voting rights and include the ability for the chairman to adjourn
the meeting if the facilities provided become inadequate. The new Articles also
provide that at a hybrid meeting all business of the meeting will be conducted by
means of a poll. The directors’ powers relating to health and safety and security
at general meetings have also been incorporated in the New Articles, in particular
to ensure the directors have the power to take measures they deem necessary to
secure the health and safety of persons physically present at a meeting.
Methods of voting at general meetings
The New Articles require votes put to general meetings held partly by means of
an electronic facility to be decided on a poll.
Retirement of directors
In accordance with the Company’s current practice, the New Articles now
require all directors in office at the date of the notice of AGM to retire from
office and offer themselves for re-election by members.
Directors’ interests and voting
The provision relating to whether a director can vote and be counted in the
quorum in relation to a transaction or arrangement with another company in
which that director holds one per cent or more of the voting rights in such
company has been updated to clarify when a director is deemed to hold one per
cent or more of the voting rights.
Notice of Board meetings
The New Articles allow for directors who are absent or intending to be absent
from the United Kingdom to request that notices of Board meetings be sent to
the director at an alternative address, including an electronic address, given by
the director.
Secretary
The New Articles allow for the Board to appoint a deputy or assistant secretary
who, during such time there may be no secretary, may act as secretary and do
any act authorised or required to be done by the secretary.
Communications during suspension or curtailment of postal services
The provisions relating to communicating with shareholders if the postal
services within the United Kingdom are suspended or curtailed have been
amended to reflect best practice.
Untraced members
The provisions relating to the sale of shares for those members who
are untraced have been updated to reflect the requirements under the
Uncertificated Securities Regulations 2001.
Notices and other communications
The New Articles provide that the Company may cease to send communications
to a shareholder when communications have been returned on two consecutive
occasions. The provisions regarding service of notices where the Company is
unable effectively to give notice of a general meeting (for example because of a
postal strike) require the Company to advertise the general meeting in at least
two UK national daily newspapers rather than one, as well as giving notice to
those members where notice can validly be given by electronic means.
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Notice of Annual General Meeting continued
Notice of Annual General Meeting continued
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.
6. In order to reduce the Company’s environmental impact, our intention is to
remove paper from the voting process as far as possible. You are therefore
asked to vote in one of the following ways:
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 15 May 2023, 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.
Voting at the Meeting
2. Voting at the Meeting will be by way of poll rather than on a show of hands.
This is a more transparent method of voting as shareholder votes are
counted according to the number of shares held and will help to ensure an
exact and definitive result. If you will not be participating in the meeting in
person and wish to vote in advance, you may appoint a proxy as further
detailed in notes 3 to 11 below.
Appointment of proxies
3. 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.
4.
In the case of joint holders, where more than one of the joint-holders purports
to appoint a proxy, only the appointment submitted by the most senior holder
will be accepted. Seniority is determined by the order in which the names of
the joint holders appear in the Company’s Register of Members in respect of
the joint holding (the first named being the most senior).
5. A vote withheld is not a vote in law, which means that the vote will not be
counted in the calculation of votes for or against the resolution. If no voting
indication is given, your proxy will vote or abstain from voting at his or her
discretion. Your proxy will vote (or abstain from voting) as he or she thinks
fit in relation to any other matter which is put before the Meeting.
Register your vote online through our registrar’s portal – www.signalshares.
com. You will need your investor code which is printed on your share
certificate or may be obtained by calling the Company’s registrar, Link Group
(‘Link’) on 0371 664 0300. 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.
Link has launched a shareholder app: LinkVote+. It’s free to download and
use and gives shareholders the ability to access their shareholding record at
any time and allows users to submit a proxy appointment quickly and easily
online rather than through the post. The app is available to download on
both the Apple App Store and Google Play.
CREST members may use the CREST electronic proxy appointment service
as detailed in note 9 below.
Proxymity Voting – if you are an institutional investor you may also be able
to appoint a proxy electronically via the Proxymity platform, a process
which has been agreed by the Company and approved by the Registrar.
For further information regarding Proxymity, please go to www.proxymity.
io. Your proxy must be lodged by 11:00 a.m on Monday 24 April 2023 in
order to be considered valid or, if the meeting is adjourned, by the time
which is 48 hours before the time of the adjourned meeting. 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. An electronic proxy appointment
via the Proxymity platform may be revoked completely by sending an
authenticated message via the platform instructing the removal of your
proxy vote.
If you prefer, you may request a hard copy form from Link using the
numbers shown above and return it to Link Group, PXS 1, Central Square,
29 Wellington Street, Leeds, LS1 4DL
All proxy appointments, whether electronic or hard copy, must be received
by the Company’s registrar no later than 12 noon. on Monday 15 May 2022
(or, in the event that the meeting is adjourned, no later than 48 hours
(excluding any part of the day that is not a working day) before the time of
any adjourned meeting).
23 Corporate governance48 Financial statements
7.
If you return more than one proxy appointment, either by paper or
electronic communication, the appointment received last by the Registrar
before the latest time for the receipt of proxies will take precedence. You
are advised to read the terms and conditions of use carefully. Electronic
communication facilities are open to all shareholders and those who use
them will not be disadvantaged.
8. 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.
9. 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.
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 16 March 2023 (being the latest practicable business day prior to
the publication of this Notice), the Company’s ordinary issued share
capital consists of 20,474,424 ordinary shares, carrying one vote each.
Therefore, the total voting rights in the Company as at 16 March 2023
are 20,474,424.
Questions
13. We always welcome questions from our shareholders and we request that
shareholders submit their questions to the Board before the Meeting. We
will ensure that answers to questions are placed on the Company’s website.
You can submit questions up until 11 a.m. on 15 May 2023 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 can be found on the Company’s website at
10. CREST members and, where applicable, their CREST sponsors or voting
www.mpac-group.com.
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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.
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Corporate information
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Registered office
Station Estate
Station Road
Tadcaster
North Yorkshire
LS24 9SG
Tel: +44 (0)2476 421100
Email: ho@mpac-group.com
Registered number
124855
Secretary
Prism Cosec Limited
Auditors
PKF Littlejohn LLP
15 Westferry Circus
Canary Wharf
London
E14 4HD
Nominated Advisor & Broker
Shore Capital and Corporate Limited
57 St James’s Street
London
SW1A 1LD
Financial PR
Hudson Sandler LLP
25 Charterhouse Square
London
EC1M 6AE
Registrars
Link Group
10th Floor, Central Square
29 Wellington Street
Leeds
LS1 4DL
0371 664 0300
www.signalshares.com
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
17 May 2023
Payment dates for preference dividend
30 June 2023 and 31 December 2023
Half-year announcement
September 2023
23 Corporate governance48 Financial statements
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Printed sustainably in the UK
by Pureprint, a CarbonNeutral®
company with FSC® chain
of custody and an ISO 14001-
certified environmental
management system recycling
over 99% of all dry waste.
Mpac Group plc
Station Estate
Station Road
Tadcaster
North Yorkshire
LS24 9SG
Tel: +44 (0)2476 421100
Email: ho@mpac-group.com
mpac-group.com