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Petards
Group plc
Parallel House, 32 London Road, Guildford, GU1 2AB, United Kingdom
Tel: +44 (0) 1483 230345
www.petards.com
Annual Financial Report 2018
Petards Group plc
Registered number 02990100
Petards
Group plc
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Introduction
Petards’ operations continue to be focused upon the development, supply and maintenance of
technologies used in advanced security, surveillance and ruggedized electronic applications, the
main markets for which are:
Rail – software driven video and other sensing systems for on-train applications sold under the
eyeTrain brand to global train builders, integrators and rail operators, and web-based real-time
safety critical integrated software applications supporting the UK rail network infrastructure sold
under the RTS brand;
Traffic –Automatic Number Plate Recognition (“ANPR”) systems for lane and speed enforcement
and other applications, and UK Home Office approved mobile speed enforcement systems, sold
under the QRO and ProVida brands to UK and overseas law enforcement agencies and commercial
customers; and
Defence – electronic countermeasure protection systems, mobile radio systems and related
engineering services sold predominantly to the UK Ministry of Defence (“MOD”).
Overview
Financial statements
Financial and operational highlights
1
2 Chairman’s statement
Strategic report
Business review
4
8 Our business, business model and strategy
9
Key performance indicators
10 Principal risks and uncertainties
Corporate governance
11 Directors’ report
20 Remuneration report
22 Statement of directors’ responsibilities
23 Independent auditor’s report
31 Consolidated income statement
31 Consolidated statement of comprehensive
income
32 Statements of changes in equity
33 Balance sheets
34 Statements of cash flows
35 Notes
72 Alternative performance measures glossary
AGM and information
73 Directors, officers and advisors
74 Notice of Annual General Meeting
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Petards Group plc Annual Report & Accounts 2018 | 1
Overview
Financial and operational highlights
Revenue
Adjusted EBITDA*
Net funds
£20.0m +28%
13.5 13.1
15.3
15.6
20.0
£2.1m +27%
2.1
1.6
1.6
1.3
1.0
£1.0m –25%
0.9
0.8
1.3
1.0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Revenue
Adjusted EBITDA*
Operating profit
Profit before taxation
Cash from operating activities
Net funds (cash less debt)
Net assets
(0.1)
2014
2015
2016
2017
2018
2018
£000
2017
£000
19,973
15,581
2,057
1,156
1,126
2,515
969
8,091
1,619
1,245
1,205
539
1,286
7,231
*Adjusted EBITDA comprises operating profit adjusted to remove the impact of depreciation, amortisation, exceptional items, acquisition costs and share
based payments. See Alternative Performance Measures Glossary on page 72.
The Group has adopted IFRS 15 Revenue from contracts with customers using the cumulative effect method, under which the comparative information is not
restated. The cumulative effect of adopting IFRS 15 is recognised in equity at the date of first adoption on 1 January 2018. The impact of this on the above
results is set out at note 3 to the financial statements.
– Total revenues increased to £20.0m (2017: £15.6m)
– Gross margins 34.5% (2017: 38.6%)
– Adjusted EBITDA £2.1m (2017: £1.6m)
– Operating profit £1.2m (2017: £1.2m including £0.4m exceptional income)
– Cash generated from operating activities of £2.5m (2017: £0.5m)
– Significant investment of £1.4m (2017: £1.3m) in our eyeTrain automated software applications
has created new orders and opened up new business opportunities
– Order book at 31 December 2018 over £19m (2017: £18m)
– 2019 revenue coverage of over £13m from 2018 closing order book
– Acquired RTS Solutions software business focused on UK rail infrastructure
– QRO generated over £1 million of revenues from two new UK police framework agreements
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2 | Petards Group plc Annual Report & Accounts 2018
Chairman’s statement
I am pleased to report on the Group’s annual results for 2018 together with the progress made in meeting our strategic growth objectives.
While the development of our new eyeTrain software solutions presented some technical challenges, it is gratifying that Petards’ market
position has been strengthened and that the Group is well positioned to continue to win significant new projects.
Group revenues increased to £20.0 million (2017: £15.6 million) with Adjusted EBITDA* of £2,057,000 (2017: £1,619,000) and profits before tax
of £1,126,000 (2017: £1,205,000 that included £491,000 of net exceptional profit). The Group closed 2018 with net funds of £969,000 (2017:
£1,286,000). As I reported at the half year stage, the 2018 results reflect the adoption of IFRS 15, the new revenue recognition standard, details
of which are set out in note 3 to the financial statements.
Rail products continued to provide the majority of the Group’s revenues with around 60% relating to eyeTrain in 2018. The majority of the
Group’s overseas sales also derive from the rail sector with overall Group exports accounting for 23% of revenues. Over the past few years the
Group has placed considerable emphasis on establishing a strong position in its home rail market, which is expected to provide good growth
prospects over the coming years for train new build and retrofit applications as the train operators continue to increase network capacity.
Significant investment was made in 2018 in developing Driver Controlled Operation (“DCO”) and Automatic Selective Door Opening (“ASDO”)
safety critical software systems. ASDO forms a key part of the overall solution to help train operators increase passenger carrying capacity
particularly on rail lines with shorter platforms.
QRO’s traffic products had an excellent 2018 in its second full year as part of the Group. Following its success in winning two long-term
framework agreements with UK police forces, QRO is well positioned to achieve continued growth for its ANPR products and new service
agreements. In April 2019 it is moving to larger nearby facilities in Northamptonshire to manage this new business, with plans to expand the
product range.
Defence products had a mixed year. Following a strong first half year with a number of good contract wins and related revenues, the second
half year proved to be more difficult. The MOD has not presently sought to re-tender the radio catalogue framework agreement previously
held by the Group for the past 5 years, which expired in September 2018. While we understand that the MOD will re-tender in due course,
this delay means that the large orders received in 2018 are not expected to be repeated in 2019.
RTS Solutions made a maiden contribution to Petards’ results following its acquisition in May 2018. I would like to welcome the team at RTS
to the Group and look forward to supporting them in the future development of the business. The acquisition affirmed the Board’s strategy
to pursue ownership of a broader portfolio of products and RTS provides the Group with its first exposure to rail infrastructure. Leeds based
RTS supplies real-time software solutions and services that support the operational, maintenance and safety functions of the UK’s rail
infrastructure. Since its acquisition we have created a business development function to market the software products on a wider basis while
at the same time pursuing business with existing customers where we believe there is potential for the provision of additional services.
The importance and contribution that the staff within the Group make cannot be underestimated and 2018 was certainly a challenging year.
On behalf of the Board and shareholders I would like to express thanks to all of our management and staff at all levels for their hard work and
professionalism and their contribution to the success of the Group. We look forward to their continued support in 2019.
In line with its strategy the Board is reviewing opportunities to increase the Group’s market presence which will either be in the form of
strategic alliances or the acquisition of complementary organisations, which is its preferred route.
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Petards Group plc Annual Report & Accounts 2018 | 3
Overview
The Group continues to enjoy a strong order book that provides the Board with good visibility to plan for the future. The order book at 31
December 2018 was over £19 million, of which over £13 million is scheduled for revenue during 2019, with customer delivery schedules
weighted towards the second half of the year. The Group has a strong pipeline of new contracts under negotiation which it is anticipated
will add to the orders for delivery in the second half of 2019 and for 2020. These together with the Group’s strong market position provides
the Board with confidence in its prospects for the year ahead.
Raschid Abdullah
Chairman
9 April 2019
*Adjusted EBITDA comprises operating profit adjusted to remove the impact of depreciation, amortisation, exceptional items, acquisition costs and share based payments. A
reconciliation of Adjusted EBITDA to operating profit is included on the face of the consolidated income statement. This is considered useful by the Board since by removing
exceptional items, acquisition costs and share based payments, the year on year operational performance comparison is more comparable (see Alternative Performance Measures
Glossary on page 72).
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4 | Petards Group plc Annual Report & Accounts 2018
Strategic report
The directors present their strategic report for the year ended 31 December 2018.
Business review
Petards’ operations continue to be focused upon the development, supply and maintenance of technologies used in advanced security,
surveillance and ruggedized electronic applications, the main markets for which are:
● Rail – software driven video and other sensing systems for on-train applications sold under the eyeTrain brand to global train builders,
integrators and rail operators, and web-based real-time safety critical integrated software applications supporting the UK rail network
infrastructure sold under the RTS brand;
● Traffic –Automatic Number Plate Recognition (“ANPR”) systems for lane and speed enforcement and other applications, and UK Home
Office approved mobile speed enforcement systems, sold under the QRO and ProVida brands to UK and overseas law enforcement
agencies and commercial customers; and
● Defence – electronic countermeasure protection systems, mobile radio systems and related engineering services sold predominantly to
the UK Ministry of Defence (“MOD”).
Operating review
2018 saw the Group continue to secure the majority of orders available for its products placed by new train builders for the UK market. Order
intake for eyeTrain products was similar to the prior year with recurring revenues for spares and repairs continuing to grow. The acquisition
of RTS during the year added to the Group’s rail-related software solutions. The Group also secured year-on-year increases in both order intake
and revenues for its Traffic and Defence products.
At an operational level the year presented a number of challenges, particularly in respect of the delivery of some complex eyeTrain projects.
The Group addressed these head-on and it is pleasing that these have been overcome to the satisfaction of our customers, albeit at some
higher than anticipated cost.
Order intake for eyeTrain products was weighted towards the second half of the year with significant orders being received for delivery in
2019 and 2020 from Bombardier Transportation and Siemens Mobility worth in the region of £6.5 million. The Group’s industry experience,
the growing number of train types on which eyeTrain is installed, our willingness to innovate, and the strong customer relationships built
over time, all play a significant role in continuing to secure such projects.
The Group has invested heavily in developing software that provides Automatic Selective Door Operation (ASDO), Driver Controlled Operation
(DCO) and Automatic Passenger Counting (APC) systems that integrate with its other eyeTrain video systems. The programme required a
significant scaling up of our software team with both permanent and contract staff. It has taken longer than originally envisaged, however,
the core system is now operational and provides a further differentiator for Petards. It is well suited to retrofit applications and we have been
presented with new sales opportunities, some of which we expect to be converted in the coming 12 months.
As more eyeTrain projects go into service, revenues from spares and service support are expected to continue to grow. This is a key long-
term objective to enhance our customer and product support and we are seeking to reach agreement on service contracts as warranty
periods expire.
The UK’s demand for new and upgraded rolling stock remains strong and there are a number of major projects for which orders are scheduled
to be placed by customers over the course of the next year. If Petards is selected then the majority of these are expected to utilise our existing
proven eyeTrain software systems developed over the past two years. While the development of new on-board product applications for
eyeTrain remains core to the Group’s strategy, the quantum of spend is presently expected to be much lower in 2019.
Defence products had a strong first half year with the receipt and delivery of £1.5 million in radio equipment orders and the delivery of the
£1 million emulator tool for the MOD’s transport aircraft. The MOD also extended Petards post design services contract for another two years
to the end of 2021, worth an additional £1.1 million. However, regretfully that level of performance was not carried through to the second
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Strategic report
Petards Group plc Annual Report & Accounts 2018 | 5
half of the year. While Petards continues to win some radio business, at the present time the MOD has not as yet re-tendered its radio catalogue
framework agreement, previously held by the Group, which expired in September 2018. While we understand that the MOD will re-tender
in due course, this delay means that the large orders received in 2018 are not expected to be repeated in 2019. Other than the provision of
specialist engineering services, the Group’s current defence activities are mainly as a value-added re-seller of radio communications and
electronic countermeasures equipment.
The strong order and revenue performance of Traffic products continued into the second half buoyed by QRO’s success in securing two
framework agreements with UK police forces; one with the Cheshire force and a joint one with Thames Valley and Hampshire. While Cheshire
has been a longstanding customer, the growth in revenues over the prior year can be attributed to the second agreement. This has been
utilised by other forces in England with deliveries worth over £1 million being made during 2018. Commercial sales also increased and
customer service support contracts continued to be an important aspect of the business. In April 2019 QRO will be relocating to new premises
in Northamptonshire to support its anticipated future growth. The Board is very satisfied with the return on its investment in QRO over the
past two years and looks forward to further growth.
The RTS acquisition in May 2018 was the first since QRO joined the Group back in April 2016. The initial and contingent consideration of
£1.85 million was paid during the year, including £0.6 million paid on a pound for pound basis for surplus cash in RTS’s acquired balance
sheet. The consideration was satisfied in cash from the Group’s existing cash reserves and a new £1.25 million five year bank term loan. No
further consideration is expected to be payable.
RTS adds to Petards’ existing capabilities in the rail sector providing the Group with an entry into the UK rail infrastructure market. It brings
with it a portfolio of software solutions and recurring revenues. In June 2018 it added significantly to its recurring revenues order book with
the renewal of a contract that related to software licences, maintenance and third line support in respect of Network Rail’s real time failure
and incident management system. The contract will generate annual revenues in excess of £250,000 and runs until June 2023. The final two
years are at Network Rail’s option which would add to the order book when exercised.
Since its acquisition RTS has made steady progress and contributed £0.2 million to Group profits in the period to 31 December 2018 on
revenues of £0.5 million. Investment of £0.1 million was also made in developing a new core module for its software portfolio, the first
revenues on which were realised in the period. While customer related project delays had an impact on its financial performance in 2018,
those projects remain live and the revenues are expected to be realised during the course of 2019. The Board remains confident that RTS will
prove to be a good contributor to Group profits going forward.
Following 2018’s positive order intake performance, the Group closed the year with an order book of over £19 million (2017: over £18 million).
This provides good coverage of the Group’s forward revenues with over £13 million scheduled for recognition during 2019 and a further £5
million for 2020.
Financial review
Operating performance
The year ended 31 December 2018 is the first year that the Group has reported under IFRS 15 “Revenue from contracts with customers” and
its implementation has not altered the revenue recognition policy for the majority of the Group’s revenue streams. The one area of the Group’s
business in which the adoption of IFRS 15 has resulted in a change, is that of the work performed relating to the delivery of customer specific
development projects.
Prior to the adoption of IFRS 15, the Group recognised such revenue upon achievement of specific pre-agreed, customer-set milestones
(other than advance payments) and for which the Group could invoice the customer for payment. Under IFRS 15, work of this nature results
in later recognition of the related revenue and predominantly affects eyeTrain revenues. The Group has adopted IFRS 15 using the “cumulative
effect” method under which comparative information is not restated. The cumulative effect of revising the revenue and profit previously
recognised up to 31 December 2017 is shown as an adjustment to brought forward retained earnings, details of which are set out in note 3
to the financial statements, as is the effect of the deferral of revenues that would have been recognised in 2018 IFRS 15 not been adopted.
Revenues for the year were £20.0 million (2017: £15.6 million) including exports of £4.7 million (2017: £5.3 million). The majority of exports
related to shipments of eyeTrain system to customers in Germany, Switzerland and Poland, most of which are destined for rail vehicles that
will be operated in the UK.
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6 | Petards Group plc Annual Report & Accounts 2018
Strategic report (continued)
Business review (continued)
Gross margins for the year remained in line with those reported in the first half year at 34.5%, with the reduction over those achieved in 2017
(38.6%) reflecting both product mix and higher than anticipated project costs. With regards to mix, Defence products comprised almost a
third of 2018 total revenues. The increase over the prior year related to additional bought-in lower margin product and this had a dilutive
effect on the overall margin. In addition, higher non-recurring project costs were incurred in the implementation of eyeTrain projects on two
new train platforms, and this work has been completed in the first quarter of 2019. While the benefits will be seen on future new orders,
these costs had an effect on the gross margin in 2018. While those higher specific project costs are one-off in nature, the Group has embarked
on a programme of margin improvement across its supply chain, which it is expected will drive better returns.
Overall administrative expenses were up to £5,728,000 (2017: £4,770,000). The main increases related to higher amortisation and depreciation
charges, the effect of the RTS acquisition and exceptional income of £362,000 netted off against 2017 administrative expenses. Other
administrative expenses increased by 4% over the prior year primarily due to higher indirect staff costs and one-off Defence product tendering
costs.
Earnings before interest, tax, depreciation, amortisation, exceptional items, acquisition costs and share based payment charges (“Adjusted
EBITDA”) totalled £2,057,000 up from £1,619,000 in 2017. Operating profits were £1,156,000 against £1,245,000 in 2017 (2017 included £362,000
exceptional income).
Net financial expenses totalled £30,000 (2017: £40,000) albeit that its composition was very different than the prior year which included
interest relating to loan notes converted in 2017 of £131,000, and net exceptional financial income of £129,000.
A tax credit of £17,000 for the year (2017: £32,000 credit) included the benefit of research and development tax credits relating to prior years.
Profit after tax was £1,143,000 (2017: £1,237,000) and basic earnings per share 2.01p (2017: 3.31p). The equity issued as a result of the conversion
of loan notes in December 2017 had little effect on 2017’s basic earnings per share as they were only in issue for two weeks but impacted
that of 2018 as they were in issue for the whole year. Fully diluted earnings per share were not affected to the same extent and were 1.95p
(2017: 2.32p).
Research and development
The Group continues to invest in its product offering and during 2018 made a significant investment in its rail products. This investment
totalled £1,608,000 (2017: £1,290,000) of which £1,444,000 was capitalised (2017: £1,043,000). The capitalised costs relate predominantly to
the Group’s next generation of eyeTrain software products which will sit alongside its existing software portfolio. These new products will
support future sales to the Group’s most recent new customers as well as those for all ASDO systems, retrofitted DCO systems and integrated
APC systems. In addition to eyeTrain, the Group invested to support RTS’s software development roadmap.
Cash and cash flow
Net cash flows from operating activities for the year were £2,515,000 (2017: £539,000).
Net cash outflows from investing activities were £3 million comprising the acquisition of RTS, investment in new product development and
equipment. Net financing inflows were £1.3 million of which a net £1.1 million concerned the term loan financing of the RTS acquisition.
At 31 December 2018 the Group’s net cash and cash equivalents were £2,117,000 up by £793,000 over the year (2017: £1,324,000). The Group
also has available to it a £0.75 million 2-year revolving credit facility secured in June 2018.
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Strategic report
Petards Group plc Annual Report & Accounts 2018 | 7
Brexit
In common with most UK companies, Petards would not be immune to any potential adverse impact that a disorderly Brexit might have on
the wider economy. However, the Board’s current assessment is that the specific sectors in which the Group operates are not significantly
exposed to particular Brexit risk, although some impact may be felt in the days immediately following any disorderly Brexit.
Rail products are the main contributor to Group revenues and while almost a quarter of the Group’s revenues for 2018 were exported to the
EU, the majority related to UK rail projects. The market sectors to which Petards supplies tend to be highly regulated and the Group does not
anticipate Brexit will change existing regulations significantly. Like most businesses it can be affected by any inflationary pressures in the
supply chain but again these are not considered to be specific to the sectors in which the Group operates. Neither the Group’s current order
book nor the orders it expects to receive during 2019 contain significant foreign currency exposures. The Group has also been monitoring
its major suppliers within its supply chain and they have indicated that they have taken additional measures, such as stocking, to ensure
continuity of supply.
The UK Long Term Passenger Rolling Stock Strategy for the Rail Industry published in 2018 continued to express the view that while Brexit
impacts remain unknown, the scenarios covered by the “worst case” industry modelling already cater for impacts much worse than the Office
of Budgetary Responsibility predictions for Brexit. The overall long term rolling stock outlook remained unchanged from the prior year’s report
and forecasts a national rail fleet increase of between 40% (5,500 vehicles) and 85% (12,000 vehicles) over the next 30 years. The investment
decisions for new rolling stock require long term planning and those relating to orders which Petards expects to receive in the coming year
were completed some time ago.
The Group’s other sector exposure, defence and traffic, is also largely dependent upon UK government expenditure but those for Petards’
products and services are generally subject to shorter planning cycles. The current indications are that the Group’s forecast revenues take
into account any likely adverse impact that Brexit might have, although Petards may possibly be a beneficiary of any boost in government
spending that may follow Brexit.
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8 | Petards Group plc Annual Report & Accounts 2018
Strategic report (continued)
Our business, business model and strategy
Petards Group plc was listed on AIM in 1997 and the Group supplies advanced security and surveillance systems to three markets:
Rail – Software driven on-board digital video and sensor systems for fitment to new build or retrofitted to existing rolling stock. Applications
include Driver Controlled Operation (DCO), condition monitoring, saloon car CCTV, drivers view cameras and automatic passenger counting
systems, as well as software solutions and services that support the UK rail network including incident and fault management, work site and
resource management, resource management, machine plant and asset/inventory management.
Traffic – ANPR systems for lane and speed enforcement and other applications, and UK Home Office approved mobile speed enforcement
systems, sold under the QRO and ProVida brands to UK and overseas law enforcement agencies and commercial customers.
Defence – Electronic defensive countermeasure systems for fitment to rotary and fixed wing aircraft, threat simulation systems and mobile
radios predominantly for the UK Ministry of Defence.
The Group’s customer base mainly comprises international ‘blue chip’ and government agencies and their strength, often global, gives rise
to the opportunity to develop Petards business through the provision of good quality professional service in support of its existing and future
product ranges.
The Group develops its own products and services for sale to the Rail and Traffic markets whereas within the Defence market, in which it has
a heritage of nearly 70 years, it is a specialist “value added” re-seller and supplier of related engineering services.
The Board believes that the Group operates in growth areas and that it has the products and services plus available technical and technological
skills to develop new products as well as the sales and marketing abilities to become a larger and more successful operator in each of the
sectors in which it operates.
The Group’s overriding objective is to achieve attractive and sustainable rates of growth and returns for shareholders and its strategy to
achieve this objective is:
● to focus upon the Group’s core products which are used in the rail, defence and traffic industries;
● to continue to invest in developing technologies to enhance its product portfolio;
● to increase revenues both organically by exploiting the synergies within the Group and by acquisition;
● to expand revenues globally into the Group’s target markets; and
● to improve operating margins through cost management.
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Strategic report
Petards Group plc Annual Report & Accounts 2018 | 9
Key performance indicators
The Group uses a number of key performance indicators (KPI’s) to monitor its progress against its objectives. In addition to on time delivery
and quality standards, the main KPI’s are:
Revenue
Adjusted EBITDA1
Net cash from operating activities
Net funds2
Current net funds3
2018
£000
2017
£000
19,973
15,581
2,057
2,515
969
1,852
1,619
539
1,286
1,309
1 Adjusted EBITDA comprises operating profit adjusted to remove the impact of depreciation, amortisation, exceptional items, acquisition costs and share based payments. A
reconciliation of Adjusted EBITDA to operating profit is included on the face of the consolidated income statement.
An Adjusted EBITDA KPI is considered useful to the Board since by removing exceptional items, acquisition costs and share based payments, the year on year operational
performance comparison is more transparent.
2 Net funds comprises cash and cash equivalents (note 20) less interest bearing loans and borrowings (note 21).
3 Current net funds comprises cash and cash equivalents (note 20) less current liabilities in respect of interest bearing loans and borrowings (note 21).
See Alternative Performance Measures Glossary on page 72.
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10 | Petards Group plc Annual Report & Accounts 2018
Strategic report (continued)
Principal risks and uncertainties
The management of the business and the execution of the Group’s strategy is subject to a number of risks. The main business risks affecting
the Group are outlined below. Potential risks relating to Brexit and the assessment of the impact of Brexit have been addressed separately
above.
The Group may face increased competition – the Group may face greater competition including that from competitors with greater capital
resources than those of the Group.
The Group may need future access to capital – the Group’s capital requirements depend on numerous factors. In order to make future acquisitions
and to fund growth, the Group may require further financing. This may not be able to take place if financing is not available.
The financial results of the Group can be materially affected by the timing of large contracts – the Group’s revenue is generated from a mix of
longer and shorter lead time orders. The timing of order placement and delivery of the larger orders is inherently difficult to predict potentially
causing material fluctuations in actual results compared with expectations or plans.
Government expenditure – many of the industries that utilise the Group’s products receive funding from central and local governments. The
levels of funding for those industries may impact on demand for the Group’s products. The Group has sought to mitigate this potential
exposure by increasing its geographic customer base and by supplying a range of products and services.
Dependence on key personnel – the Group’s performance depends to a significant extent upon a limited number of key employees. The loss
of one or more of these key employees and the inability to recruit people with the appropriate experience and skills could have a material
adverse effect on the Group. The Group has endeavoured to ensure that these key employees are incentivised but their retention cannot be
guaranteed.
Technological changes – the Group’s product offerings may be under threat should technologies be developed by competitors that render
those products either redundant or uncompetitive. This could potentially result in a reduction in revenues generated by the products affected.
The Group also incurs expenditure in developing new products and services. Should such development projects not be successfully
completed or result in offerings that are not attractive to customers, the costs incurred may not be fully recoverable.
Currency risk – the Group buys from suppliers and sells to customers based outside of the UK and consequently these dealings may be in
foreign currencies that are subject to exchange rate fluctuations. The Group actively manages these exposures with foreign currency
instruments, unless there is a natural hedge between purchases and sales. The principal currencies involved are US dollars and Euros.
Further details regarding the key accounting estimates and judgements are included in note 1.
Signed on behalf of the Board
Osman Abdullah
Group Chief Executive
Parallel House
32 London Road
Guildford
Surrey
GU1 2AB
9 April 2019
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Directors’ report
Corporate governance
Petards Group plc Annual Report & Accounts 2018 | 11
The directors present their report and financial statements for the year ended 31 December 2018.
Board of Directors and Directors’ interests
The Board currently comprises an executive Chairman, two executive directors and one non-executive director as follows:
Raschid Abdullah – Executive Chairman
Raschid was appointed executive Chairman in January 2013 and until its purchase by Petards was also executive Chairman of Water Hall
Group plc, which was listed on AIM.
He was previously executive Chairman of Evered Holding plc, a fully listed public company specialising in industrial and quarry related
products, from 1982 to 1989. Raschid started his commercial life within the construction industry in the areas of building product supplies
and the provision of specialist subcontracting services starting his first business in 1971 which he sold to a competitor in 1976.
He then joined the family business providing a range of services to clients in the Middle East. These included owning and operating family
and procurement offices for prominent families and their businesses, and co-investing in the UK stock market with a number of Middle
Eastern families. He is a Life Fellow of the Royal Society of Arts.
Osman Abdullah – Group Chief Executive
Osman Abdullah was appointed to the Board in September 2010 as a non-executive director, becoming executive Chairman of the Group’s
principal trading subsidiary in 2013 to lead its restructure. He was appointed as Group Chief Executive from January 2016.
He was formerly Group Chief Executive of Evered Holdings plc, a fully listed public company specialising in industrial manufacturing,
distribution and quarry mining related products from 1981 to 1989. He subsequently served from 1993 to 2005 as a non-executive director
of Umeco plc, a fully listed company specialising in component distribution and the manufacture of composite material based products
principally to the aerospace industry.
Paul Negus – Director
Paul Negus joined the Board in September 2014 and is responsible for business development for Petards’ rail products. He has considerable
commercial experience having spent eight years as Managing Director of PIPS Technology Limited, a developer of automatic number plate
recognition and CCTV systems first under private ownership and latterly under the ownership of Federal Signal Inc.
Terry Connolly FCA – Non-Executive Director
Terry Connolly was appointed in August 2007. He is a chartered accountant and had a career in advertising and the entertainment sector
where as Group Managing Director of Chrysalis he was responsible for taking that company to a public listing. Since 1989 he has been a self-
employed consultant specialising in strategic and corporate affairs. He is Chairman of the Audit and Remuneration Committees.
Directors’ interests in the share capital of the Company are set out in the Remuneration Report.
Research and development
The Group is committed to research and development activities in order to secure competitive advantage in the markets in which it operates.
An amount of £1,444,000 (2017: £1,043,000) has been capitalised during the year which relates to the ongoing development of the Group’s
rail products. In addition, the Group expensed other development expenditure totalling £127,000 (2017: £247,000) directly to the income
statement.
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12 | Petards Group plc Annual Report & Accounts 2018
Directors’ report (continued)
Corporate Governance Statement
The Board is collectively responsible for Corporate Governance and I, as Chairman of the Board, am ultimately responsible for ensuring that
a high level of Corporate Governance is embedded in the Company’s culture.
As a company whose shares are traded on the Alternative Investment Market (‘AIM’) of the London Stock Exchange, Petards Group plc
recognises its responsibility for the proper management of the Company and the importance of sound corporate governance, commensurate
with the size and nature of the Company and the interests of its shareholders. In accordance with AIM Rule 26, which requires AIM companies
to comply with a recognised code of Corporate Governance, the Board believes that the Quoted Companies Alliance Corporate Governance
Code 2018 (the “QCA Code”) provides a suitable framework by which it is able to continue to commit to maintaining high standards of
corporate governance. Accordingly, the Company complies with the 10 principles of the QCA Code where considered relevant and
appropriate, having regard to the size, current stage of development and resources of the Company.
The QCA Code is applied by the Company primarily through its Board process, which includes regular meetings covering financial as well as
non-financial matters which affect not only the Company’s shareholders but other significant stakeholders, including employees. The Board
process and corporate governance is enhanced by the establishment of Audit, Remuneration and Nominations Committees.
The Board believes that, having regard to the size of the Group, its stage of development and the resources it has available, its governance
structures and practices are in compliance with the expectations of the QCA Code.
Set out below are the 10 principles of the QCA Code, together with a summary under each heading explaining how the Company has applied
these. In fulfilling their responsibilities, the directors believe that they govern the Company in the best interests of its shareholders, whilst
having due regard to the interests of other stakeholders in the Group including, in particular, customers, employees and creditors.
1 Establish a strategy and business model which promotes long-term value for shareholders
Application
The Board must be able to express a shared view of the Company’s purpose, business model and strategy. It should go beyond the simple
description of products and corporate structures and set out how the Company intends to deliver shareholder value in the medium to long-
term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the Company
from unnecessary risk and securing its long-term future.
Compliance
The Company’s vision is to invest in and develop its business to deliver long term, sustainable growth in shareholder value. This may come
from organic growth, acquisitions or divestments.
The strategy for achieving this focuses on maintaining acceptable gross profit margins, underpinned with sensible cost and cash management,
having regard to perceived risks within the industry market and sector parameters, as well as the macro economic environment.
The Chairman’s Statement and Strategic Report include detailed analysis of the Group’s strategy, financial performance, principal risks and
uncertainties and future expectations.
2 Seek to understand and meet shareholder needs and expectations
Application
Directors must develop a good understanding of the needs and expectations of all elements of the Company’s shareholder base. The Board
must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.
Compliance
The Board recognises and understands that it has a fiduciary responsibility to the shareholders. The Board is aware of the need to protect the
interests of minority shareholders and balancing these interests with those of any more substantial shareholders. The Chairman is responsible
for ongoing dialogue and relationships with shareholders supported by the other executive directors. As such, members of the Board meet
with the Company’s larger shareholders during the course of the year. The Annual General Meeting is always an opportunity for the Board to
communicate with shareholders and the Board welcomes the attendance and participation of all shareholders.
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Corporate governance
Petards Group plc Annual Report & Accounts 2018 | 13
This communication allows the Board to understand the shareholders’ views, and to ensure that the strategies and objectives of the Group
are aligned with shareholders. In its decision-making, the Board will have regard to the ascertained expectations and needs of its shareholders
(as appropriate in accordance with its statutory and fiduciary duties).
The Group’s website (www.petards.com) allows shareholders access to information including; contact details, major shareholders and the
current share price. In addition, all announcements issued since 2014 via RNS are available, together with an archive of recent financial reports
and accounts and interim statements.
The resolutions to be put to a vote at each AGM can be found at the back of the relevant Annual Financial Report and the Financial Reports
and Circulars section of the Company’s website for any forthcoming AGM. Past AGM resolutions can be found at the back of each Annual
Financial Report with the results now published in the RNS section.
3 Take into account wider stakeholder and social responsibilities and their implications for long-term
success
Application
Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers,
customers, regulators and others). The Board needs to identify the Company’s stakeholders and understand their needs, interests and
expectations.
Where matters that relate to the Company’s impact on society, the communities within which it operates or the environment have the
potential to affect the Company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated
into the Company’s strategy and business model.
Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all
stakeholder groups.
Compliance
The Group’s responsibilities to stakeholders including staff, suppliers and customers and the wider society are also recognised as important
to the delivery of the Company’s business objectives.
The Company is committed to a series of Corporate Social Responsibility principles that provide a reference point for all stakeholders on the
elements that define the conduct of the Company’s business and relationships in the geographical markets in which it operates.
These principles are subject to periodic review and cover the following areas; ethics and business conduct, employees (including our supply
chain), health and safety, environment and community.
The environmental impact of the Group’s activities is carefully considered, and the maintenance of high environmental standards is a priority.
The Group is committed to reducing that impact as far as reasonably possible through full regulatory compliance, recycling programmes
and other initiatives.
The Board has regard to the feedback of relevant stakeholders in its decision-making and the formulation of strategy.
4 Embed effective risk management, considering both opportunities and threats, throughout the
organisation
Application
The Board needs to ensure that the Company’s risk management framework identifies and addresses all relevant risks in order to execute
and deliver strategy; companies need to consider their extended business, including the Company’s supply chain, from key suppliers to end-
customer.
Setting strategy includes determining the extent of exposure to the identified risks that the Company is able to bear and willing to take (risk
tolerance and risk appetite).
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14 | Petards Group plc Annual Report & Accounts 2018
Directors’ report (continued)
Compliance
The Board has established Audit and Remuneration Committees full details of which are contained in principle 9, below.
The Company also receives feedback from its external auditors on the effectiveness of its internal control structure.
The Audit Committee believes that there should be no internal audit function for the Group at this time considering the size of the Group
and the close involvement of senior management over the Group’s accounting systems. However, the Committee will keep this matter under
review in the event that circumstances warrant an internal function in the future.
In addition to the activities of the Board’s sub-committees, the Board approves the annual budget each year. This process allows the Board
to identify key performance targets and risks expected during the upcoming year. The Board also considers the agreed budget when reviewing
trading updates and considering expenditures throughout the year. Progress is monitored via monthly reporting of actual financial
performance against budget. Where appropriate, forecasts are prepared to further appraise any risks arising during the year.
The Group has clear authority limits deriving from the list of matters reserved for decision by the Board, including capital expenditure approval procedures.
The Board regularly reviews and monitors Key Performance Indicators, including those related to banking covenants.
The Board plans to develop a risk register to assist in addressing and monitoring the risks critical to executing and delivering its strategy.
5 Maintain the Board as a well-functioning, balanced team led by the Chair
Application
The Board members have a collective responsibility and legal obligation to promote the interests of the Company, and are collectively
responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance
lies with the Chair of the Board.
The Board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the
matters requiring a decision or insight.
The Board should have an appropriate balance between executive and non-executive directors and should have at least two independent
non-executive directors. Independence is a Board judgement.
The Board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to
discharge their duties and responsibilities effectively.
Directors must commit the time necessary to fulfil their roles.
Compliance
The principal risks faced by the Group are addressed by the appointment of an experienced executive Board supported by an experienced
independent non-executive director and a team of appropriately qualified professional advisers.
The executive directors are closely involved in the day to day operations of the Group and report to the Board in detail, typically on a monthly
basis. Their reports include the status and trends of agreed Key Performance Indicators that are noted in the Group’s Annual Financial Report
in the Strategic Report and Financial and Operational Highlights.
Nine main Board meetings were held during 2018. The Company Secretary records attendance at all Board meetings and the table below
shows attendance by each director.
Raschid Abdullah
Osman Abdullah
Paul Negus
Terry Connolly
9/9
9/9
9/9
9/9
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Corporate governance
Petards Group plc Annual Report & Accounts 2018 | 15
The Board currently comprises three executive directors and one independent non-executive director. Biographical details of the directors
are provided at the beginning of this report.
The role of the independent non-executive director is to bring independent judgement to Board deliberations and decisions. The independent
non-executive director has no personal financial interest, other than as a shareholder, in the matters to be decided and although he has
served for more than 9 years the Board is satisfied that the he is independent in terms of character and judgement.
The Board believes that based on the size of the Company, its current stage of development and its internal resources, having only one
independent non-executive director represents a sufficient balance and level of independence. The Board reviews these factors regularly
and considers whether, or at what stage of the Company’s development, a second independent non-executive director will be required to
further enhance this balance.
The Board has sub-committees appointed to review the specific matters of Audit, Remuneration and Nominations. The Audit and
Remuneration Committees are chaired by the independent non-executive director and the whole Board undertakes the responsibilities of
the Nominations Committee. Further details are provided under principle 9, below.
The Board is confident that each current member has the necessary skills, experience and knowledge to discharge his duties and
responsibilities effectively and that each commits the time necessary to fulfil his role.
6 Ensure that between them the directors have the necessary up-to-date experience, skills and
capabilities
Application
The Board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance
of personal qualities and capabilities. The Board should understand and challenge its own diversity, including gender balance, as part of its
composition.
The Board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a
Board.
As companies evolve, the mix of skills and experience required on the Board will change, and Board composition will need to evolve to reflect
this change.
Compliance
Each Board director has a wealth of knowledge and experience of the Group’s business operations and financial management, and of the
market the sector in which it operates.
The Board is collectively aware of its need to consider and review its composition, in terms of individual personalities, diversity and gender.
Having regard to the size and stage of development of the Group and of its internal resources and management support structure beneath
it, the Board believe that it currently has an appropriate mix of personal qualities, experience and capability.
7 Evaluate Board performance based on clear and relevant objectives, seeking continuous
improvement
Application
The Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.
The Board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify
development or mentoring needs of individual directors or the wider senior management team.
It is healthy for membership of the Board to be periodically refreshed. Succession planning is a vital task for Boards. No member of the Board
should become indispensable.
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16 | Petards Group plc Annual Report & Accounts 2018
Directors’ report (continued)
Compliance
The Board undertakes regular monitoring of personal and corporate performance using agreed key performance indicators and detailed
financial reports.
Key performance indicators include; revenues, Adjusted EBITDA, pre-tax profit, cash generation, net cash, net assets and earnings per share.
The Board considers the need for refreshing its membership and is also responsible for succession planning. Having regard to the size and
stage of development of the Group and of its internal resources and management support structure beneath it, the Board believes that it
currently has an appropriate mix of personal qualities, experience and capability and that it undertakes sufficient procedures to review its
own effectiveness and performance as a unit, as well as that of its committees and individual members.
8 Promote a corporate culture that is based on ethical values and behaviours
Application
The Board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and
a source of competitive advantage.
The policy set by the Board should be visible in the actions and decisions of the Chief Executive and the rest of the management team.
Corporate values should guide the objectives and strategy of the Company.
The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance
and reward system should endorse the desired ethical behaviours across all levels of the Company.
The corporate culture should be recognisable throughout the disclosures in the Annual Report, website and any other statements issued by
the Company.
Compliance
The Board is committed to embodying and promoting a sound corporate culture and has endorsed various policies which require ethical
behaviour of staff and relevant counterparties (such as those mandating anti-corruption, anti-counterfeiting, fair treatment and equality of
opportunity).
The Board and management conduct themselves ethically at all times. The Group values its reputation for ethical behaviour and has a set of
values that are at the core of its business philosophy.
9 Maintain governance structures and processes that are fit for purpose and support good decision-
making by the Board
Application
The Company should maintain governance structures and processes in line with its corporate culture and appropriate to its:
– size and complexity; and
– capacity, appetite and tolerance for risk.
The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of
the Company.
Compliance
Whilst the Company recognises the importance of high standards of Corporate Governance, the Board has sought to address the matter in
a proportionate way having regard to the size and resources of the Group.
The principal risks faced by the Group are addressed by the appointment of an experienced executive Board, supported by an experienced
independent non-executive director, an experienced, capable and diverse operational management support structure and a team of
appropriately qualified external professional advisers.
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Corporate governance
Petards Group plc Annual Report & Accounts 2018 | 17
The Board aims to hold twelve formally constituted meetings per annum at which it typically reviews the Group’s financial performance and
risk profile and considers strategies for future growth.
The Board is supported by the Company Secretary who records and distributes minutes of the meetings on a timely basis.
In support of its aim of maintaining governance structures and processes, the Board has sub-committees appointed to review the specific
matters of Audit, Remuneration and Nominations.
Audit Committee
The Audit Committee is responsible for ensuring that the financial performance of the Group is properly reported on and monitored and for
meeting the auditors and reviewing their reports in relation to the accounts and the audit. It holds a formal meeting with the external auditors
at least twice a year.
The Audit Committee evaluates the independence and objectivity of the external auditor and takes into consideration all United Kingdom
professional and regulatory requirements. Consideration is given to all relationships between the Group and the audit firm including in
respect of the provision of non-audit services. The Audit Committee considers whether those relationships appear to impair the auditor’s
judgement or independence. The Audit Committee believes they do not.
The Audit Committee believes that there should be no internal audit function for the Group at this time considering the size of the Group
and the close involvement of senior management over the Group’s accounting systems. However, the Committee will keep this matter under
review in the event that circumstances warrant an internal function for the Group in the future.
Remuneration Committee
The Remuneration Committee is responsible for setting the scale and structure of the executive directors’ remuneration. It also recommends
the allocation of share options to directors and other employees.
The responsibilities of both the Audit and Remuneration Committees are undertaken by the Company’s independent non-executive director,
who seeks independent advice from external advisors as he feels is appropriate and necessary.
Nomination Committee
The whole Board undertakes the Nomination Committee responsibilities. The remit comprises all new appointments of directors and senior
management throughout the Group; nominations, interviewing, taking up references and considering related matters.
10 Communicate how the Company is governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
Application
A healthy dialogue should exist between the Board and all of its stakeholders, including shareholders, to enable all interested parties to come
to informed decisions about the Company.
In particular, appropriate communication and reporting structures should exist between the Board and all constituent parts of its shareholder
base. This will assist:
– the communication of shareholders’ views to the Board; and
– the shareholders’ understanding of the unique circumstances and constraints faced by the Company.
It should be clear where these communication practices are described.
Compliance
The Board is conscious of the need to engage with shareholders and other stakeholders so that interested parties have sufficient information
on which to make informed decisions about the Company.
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18 | Petards Group plc Annual Report & Accounts 2018
Directors’ report (continued)
The Company’s Annual Financial Report provides information on a number of key areas, including the following:
– Corporate Governance, including reference to the QCA Code;
– Operational and Financial review
– A summary of the business, the business model and strategy;
– Significant risks and uncertainties;
– Significant accounting policies and particularly areas which are subject to judgements, estimates and assumptions; and
– A Remuneration Committee Report.
The Company’s website provides further information on a number of key areas, including the following:
– Material on the Company’s Corporate Governance Framework;
– The AGM Statement and results of voting at the AGM;
– Regulatory News; and
– Historical Annual Financial Reports.
Both this Annual Financial Report and the Company’s Website provide information on forthcoming AGMs and a list of external advisers.
Further details regarding the communication between the Company and its shareholders is explained in the disclosure above against
principle 2.
Financial instruments and financial risk management
The Group presently finances its operations through a mixture of cash resources, bank borrowings, retained earnings and share capital. Its
principal financial instruments comprise cash and bank borrowings together with trade receivables and trade payables.
The Group’s other financial instruments arise from its day to day operations and comprise primarily of short term debtors and creditors and,
where deemed appropriate, forward currency contracts.
Further details of the Group’s financial instruments are given in note 26 to the financial statements and the directors consider the principal
risks associated with the Group’s financial instruments to be liquidity risk and currency risk.
Employment policies
The Group has established policies to comply with the relevant legislation and codes of practice regarding employment and equal
opportunities. It keeps its employees informed of matters affecting them as employees through regular team briefings throughout the year
and has a policy that training, career development and promotion opportunities should be available to all employees.
It is the Group’s policy to give full and fair consideration to applications for employment by people who are disabled, to continue wherever
possible the employment of staff who become disabled and to provide equal opportunities for the career development of disabled
employees.
Disclosure of information to auditor
The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there is no relevant
audit information of which the Company’s auditor is unaware; and each director has taken all the steps that they ought to have taken as a
director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
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Corporate governance
Petards Group plc Annual Report & Accounts 2018 | 19
Substantial shareholdings
At 5 April 2019 the Company was aware of the following interests in three percent or more of its issued share capital.
Name of holder
El-Khereiji Financial Company WLL
Charwell Investments Limited
PFS Downing Active Management Limited
R M Abdullah
Miton UK Microcap Trust PLC
A Perloff
O Abdullah
Chelverton Growth Trust plc
MT Zahid
YT Zahid
T W G Charlton
Number
of shares
Percentage
held
8,615,268
5,083,767
3,605,000
3,476,909
2,639,375
2,500,000
2,139,948
2,000,000
1,875,000
1,875,000
1,725,000
14.9%
8.8%
6.3%
6.1%
4.6%
4.4%
3.7%
3.5%
3.3%
3.3%
3.0%
Going concern
After making detailed enquiries, the Board has a reasonable expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future and accordingly continues to prepare the financial statements on a going concern basis. Further details
relating to going concern are provided at note 1 on page 35 to the financial statements.
Auditor
In accordance with section 489 of the Companies Act 2006, a resolution for the appointment of KPMG LLP as auditor of the Company is to
be proposed at the forthcoming Annual General Meeting.
By order of the Board
Raschid Abdullah
Director
Parallel House
32 London Road
Guildford
Surrey
GU1 2AB
9 April 2019
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20 | Petards Group plc Annual Report & Accounts 2018
Remuneration report
Remuneration Committee
The Remuneration Committee is presently comprised of Mr T Connolly.
Remuneration Policy
The Remuneration Committee reviews the performance of executive directors and sets the scale and structure of their remuneration and
other benefits. Individual rewards and incentives are aligned with the performance of the Group and the interests of the shareholders and
are set at an appropriate level in order to attract, retain and motivate executives who are expected to meet challenging performance criteria.
The committee also recommends the allocation of share options to directors and other employees.
Service contracts
No directors have contracts of service with notice periods that exceed 12 months.
Directors’ emoluments
Details of individual director’s emoluments are set out in note 6 to the financial statements.
Directors’ share interests
The directors’ beneficial interests in the shares of the Company at the year-end were as follows:
Ordinary
Shares of
1p each at
Ordinary
Shares of
1p each at
31 December 31 December
2017
2018
R Abdullah
O Abdullah
T Connolly
P Negus
3,476,909
2,139,948
30,000
575,000
3,476,909
2,724,585
30,000
–
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Corporate governance
Petards Group plc Annual Report & Accounts 2018 | 21
Directors’ interests in share options
At 31 December 2018 the number of options to subscribe for ordinary shares of 1p held by directors were as follows:
Number of
options at Exercised
1 January during
2018 the year
Granted
Number of
options at
during 31 December
2018
the year
Exercise
price
(pence)
Date first
exercisable
Expiry date
R Abdullah1 1,000,000 (1,000,000)
850,000 –
–
–
– –
575,000
O Abdullah 1,312,500 –
850,000 –
–
–
– –
575,000
–
8.00p
25.11.13
24.11.23
850,000
575,000
12.25p
21.50p
06.01.19
05.01.26
31.10.21
31.10.28
1,312,500
8.00p
25.11.13
24.11.23
850,000
575,000
12.25p
21.50p
06.01.19
05.01.26
31.10.21
31.10.28
P Negus2 700,000 (700,000)
–
–
11.625p
23.04.18
24.04.25
– –
300,000
300,000
21.50p
31.10.21
31.10.28
1 There was a gain on the exercise of these options of £136,000. R Abdullah also exercised share options in 2017 on which there was a gain of £81,250.
2 The options were held by Adcel Ltd, a company solely controlled by P Negus. There was a gain on the exercise of these options of £97,125.
The share price at 31 December 2018 was 26.50p and the share price has ranged during the year from 19.00p to 27.50p.
There have been no changes to directors’ interests since the year end.
Non-executive director
Fees for the non-executive director are determined by the Board as a whole having regard to the time devoted to the Company’s affairs. The
non-executive director is not part of any pension, share option or bonus schemes of the Group.
Terry Connolly
Director
9 April 2019
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22 | Petards Group plc Annual Report & Accounts 2018
Statement of directors’ responsibilities in respect of
the Annual Report and the financial statements
The directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare Group and parent Company financial statements for each financial year. As required by the
AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with International
Financial Reporting Standards as adopted by the EU (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent
Company financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent
Company financial statements, the directors are required to:
● select suitable accounting policies and then apply them consistently;
● make judgements and estimates that are reasonable, relevant and reliable;
● state whether they have been prepared in accordance with IFRSs as adopted by the EU;
● assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and
● use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations,
or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure
that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report and a Directors’ Report that complies
with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 23
Independent auditor’s report to the members of
Petards Group plc
Overview
Materiality: Group financial £195k (2017: £156k) 1%
statements as a whole (2017: 1%) of revenue
Coverage 100% (2017: 100%)
of Group revenue
Key audit matters vs 2017
Event driven – New: The impact of uncertainties due
to the UK exiting the European Union on our audit
Event driven – New: Completeness and valuation of
intangibles arising on acquisition
New: Going concern
▲
▲
▲
Recurring risk – Revenue from contracts ongoing at
year end
▲ ▲
Recurring risk, Parent Company – Recoverability of
Parent Company’s investments in subsidiaries
▲ ▲
1. Our opinion is unmodified
We have audited the financial statements of Petards Group plc
(“the Company”) for the year ended 31 December 2018 which
comprise the consolidated income statement, consolidated
statement of comprehensive income, Group and parent
Company statements of changes in equity, Group and parent
Company balance sheets, Group and parent Company
statements of cash flows, and the related notes, including the
accounting policies in note 1.
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 2018 and of the Group’s profit for the year
then ended;
– the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union
(IFRSs as adopted by the EU);
– the parent Company financial statements have been
properly prepared in accordance with IFRSs as adopted by
the EU 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 are described below. We have fulfilled our
ethical responsibilities under, and are independent of the
Group in accordance with, UK ethical requirements including
the FRC Ethical Standard as applied to listed entities. We
believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion.
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24 | Petards Group plc Annual Report & Accounts 2018
Independent auditor’s report to the members of
Petards Group plc (continued)
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us,
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. We summarise below the key audit matters in arriving at our audit opinion above. 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.
The risk Our response
The impact of uncertainties
due to the UK exiting the
European Union on our audit
Refer to page 7 (financial review).
Unprecedented levels of uncertainty
All audits assess and challenge the
reasonableness of estimates, in particular as
described in the recoverability of the parent
company’s investments in subsidiaries and the
completeness and valuation of intangibles
arising on acquisition (see below), and related
disclosures and the appropriateness of the
going concern basis of preparation of the
financial statements (see below). All of these
depend on assessments of the future
economic environment and the Group’s future
prospects and performance.
Brexit is one of the most significant economic
events for the UK and at the date of this report
its effects are subject to unprecedented levels
of uncertainty of outcomes, with the full range
of possible effects unknown.
We developed a standardised firm-wide approach
to the consideration of the uncertainties arising
from Brexit in planning and performing our audits.
Our procedures included:
• Our Brexit knowledge – We considered the
directors’ assessment of Brexit-related sources
of risk for the group’s business and financial
resources compared with our own
understanding of the risks. We considered the
directors’ plans to take action to mitigate the
risks.
• Sensitivity analysis – When addressing
estimates, in particular the recoverability of the
parent company’s investments in subsidiaries,
the completeness and valuation of intangibles
arising on acquisition and the appropriateness
of the going concern basis of preparation of
the financial statements key audit matters and
other areas that depend on forecasts, we
compared the directors’ analysis to our
assessment of the full range of reasonably
possible scenarios resulting from Brexit
uncertainty and, where forecast cash flows are
required to be discounted, considered
adjustments to discount rates for the level of
remaining uncertainty.
• Assessing transparency – As well as assessing
individual disclosures as part of our procedures
on estimates, in particular as described in the
recoverability of the parent company’s
investments in subsidiaries, the completeness
and valuation of intangibles arising on
acquisition and the appropriateness of the
going concern basis of preparation of the
financial statements key audit matters, we
considered all of the Brexit related disclosures
together, including those in the strategic
report, comparing the overall picture against
our understanding of the risks.
However, no audit should be expected to predict
the unknowable factors or all possible future
implications for a Group and this is particularly the
case in relation to Brexit.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 25
The risk Our response
Completeness and valuation
of intangibles arising on
acquisition of RTS Solutions
(Holdings) Limited and its
subsidiary
Intangible assets of £553k:
Refer to note 1 on page 38
(accounting policy) and note 15
on page 58.
Forecast based valuation
Our procedures included:
• Use of an expert – With the assistance of our
own valuation specialists, we assessed the
appropriateness of the valuation
methodologies applied and challenged the
completeness of the intangible assets
identified and the discount rates applied.
• Assessing transparency – We considered the
adequacy of the disclosures in respect of the
acquisition.
• Historical comparison – We challenged the
reasonableness of the assumptions, particularly
the projected sales volumes, by assessing the
historical accuracy of the Group’s forecasting.
There is significant judgement with regard to
the assumptions and estimates involved in the
forecasting of future cash flows that form the
basis of the assessment of the value of the
intangible assets recognised on acquisition.
The key assumptions are the expected future
revenue and discount rates applied to the cash
flows.
Given the level of goodwill recognised on this
acquisition, there is a risk that not all intangible
assets have been recognised on acquisition.
The effect of these matters is that, as part of
our risk assessment, we determined that the
recognition and valuation of intangible assets
has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes
greater than our materiality for the financial
statements as a whole.
In conducting our final audit work, we
reassessed the degree of estimation
uncertainty to be less than materiality.
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Independent auditor’s report to the members of
Petards Group plc (continued)
The risk Our response
Going concern
Disclosure quality
Our procedures included:
Refer to page 10 (principal risks),
note 1 on page 35 (accounting
policy) and note 21 on page 64
(financial disclosures).
The financial statements explain how the Board
has formed a judgement that it is appropriate
to adopt the going concern basis of
preparation for the Group and parent
Company.
• Funding assessment – We inspected the
bank facility documents and correspondence
with the lender to ascertain the committed
level of financing and the related covenant
requirements.
That judgement is based on an evaluation of
the inherent risks to the Group’s and parent
Company’s business model and how those
risks might affect the Group’s and parent
Company’s financial resources or ability to
continue operations over a period of at least a
year from the date of approval of the financial
statements.
The risk most likely to adversely affect the
Group’s and parent Company’s available
financial resources and compliance with the
terms of the bank facilities over this period is
the timing and delivery of larger orders which
are difficult to predict, and can cause material
fluctuations in actual cash flows compared to
those forecast.
There are also less predictable but realistic
second order impacts, such as the impact of
Brexit and the erosion of customer confidence,
which could result in a rapid reduction of
available financial resources.
The risk for our audit was whether or not those
risks were such that they amounted to a
material uncertainty that may have cast
significant doubt about the ability to continue
as a going concern. Had they been such, then
that fact would have been required to have
been disclosed.
• Historical comparisons – We compared the
Group’s forecasts to actual cash flows achieved
in the year and in earlier years.
• Sensitivity analysis – We considered
sensitivities over the level of available financial
resources (and related covenant requirements)
indicated by the Group’s financial forecasts
taking account of reasonably possible (but not
unrealistic) adverse effects that could arise
from these risks individually and collectively.
• Benchmarking assumptions – We tested the
integrity of the cash flow projections and
challenged the appropriateness of the key
assumptions used therein by reference to our
knowledge of the business. We also assessed
the projections and assumptions by reference
to general market conditions and post year
end trading and cash flows, and assessed the
potential risk of management bias.
• Assessing transparency – We assessed the
completeness and accuracy of the going
concern disclosures, and disclosures on the
maturity and classification of debt.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 27
The risk Our response
Revenue from contracts with
customers ongoing at year
end
Refer to note 1 on page 36 and
note 2 on page 46 (accounting
policy notes).
Accounting application
Our procedures included:
The Group’s contracts comprise the
construction and delivery of a combination of
electronic services and/or electronic assets. A
typical contract identifies the consideration
applicable to each deliverable and milestones
are usually specified for the provision of
electronic services. This is the first year that the
Group is required to account for revenue under
the revised revenue accounting standard.
Each contract is reviewed to identify and assess
distinct performance obligations, and the
consideration applicable to each.
For contracts ongoing at year end, inaccurate
identification of the performance obligations
and/or incorrectly concluding whether
performance obligations have been satisfied
could lead to material variances in the amounts
recognised in revenue.
Inaccurate assessment of whether revenue
from ongoing contracts at year end should be
recognised ‘over time’ rather than ‘point in
time’, under the relevant accounting standards,
could lead to material variances in the amounts
recognised in revenue.
• Accounting analysis – For selected contracts
ongoing at year end we inspected the signed
contracts to identify relevant performance
obligations and other key information in order
to assess whether the Group’s determination
that contract revenue should be recognised
over time or at a point in time was appropriate.
• Test of detail – For selected contracts
ongoing at year end, we inspected the signed
contracts to identify relevant performance
obligations and corroborated with reference to
customer correspondence, other
documentation, or client project personnel
interviews whether these obligations had been
satisfied and revenue appropriately allocated
to the performance obligations and reflected
in the financial statements.
• Assessing transparency – We assessed the
adequacy of the disclosures about the
judgement involved in the identification of
performance obligations and the classification
of ongoing contracts at year end as over time
or point in time under the relevant accounting
standards.
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28 | Petards Group plc Annual Report & Accounts 2018
Independent auditor’s report to the members of
Petards Group plc (continued)
The risk Our response
Parent Company:
Recoverability of
investments in subsidiaries
£12.9m million;
2017: £11.0 million
Refer to note 1 on page 37
(accounting policy) and note 16
on page 60 (financial
disclosures).
Low risk, high value
Our procedures included:
The carrying amount of the parent company’s
investments in subsidiaries represents 96%
(2017: 92%) of the Company’s total assets of
£13.3 million (2017: £11.9 million). Their
recoverability is not at a high risk of significant
misstatement or subject to significant
judgement, and the market capitalisation is in
excess of the carrying value. However, due to
their materiality in the context of the parent
Company’s financial statements, this is
considered to be the area that had the greatest
effect on our overall parent Company audit.
• Tests of detail – We compared the carrying
value of all investments to with the relevant
subsidiaries’ draft balance sheets to identify
whether their net assets, being an
approximation of their minimum recoverable
amount, were in excess of their carrying
amount and assessed whether those
subsidiaries had historically been profit making.
For investments where the carrying amount
exceeded the net asset value of the subsidiary,
we compared the carrying amount of the
investment with an estimate of the recoverable
amount of the investment determined by
reference to discounted cash flow forecasts.
• Assessing the subsidiary audits – We
considered the results of the audit work
performed on all of those subsidiaries’ profits
and net assets.
• Comparing valuations – We compared the
carrying amounts of investments to the
Group’s market capitalisation to assess whether
there were any indicators of impairment.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 29
3. Our application of materiality and an overview of the
4. We have nothing to report on going concern
scope of our audit
Materiality for the group financial statements as a whole was
set at £195k (2017: £156k), determined with reference to a
benchmark of total revenue of £20.0 million (2017:
£15.6 million of which it represents 1% (2017: 1%). We consider
total revenue to be the most appropriate benchmark as it
provides a more stable measure year on year than Group profit
before tax.
Materiality for the Parent Company financial statements as a
whole was set at £131k (2017: £119k) determined with
reference to a benchmark of Company total assets of
£13.3 million (2017: £11.9 million) which it represented 1%
(2017: 1%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £9k (2017:
£8k), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
The Group audit team performed full scope audits for Group
purposes on all 9 (2017: 7) of the Group’s reporting
components, as well as the audit of the Parent Company.
These components accounted for 100% (2017: 100%) of total
Group revenue, Group profit before tax and total Group assets.
The component materialities ranged from £14k to £157k
(2017: £35k to £141k), having regard to the mix of size and risk
profile of the Group across the components.
The group team conducted all audits at the Group’s offices in
Gateshead.
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
parent Company or the Group or to cease their operations, and
as they have concluded that the parent Company’s and the
Group’s financial position means that this is realistic. They have
also concluded that there are no material uncertainties that
could have cast significant doubt over their ability to continue
as a going concern for at least a year from the date of approval
of the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of
reference to a material uncertainty in this auditor’s report is not
a guarantee that the group or the company will continue in
operation.
We identified going concern as a key audit matter (see
section 2 of this report).
Based on the work described in our response to that key audit
matter, we are required to report to you if we have concluded
that the use of the going concern basis of accounting is
inappropriate or there is an undisclosed material uncertainty
that may cast significant doubt over the use of that basis for a
period of at least a year from the date of approval of the
financial statements.
We have nothing to report in this respect.
Revenue
£20.0m (2017: £15.6m)
Group materiality
£195k (2017: £156k)
£195k
Whole financial
statements materiality
(2017: £156k)
£146k
Range of materiality at
components (£14k to £157k)
(2017: £35k to £141k)
(cid:81)(cid:3)Revenue
(cid:81)(cid:3)Group materiality
£9k
Misstatements reported to the
audit committee (2017: £8k)
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30 | Petards Group plc Annual Report & Accounts 2018
Independent auditor’s report to the members of
Petards Group plc (continued)
5. We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not
cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing
so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the
strategic report and the directors’ report;
• in our opinion the information given in those reports for
the financial year is consistent with the financial
statements; and
• in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
6. We have nothing to report on the other matters on which
we are required to report by exception
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
• adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent Company financial statements 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.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 22,
the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error; assessing the Group and 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 they 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
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 our opinion in an auditor’s report. Reasonable assurance
is a high level of assurance, but does not 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 aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8. The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a
body, in accordance with 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.
Paul Moran
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
9 April 2019
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 31
Consolidated income statement
For year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Administrative expenses
Adjusted EBITDA*
Amortisation of intangibles
Depreciation
Exceptional income
Acquisition costs
Share based payment charges
Operating profit
Financial income (2017 included £340,000 exceptional income)
Financial expenses (2017 included £211,000 exceptional expense)
Profit before tax
Income tax
Profit for the year attributable to equity shareholders of the parent
Earnings per ordinary share (pence)
Basic
Diluted
Note
4
14
12
7
15
23
8
8
9
11
11
2018
£000
19,973
(13,089)
6,884
(5,728)
2,057
(590)
(209)
–
(77)
(25)
1,156
3
(33)
1,126
17
1,143
2.01
1.95
2017
£000
15,581
(9,566)
6,015
(4,770)
1,619
(547)
(162)
362
–
(27)
1,245
340
(380)
1,205
32
1,237
3.31
2.32
* Earnings before financial income and expenses, tax, depreciation, amortisation, exceptional items, acquisition costs and share based payment charges. See Alternative Performance
Measures Glossary on page 72.
Consolidated statement of comprehensive income
For year ended 31 December 2018
Profit for the year
Other comprehensive income
Items that may be reclassified to profit:
Release of foreign currency reserve on abandonment of US subsidiary (included in
financial expenses)
Total comprehensive income for the year
Note
7,8
2018
£000
1,143
–
1,143
2017
£000
1,237
211
1,448
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32 | Petards Group plc Annual Report & Accounts 2018
Statements of changes in equity
For year ended 31 December 2018
Group
At 1 January 2017
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Equity-settled share based payments
Conversion of convertible loan notes
Exercise of share options
At 31 December 2017
At 1 January 2018
Adjustment on initial application of IFRS 15 (net of tax) *
Adjusted balance at 1 January 2018
Profit for the year
Total comprehensive income for the year
Equity-settled share based payments
Exercise of share options
Share
capital
£000
Share
premium
£000
Equity
reserve
£000
Currency
Retained translation
reserve
earnings
£000
£000
357
–
–
–
–
198
3
558
558
–
558
–
–
–
17
68
–
–
–
–
1,383
22
1,473
1,473
–
1,473
–
–
–
144
200
–
–
–
–
(169)
(6)
25
25
–
25
–
–
–
(11)
14
3,768
1,237
–
1,237
27
142
–
5,174
5,174
(468)
4,706
1,143
1,143
25
11
5,885
(211)
–
211
211
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£000
4,182
1,237
211
1,448
27
1,554
19
7,230
7,230
(468)
6,762
1,143
1,143
25
161
8,091
At 31 December 2018
575
1,617
* The Group has adopted IFRS 15 using the cumulative effect method, under which the comparative information is not restated (note 3). The cumulative effect of adopting IFRS 15
is recognised in equity at the date of first adoption on 1 January 2018.
Company
At 1 January 2017
Profit for the year
Total comprehensive income for the year
Equity-settled share based payments
Conversion of convertible loan notes
Exercise of share options
At 31 December 2017
At 1 January 2018
Profit for the year
Total comprehensive income for the year
Equity-settled share based payments
Exercise of share options
Share
capital
£000
Share
premium
£000
Equity
reserve
£000
Retained
earnings
£000
Total
equity
£000
357
–
–
–
198
3
558
558
–
–
–
17
68
–
–
–
1,383
22
1,473
1,473
–
–
–
144
200
–
–
–
(169)
(6)
25
25
–
–
–
(11)
14
5,897
1,038
1,038
27
142
–
7,104
7,104
514
514
25
11
6,522
1,038
1,038
27
1,554
19
9,160
9,160
514
514
25
161
7,654
9,860
At 31 December 2018
575
1,617
The accompanying notes form an integral part of the financial statements.
253591 Petards pp23-pp034.qxp 12/04/2019 10:25 Page 33
Financial statements
Petards Group plc Annual Report & Accounts 2018 | 33
Balance sheets
At 31 December 2018
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiary undertakings
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital
Share premium
Equity reserve
Currency translation reserve
Retained earnings
Total equity
Non-current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total liabilities
Total equity and liabilities
Note
12,13
14
16
17
18
19
20
24
25
21
22
21
22
Group
2018
£000
943
4,676
–
284
5,903
4,104
2,553
2,117
8,774
2017
£000
825
2,488
–
344
3,657
3,403
3,743
1,324
8,470
Company
2018
£000
2
–
12,851
130
12,983
–
258
85
343
2017
£000
2
–
10,999
130
11,131
–
743
30
773
14,677
12,127
13,326
11,904
575
1,617
14
–
5,885
8,091
883
–
883
265
5,438
5,703
6,586
558
1,473
25
–
5,174
7,230
23
–
23
15
4,859
4,874
4,897
575
1,617
14
–
7,654
9,860
875
901
1,776
250
1,440
1,690
3,466
558
1,473
25
–
7,104
9,160
–
870
870
–
1,874
1,874
2,744
14,677
12,127
13,326
11,904
These financial statements were approved by the Board of Directors on 9 April 2019 and were signed on its behalf by:
Raschid Abdullah
Director
Registered number: 02990100
The accompanying notes form an integral part of the financial statements.
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34 | Petards Group plc Annual Report & Accounts 2018
Statements of cash flows
For year ended 31 December 2018
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Amortisation of intangible assets
Financial income
Financial expenses
Equity settled share-based payment expenses
Income tax (credit)/charge
Operating cash flows before movement in working capital
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Cash generated from operations
Interest received
Interest paid
Tax received
Net cash from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Capitalised development expenditure
Acquisition of subsidiary
Net cash outflow from investing activities
Cash flows from financing activities
Bank loan received
Bank loan repaid
Finance lease repayments
Proceeds from exercise of share options
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Total movement in cash and cash equivalents in the year
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Note
12,13
14
8
8
23
9
12,13
14
15,16
21
21
24
20
Group
2018
£000
2017
£000
Company
2018
£000
2017
£000
1,143
1,237
514
1,038
209
590
(3)
33
25
(17)
1,980
1,024
1,344
(1,834)
2,514
3
(58)
56
2,515
(325)
(1,444)
(1,224)
(2,993)
1,250
(125)
(15)
161
1,271
793
793
1,324
2,117
162
547
(340)
380
27
(32)
1,981
(1,450)
(1,003)
1,057
585
–
(107)
61
539
(509)
(1,043)
–
(1,552)
–
(10)
25
15
(998)
(998)
2,322
1,324
1
–
–
31
25
–
571
–
685
(603)
653
–
(31)
–
622
(1)
–
(1,852)
(1,853)
1,250
(125)
–
161
1,286
55
55
30
85
1
–
(340)
157
27
–
883
–
(373)
(1,165)
(655)
–
(133)
–
(788)
(1)
–
–
(1)
–
–
–
25
25
(764)
(764)
794
30
The accompanying notes form an integral part of the financial statements.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 35
Notes
(forming part of the financial statements)
Accounting policies
1
Petards Group plc (the “Company”) is a company incorporated in the UK.
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The parent
company financial statements present information about the Company as a separate entity and not about its Group.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated
financial statements.
In these financial statements the Group has changed its accounting policies in the following areas:
●
●
Revenue recognition
Financial instruments
These are further described in note 2.
Statement of compliance
Both the parent company financial statements and the Group financial statements have been prepared and approved by the directors in
accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). On publishing the parent company
financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in section 408
of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial
statements.
Basis of preparation
The financial information is presented in pounds sterling, rounded to the nearest thousand, and is prepared on the historic cost basis.
Going concern
Information on the Group’s business activities, cashflows and liquidity position, together with the factors likely to affect its future development,
performance and position are described in the Strategic Report. In addition note 26 to the financial statements includes the Group’s objectives,
policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures
to credit risk and liquidity risk.
The Group currently meets its day to day working capital requirements through its own cash resources, and also has available a revolving
credit facility of £0.75m which was undrawn at the year end and which is available until 21 June 2020. Interest bearing loans and borrowings
total £1.15m at the year end, of which only £0.26m is payable within one year. The Group has prepared forecasts which have been flexed to
take into account reasonably possible changes in future trading performance, in particular to take into account uncertainty as to the timing
of contract awards. This reflects the fact that the Group contracts with a number of customers across different industries and that the Group’s
revenue is generated from a mix of longer and shorter lead time orders. The order book at the year end was in excess of £19m with over
£13m scheduled for revenue in 2019 with an ongoing pipeline of new contracts under negotiation. The timing and delivery of the larger
orders are difficult to predict, and can cause material fluctuations in actual results compared with forecast results and cash flows. These flexed
forecasts show that the Group should be able to operate within the level of its cash resources and available bank facilities and accordingly
the financial statements have been prepared on a going concern basis.
Judgements and estimates
The preparation of financial statements requires the directors to make judgements, estimates and assumptions that may affect the application
of accounting policies and the reported amounts of assets and liabilities, and income and expenses. The key areas requiring the use of
estimates and judgements which may significantly affect the financial statements are considered to be:
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36 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
1
a)
Accounting policies continued
Revenue recognition (notes 2 and 3)
The Group has adopted IFRS 15 retrospectively from 1 January 2018 and has chosen to apply the cumulative effect approach.
The Group recognises revenue when it transfers control over a product or service to its customer. Revenue is measured based on the
consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties.
Where a modification to an existing contract occurs, the Group assesses the nature of the modification and whether it represents a
separate performance obligation required to be satisfied by the Group, or whether it is a modification to the existing performance
obligation.
A proportion of the Group’s contracts were previously treated as construction contracts under IAS 11 on the basis that they comprised
contracts specifically negotiated for the construction and delivery of a combination of electronic assets and/or electronic services in
a single package which were so closely related as to be in essence part of a single project, with an overall profit margin, being performed
concurrently or in a continuous sequence. In applying IFRS 15 the Group has had to apply judgements and estimates to its portfolio
of contracts in order to identify specific performance obligations and the timing of transfer of control of a product or service to a
customer.
The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the
customer and payment by the customer exceeds one year. As a consequence, the Group has not needed to apply estimates and
judgements in respect of the time value of money as applied to transaction prices.
Recognition of deferred tax assets (notes 9 and 17)
The Group has substantial deferred tax assets. In determining how much of these assets can be recognised this requires an assessment
of the extent to which it is probable that future taxable profits will be available. This assessment is based on management’s future
assessment of the Group’s financial performance and forecast financial information.
Capitalised development expenditure (note 14)
This involves the identification of development expenditure which is recoverable through future product revenue together with an
assessment of the estimated useful economic life of any asset recognised. Assets recognised in this way are also subject to impairment
reviews.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Valuation of intangible assets arising on acquisition (note 15)
The determination of the fair value of intangible assets including goodwill arising on acquisition includes significant judgement. The
fair value of these intangible assets is determined by discounting the estimated future net cash flows to be generated by those assets
where no active market exists.
b)
c)
d)
The use of different assumptions for the cash flows, the discount rate and the useful life of these assets would all change the valuation.
Allocation of the purchase price impacts the results of the Group as finite life intangible assets are amortised whereas goodwill is not
amortised but is tested annually for impairment.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 37
Accounting policies continued
1
Basis of consolidation
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group
takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred
to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases.
Inter-company balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated
when preparing the consolidated financial information.
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 balance sheet date are translated at the foreign exchange rate ruling at that date. 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. Foreign exchange differences arising on translation are recognised in the income statement.
The Group has taken advantage of the relief available in IFRS 1 to deem the cumulative translation differences for all foreign operations to
be zero at the date of transition to Adopted IFRSs (1 January 2006).
Classification of financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the
following two conditions:
(a)
they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or
to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company
(or Group); and
(b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company
exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes
the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share
premium account exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of financial expenses. Finance payments associated with financial
instruments that are classified in equity are treated as distributions and are recorded directly in equity.
Investments in subsidiaries
Investments in subsidiaries are carried at cost less impairment in the Company balance sheet.
Derivative financial instruments
Derivative financial instruments are recognised initially at fair value and subsequently re-measured. The gain or loss on remeasurement to
fair value is recognised immediately in the income statement.
Intra-group financial guarantee contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the
Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee
contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the
guarantee.
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38 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
Accounting policies continued
1
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property,
plant and equipment.
Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases.
Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the
minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.
Depreciation is charged to the income statement on a straight line basis over the estimated useful lives of each part of an item of property,
plant and equipment. Land is not depreciated. The estimated useful lives are as follows:
Leasehold improvements life of lease straight line
Plant and equipment:
Plant and equipment 3-10 years
Computer equipment 3-5 years
Furniture and fittings 3-5 years
Motor vehicles 4-5 years
The residual values and useful economic lives are reassessed annually.
Business combinations
Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the acquisition method. Business
combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to
the Group.
Acquisitions on or after 1 January 2010
For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as:
●
●
●
●
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity,
it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent
consideration are recognised in profit or loss.
On a transaction-by-transaction basis, the Group elects to measure non-controlling interests, which have both present ownership interests
and are entitled to a proportionate share of net assets of the acquiree in the event of liquidation, either at its fair value or at its proportionate
interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date. All other non-controlling interests are
measured at their fair value at the acquisition date.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 39
Accounting policies continued
1
Acquisitions between 1 January 2006 and 1 January 2010
For acquisitions between 1 January 2006 and 1 January 2010, goodwill represents the excess of the cost of the acquisition over the Group’s
interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. When
the excess was negative, a bargain purchase gain was recognised immediately in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection with business
combinations were capitalised as part of the cost of the acquisition.
Acquisitions prior to 1 January 2006
IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in the transition period. The Group elected not to restate
business combinations that took place prior to transition date. In respect of acquisitions prior to 1 January 2006, goodwill is included at
transition date on the basis of its deemed cost, which represents the amount recorded under UK GAAP. Goodwill is stated at cost less any
accumulated impairment losses. Goodwill is allocated to cash generating units and is not amortised but is tested annually for impairment.
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses.
Amortisation is charged on a straight line basis over the estimated useful lives of intangible assets. Other intangible assets are amortised
from the date they are available for use.
Research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Expenditure on activities for the development of new or substantially improved products is capitalised if the product is technically and
commercially feasible, and the Group has the technical ability and has sufficient resources to complete development and if the Group can
measure reliably the expenditure attributable to the intangible asset during its development. The expenditure capitalised includes the cost
of materials, direct labour and an appropriate proportion of overheads. Development expenditure not meeting the above criteria is recognised
in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation
and impairment losses.
Internally generated development expenditure is amortised on a straight-line basis over the period which the directors expect to obtain
economic benefits (typically 3 to 8 years from asset being available for use). Where no internally generated intangible asset can be recognised,
development expenditure is recognised as an expense in the period in which it is incurred.
Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives
are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet
date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
Technology related assets 4-10 years
Customer related assets 3-5 years
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank borrowings that
are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash
equivalents for the purpose only of the statement of cash flows.
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40 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
Accounting policies continued
1
Impairment
The carrying amounts of the Group’s assets, other than inventories and deferred tax assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
Goodwill is allocated to cash generating units and is tested annually for impairment and more frequently if there are indications of impairment.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash generating units are allocated
first to reduce the carrying amount of any goodwill allocated to cash generating units and then to reduce the carrying amount of the other
assets in the unit on a pro rata basis. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are
largely independent of the cash inflows from other assets or groups of assets.
Reversals of impairment
An impairment loss in respect of goodwill is not reversed.
An impairment loss in respect of other assets is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income
statement over the period of the borrowings on an effective interest basis.
Employee benefits
Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as service is
provided.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A
liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present
legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated
reliably.
Share-based payment transactions
Options granted under the Group’s employee share schemes are equity settled. The grant date fair value of options granted to employees
is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become
unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account
the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual
number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.
Provisions
A provision is recognised in the balance sheet when the Group has a present 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. If the effect is material, provisions are determined
by discounting the expected, risk adjusted, future cash flows at a pre-tax risk-free rate.
Contracts with customers – accounting policies applied since 1 January 2018
The Group has adopted IFRS 15 retrospectively from 1 January 2018 in accordance with paragraph C3(a) and has chosen to apply the
cumulative effect approach. As a result, the Group has restated its opening equity position as at 1 January 2018 to reflect the impact of
transitioning to IFRS 15. Comparatives for the year ended 31 December 2017 have not been restated.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 41
Accounting policies continued
1
The following expedients have been used in accordance with paragraph C5:
–
–
–
revenue in respect of completed contracts that begin and end in the same accounting period has not been restated;
revenue in respect of completed contracts with variable consideration reflects the transaction price at the date the contracts were
completed; and
in the financial statements for the year ending 31 December 2018, the comparative information for the year ending 31 December
2017 will not disclose the amount of the transaction price allocated to the remaining performance obligations or an explanation of
when the Group expects to recognise that amount as revenue.
Following the adoption of IFRS 15, the Group’s accounting policy in respect of revenue is as follows:
Revenue represents income derived from contracts for the provision of goods and services by the Group to customers in exchange for
consideration in the ordinary course of the Group’s activities.
Performance obligations
Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct good or service or a
series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Goods and services
are distinct and accounted for as separate performance obligations in the contract if the customer can benefit from them either on their
own or together with other resources that are readily available to the customer and they are separately identifiable in the contract.
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. Variable consideration, such as price
escalation, is included based on the expected value or most likely amount only to the extent that it is highly probable that there will not be
a reversal in the amount of cumulative revenue recognised. 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 total transaction price is
allocated to the performance obligations identified in the contract in proportion to their relative stand-alone selling prices. Given the bespoke
nature of many of the Group’s products and services, which are designed and/or manufactured under contract to the customer’s individual
specifications, there are sometimes no observable stand-alone selling prices. Instead, stand-alone selling prices are typically estimated based
on expected costs plus contract margin consistent with the Group’s pricing principles.
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. The Group
has determined that the performance obligations of the majority of its contracts are satisfied 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.
For each performance obligation to be recognised over time, the Group recognises revenue using an input method, based on costs incurred
in the period. Revenue and attributable margin are calculated by reference to reliable estimates of transaction price and total expected costs,
after making suitable allowances for technical and other risks. Revenue and associated margin are therefore recognised progressively as costs
are incurred, and as risks have been mitigated or retired. The Group has determined that this method faithfully depicts the Group’s
performance in transferring control of the goods and services to the customer.
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42 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
Accounting policies continued
1
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.
The Group’s contracts that satisfy the over time criteria are typically services and maintenance support contracts where the customer
simultaneously receives and consumed the benefit provided by the Groups performance.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately as an expense.
The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer
and payment by the customer exceeds one year. As a consequence, the Group does not adjust its transaction price for the time value of
money.
Software licences
The Group sells software licences either separately or together with other goods and services. Revenue recognition in respect of software
licences sold as part of a bundle of goods and services is considered separately when the licence is determined to be a separate performance
obligation. Software licences either represent a right to access the Group’s intellectual property as it exists throughout the licence period or
a right to use the Group’s intellectual property as it exists at the point in time at which the licence is granted. Revenue in respect of right to
access licences is recognised over the licence term and revenue in respect of right to use licences is recognised upfront on delivery to the
customer.
Contract modifications
The Group’s contracts are sometimes 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:
(a)
prospectively as an additional, separate contract;
(b)
prospectively as a termination of the existing contract and creation of a new contract; or
(c)
as part of the original contract using a cumulative catch up.
The majority of the Group’s contract modifications are treated under either (a) (for example, the requirement for additional distinct goods or
services) or (c) (for example, a change in the specification of the distinct goods or services for a partially completed contract), although the
facts and circumstances of any contract modification are considered individually as the types of modifications will vary contract-by-contract
and may result in different accounting outcomes.
Costs to obtain a contract
The Group expenses pre-contract bidding costs which are incurred regardless of whether a contract is awarded. The Group does not typically
incur costs to obtain contracts that it would not have incurred had the contracts not been awarded.
Costs to fulfil a contract
Contract fulfilment costs in respect of over time contracts are expensed as incurred. Contract fulfilment costs in respect of point in time
contracts are accounted for under IAS 2 Inventories.
Inventories
Inventories include raw materials, work-in-progress and finished goods recognised in accordance with IAS 2 in respect of contracts with
customers which have been determined to fulfil the criteria for point in time revenue recognition under IFRS 15. It also includes inventories
for which the Group does not have a contract. This is often because fulfilment costs have been incurred in expectation of a contract award.
The Group does not typically build inventory to stock. Inventories are stated at the lower of cost, including all relevant overhead expenditure,
and net realisable value.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 43
Accounting policies continued
1
Contract receivables
Contract receivables represent amounts for which the Group has an unconditional right to consideration in respect of unbilled revenue
recognised at the balance sheet date and comprises costs incurred plus attributable margin.
Contract liabilities
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.
Revenue – accounting policies applied prior to 1 January 2018
Revenue is measured at the fair value of consideration received or receivable in the normal course of business, net of discounts, VAT and
other sales related taxes provided that it can be measured reliably.
Revenue from sales of goods and equipment is recognised on despatch unless the customer specifically requests deferred delivery
instructions. For deliveries deferred at the customer’s request, revenues are recognised when the customer takes title to the goods provided
that it is probable that delivery will be made, the goods are identified and ready for delivery and usual payment terms apply.
Revenue from service contracts, where services are performed by an indeterminate number of acts over a specified period of time, is
recognised on a straight line basis over the period of the contract.
Revenue from certain of the Group’s contracts is recognised in accordance with IAS 11 Construction Contracts by reference to the stage of
completion of the contract, as set out in the accounting policy for construction contracts. Construction contracts comprise contracts
specifically negotiated for the construction and delivery of a combination of goods and/or services in a single package which are so closely
related as to be in essence part of a single project and are performed concurrently or in a continuous sequence.
Construction contracts – accounting policies applied prior to 1 January 2018
Construction contracts comprise contracts specifically negotiated for the construction and delivery of a combination of electronic assets
and/or electronic services in a single package which are so closely related as to be in essence part of a single project with an overall profit
margin and are performed concurrently or in a continuous sequence.
Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, to the extent that it is probable that
they will result in revenue and can be measured reliably. As soon as the outcome of a contract can be estimated reliably, contract revenue
and expenses are recognised in profit or loss in proportion to the stage of completion of the contract.
The stage of completion is assessed by reference to completion of a physical proportion of the contract work. When the outcome of a
contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be
recoverable. An expected loss on a contract is recognised immediately in the income statement.
Contract work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to
date. It is measured at cost plus any appropriate profit recognised to date less progress billing and recognised losses. Cost includes all
expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities
based on normal operating capacity.
Payments from customers, to the extent that they exceed income recognised, are included as payments on account within trade and other
payables.
Inventories – accounting policies applied prior to 1 January 2018
Raw materials and consumables
Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and includes expenditure
incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories
and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
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44 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
Accounting policies continued
1
Expenses
Operating lease payments
Payments under operating leases are recognised in the income statement on a straight line basis over the term of the lease. Lease incentives
received are recognised in the income statement as an integral part of the total lease expense.
Financial income
Financial income comprises interest receivable on funds invested, and foreign exchange gains. Interest income is recognised in the income
statement as it accrues using the effective interest method.
Financial expenses
Financial expenses comprise interest payable on borrowings, and foreign exchange losses.
Taxation
Income tax on the profit or loss for the period comprises both current and deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised directly in equity, in which case it is recognised 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 balance
sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can
be utilised.
Exceptional items
Exceptional items are items of income and expenditure that are individually material due to size or incidence that the directors consider
require separate disclosure in order for the reader to obtain a full understanding of the performance of the Group in the year.
Standards issued but not yet effective
The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements. Their adoption is not
expected to have a material effect on the financial statements unless otherwise indicated:
●
●
●
●
●
●
●
●
●
●
IFRS 17: Insurance Contracts (effective date 1 January 2021);
Amendments to References to the Conceptual Framework in IFRS Standards (effective date 1 January 2020);
Amendment to IFRS 3: Business Combinations (effective date 1 January 2020);
Amendments to IAS 1 and IAS 8: Definition of material (effective 1 January 2020);
Annual Improvements to IFRS Standards 2015-2017 Cycle (effective 1 January 2019);
Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (effective date 1 January 2019);
Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (effective 1 January 2019);
IFRIC 23: Uncertainty over Income Tax Treatments (effective 1 January 2019);
Amendments to IFRS 9: Prepayment Features with Negative Compensation (effective 1 January 2019); and
IFRS 16: Leases (effective date 1 January 2019).
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 45
Accounting policies continued
1
IFRS 16 Leases
IFRS 16 introduces a single, on-balance sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to
use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-
term leases and leases of low value items.
IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating
Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The Group will adopt the requirements of IFRS 16 for the first time in 2019. As a result, it will recognise a balance sheet asset and corresponding
obligation relating to its use of properties under multi-year agreements. The Group will not apply IFRS 16 to its commitments under operating
leases on certain low value non-property assets.
Rental payments made under leases will be accounted for as repayments of the balance sheet liability, which will include an implied interest
element, and the asset recognised will be depreciated over the remaining lease term.
The Group will adopt the modified approach to transition where the initial asset values will be equal to the present value of the future lease
payments as at the date of transition. This will result in all existing leases being capitalised over their remaining lives, as if they had just been
entered into, and the Group’s accounts will reflect a higher interest charge following adoption.
Although the final determination has not been concluded, it is estimated that on transition the opening balance sheet position for 2019 will
be adjusted to include approximately £0.4m of right-of-use assets and a corresponding lease liability.
The effect on the Group’s net profit before tax for 2019 is not expected to be material with the pre-IFRS 16 rental charge being replaced by
depreciation and interest. The depreciation will be charged on a straight-line basis; however interest is charged on the outstanding lease
liabilities and will therefore be higher in the earlier years and will decrease over time.
The transition to IFRS16 will have no effect on cash flows.
Changes in significant accounting policies
2
IFRS 9 Financial instruments (effective 1 January 2018)
IFRS 9 addresses the classification and measurement of financial assets and liabilities and replaces IAS 39. Among other things, the standard
introduces a forward looking credit loss impairment model whereby entities need to consider and recognise impairment triggers that might
occur in the future (an ‘expected loss’ model). The Board has considered the impact of the introduction of IFRS 9 and determined that it does
not have a significant impact on the numbers reported in these financial statements or as previously presented.
IFRS 9 replaces the provisions of IAS 39 that relate to recognition, classification and measurement of financial assets and financial liabilities,
de-recognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 Financial Instruments
from 1 January 2018 resulted in changes in accounting policies however no adjustments were required to the amounts recognised in the
financial statements in previous periods. The new accounting policies are set out below.
Classification and measurement
On 1 January 2018, the Group has classified its financial instruments in the appropriate IFRS 9 categories.
The Group has no derivative financial instruments either designated as cash flow hedges or not qualifying for hedge accounting.
Financial assets previously classified in the “loans and receivables” category and measured at amortised cost under IAS 39 (being trade and
other receivables and amounts owed by equity accounted investments) continue to be classified in the “amortised cost” category under
IFRS 9.
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46 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
Changes in significant accounting policies continued
2
Impairment of financial assets
The Group has two types of financial assets that are subject to IFRS 9’s new expected credit loss model:
–
–
trade and other receivables; and
contract receivables.
Trade and other receivables, and contract receivables, do not contain a significant financing element and therefore expected credit losses
are measured using the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from the initial
recognition of the receivables.
The Group has assessed credit risk in relation to defence-related sales to government customers or sub-contractors to governments and
believes it to be extremely low, therefore no expected credit loss provision is required for these trade and other receivables, or contract
receivables. The Group also considers expected credit losses for non-government commercial customers, however this risk is not expected
to be material to the financial statements.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, no impairment loss was identified.
There was no IFRS 9 impact on retained earnings at 1 January 2018.
Classification
From 1 January 2018, the Group classifies its financial assets in the following measurement categories:
–
–
those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss); and
those to be measured at amortised cost.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not measured at fair value
through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.
The Group subsequently measures trade and other receivables and contract receivables at amortised cost.
Impairment
For trade and other receivables, contract receivables and amounts due from equity accounted investments, the Group applies the simplified
approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
Financial liabilities
There are no changes to the accounting policies in respect of loans, overdrafts, and trade and other payables, which continue to be measured
at amortised cost.
IFRS 15 Revenue from contracts with customers (effective 1 January 2018)
IFRS 15 sets out a single and comprehensive framework for revenue recognition. The guidance in IFRS 15 is considerably more detailed than
previous IFRSs for revenue recognition (IAS 11 Construction Contracts and IAS 18 Revenue and associated interpretations).
The Group has adopted IFRS 15 retrospectively from 1 January 2018 and has chosen to apply the cumulative effect approach. As a result, the
Group has restated its opening equity position as at 1 January 2018 to reflect the impact of transitioning to IFRS 15. A summary of the effect
of the impact of the adoption of IFRS 15 is set out at note 3 below.
In line with the requirements of the standard in regard to the transition option adopted, the Group has not restated its comparative
information which continues to be reported under previous revenue standards, IAS 11 and IAS 18.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 47
Impact of the adoption of IFRS 15
3
Impact in respect of the position on adoption at 1 January 2018
IFRS 15
As reported
31 December
as adopted
2017 Reclassification Remeasurement 1 January 2018
£000
Balance sheet headings £000 £000 £000
Work in progress within inventories 2,211 – 1,707
Payments on account within current trade and other payables (382) 382 –
Deferred revenue within current trade and other payables – (382) (2,271)
Deferred tax assets 344 – 96
3,918
–
(2,653)
440
As reported
1 January 2018
£000
Retained earnings as previously reported 5,174
Adjustment to earnings from adoption of IFRS 15 – profit before tax (564)
Adjustment to earnings from adoption of IFRS 15 – deferred tax 96
Retained earnings on adoption of IFRS 15 – at 1 January 2018 4,706
Impact on the result for the year ended 31 December 2018
Consolidated income statement
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Financial income
Financial expense
Profit before tax
Income tax
Profit for the year
Revenue before the adoption of IFRS 15 was accounted for under IAS 11 and IAS 18.
Result before
adoption
of IFRS 15
£000
Impact of
change
in GAAP
£000
Result after
adoption
of IFRS 15
£000
18,198
(11,719)
6,479
(5,728)
751
3
(33)
721
103
824
1,775
(1,370)
19,973
(13,089)
405
–
405
–
–
405
(86)
319
6,884
(5,728)
1,156
3
(33)
1,126
17
1,143
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48 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
Impact of the adoption of IFRS 15 continued
3
An assessment of the impact of IFRS 15 was completed during the year across the Group’s revenue streams, including a comprehensive
review of contracts that were not completed contracts at the date of initial application.
This review ascertained that under IFRS 15, £2,271,000 of revenue and £564,000 of profit recognised in previous accounting periods up to
and including 31 December 2017 would be deferred to future periods. The effect of this assessment based on the progress of these contracts
during the current year, has been to recognise revenue of £1,961,000 and profit of £451,000 in 2018, leaving revenue of £310,000 and profit
of £113,000 to be recognised in accounting periods after 31 December 2018.
The impact of IFRS 15 on contracts commencing during the year and which are incomplete at 31 December 2018 has been to defer revenue
of £186,000 and estimated profit of £46,000 to future accounting periods.
A summary of the new accounting policies and the nature of the changes to previous accounting policies in relation to the Group’s various
goods and services are set out below.
Nature, timing and satisfaction of performance
Type of product or service obligations and significant payment terms Nature, timing and satisfaction of performance
Revenue from the sale of goods and
equipment
Revenue from service contracts
Revenue from construction
contracts
Revenue from sales of goods and equipment
is
recognised on despatch unless the customer specifically
requests deferred delivery. For deliveries deferred at the
customer’s request, revenues are recognised when the
customer takes title to the goods provided that it is
probable that delivery will be made, the goods are
identified and ready for delivery and usual payment terms
apply.
Revenue from service contracts, where services are
performed by an indeterminate number of acts over a
specified period of time, is recognised on a straight line
basis over the period of the contract.
Construction contracts comprise contracts specifically
negotiated for the construction and delivery of a
combination of electronic services and/or electronic
assets. A typical contract identifies the consideration
applicable to each and milestones are usually specified for
the provision of electronic services.
Each contract is reviewed to identify and assess distinct
performance obligations, and the consideration applying
to each.
An expected loss on a contract is recognised immediately
in the income statement.
No material impact on adoption of IFRS 15.
No material impact on adoption of IFRS 15.
The impact of IFRS 15 has been to identify and segregate
the elements of the contracts relating to the construction
and delivery of electronic services as these have distinct
performance obligations. This is outlined below.
Revenue from sale of electronic
assets
Revenue deriving from the provision of electronic assets
is recognised at the point in time that the assets are
provided.
There is no material impact on the adoption of IFRS 15.
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 49
Impact of the adoption of IFRS 15 continued
3
Nature, timing and satisfaction of performance
Type of product or service obligations and significant payment terms Nature, timing and satisfaction of performance
Revenue from provision of
electronic services
Revenue deriving from the provision of electronic services,
which is normally classified as non-recurring development
expenditure, is recognised at the point that each
development service obligation has been completed.
If at the end of a reporting period the provision of this
service is incomplete, costs incurred are included in the
balance sheet as work in progress within inventories. Costs
include all expenditure related directly to specific projects
and an allocation of fixed and variable overheads incurred
in the Group’s contract activities based on normal
operating capacity.
If at the end of a reporting period the provision of this
service is incomplete, payments received from customers
on the achievement of milestones are included in the
balance sheet as deferred income until the provision of
the service is complete.
The impact of IFRS 15 on this element of contract revenue
is to defer revenue and profit until the completion of each
development service obligation.
Under IAS 11 revenue was recognised in proportion to the
stage of completion of the contract, which was assessed
by reference to the completion of each customer agreed
milestone.
Contract work in progress represented the gross unbilled
amount expected to be collected from customers for
contract work performed to date. It was measured at cost
plus any appropriate profit recognised to date less
progress billings and recognised losses.
Payments from customers, to the extent that they
exceeded income recognised, were included as payments
on account within trade and other payables.
Segmental information
4
The analysis by geographic segment below is presented in accordance with IFRS 8 on the basis of those segments whose operating results
are regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to make strategic decisions, to
monitor performance and allocate resources.
The Board regularly reviews the Group’s performance and balance sheet position for its entire operations as a whole. The Board receives
financial information, assesses performance and makes resource allocation decisions for its UK based business as a whole, therefore the
directors consider the Group to have only one segment in terms of products and services, being the development, supply and maintenance
of technologies used in advanced security, surveillance and ruggedized electronic applications.
As the Board of Directors receives revenue, Adjusted EBITDA and operating profit on the same basis as set out in the consolidated income
statement no further reconciliation or disclosure is considered necessary.
Revenue by geographical destination can be analysed as follows:
United Kingdom
Continental Europe
Rest of World
The timing of revenue recognition can be analysed as follows:
Products and services transferred at a point in time – IFRS 15
Products and services transferred over time – IFRS 15
Products and services – IAS 11 and IAS 18
Construction contract revenue – IAS 11
Details of the revenues relating to the Group’s main customers in the year are given in note 19.
2018 2017
£000 £000
15,285 10,227
4,250 4,930
424
438
19,973
15,581
2018 2017
£000 £000
19,058 –
915 –
– 5,921
9,660
–
19,973
15,581
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50 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
Expenses and auditor’s remuneration
5
Profit before tax is stated after charging/(crediting):
Amortisation of intangibles
Development costs expensed directly to income
Depreciation of property, plant and equipment – owned
Depreciation of property, plant and equipment – leased
Net write down/(up) of inventories
Auditor’s remuneration:
Audit of these financial statements
Amounts receivable by the Company’s auditor and its associates in respect of:
Audit of financial statements of subsidiaries pursuant to legislation
Other services relating to taxation
2018 2017
£000 £000
590 547
164 247
196 147
13 15
(64)
7
2018 2017
£000 £000
15 13
57 44
13
17
Amounts receivable by the Company’s auditor and its associates in respect of services to the Company, other than the audit of the Company’s
financial statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis.
Staff numbers and costs
6
The aggregate payroll costs, including directors, were as follows:
Wages and salaries
Share based payments (note 23)
Social security costs
Other pension costs (note 23)
The average number of employees during the year (including directors) was as follows:
Direct labour
Development
Sales
Administration
Group
2018 2017
£000 £000
4,816 4,606
25 27
489 458
202
206
5,536
5,293
Group
2018 2017
Number Number
70 69
26 20
10 12
19
20
126
120
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 51
6
Staff numbers and costs continued
Directors’ remuneration
Directors’ emoluments
Company contributions to defined contribution pension schemes
2018 2017
£000 £000
669 497
–
–
669
497
The aggregate of emoluments of the highest paid director was £282,000 (2017: £186,000).
Share options
Salaries and fees Other benefits exercised Total
2018 2017 2018 2017 2018 2017 2018
Name of director £000 £000 £000 £000 £000 £000 £000
R Abdullah 111 105 – – 136 81 247
O Abdullah 111 105 – – – – 111
P Negus ¹ 185 182 – – 97 – 282
T Connolly ² 29 24 – – – – 29
436 416 – – 233 81 669
Total
2017
£000
186
105
182
24
497
¹ Includes fees for the services of P Negus payable to Adcel Limited of £171,000 (2017: £182,000).
² Includes ex-gratia fee of £5,000 (2017: £nil)
No performance bonus is payable in respect of the year ended 31 December 2018 (2017: £nil).
No directors are accruing rights to shares under long term incentive schemes.
Number of directors exercising share options
Number of directors accruing benefits under a defined contribution pension scheme
Directors’ rights to subscribe for shares in the Company are as follows:
2018 2017
Number Number
2
1
1
–
At start of year At end of year
Director Number of shares Number of shares
Exercise price
(pence)
R Abdullah 1,850,000 1,425,000
O Abdullah 2,162,500 2,737,500
P Negus 700,000 300,000
8p – 21.5p
8p – 21.5p
11.6p – 21.5p
Further details of movement in rights to subscribe for shares are included in the Remuneration Report, under the heading ‘Directors’ Interests
in Share Options’, which forms part of these audited financial statements.
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52 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
7
Exceptional items
Exceptional income included in administrative expenses
Exceptional interest received included in financial income
Exceptional loss on currency translation reserve
2018 2017
£000 £000
– 362
– 340
(211)
–
The 2017 results included two exceptional items. First, the Group accepted an offer to settle a historic matter, unrelated to the current trading
activities of the Group, which arose over ten years ago. Under the settlement, on 9 January 2018, the Group received a total of £702,000 in
cash comprising an amount of £362,000 plus compensatory interest of £340,000.
The second exceptional item was also unrelated to the current trading activities of the Group. During 2017 the Board decided that the US
subsidiary that had been dormant for several years should be abandoned, and any future activities that the Group may undertake in the US
would not be conducted through the subsidiary. The £211,000 deficit on the Group’s currency translation reserve was reclassified from equity
to income and shown as an expense.
8
Financial income and expenses
Recognised in profit or loss
Exceptional item – interest receivable on settlement (note 7)
Interest on bank deposits
Other exchange gain
Financial income
Interest expense on financial liabilities at amortised cost
Exceptional item – foreign exchange loss (note 7)
Other exchange loss
Financial expenses
2018 2017
£000 £000
– 340
1 –
–
2
3
340
2018 2017
£000 £000
33 133
– 211
36
–
33
380
253591 Petards pp35-end.qxp 12/04/2019 10:29 Page 53
9
Taxation
Recognised in the income statement
Current tax (credit)/expense
Current tax charge
Adjustments in respect of prior years
Total current tax
Deferred tax (credit)/expense
Origination and reversal of temporary differences
Derecognition of previously recognised tax losses
Recognition of previously unrecognised tax losses
Utilisation of recognised tax losses
Adjustment in respect of prior years
Effect of differential tax rate for deferred tax
Total deferred tax
Total tax credit in income statement
Financial statements
Petards Group plc Annual Report & Accounts 2018 | 53
2018
£000
34
(113)
105
73
(56)
75
(145)
10
2018
£000
2017
£000
2017
£000
5
(57)
(79)
(52)
5
–
(148)
303
(162)
22
62
(17)
20
(32)
The majority of the adjustments to tax in respect of prior years (2017: same) relates to research and development claims. These claims are
recognised when receipt is determined to be probable.
Factors that may affect future current and total tax charges
The main rate of UK corporation tax changed from 20% to 19% with effect from 1 April 2017.
The main rate of UK corporation tax will reduce to 17% from 1 April 2020. These tax changes were substantively enacted on 26 October 2016
and therefore the effect of this rate reduction has been applied to the deferred tax balances as at 31 December 2018 and 31 December 2017.
Reconciliation of effective tax rate
Profit before tax
Tax using the UK corporation tax rate of 19% (2017: 19.25%)
Non-deductible expenses
Non taxable income
Derecognition of previously recognised tax losses
Recognition of previously unrecognised tax losses
Adjustments in respect of prior years
Effect of differential tax rate for deferred tax
Other reconciling items
Total tax credit
2018 2017
£000
£000
1,126
1,205
214 232
42 81
(21) –
73 –
(56) (148)
(258) (219)
10 22
–
(21)
(17)
(32)
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54 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
10 Profit for the financial year – parent company
As permitted by section 408 of the Companies Act 2006, the parent company’s income statement has not been included in these financial
statements. The parent company’s profit for the financial year was £514,000 (2017: £1,038,000).
11 Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit for the year attributable to the shareholders by the weighted average number of
shares in issue.
Earnings
Profit for the year (£000)
Number of shares
Weighted average number of ordinary shares (‘000)
Basic earnings per share (pence)
2018 2017
1,143
1,237
56,752
37,418
2.01
3.31
Diluted earnings per share
Diluted earnings per share assumes conversion of all potentially dilutive ordinary shares, which arise from share options, and is calculated by
dividing the adjusted profit for the year attributable to the shareholders by the assumed weighted average number of shares in issue. The
adjusted profit for 2017 comprised the profit for the year attributable to the shareholders after adding back the interest on convertible loan
notes amounting to £131,000.
Adjusted earnings
Profit for the year (£000)
Number of shares
Weighted average number of ordinary shares (‘000)
Diluted earnings per share (pence)
2018 2017
1,143
1,368
58,627
58,844
1.95
2.32
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 55
12 Property, plant and equipment – Group
Leasehold
improvements
£000
Plant and
equipment
£000
Motor
vehicles
£000
Cost
Balance at 1 January 2017
Acquisitions
Disposals
Balance at 31 December 2017
Balance at 1 January 2018
Acquisitions
Arising on acquisition (note 15)
Balance at 31 December 2018
Depreciation and impairment
Balance at 1 January 2017
Depreciation charge for the year
Disposals
Balance at 31 December 2017
Balance at 1 January 2018
Depreciation charge for the year
Balance at 31 December 2018
Net book value
At 1 January 2017
At 31 December 2017 and 1 January 2018
At 31 December 2018
255
30
–
285
285
–
–
285
193
17
–
210
210
18
228
62
75
57
1,324
477
(274)
1,527
1,527
325
2
1,854
965
134
(274)
825
825
175
1,000
359
702
854
51
24
(3)
72
72
–
–
72
16
11
(3)
24
24
16
40
35
48
32
The net book value of assets held under finance lease obligations is £29,000 (2017: £43,000).
Total
£000
1,630
531
(277)
1,884
1,884
325
2
2,211
1,174
162
(277)
1,059
1,059
209
1,268
456
825
943
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56 | Petards Group plc Annual Report & Accounts 2018
Notes (continued)
(forming part of the financial statements)
13 Property, plant and equipment – Company
Plant and
equipment
£000
Cost
Balance at 1 January 2017 3
Acquisitions 1
Balance at 31 December 2017 4
Balance at 1 January 2018 4
Acquisitions 1
Balance at 31 December 2018 5
Depreciation and impairment
Balance at 1 January 2017 1
Depreciation charge for the year 1
Balance at 31 December 2017 2
Balance at 1 January 2018 2
Depreciation charge for the year 1
Balance at 31 December 2018 3
Net book value
At 1 January 2017 2
At 31 December 2017 and 1 January 2018 2
At 31 December 2018 2
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 57
14 Intangible assets – Group
Cost
Balance at 1 January 2017
Additions – internally developed
Disposals
Balance at 31 December 2017
Balance at 1 January 2018
Additions – internally developed
Arising on acquisition (note 15)
Balance at 31 December 2018
Amortisation and impairment
Balance at 1 January 2017
Amortisation for the year
Disposals
Balance at 31 December 2017
Balance at 1 January 2018
Amortisation for the year
Balance at 31 December 2018
Net book value
At 1 January 2017
At 31 December 2017 and 1 January 2018
At 31 December 2018
Customer
related
intangibles
£000
Technology
related
intangibles
£000
Goodwill
£000
Development
costs
£000
32
–
–
32
32
–
146
178
9
6
–
15
15
67
82
23
17
96
41
–
–
41
41
–
407
448
13
18
–
31
31
34
65
28
10
707
–
–
707
707
–
781
1,488
–
–
–
–
–
–
–
707
707
383
1,488
3,466
1,043
(973)
3,536
3,536
1,444
–
4,980
2,232
523
(973)
1,782
1,782
489
2,271
1,234
1,754
2,709
Total
£000
4,246
1,043
(973)
4,316
4,316
1,444
1,334
7,094
2,254
547
(973)
1,828
1,828
590
2,418
1,992
2,488
4,676
Development costs relate to the ongoing development of the Group’s rail products. This includes an amount of £1,249,000 (2017: £156,000)
for which amortisation has not yet commenced.
Amortisation
The amortisation charge is recognised within administrative expenses in the income statement.
Impairment testing
The Group considers that for the purpose of goodwill impairment testing it has three cash generating units (CGUs) involved in the
development, supply and maintenance of technologies used in advanced security, surveillance, web-based real-time safety critical integrated
software applications and ruggedised electronic applications.
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Notes (continued)
(forming part of the financial statements)
14 Intangible assets – Group continued
Goodwill has been allocated to cash generating units as follows:
Petards Joyce-Loebl
QRO Solutions
RTS Solutions
2018 2017
£000 £000
401 401
306 306
–
781
1,488
707
Impairment is tested by calculating its value in use by reference to discounted cash flow forecasts over a five year period. The key assumptions
for the value in use calculation are those regarding the growth rates, discount rates and expected changes in profit margins during the
period. These are based on approved forecasts for the next year and an assumption of no growth thereafter has been applied in perpetuity
(2017: approved forecasts for the next year and an assumption of no growth thereafter) and are based on forecast profit margin being maintained
(2017: profit margin maintained). The discount rate applied is 10% (2017: 10%).
For Petards Joyce-Loebl the discount rate would have to increase to 260% before there is an impairment. The profit margin would have to
fall by 96% before there is an impairment.
For QRO Solutions the discount rate would have to increase to 33% before there is an impairment. The profit margin would have to fall by
70% before there is an impairment.
For RTS Solutions (UK) the discount rate would have to increase to 43% before there is an impairment. The profit margin would have to fall
by 77% before there is an impairment.
The Company had no intangible assets in 2017 or 2018.
15 Acquisitions
On 11 May 2018, the Group acquired the entire issued share capital of RTS Solutions (Holdings) Limited which was the sole shareholder of
RTS Solutions (UK) Limited (RTS) for £1.8 million, comprising £1.2 million for the business and £0.6 million for surplus cash. This consideration
was settled by an initial cash consideration of £1 million, funded by a 5 year bank loan and £547,000 paid from internal cash reserves. Further
deferred consideration of £250,000 was paid in June 2018, funded by an additional drawdown on the 5 year bank loan and a further £55,000
was paid in July, funded from cash reserves. The terms of the acquisition provided for a further amount of up to £250,000 to be payable in
the event that the financial performance of RTS for the year ended 31 March 2019 met certain targets. The fair value of this element of
consideration has been determined to be £nil on the basis that the forecast results were expected to be below the target amounts.
During the period from acquisition to 31 December 2018, RTS contributed £511,000 of revenue and £183,000 of profit to the Group. Had
the results been consolidated from 1 January 2018, Group revenue would have been £20,165,000 and net profit would have been
£1,167,000. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition
would have been the same if the acquisition occurred on 1 January 2018.
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Petards Group plc Annual Report & Accounts 2018 | 59
15 Acquisition continued
The acquisition had the following effect on the Group’s assets and liabilities on the acquisition date:
Provisional fair values
recognised on acquisition
£000
Net assets acquired
Intangible assets
Technology related assets 407
Customer related assets 146
Property, plant and equipment 2
Inventories 18
Trade and other receivables 131
Cash and cash equivalents 628
Trade and other payables (167)
Deferred tax (94)
Net identified assets and liabilities 1,071
Goodwill on acquisition 781
Total consideration 1,852
Cash flow
Consideration paid in cash 1,852
Cash and cash equivalents acquired (628)
Net cash flow 1,224
Pre-acquisition carrying amounts were determined based on applicable IFRSs, immediately prior to the acquisition. The values of assets and
liabilities recognised on acquisition are the estimated fair values. The goodwill arising on acquisition can be attributed to a multitude of
assets that cannot be readily separately identified for the purposes of fair value accounting. None of the goodwill is expected to be deductible
for tax purposes.
The fair value adjustments arise in accordance with the requirements of IFRSs to recognise intangible assets acquired. In determining the fair
value of intangible assets, the Group has used discounted cash flow forecasts and these are being amortised over their estimated useful life.
The Group incurred acquisition related costs of £77,000 that are included within administrative expenses.
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Notes (continued)
(forming part of the financial statements)
16 Investments in subsidiary undertakings
The Group and Company have the following investments in subsidiary undertakings:
Name of company
Country of operation
and registration
Petards Joyce-Loebl Limited
QRO Solutions Limited
RTS Solutions (UK) Limited
RTS Solutions (Holdings)
Limited
Water Hall Group plc
Petards Limited
Joyce-Loebl Group Limited
Petards International Limited
England (2)
England (1)
England (1)
England (1)
England (1)
England (2)
England (2)
England (2)
Nature of business
Holding
Specialist electronic systems
Specialist electronic systems
Specialist electronic systems
Ordinary shares
Ordinary shares
Ordinary shares
Non-trading
Non-trading
Dormant
Dormant
Dormant
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Proportion held
Group
Company
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Registered offices:
(1) Parallel House, 32 London Road, Guildford, GU1 2AB
(2) 390 Princesway, Team Valley, Gateshead, Tyne and Wear, NE11 0TU
Shares in
subsidiary
undertakings
Company £000
Cost
At 1 January 2017 16,515
Investment in Petards Inc written off (2)
At 31 December 2017 16,513
At 1 January 2018 16,513
Acquisition – RTS Solutions (Holdings) Limited 1,852
At 31 December 2018 18,365
Provisions for impairment in value
At 1 January 2017, 31 December 2017 and 31 December 2018 5,514
Net book value
At 1 January 2017 11,001
At 31 December 2017 10,999
At 31 December 2018 12,851
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 61
17 Deferred tax assets and liabilities
Group
Recognised deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Provisions
Tax value of loss carry-forwards
Intangible fixed assets
Initial application of IFRS 15
Tax assets/(liabilities)
Offset of tax
Net tax assets
Assets
Liabilities
Net
2018
£000
–
5
418
–
10
433
(149)
284
2017
£000
–
5
401
–
–
406
(62)
344
2018
£000
(46)
–
–
(103)
–
(149)
149
–
2017
£000
(45)
–
–
(17)
–
(62)
62
–
2018
£000
(46)
5
418
(103)
10
284
–
284
2017
£000
(45)
5
401
(17)
–
344
–
344
Unrecognised deferred tax assets are attributable to the following:
Property, plant and equipment
Provisions
Tax value of loss carry-forwards
Tax assets
There is no expiry date on the above unrecognised deferred tax assets.
Movement in deferred tax during the year
Assets Assets
2018 2017
£000 £000
209 248
3 4
1,359
1,424
1,636
1,611
Property, plant and equipment
Provisions
Tax value of loss carry-forwards
Intangible fixed assets
Initial application of IFRS 15
31 December
2017
£000
Initial
application
of IFRS 15
£000
1 January
2018
£000
Arising on
acquisitions
£000
Recognised 31 December
2018
£000
in income
£000
(45)
5
401
(17)
–
344
–
–
–
–
96
96
(45)
5
401
(17)
96
440
–
–
–
(94)
–
(94)
(1)
–
17
8
(86)
(62)
(46)
5
418
(103)
10
284
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Notes (continued)
(forming part of the financial statements)
17 Deferred tax assets and liabilities continued
Movement in deferred tax during the prior year
Property, plant and equipment
Provisions
Tax value of loss carry-forwards
Intangible fixed assets
Company
Recognised deferred tax assets are attributable to the following:
Tax value of loss carry-forwards
Tax assets
Unrecognised deferred tax assets are attributable to the following:
Property, plant and equipment
Provisions
Tax value of loss carry-forwards
Tax assets
There is no expiry date on the above unrecognised deferred tax assets.
18 Inventories
Raw materials and consumables
Work in progress
1 January
2017
£000
Recognised 31 December
2017
£000
in income
£000
(24)
6
423
(41)
364
(21)
(1)
(22)
24
(20)
(45)
5
401
(17)
344
Assets Assets
2018 2017
£000 £000
130
130
130
130
Assets Assets
2018 2017
£000 £000
23 22
3 3
168
132
158
193
Group
Company
2018
£000
1,855
2,249
4,104
2017
£000
1,192
2,211
3,403
2018
£000
–
–
–
2017
£000
–
–
–
The Group has adopted IFRS 15 using the cumulative effect method, under which the comparative information is not restated (note 3). The
cumulative effect of adopting IFRS 15 is recognised in equity at the date of first adoption on 1 January 2018. The work in progress balance
at 31 December 2018 includes £337,000 representing the impact of the adoption of IFRS 15.
The directors consider all inventories to be essentially current in nature although the duration of certain contracts is such that a proportion
of inventories will not be realised within 12 months. It is not possible to determine this amount with precision as this is dependent on a
number of issues including future order volumes, the timing of project milestones and customer call off schedules.
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18 Inventories continued
Inventories recognised as cost of sales in the year amounted to £12,530,000 (2017: £8,730,000). At 31 December 2018 inventories are shown
net of provisions of £191,000 (2017: £184,000).
Construction contract work in progress
The Group’s 2017 net balance on construction contracts work in progress of £1,224,000 was analysed into the following assets and liabilities
under IAS 11; work in progress £1,458,000 and payments on account of £234,000. Work in progress at 31 December 2017 related to
construction contracts in progress at that date comprising cumulative costs incurred plus recognised profits less losses of £13,975,000 less
cumulative progress billings received and receivable of £12,517,000. These disclosures are not relevant to IFRS 15 that was adopted in 2018.
19 Trade and other receivables
Trade receivables
Amounts owed by group undertakings
Corporation tax recoverable
Other receivables
Prepayments and accrued income
Group
Company
2018
£000
2,236
–
75
29
213
2,553
2017
£000
2,771
–
–
791
181
3,743
2018
£000
–
213
–
16
29
258
2017
£000
–
–
–
722
21
743
At 31 December 2018 trade receivables include retentions of £197,000 (2017: £2,000).
The Group has a variety of credit terms depending on the customer. The majority of the Group’s sales are made to government agencies
and blue chip companies and consequently have very low historical default rates.
At 31 December 2018 trade receivables are shown net of an allowance for credit notes of £nil (2017: £nil) arising from the ordinary course of
business.
The ageing of trade receivables at the balance sheet date was:
Group
Not past due date
Past due date (0-90 days)
Past due date (over 90 days)
2018
Gross and
net trade
receivables
£000
2017
Gross and
net trade
receivables
£000
1,452 1,850
603 758
163
181
2,236
2,771
Management has no indication that any unimpaired amounts will be irrecoverable. No other receivables are past due in either the current
or prior year.
In 2018 revenues for three customers each exceeded 10% of the Group’s revenues. Revenues from these customers were £5,063,000,
£3,362,000 and £2,569,000 (2017: Three customers: £4,376,000, £2,690,000 and £2,381,000) of which £1,048,000 was included in the carrying
amount of trade receivables at 31 December 2018 (2017: £1,589,000).
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Notes (continued)
(forming part of the financial statements)
19 Trade and other receivables continued
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
UK
Europe
Other regions
Group
2018 2017
£000 £000
1,364 1,962
815 808
1
57
2,236
2,771
The Group’s exposure to credit and currency risks and impairment losses related to trade receivables are disclosed in note 26.
The Company has no trade receivables.
20 Cash and cash equivalents
Group
Company
2018
£000
2017
£000
2018
£000
2017
£000
Cash and cash equivalents
Cash and cash equivalents per balance sheet and per cash flow statement
2,117
1,324
85
30
The Group’s exposure to credit and currency risk related to cash and cash equivalents are disclosed in note 26.
21 Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s and Company’s interest-bearing loans and borrowings, which are
measured at amortised cost. For more information about the Group’s and Company’s exposure to interest rate and foreign currency risk, see
note 26.
Non-current liabilities
Bank loan
Finance lease liabilities
Current liabilities
Bank loan
Current portion of finance lease liabilities
Group
Company
2018
£000
2017
£000
2018
£000
2017
£000
875
8
883
250
15
265
–
23
23
–
15
15
875
–
875
250
–
250
–
–
–
–
–
–
During the year the Company entered into a term loan facility of £1.25 million repayable by equal quarterly instalments over 60 months.
The interest rate is set at LIBOR plus 3.19% and the loan is secured by a fixed and floating charge over the assets of the Group.
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21 Interest-bearing loans and borrowings continued
During the year the Company was also provided a revolving credit facility of up to £750,000 which was undrawn at 31 December 2018.
The interest rate on amounts drawn is set at LIBOR plus 3.19%.
Changes in liabilities from financing activities
Balance at 1 January 2018
New bank loan
Repayment of bank loan
Payment of finance lease liabilities
Total changes from financing cash flows
Balance at 31 December 2018
22 Trade and other payables
Non-current liabilities
Amounts owed to group undertakings
Current liabilities
Trade payables
Amounts owed to group undertakings
Deferred income*
Payments on account*
Non-trade payables and accrued expenses
Interest payable
Loans and Finance lease
liabilities
£000
borrowings
£000
– 38
1,250 –
(125) –
(15)
–
1,125
1,125
(15)
23
Group
Company
2018
£000
2017
£000
2018
£000
2017
£000
–
–
901
870
3,268
–
1,167
–
995
8
5,438
2,869
–
148
234
1,575
33
4,859
62
1,239
–
–
131
8
1,440
82
1,616
–
–
143
33
1,874
* The Group has adopted IFRS 15 using the cumulative effect method, under which the comparative information is not restated (note 3). The cumulative effect of adopting IFRS 15
is recognised in equity at the date of first adoption on 1 January 2018. The deferred income balance at 31 December 2018 includes £496,000 representing the impact of the adoption
of IFRS 15.
No amounts included in current liabilities are expected to be settled in more than 12 months (2017: £nil). In both 2018 and 2017 amounts
payable to group undertakings in current liabilities are due on demand but have no fixed repayment dates.
The non-current amount payable to a group undertaking is formally agreed, attracts interest at 3.25% and is not repayable before 31 March 2020.
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Notes (continued)
(forming part of the financial statements)
23 Employee benefits
Defined contribution plans
The Group operates defined contribution pension plans.
The total expense relating to defined contribution plans in the current year was £206,000 (2017: £202,000).
Share-based payments
The Company has granted share options under its Enterprise Management Incentive Scheme (‘EMI Scheme’), and an Unapproved Share
Option Scheme (‘Unapproved Scheme’). Options granted have a contractual life of ten years and are exercisable on the third anniversary
from the date of grant. All options are to be settled by physical delivery of shares.
The unexercised options at 31 December 2018 are stated below.
Date of grant
Scheme
Nov 2013
Jan 2016
Jan 2016
Jul 2017
Oct 2018
Oct 2018
(1) Fully vested
(2) 3 years from date of grant
EMI Scheme
EMI Scheme
Unapproved Scheme
EMI Scheme
EMI Scheme
Unapproved Scheme
Exercise
price
(pence)
8.00p
12.25p
12.25p
29.00p
21.50p
21.50p
Number of
shares granted
Vesting
conditions
1,312,500
1,810,204
189,796
80,000
575,000
875,000
(1)
(2)
(2)
(2)
(2)
(2)
Exercise period
Nov 2013 – Nov 2023
Jan 2019 – Jan 2026
Jan 2019 – Jan 2026
Jul 2020 – Jul 2027
Oct 2021 – Oct 2028
Oct 2021 – Oct 2028
Outstanding at beginning of the year
Granted during the year
Forfeited/lapsed during the year
Exercised
Outstanding at the end of the year
Exercisable at the end of the year
2018
2017
Weighted
average
exercise
price
£
0.105
0.22
0.18
0.09
0.141
Number of
shares
5,515,000
80,000
(70,000)
(312,500)
5,212,500
0.08
2,312,500
Weighted
average
exercise
price
£
0.10
0.29
0.25
0.08
0.105
0.08
Number of
shares
5,212,500
1,570,000
(240,000)
(1,700,000)
4,842,500
1,312,500
The estimated fair value of the options ranges between 2.5p and 9.8p. These were calculated by applying the Black-Scholes option pricing
model. The model inputs were the share price at the date of grant, the appropriate exercise price, expected volatility of 40% (2017: 50%) and
a risk free interest rate of 0.8% (2017: 0.13%). It was assumed that option holders would exercise their options during the first year after the
option vesting date. The volatility measured at the standard deviation of continuously compounded share returns is based on statistical
analysis of daily share prices over the period of one year to the date of grant.
During the year options were exercised in respect of 1,700,000 shares which were satisfied by the issue of new shares and for which the
related weighted average share price at the time of exercise was 23p. The options outstanding at 31 December 2018 had exercise prices
ranging from 8p to 29p and the weighted average remaining contractual life of the options was 7.3 years.
The Group and Company recognised a total expense of £25,000 (2017: £27,000) in respect of equity settled share options.
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24 Share capital
Number of shares in issue – allotted, called up and fully paid
Ordinary shares of 1p each
Value of shares in issue – allotted, called up and fully paid
Ordinary shares of 1p each
At
At
31 December 31 December
2017
Number
2018
Number
57,468,229
55,768,229
£000
£000
575
558
The Company’s issued share capital comprises 57,468,229 ordinary shares of 1p each, all of which have equal voting rights.
On 22 May 2018 the Company issued 700,000 ordinary 1p shares at a price of 11.625p each and on 11 June 2018 the Company issued a
further 1,000,000 ordinary 1p shares at a price of 8p each, on the exercise of options.
25 Equity reserve
The equity reserve relates to the fair value of the share options issued but not yet exercised in respect of the acquisition of Water Hall Group plc
in 2013. During the year 1,000,000 of these share options were exercised, resulting in a transfer of £11,000 from this equity reserve to retained
earnings.
26 Financial risk management
The Group’s and Company’s policy is to maintain a strong capital base with a view to ensuring that entities within the Group will be able to
continue as going concerns.
The Group’s and Company’s principal financial instruments comprise short term debtors and creditors, short term bank deposits, cash, bank
borrowings and, when required, forward currency contracts and options. Neither the Group nor the Company trades in financial instruments
but, where appropriate, uses derivative financial instruments in the form of forward foreign currency contracts and options to help manage
foreign currency exposures. The prime objective of the Group’s and Company’s policy towards financial instruments is to manage their
working capital requirements and finance their ongoing operations.
Capital management
The Group’s and Company’s policy is to maintain a strong capital base with a view to ensuring that entities within the Group will be able to
continue as going concerns. The Group and Company finance their operations through retained earnings, cash resources, bank borrowings,
share placings and the management of working capital. It is the intention to issue new shares when satisfying share based incentive schemes.
Capital is defined as total equity as set out in the balance sheet.
Management of financial risk
The main risks associated with the Group’s financial instruments have been identified as credit risk, liquidity risk and foreign currency risk.
The main risks associated with the Company’s financial instruments have been identified as liquidity risk. The Board is responsible for managing
these risks and the policies adopted, which have remained largely unchanged throughout the year.
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Notes (continued)
(forming part of the financial statements)
26 Financial risk management continued
Credit risk
The carrying amount of financial assets included in the balance sheet, which represents the maximum credit risk, and the headings in which
they are included are as follows:
Current assets
Trade receivables
Other receivables
Cash and cash equivalents
Group
Company
2018
£000
2,236
–
2,117
4,353
2017
£000
2,771
–
1,324
4,095
2018
£000
–
229
85
314
2017
£000
–
722
30
752
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. The Group’s risk is influenced by the nature of its customers. The majority
of sales are made to government agencies and blue chip companies. New customers are analysed for creditworthiness before the Group’s
standard payment and delivery terms and conditions are offered and appropriate credit limits set. Customers that fail to meet the Group’s
benchmark creditworthiness may transact with the Group only on a prepayment basis. The carrying amount of trade receivables in the
balance sheet represents the maximum exposure to credit risk and further details are given in note 19 to the financial statements. The Board
considers the Group’s exposure to credit risk to be acceptable and normal for an entity of its size given the industries in which it operates.
Surplus cash balances are placed on short term deposit with UK banks.
Interest rate risk
The Group has financed its operations from its own cash resources and a bank loan for the acquisition of RTS Solutions (Holdings) Limited.
The Group’s bank borrowings bear interest at LIBOR plus 3.19%.
The interest rate risk profile of the Group’s and Company’s interest bearing financial instruments was as follows:
Interest rate risk profile of financial assets
Floating rate assets (by currency):
Sterling
US dollar
Euro
Interest rate profile of financial liabilities
Fixed rate liabilities (by currency):
Sterling
Floating rate liabilities (by currency):
Sterling
The fixed rate financial liabilities comprises finance leases.
Group
Company
2017
£000
1,186
135
3
1,324
38
–
2018
£000
2017
£000
85
–
–
85
–
1,125
30
–
–
30
–
–
2018
£000
1,937
123
57
2,117
23
1,125
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26 Financial risk management continued
While the Group and Company have access to a revolving credit facility which carries a variable interest rate, this facility was not used in the
year and so the Group and Company are not exposed to interest rate risk on this facility.
Liquidity risk
The carrying amount of financial liabilities included in the balance sheet and the headings in which they are included are as follows:
Current liabilities
Trade and other payables
Finance leases
Bank loan
Amounts owed to group undertakings
Non-current liabilities
Finance leases
Bank loan
Amounts owed to group undertakings
Group
Company
2018
£000
5,438
15
250
–
8
875
–
2017
£000
4,859
15
–
–
23
–
–
2018
£000
201
–
250
1,239
–
875
901
2017
£000
258
–
–
1,616
–
–
870
6,586
4,897
3,466
2,744
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect of netting
agreements:
Non-derivative financial liabilities
Finance lease liabilities
Bank loan
Trade and other payables
Carrying
amount
£000
Contractual
cash flows
£000
23
1,125
5,438
24
1,230
5,438
6,692
The contractual cash flows include interest estimated at a rate of 4%.
Non-derivative financial liabilities
Finance lease liabilities
Trade and other payables
Carrying
amount
£000
Contractual
cash flows
£000
38
4,859
40
4,859
4,899
2018
1 to
<2 years
£000
2 to
<5 years
£000
5 years
and over
£000
8
280
–
288
–
665
–
665
–
–
–
2017
1 to
<2 years
£000
2 to
<5 years
£000
5 years
and over
£000
24
–
24
–
–
–
–
–
–
1 year
or less
£000
16
285
5,438
5,739
1 year
or less
£000
16
4,859
4,875
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Notes (continued)
(forming part of the financial statements)
26 Financial risk management continued
Liquidity risk is the risk that the Group and Company will not be able to access the necessary funds to finance their operations. Their own
cash resources and bank borrowings are the predominant source of funds. Surplus cash is placed on short term deposit with UK banks.
The Group manages its liquidity risk by monitoring existing facilities and cash flows against forecast requirements based on a rolling cash
forecast.
The directors consider that the carrying amounts of financial assets and liabilities approximate their fair values.
Foreign currency risk
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional
currencies of Group entities. About 21 percent (2017: 32 percent) of the Group’s sales are to customers in Continental Europe and a further
2 percent (2017: 3 percent) are to customers in the Rest of the World. These sales are priced in sterling and euros. The Group’s policy is to
reduce currency exposures on sales through, where appropriate, forward foreign currency contracts. The Group also makes purchases in
sterling, euros and US dollars and this provides an element of natural hedge. All the other sales are denominated in sterling.
Currency risk of financial assets and liabilities
The Group also has non-structural currency exposures i.e. those exposures arising from sales and purchases by group companies in currencies
other than that company’s functional currency. These exposures give rise to net currency gains/losses recognised in the income statement,
and represent monetary assets and liabilities of the Group that were not denominated in the functional currency of the company involved.
At 31 December 2017 and 2018 the significant exposures in this respect were trade receivables and payables and were as follows:
Currency
US Dollar
Euro
2018
Receivables
£000
2018
Payables
£000
2017
Receivables
£000
2017
Payables
£000
–
465
465
(177)
(269)
(446)
–
419
419
(546)
(306)
(852)
In the opinion of the directors the business has no significant exposure to market risk arising from currency exchange or other price
fluctuations at 31 December 2018 and it has therefore not been deemed necessary to include a sensitivity analysis.
27 Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
Group
Company
2018
£000
113
359
–
472
2017
£000
122
400
67
589
2018
£000
2017
£000
–
–
–
–
–
–
–
–
Group
During the year £123,000 was recognised as an expense in the income statement in respect of operating leases (2017: £132,000).
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Financial statements
Petards Group plc Annual Report & Accounts 2018 | 71
27 Operating leases continued
The Group leases office and factory facilities under operating leases and these comprise £95,000 of the above total (2017: £95,000). Land and
buildings have been considered separately for lease classification.
28 Capital commitments
At 31 December 2018 the Group was committed to capital expenditure of £48,000 (2017: none). The Company had no such commitments
(2017: none).
29 Contingent liabilities
The Company has guaranteed the contract performance of subsidiary companies amounting to £4,605,000 (2017: £4,519,000).
30 Related party transactions
Transactions/balances with subsidiaries – Company
During the year the Company provided administrative services to subsidiary undertakings totalling £946,000 (2017: £949,000). The balances
due by subsidiaries at year end are shown in note 19 and comprised amounts owed by RTS Solutions (Holdings) Ltd of £200,000 and by
Petards Joyce-Loebl Ltd of £13,000. At 31 December 2017 the Company was not due any amounts from its subsidiary undertakings.
The balances due to subsidiaries at year end shown in note 22 comprised amounts owed to QRO Solutions Ltd of £614,000, Water Hall Group
plc £901,000 and to RTS Solutions (UK) Ltd £625,000 (2017: Petards Joyce-Loebl Ltd £923,000, QRO Solutions Ltd £693,000 and Water Hall Group
£870,000).
There is no ultimate controlling party of Petards Group plc.
Transactions with directors – Group
Fees of £171,000 (2017: £182,000) were paid to Adcel Limited, a company wholly controlled by P Negus, in respect of fees for the provision
of consultancy services (note 6).
Key Management Compensation
Key management compensation comprises salaries and fees, employer pension contributions, share based payment charges and employer
social security costs.
The key management of the Group are the directors of Petards Group plc and their compensation is as follows:
Salaries and fees
Employer pension contributions
Share based payment charges
Employer social security costs
Group
2017
£000
416
–
22
26
464
2018
£000
436
–
22
28
486
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72 | Petards Group plc Annual Report & Accounts 2018
Alternative Performance Measures Glossary
This report provides alternative performance measures (“APMs”), which are not defined or specified under the requirements of International
Financial Reporting Standards. The Board believes that these APMs provide management with useful performance measurement indicators
and readers with important additional information on the business.
Adjusted EBITDA
Adjusted EBITDA is earnings before financial income and expenses, tax, depreciation, amortisation, exceptional items, acquisition costs and
share based payment charges. Adjusted EBITDA is considered useful by the Board since by removing exceptional items, acquisition costs
and share based payment charges, the year on year operational performance comparison is more comparable.
Order intake
The value of contractual orders received from customers during any period for the delivery of performance obligations. This allows
management to monitor the performance of the business.
Order book
The value of contractual orders received from customers yet to be recognised as revenue. This allows management to monitor the
performance of the business and provides forward visibility of potential earnings.
Net funds
Net funds comprises cash and cash equivalents less interest bearing loans and borrowings. This allows management to monitor the
indebtedness of the Group.
Current net funds
Current net funds comprises cash and cash equivalents less current liabilities in respect of interest bearing loans and borrowings. This allows
management to monitor the short term indebtedness of the Group.
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AGM and information
Petards Group plc Annual Report & Accounts 2018 | 73
Directors, officers and advisors
Directors
Raschid Abdullah (Chairman)
Osman Abdullah
Terry Connolly FCA
Paul Negus
Company Secretary
James Murray FCCA
Registered Office
Parallel House
32 London Road
Guildford
Surrey
GU1 2AB
Company Registration Number
02990100
Independent Auditor
KPMG LLP
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
Bankers
Santander UK plc
1 Dorset Street
Southampton
SO15 2DP
Nominated Advisor & Joint Broker
WH Ireland Limited
4 Colston Avenue
Bristol
BS1 4ST
Joint Broker
Hybridan LLP
20 Ironmonger Lane
London
EC2V 8EP
Registrar
Share Registrars
The Courtyard
17 West Street
Farnham
GU9 7DR
Website
www.petards.com
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74 | Petards Group plc Annual Report & Accounts 2018
Notice of Annual General Meeting
Notice is hereby given that the 2019 Annual General Meeting of Petards Group plc (the “Company”) will be held at The County Club, 158 High
Street, Guildford, GU1 3HJ on 9 May 2019 at 11.00 a.m. for the following purposes:
Ordinary Business
1. To receive and consider the audited accounts of the Company for the year ended 31 December 2018 together with the directors’
report and the auditor’s report.
2. To re-elect Raschid Abdullah as a director of the Company.
3. To re-appoint KPMG LLP as auditor to hold office from the conclusion of the meeting until the conclusion of the next general meeting
at which the accounts are laid before the Company.
4. Subject to resolution 3 being approved, to authorise the directors to fix the auditor’s remuneration.
Special Business
To consider and, if thought fit, pass the following resolutions of which resolution number 5 shall be passed as an ordinary resolution and
resolution number 6 shall be passed as a special resolution:
5. That, in substitution for all existing authorities, to the extent unused, and pursuant to section 551 of the Companies Act 2006 (the “Act”)
the directors of the Company be and they are hereby generally and unconditionally authorised to exercise all the powers of the
Company to allot shares in the Company or to grant rights to subscribe for or convert any security into shares in the Company up to
an aggregate nominal amount of £189,645 (being approximately 33% of the present issued ordinary share capital of the Company)
provided that this authority shall, unless renewed, varied or revoked, expire on the conclusion of the annual general meeting of the
Company to be held in 2020, save that the directors be and they are hereby entitled, as contemplated by section 551(7) of the Act, to
make at any time prior to the expiry of such authority any offer or agreement which would or might require shares to be allotted or
rights to subscribe for or convert securities into shares to be granted after the expiry of such authority and the directors may allot
shares or grant rights to subscribe for or convert securities into shares in pursuance of such an offer or agreement as if the authority
conferred hereby had not expired.
6. That, subject to and conditional on resolution 5 above being duly passed, the directors of the Company be and they are hereby
empowered pursuant to section 570 of the Act to allot equity securities (within the meaning of section 560 of the Act) in the capital
of the Company for cash pursuant to the authority conferred by resolution 5 above as if section 561(1) of the Act did not apply to such
allotment, provided that this power shall be limited to the allotment of equity securities:
(a) in connection with an offer of such securities by way of rights, or other pre-emptive offer, to holders of ordinary shares in
proportion (as nearly as may be practicable) to their respective holdings of such shares, but subject to such exclusions or other
arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical
problems under the laws of any relevant territory, or the requirements of any regulatory body or stock exchange; and
(b) otherwise than pursuant to (a) above up to a maximum aggregate nominal amount of £86,202 (being approximately 15% of
the present issued ordinary share capital of the Company):
(c) provided that such power shall expire at the conclusion of the annual general meeting of the Company to be held in 2020, save
that the Company may make an offer or agreement prior to such expiry which would or might require equity securities to be
allotted after the expiry of such power, and the directors may allot equity securities in pursuance of that offer or agreement as
if such power had not expired.
BY ORDER OF THE BOARD
James Murray
Company Secretary
16 April 2019 Registered Office:
Parallel House
32 London Road
Guildford
GU1 2AB
Company Number: 02990100
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AGM and information
Petards Group plc Annual Report & Accounts 2018 | 75
Notes:
1 Pursuant to Part 13 of the Act and paragraph 18(c) of The Companies Act 2006 (Consequential Amendments) (Uncertificated Securities) Order 2009, only those members
registered in the register of members of the Company at 11.00am. on 7 May 2019 (or if the AGM is adjourned, 11.00am. on the date falling two days before the date (not
including non-working days) fixed for the adjourned AGM) shall be entitled to attend and vote at the AGM in respect of the number of shares registered in their name at that
time. Any changes to the register of members after such time shall be disregarded in determining the rights of any person to attend or vote at the AGM.
2 Members who wish to attend the AGM in person should ensure that they arrive at the venue for the AGM in good time before the commencement of the meeting. Members
may be asked to provide proof of identity in order to gain admission to the AGM.
3 A member who is entitled to attend, speak and vote at the AGM may appoint a proxy to attend, speak and vote instead of him. A member may appoint more than one proxy
provided each proxy is appointed to exercise rights attached to different shares (so a member must have more than one share to be able to appoint more than one proxy). A
proxy need not be a member of the Company but must attend the AGM in order to represent you. A proxy must vote in accordance with any instructions given by the member
by whom the proxy is appointed. Appointing a proxy will not prevent a member from attending in person and voting at the AGM (although voting in person at the AGM will
terminate the proxy appointment).
4 A form of proxy accompanies this document. The notes to the proxy form include instructions on how to appoint the Chairman of the AGM or another person as a proxy, and
should be followed carefully.
5 To be valid, a proxy form, and the original or duly certified copy of the power of attorney or other authority (if any) under which it is signed or authenticated, should reach the
Company’s registrar, Share Registrars, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR, by no later than 11.00 a.m. on 7 May 2019.
6 In the case of joint holders of shares, the vote of the first named in the register of members who tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of other joint holders.
7 A member that is a company or other organisation not having a physical presence cannot attend in person but can appoint someone to represent it. This can be done in one
of two ways; either by the appointment of a proxy (described in Notes 3 to 6 above) or by a corporate representative. Members considering the appointment of a corporate
representative should check their own legal position, the articles of association and the relevant provision of the Act.
8 In order for a proxy appointment 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 Share Registrars (ID 7RA36) no later than 48 hours, excluding non-working days, before the time fixed for the AGM. For this purpose, the
time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which Share Registrars is able to
retrieve the message by enquiry to CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through
other means. Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages and normal system timings and limitations will
apply in relation to the input of a CREST Proxy Instruction. It is the responsibility of the CREST member concerned to take such action as shall be necessary to ensure that a
message is transmitted by means of the CREST System by any particular time. 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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Petards
Group plc
Parallel House, 32 London Road, Guildford, GU1 2AB, United Kingdom
Tel: +44 (0) 1483 230345
www.petards.com
Annual Financial Report 2018
Petards Group plc
Registered number 02990100
Petards
Group plc